Weekly Fintech Focus
- Bank examiners adopt supervisory guidance to reflect pandemic challenges.
- Senators seek answers about stimulus payment debit card problems.
- FIs should focus on their business continuity plans during pandemic.
- The Fed limits bank payouts and suspends share buybacks for large banks as a result of the Dodd-Frank Act stress test for 2020.
Bank Examiners Adopt Supervisory Guidance to Reflect Pandemic Challenges
On June 23, 2020, the federal financial institution regulatory agencies (the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), the OCC, and the National Credit Union Administration), together with state financial regulators, jointly issued examiner guidance describing supervisory principles that will be applied to a financial institution in light of COVID-19.
This guidance identifies COVID-19 related factors that should be taken into consideration by examiners when assigning a supervisory rating to a financial institution in accordance with the applicable rating system (i.e., CAMELS or ROCA ratings, or equivalent ratings for holding companies). In reviewing financial instructions regarding CAMELS or ROCA, examiners will look at the reasonableness of the financial institution’s management’s response to COVID-19 challenges, the management’s risk assessment and mitigation actions, and the effectiveness of the management’s actions to address changes to business conditions. If a financial institution receives a lower rating, the examiners are directed to consider the supervisory response in light of COVID-19 challenges, such as the impact on the institution by pandemic-caused economic situations and the reasonableness of the institution’s response.
In keeping with this blog’s focus on the intersection of technology and finance, we also note that this guidance shows bank regulators understanding and grappling with how financial institutions’ management responded to address operational risk arising from the pandemic through the lens of technology. Examiners are told to consider how banks used technology to rapidly adopted new “operational process and technology systems to ensure continued delivery of financial services and manage significant volumes of transactions due to government stimulus programs” as well as addressed “increasing fraud and cyber threats.” We see this as a reflection of banking regulators recognizing that technology plays a central role in the delivery of financial services that was simply accelerated by the COVID-19 pandemic. We have also done a deeper dive on the impact of COVID-19 on the use of fintech by financial institutions here, as well as an extended reflection on the pandemic’s effect on digital transformation in the financial services industry here.
Senators Seek Answers About Stimulus Payment Debit Card Problems
We have previously discussed on this blog the payment of stimulus money through debit cards here, here, and here. Now, a group of 15 Democrats led by Senators Maggie Hassan (D-NH), Sherrod Brown (D-OH), and Jack Reed (D-RI) are calling for answers about how the Treasury Department rolled out the program to distribute CARES Act stimulus payments as debit cards. The Senators assert that the Treasury Department did not adequately alert Americans that payments could come via debit card, resulting in many people missing or throwing out the debit cards. These individuals now face fees and delays to get their money and debit cards reissued. Additionally, the Senators are concerned that users of the debit cards incur fees when accessing their payments on the card as well as challenges when transferring funds from the cards to another bank account. Finally, the Senators raise privacy concerns related to the requirements that users provide personal information to use the cards.
Financial Institutions Should Focus on their Business Continuity Plans During the Pandemic
In the American Banker, Christopher D. Armstrong, the head of financial services at the New York Fed, published an op-ed intended to turn financial institution’s focus onto their business continuity plans (BCPs). Mr. Armstrong opens his op-ed noting that financial institutions often give only cursory review to their BCPs, and are coming to realize that is insufficient in light of the challenges of this pandemic. Changing cyber threats and the challenges of remote working are new challenges caused by the pandemic that will not soon go away. He recommends financial institutions prioritize strengthening contingency models and updating BCPs, and then turn to focus on key-person risk. In considering its BCPs, financial institutions should evaluate pandemic-caused pinch points for work flows and carefully evaluate whether the steps in its BCP, including those related to remote work and backup teams can actually be implemented. A BCP that cannot be operationalized will be of no use should additional pressures arise during this pandemic.
The Fed Limits Bank Payouts and Suspends Share Buybacks for Large Banks
The Federal Reserve Board (Fed) released results of its stress tests for 2020 and found that American “banks can remain strong in the face of even the harshest shocks.” However, in light of the results, the Fed took several actions to ensure resiliency of large banks by suspending share repurchases, capping dividend payments, and only allowing dividends in accordance with a formula based on recent income. The Fed is additionally requiring that banks reevaluate their longer-term capital plans.