MONDAY JULY 27, 2020 VOL. 185 No. 143 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Lenders fear mass defaults 5 unless unemployment benefits are extended Problem credits climb The CEOs of the credit card lenders Discover Nonperforming loans at Huntington have risen 43% since and Synchrony are urging Congress to come year-end. The energy sector is a major culprit. through with another round of government stimulus so that struggling households can See story on page 4 continue paying their bills. Page 5

$750M Romney says he will oppose 6 Shelton’s Fed confirmation $700M Republican Sen. of Utah said he will vote against Judy Shelton, one of

$650M two Trump administration nominees to the ’s Board of Governors. Page 6

$600M Trump rolls back fair housing 7 rule with executive order $550M The Trump administration’s executive order to terminate and replace federal $500M enforcement of anti-discrimination policies at the local level, citing the burden it put $450M on municipalities, enraged advocates of 2Q19 3Q19 4Q191Q202Q20 equitable housing practices. Page 6

Source: The company U.S. Bank rolls out 8 virtual assistant Voice and text banking will be embedded in the Minneapolis bank’s mobile app through dailybriefing Huntington aims to contain a chatbot assistant that also caters to users 3 energy exposure, ride with disabilities. Page 7 consumer lending ABA offers political lifeline on The Ohio company, which has beefed up its HSBC, ABN Amro join 1 masks, and banks are relieved loan-loss reserves, raised the possibility of 9 large funding round for Financial institutions want to protect more sales of oil and gas credits and talked AML software startup customers and employees from the up strong retail segments such as its marine Quantexa, which uses artificial intelligence coronavirus but are caught in the middle of a and RV loans. (See chart above.) Page 4 to detect money laundering and other politically charged public health debate. The financial crime, is already being used by stance taken by the industry’s largest trade Fifth Third pushes ahead HSBC and Standard Chartered Bank. Page 8 group gives them cover. Page 2 4 with expansion in face of cost pressures NCUA is a bipartisan agency. Waters rejects GOP CEO Greg Carmichael says the 10 It’s time it acted like one. 2 request to cancel hearing Cincinnati company has cut expenses The credit union regulator can accomplish on pandemic relief bill but will proceed with branch openings so much more when board members work The House Financial Services Committee in the Southeast and investments in its in a good-faith, fair-minded manner, J. Mark chair vowed to stay focused on the HEROES commercial loan and mortgage origination McWatters writes. Page 8 Act after the panel’s top Republican said platforms to lay the groundwork for post- lawmakers should instead debate bills with pandemic growth. Page 5 bipartisan support. Page 3 MONDAY JULY 27, 2020 AMERICANBANKER.COM PAGE 2

adding that the ABA recommendation “has require masks for employees and for CORONAVIRUS really solidified it.” customers to follow local guidelines. Bank regulators have no formal mask- Nichols cited research by Goldman Sachs wearing policies, but acting Comptroller of that suggests a nationwide mask policy ABA offers the Currency Brian Brooks made waves when would help localities avoid economically he said in June that masks in branches could damaging shutdowns, by limiting the spread political lead to more bank robberies, even during a of COVID-19 cases. He also cited a Wall Street pandemic. Journal article about mounting scientific While public health experts consider face evidence that face masks slow the spread lifeline on masks an effective measure against spreading of COVID-19, the disease caused by the COVID-19, opposition to mask-wearing has coronavirus. masks, and intensified in some parts of the country. “We owe it to frontline bank staff to But after Target, Walmart, Kroger and most prioritize their safety and to contribute to other major retailers adopted face mask rules the wider effort to limit the spread of this banks are this week following a spike in COVID-19 infection,” Nichols said in a press release cases and deaths, the ABA urged financial Monday announcing the policy. In addition relieved institutions to follow suit. to Nichols’ letter, the ABA has also published “I encourage you today to adopt and a guide intended to help banks implement By Kate Berry publicly pronounce a policy requiring all face mask policies. July 23, 2020 who enter your branches to wear a mask,” Bankers are embracing the American ABA President and CEO Rob Nichols said in a Balancing public health against Bankers Association’s public backing of letter July 19 to bank CEOs. security mandatory mask-wearing in branches as the The Federal Deposit Insurance Corp., Early on in the pandemic mask-wearing kind of political cover they need to enforce Federal Reserve and Office of the Comptroller wasn’t much of an issue because most strict public health practices at branches. of the Currency have left it up to individual branches were closed. But many have With coronavirus cases rising throughout banks to decide whether to require face reopened as states lifted lockdown orders. the country, banks’ efforts to protect customer masks be worn in bank branches. Branch managers are now in the and employees’ health have clashed with Many of the largest banks already instituted uncomfortable position of trying to balance opposition to mask-wearing. Differing mask policies. Earlier this month, Bank of the health of employees and customers guidelines across jurisdictions have forced America became the first big bank to require against longstanding concerns that face banks to shift their approach back-and-forth. face masks be worn at all branches. Wells masks are a security risk. Face coverings have “It got to the point a few weeks ago where it Fargo was a week ahead of the ABA, requiring traditionally been banned inside branches to was crazy, we were continually changing our on July 13 that all employees and customers deter robberies. policy for employees,” said Luanne Cundiff, wear face masks in bank branches, said Peter Stewart said concerns about the spread president and CEO of the $384 billion-asset Gilchrist, a Wells spokesman. About a fifth of the virus quickly took precedence over First State Bank of St. Charles, Mo., where of Wells’ branch network is still temporarily security concerns. two of the bank’s three primary markets closed, he said. “We’ve always said, ‘No masks in our are under mask–wearing orders. “Banks in Both JPMorgan Chase and Citigroup lobby,’ but bank holdups are down and different markets where [there are] different requirements were causing confusion,” she added. Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 Cundiff expressed hope that the ABA’s Phone 212-803-8200 AmericanBanker.com recommendation will help establish consistent standards. Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 “It was good for banks in our position Managing Editor Dean Anason 770.621.9935 — banks in different markets where it was Reporters/Producers causing confusion — that our association Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 took the lead,” she said. “I think any kind of Washington Bureau Chief Joe Adler 571.403.3832 push to educate the general public and the Executive Editor, Technology Miriam Cross 571.403.3834 workforce is a benefit to us all.” Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 Laurie Stewart, president and CEO of BankThink Editor Rachel Witkowski 571.403.3857 the $738 million-asset Sound Financial John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 Bancorp in Seattle, said employees have Hannah Lang 571.403.3855 been wearing masks voluntarily since the Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 Centers for Disease Control and Prevention Digital Managing Editor recommended it in late April. “It was certainly Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 mixed guidance in the beginning,” she said,

For up to date and complete coverage go to AmericanBanker.com MONDAY JULY 27, 2020 AMERICANBANKER.COM PAGE 3 have not been an issue,” she said. “This is a requirements that individuals wear face under the Small Business Administration’s pandemic, so we are doing everything we can masks in many or even all public spaces Paycheck Protection Program. She donated to control this.” create the very real risk of increases in bank the masks to a nonprofit in her hometown Some banks placed greeters at branch robberies.” of Sequim, Wash., which is an underserved entrances to ask customers gently to wear medical community. a mask, but many institutions feared for Bank robberies less of a concern, “The town has a huge number of seniors employees’ safety when customers refused to according to data and the original need was in the nursing comply. But heightened security at branches homes,” Stewart said. “We don’t want our front-line personnel have made robberies increasingly rare. Cundiff also was on the front lines trying to be the mask police,” Cundiff said. “If our Bank robberies have plummetted in the to navigate the Paycheck Protection Program employees encounter an obstinate customer, past decade to 3,033 robberies reported in when her 17-year-old daughter overheard her we instruct them to distance from the person.” 2018, down from 6,849 in 2008, according talking about how the bank’s staff needed face Ed Mills, a policy analyst at Raymond to the latest data from the Federal Bureau of masks. Her daughter sewed more than 200 James, said banks now can give customers a Investigation. masks. First State Bank also started a program reason they must wear a mask. Whether the ABA’s endorsement leads offering to make a donation to any nonprofit “Face coverings have become political and to widespread adoption of mandatory for any customer who made 50 masks. banks for the most part would prefer not to be mask policies in banks is an open question. Bankers said a formal mask policy will go a in the middle of a political or cultural debate,” Many of its members are also members long way toward controlling the spread of the Mills said. “It provides cover to banks, of the Independent Community Bankers virus. because there is someone to blame. Banks of America. That trade group, so far, has Cundiff decided early last week to institute can say, ‘I hear you, but this is the policy of not adopted a mask policy. The ICBA has a mask requirement for all customers, vendors the American Bankers Association.’ ” encouraged banks to require that employees and employees. Ten minutes after she made The ABA says that, during the pandemic, wear masks based on federal, state or local the announcement, she said, “Walmart evidence points to masks being in the interest guidelines, but not weighed in policies for decided to require face masks as well.” of anyone inside a bank branch. customers. “I think any kind of push to educate the “The data clearly show that wearing a mask Joel Williquette, the ICBA’s senior vice general public and the workforce is a benefit or face covering when indoors reduces the president of operational risk policy, said trade to us all,” she said. threat of infection for everyone, which is why associations should not be in the position of we are urging banks of all sizes to adopt this having to dictate national policy. policy,” said Paul Benda, the ABA’s senior “The wearing of masks is a health issue POLICYMAKING vice president for risk management. Benda, not a political issue.” Williquette said. who previously worked at the Department “Community banks want to protect the health of Defense where he oversaw a Pentagon of their customers and employees and they Waters rejects program on chemical and biological are making the tough calls.” weapons, has helped lead the ABA’s response In May, the ICBA published a guide GOP request to the coronavirus threat. outlining steps community banks can take Nichols’ letter to bank CEOs said the trade to ensure a safe environment. The guide group’s “policy clarity” offers four benefits. states that banks can request that customers to cancel “It would continue to protect the health of remove their masks long enough to allow for your bank’s employees and customers [and] identification. hearing on set expectations publicly and thereby help “If the customer refuses to identify frontline employees as they engage with themselves, you have the right to refuse customers and visitors to the branch,” he service and request that the customer leave pandemic wrote. The policy also would “assist in your the bank,” the ICBA’s guide states. bank’s risk management [and] help reduce Meanwhile, the Consumer Bankers relief bill the transmission rate of the virus.” Association has also left the decision on Still, the OCC’s Brooks has not changed masks to its members. By Neil Haggerty his position that wearing face masks in bank July 23, 2020 branches is a security risk. Since at least 1934, Addressing mask shortages WASHINGTON — House Financial when it became a federal crime to rob a bank, When the CDC issued instructions in April Services Committee Chairwoman Maxine the norm is for banks to ban wearing face on how to make a face mask, many bankers Waters rejected a GOP request to cancel a masks. responded by asking their communities hearing on legislation providing additional “Face masks could lead to more bank to sew masks for bank employees and to coronavirus relief. robberies,” Brooks wrote in a June letter distribute to essential workers. Rep. Patrick McHenry of North Carolina, to state and local officials warning of the Stewart sewed more than 100 face masks the committee’s top Republican, had economic threat from unending lockdown while working seven days a week trying to get questioned the need for the hearing — orders. “Lengthy and potentially permanent small-business customers approved for loans scheduled for Thursday — on the Health and

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Economic Recovery Omnibus Emergency particularly the noncore, over time,” Steinour Solutions Act. The bill already passed the CREDIT QUALITY added. House in May, but it has no Republican Last week, Hancock Whitney said it would support and consideration in the full Senate report a big quarterly loss after agreeing to sell is unlikely. Huntington $500 million of energy loans at a discount. Waters told McHenry in a letter Tuesday To keep pace with the uptick in that, with the pandemic “only getting worse” aims to nonperforming assets, Huntington added in the U.S., the committee needs to focus $327 million to its provision for credit losses, on measures such as expanding mortgage bringing total reserves to $1.8 billion, or 2.27% forbearance plans, as well as suspending contain of total loans. Excluding $6 billion in Paycheck debt collection and negative credit reporting. Protection Program loans, the provision jumped “I cannot think of a better way to spend energy to 2.4% of loans. our Committee’s time than these legislative While Huntington’s second-quarter solutions to help American families during provision declined 25% from the first quarter, it and beyond this pandemic,” Waters said in exposure, ride represented a significant increase over the $59 the letter. million it recorded a year earlier. At the same Yet the HEROES Act has yet to gain consumer time, revenue of $1.9 billion was level with bipartisan support, and GOP members the prior year, so net income dropped to $131 have derided the bill as a “liberal wish list.” million, off 62% compared with the same period Instead, Senate Republicans are debating a lending in 2019. more middle-of-the-road stimulus package Net charge-offs totaled $117 million, or 0.54% to provide relief following the passage in By John Reosti of total loans. March of the Coronavirus Aid, Relief, and July 23, 2020 Huntington’s $38 billion consumer lending Economic Security Act. Huntington Bancshares reported substantial portfolio has proved to be a strength through the Republicans are reportedly considering second-quarter increases in nonperforming first half of 2020. Consumer deferrals amounted legislation that would make it easier for assets, net charge-offs and its loan-loss provision, to $1.8 billion at June 30, declining nearly $500 businesses to apply for Paycheck Protection but the company expressed confidence it has million from March 31. Commercial deferrals Program loan forgiveness and enable student gotten its arms around problems in oil and gas, totaled $5 billion. loan borrowers to defer payments. the asset class that has given it the most trouble. Originations and total loans in Huntington’s McHenry wrote a letter to Waters last Huntington, in Columbus, Ohio, stopped core indirect auto portfolio were $1.2 billion week asking her to cancel the hearing, originating energy loans about a year ago and and $12.7 billion at June 30, declining 2% and noting that the HEROES Act did not even either sold or contracted to sell $170 million 3%, respectively. Steinour attributed the drop in have Democrats’ unanimous support and of credits during the quarter, leaving about $1 activity to inventory shortages at dealers. that two Democrats on the committee, Reps. billion on the books at June 30. “Demand is exceeding supply,” Steinour said Cindy Axne of Iowa and Ben McAdams of “We really believe we’ve got things boxed in in an interview after Thursday’s conference call. Utah, voted against the legislation. and fully reserved,” Chairman and CEO Steve “You see it in used-car prices. In some cases, “Highlighting bills that have no chance Steinour said Thursday on a conference call you have to order through your dealer for a car of becoming law only exacerbates the with analysts. to be manufactured to your specifications for anguish experienced by the nearly 18 million Huntington’s oil and gas loans have created delivery.” Americans who are officially unemployed outsize problems for the $118 billion-asset Huntington’s $3.8 billion marine and and the 33 million who are currently receiving company. Of $713 million in nonperforming recreational vehicle portfolio grew 6% from the unemployment benefits,” McHenry said. assets, fully 40%, or $288 million, reside in the first quarter, with trends pointing to additional Waters rejected claims that the committee energy portfolio. strong performances over the next few years. has been acting in a “purely partisan” Huntington, which said further loan sales “The recreational vehicle builders are saying manner in continuing to push the HEROES are possible, has split the energy portfolio into they have a three-, four- or five-year window of Act. core and noncore segments, with noncore loans demand because of concerns over air travel,” “Respectfully, that is plainly false,” Waters making up nearly 60% of the whole, Chief Credit Steinour said. “That was a booming business said. “In fact, I am proud that from the Officer Rich Pohle said on the conference call. until 12 months ago. Now it’s booming again.” outset of this pandemic when we were first “The focus is really on getting that noncore “On the boat business, frankly, you can’t buy navigating the difficulties of continuing our piece of the portfolio down through whatever a new boat now in many parts of the country,” important work without meeting in person, methods we have,” Pohle said. “You saw in the Steinour said. “That’s logical because people this Committee held nine bipartisan phone second quarter that we sold about $170 million. can’t destination travel. You can’t fly to Europe. briefings. We then worked together to To the extent we’ve got opportunities where Right now, you can’t even fly to Florida and convene fully bipartisan virtual roundtables; we think the sale price is better than what a back. You’ve got to quarantine for 14 days in at a time, I might add, when many other recovery might be, we would certainly” consider Ohio.” Committees were unable to cooperate on a additional sales. “Those businesses look really good,” Steinour bipartisan basis.” “We’ll look to maximize the portfolio, said.

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Overall net income at Fifth Third declined have experienced job losses have been able REGIONAL BANKS 62% year over year to $163 million, in large to keep current on monthly bills because they part because the company continued to add have received forbearance on home loans to its loan-loss reserves. Fifth Third’s provision and an extra $600 a week from the federal Fifth Third for loan losses totaled $485 million, compared government, on top of their state benefits. The with $600 million in the first quarter and $85 unemployment aid is set to expire at the end of pushes million in the second quarter of 2019. the month. Net interest income fell 4% to $1.2 billion. “So far our customers are making their Total loans increased 8% to $118 billion, payments,” Discover Financial Services ahead with driven by commercial line drawdowns, Chairman and CEO Roger Hochschild said Paycheck Protection Program loans and Thursday. “We do worry that if [government aid expansion in increased demand for indirect secured is] pulled back too quickly it’ll both impact not consumer loans. just those who were getting support” but also Noninterest income ticked down slightly slow overall consumer spending. face of cost to $650 million. Card fees and deposit service “The withdrawal of that stimulus is going to charges fell on a yearly basis, while commercial impact everyone,” he added. pressures and mortgage banking revenue rose. Margaret Keane, the CEO at Synchrony Fifth Third shrank noninterest expenses Financial, expressed similar concerns in By Laura Alix by 10% to $1.1 billion in the second quarter, an interview with CNN this week. With the July 23, 2020 driven by declining marketing, card processing unemployment rate at 11.1% and COVID-19 Anticipating that pandemic-related credit and other expenses. cases rising sharply in certain parts of the problems could continue into next year, Net charge-offs increased $8 million from country, she is worried that consumer defaults Fifth Third Bancorp in Cincinnati socked the prior quarter to $130 million, but still came will surge unless new relief measures are put in away another large loan-loss provision in the in lower than originally anticipated, executives place. second quarter. said. “As forbearance and stimulus wears off, Yet the head of the $185 billion-asset we’re definitely in a rockier place,” Keane said. company says it must also balance risk Congress is debating whether to extend the management in the near term with the need CONSUMER LENDING $600 weekly bonus that was included in the to keep investing in its franchise for the long Coronavirus Aid, Relief and Economic Security term. In an interview with American Banker Act passed in March. The benefit is set to expire following its second-quarter earnings call Lenders fear July 31 under language in the law, but because on Thursday, Chairman and CEO Greg many states make the payments weekly, the Carmichael said Fifth Third would not pull mass defaults bonus would only apply to the last full week of back on either digital investments or a long- the month. That means the bonus will dry up planned branch expansion. for most after this weekend. “There’s a lot more that we don’t know unless un- The additional funds have been a lifeline than we do know,” he said. “The question is for many consumers, who largely have been just managing through that uncertainty and employment keeping up with credit card payments, bankers not wanting to do anything that would have say. The percentage of Discover cardholders a detrimental impact on the success of [the] who’ve missed one monthly payment declined franchise going forward.” benefits are to 2.17% at the end of June from 2.62% in Fifth Third will proceed with investments in March. Similarly, the 30-day delinquency rate its commercial loan and mortgage origination extended for Synchrony’s total loans fell more than a full platforms, and in upgraded accounts percentage point quarter over quarter to 3.13%. receivable and payable capacities for its By Jon Prior Discover granted a “skip-a-payment” plan to commercial clients, according to Carmichael. July 23, 2020 about $3.4 billion in credit card balances since He also said that Fifth Third will continue A consistent theme in banks’ second-quarter the pandemic hit the U.S. and 70% are no longer its Southeast expansion effort as originally results has been that consumer loans have held enrolled in the program. About 80% have made planned — about 100 branches in Florida, up well during the coronavirus pandemic even a payment. Georgia, North Carolina and Tennessee by as tens of millions of Americans have filed for “The consumer is stronger coming into 2022. unemployment benefits. this recession than into the Great Recession,” Even so, Fifth Third has closed about 50 But banks CEOs are warning that Discover Chief Financial Officer John Greene branches in its core markets in the past 18 delinquencies and defaults on credit card, said on a call with analysts Thursday. months in an effort to cut costs. However, auto and other consumer loans could spike Still, lenders are padding their reserves in Carmichael said he wants to review aggregated in the second half of the year if Congress does the event that government aid dries up and data on the impact of the closings to date not come through with another round of consumers begin to sour. before pursuing any more. government stimulus. Many households that Discover, of Riverwoods, Ill., set aside $2

For up to date and complete coverage go to AmericanBanker.com MONDAY JULY 27, 2020 AMERICANBANKER.COM PAGE 6 billion in provisions for credit losses during of two Trump administration nominees to the second quarter, up from $1.8 billion three the Federal Reserve’s Board of Governors. FAIR HOUSING ACT months prior, according to its earnings report ”I’m not going to be endorsing,” Romney Thursday. The move resulted in a $368 million told reporters Thursday. “I will be voting loss for the quarter, compared with a $753 against it.” Trump rolls million profit during the same period last year. Shelton, an informal adviser to President Synchrony, the lender behind many store- Trump’s campaign in 2016, is nominated back fair branded credit cards, reported on Tuesday a along with , a director $1.7 billion provision during the quarter, about of research at the St. Louis Fed. They both the same amount it set aside three months won the support of a majority on the Senate housing rule before but an increase of nearly 40% from one Banking Committee on July 21. year ago. The Stamford, Conn., company’s net The two now require majority approval by with executive earnings declined 94% year over year to $48 the full Senate. If, as expected, Democrats million. vote in unison to reject Shelton’s candidacy, Discover executives said they feel good her confirmation could be blocked by order about the reserve build so far, indicating the Romney and three additional Republicans second quarter may be the high-water mark for voting against. No floor vote has yet been By Paul Centopani provisions. In addition to increasing the capital scheduled for either nominee. July 23, 2020 cushion, Discover tightened underwriting Sen. , the Alaska The Department of Housing and Urban “pretty significantly” on personal loans the Republican who has sometimes bucked her Development on Thursday said it would company offers, Hochschild said. party in the past, indicated that she is likely terminate and replace the Affirmatively Hochschild said he is keeping especially to support Shelton’s confirmation. Furthering Fair Housing rule, calling it close watch on unemployment figures. “Right now I’m leaning toward it,” “complicated, costly, and ineffective” while Just as the unemployment bonus is about to Murkowski said. “I have a few more things anti-discrimination advocates condemned the expire, the number of unemployment claims I want to read, probably tonight. But right move. made for the week ending July 18 jumped now, yes.” “After reviewing thousands of comments by 109,000 from the previous week to more Shelton is regarded suspiciously by on the proposed changes to the Affirmatively than 1.4 million, the Labor Department said many in central banking circles for policy Furthering Fair Housing regulation, we found it Thursday. The increase broke a streak of weekly views that are well outside the mainstream to be unworkable and ultimately a waste of time declines going back to the end of March when — including a history of admiration for the for localities to comply with, too often resulting businesses closed to prevent spread of the — and for being a political in funds being steered away from communities virus. In total, almost 53 million unemployment loyalist who might bend to Trump’s that need them most,” said HUD Secretary Ben claims have been filed over the past 18 weeks. will. Shelton appeared to abandon her Carson in a press release. “Instead, the Trump “I’ve seen a lot of things, but nothing like longstanding advocacy for ultratight administration has established programs this in terms of the speed and magnitude of the monetary policy when she emerged as a like Opportunity Zones that are driving impact the pandemic has had on the economy,” Fed candidate, publicly aligning herself billions of dollars of capital into underserved Hochschild said on a call with analysts with the president’s calls for lower interest communities where affordable housing exists, Thursday. “I don’t think any of us in business rates. but opportunity does not.” have seen this.” Waller is widely expected to receive The president previously tweeted his majority support with some Democrats intention to roll back the statute on July 2, supporting his confirmation. noting it is “having a devastating impact on TRUMP ADMINISTRATION Shelton critics fear most, however, … once thriving suburban areas,” to the vast that she might be picked for the Fed’s top dismay of equality groups. job when Powell’s term expires in 2022 if “It’s a dark day for the country when the Romney says Trump is re-elected. Such a promotion president boasts about maintaining housing would require another confirmation by the segregation, and the agency charged with he will oppose Senate. carrying out the Fair Housing Act becomes a tool to help him do it,” Sen. Sherrod Brown, D-Ohio, said in a statement. “Secretary Carson Shelton’s Fed must withdraw this perverse rule and reinstate the 2015 Affirmatively Furthering Fair Housing confirmation rule so America can get to the long-overdue work of fulfilling the promise of the Fair By Bloomberg News Housing Act.” July 23, 2020 In March, Brown led an opposition to the Republican Sen. Mitt Romney of Utah rollback, penning a letter to HUD with 36 said he will vote against Judy Shelton, one other senators. The AFFH was a difficult rule

For up to date and complete coverage go to AmericanBanker.com MONDAY JULY 27, 2020 AMERICANBANKER.COM PAGE 7 to interpret and enforce when written in 1968 pandemic’s disproportionate impact on people pointed out. “So it was really important for us until the Obama administration added steps of color reminding us of the costs of the failure to build a mobile app experience that leverages for clarifying the legislation’s accountability in to address barriers to housing opportunity, that built-in smartphone capability.” 2015. NAR remains committed to ensuring no The average person can type 40 words per Under the new Preserving Community American is unfairly denied this fundamental minute, but speak 130 words per minute, and Neighborhood Choice rule, HUD said right in the future.” according to Bhatt. it “remains able to terminate funding if it Fair, affordable housing stands as a major “The efficiency of voice is something we discovers, after investigation made pursuant issue in the upcoming presidential election and were very excited about,” he said. to complaint or by its own volition, that a HUD’s action further splits the party lines. The bank asked customers what they might jurisdiction has not adhered to its commitment use a virtual assistant for, and employees read to AFFH.” through call center transcripts to identify However, advocates questioned whether it MOBILE BANKING customers’ most common issues. What it found would the new rule would have teeth, saying is that customers generally want to know their that the revised regulation replaces the tracking account balances, check on recent transactions, of fair housing through data and metrics with U.S. Bank rolls get help with payments and disable lost or local governments only having to verbally stolen cards. confirm that they’re following the rule. out virtual Customers can use the Smart Assistant to “It’s hard to even call it a policy. It doesn’t send payments through Zelle, to transfer money enforce anything,” said Jesse Van Tol, CEO of the between accounts using account nicknames National Community Reinvestment Coalition. assistant rather than numbers, ask about upcoming bills, Views diverge on some of the Trump obtain transaction and spending information, administration’s broad efforts to roll back By Penny Crosman and lock and unlock cards. fair housing legislation, with some, like July 23, 2020 The virtual assistant has been taught to Van Tol, arguing it weakens efforts to curb U.S. Bank says it will soon launch a virtual understand the context of the question the discrimination at a time of intense national assistant called Smart Assistant. customer is asking. So a customer asking for the focus on racial equity. Others agree with HUD’s The assistant, which will be built into balance on a credit card could also say, “OK, view that it would reduce frivolous claims the Minneapolis bank’s mobile app, will let how much did I spend at Target?” The assistant and help focus fair-lending enforcement on customers bank by speaking or texting requests. would know the customer is still inquiring catching the truly bad actors. It will be rolled out to customers next week. about the credit card. “The president’s implication that this five- The timing is unusual for two reasons. Smart Assistant can also help users find year old rule somehow ruined suburbs is both One, many banks that rolled out virtual things within U.S. Bank’s mobile app. counterfactual and a transparent shoutout assistants or chatbots a few years ago have “In the past year, we’ve built more than 300 to white supremacists who don’t like that quietly dropped them due to lack of customer features in our mobile app,” Bhatt said. “Every America’s suburbs, along with the entire interest. An exception is Bank of America’s month we release new features. So this is a great country, have become more diverse,” Van Tol Erica, which now has 14 million users. way for customers to discover things that they said. Two, one might expect extracurricular might not do every day.” “Ending housing segregation and projects like chatbots to be put aside in favor U.S. Bank designed the customer experience discrimination isn’t just about housing. It’s of more technologies built to meet immediate, and the business logic of the virtual assistant in- about ending racism and white supremacy in pandemic-related demands such as Paycheck house, Bhatt said. It has also built application everyday life that blocks people of color from Protection Program loan software. programming interfaces to connect the virtual opportunities for a good life that are available According to Ankit Bhatt, the bank’s chief assistant with other systems in the future such to whites, including access to great schools, digital officer for consumer lines, adoption as Amazon Alexa. homes, jobs, health care, clean air and water, of the mobile app has been strong, especially It used natural language processing nutritious food and the ability to save and during the pandemic. It has become the technology from Clinc to understand invest in housing anywhere, and through that primary channel of interaction, he said. customers’ speech. investment accumulate and pass on wealth to The bank had already been investing Accuracy is critical to any virtual assistant — the next generation,” Van Tol continued. “The heavily in its mobile app, he said, and this is a if it gives wrong answers, customers will quickly Trump administration just said no to all of that. continuation of that investment. lose patience. It’s shameful.” “COVID just accelerated that right to the next Bhatt said the bank has been measuring how Among many others, the National level,” Bhatt said. “It wasn’t like we needed to well the assistant understands questions and Association of Realtors voiced disappointment prove out why we need to do this.” helps customers as it has tested the technology with the Trump administration’s broad efforts The bank decided early on that the assistant with employees since October. to repeal fair housing rules. needed to be voice first, Bhatt said. The A unique aspect of the new virtual assistant “A strong, affirmative fair housing rule is microphone button is dominant, and the is its attention to people with disabilities. vital to advancing our nation’s progress toward keyboard is secondary. A team of internal accessibility consultants thriving and inclusive communities,” said Vince “There are 90 million smartphone users co-created the virtual assistant. Some members Malta, the Realtor group’s president. “With the that have a device with voice capability,” Bhatt of the team have disabilities themselves. People

For up to date and complete coverage go to AmericanBanker.com MONDAY JULY 27, 2020 AMERICANBANKER.COM PAGE 8 with cognitive, learning, visual and physical Equity Partners, Dawn Capital, AlbionVC and to resolve differences among the board offices. disabilities were included in at-home usability Accenture. Although opinions will vary, the range of studies. Christina Granquist, who is blind, HSBC had recently said that it uses disagreement will narrow if board and staff helped incorporate voice interaction features Quantexa’s software to detect financial crimes interactions are conducted in a transparent that people who are visually impaired have like money laundering, human trafficking and respectful manner. used for years, such as larger text and options to and terrorist financing. Showing respect for policy differences speak or text an answer. The bank says that the software has articulated by a colleague or staff member “At the end of the day, designing for enabled it to identify transactional patterns does not reflect weakness or the betrayal of disabilities actually results in a better product, and potential criminal activity in broader one’s personal convictions. To the contrary, not just for people with disabilities, but also for networks that might not be possible with graciously acknowledging a differing everyone,” Bhatt said. legacy systems. perspective enhances the willingness of all Bhatt hopes the Smart Assistant will help There has been a surge of investment in sides to negotiate and — yes — to compromise U.S. Bank drive deeper engagement with this space, both from banks buying this kind while ensuring the core integrity of each customers and higher task-completion rates of software to upgrade their anti-money- position. As I have stated many times during because speaking an answer is more efficient laundering efforts and in venture capital my tenure at the NCUA, the best ideas must than typing it. firms investing in such companies. prevail regardless of who develops them. The Smart Assistant will incorporate the Quantexa’s software helps to identify the Chairs should not expect board members artificial-inteligence-derived insights thetrue nature of entities that might be hiding to subordinate their independent analysis of bank gets from Personetics. This technology behind shell companies. It uses network the issues to the views of the chair. If Congress uses artificial intelligence to predict when analytics to find suspicious associations had intended for board members to fall in customers are likely to have a negative balance, between entities to a transaction. line behind the chair like toy soldiers, a single for instance, or when they might want a car The company plans to use its fresh funding director would lead the NCUA, such as at the loan. to expand further into North America, the Office of the Comptroller of the Currency, U.S. Bank has been developing virtual Asia-Pacific region and Europe. It also Federal Housing Finance Agency or Consumer assistant technology for years. In 2013 it intends to develop additional applications Financial Protection Bureau. launched a voice assistant called Nina for some across financial services and other sectors. Autonomous — yet creative, respectful card customers; that technology was developed This latest round of funding follows a $22.7 and inclusive — board offices best serve the by Nuance. million Series B round secured in August agency and the credit union community by In 2018, it was the first to roll out voice 2018, bringing total funds raised to date to working together in a good-faith, fair-minded banking on all three major home assistants: $90 million. manner to address the challenges presented Amazon’s Alexa, Apple’s Siri and Google’s to the National Credit Union Share Insurance Assistant. Fund and the credit union system. BANKTHINK Some may consider my comments as challenging to implement in day-to-day AML practice among politically appointed board NCUA is a members. Although that is often the case, Rick Metsger and I ran a collegial, collaborative HSBC, ABN bipartisan and bipartisan board for just shy of three years while Rick served as chair for nine months and Amro join I served as chair for the balance. We were able agency. It’s to accomplish this by approaching each other in a forthright and transparent manner. large funding time it acted During those years, policy differences were promptly addressed through the shuttle round for diplomacy of our respective chiefs of staff, like one. Sarah Vega and Mike Radway. Although the negotiations were occasionally tense, they AML software By J. Mark McWatters were never unprofessional or mean spirited, July 23, 2020 as we appreciated that reasonable minds startup Although becoming a board member may differ. We worked together as a team or chair at the National Credit Union and modified our positions as the best ideas By Penny Crosman Administration does not require a degree in developed. July 23, 2020 mathematics, it is often helpful to know how Both board offices also respected the Quantexa, a provider of financial crime to count to two and, even better, to three. NCUA staff and welcomed their valuable detection software, announced Thursday it The critical point, of course, is not in merely input and analysis. Nothing is gained from has raised $64.7 million in Series C funding counting to two or three, but in developing treating another board office or staff member from HSBC, ABN Amro Ventures, Evolution and implementing processes and procedures otherwise, except to sow the seeds of dissent

For up to date and complete coverage go to AmericanBanker.com MONDAY JULY 27, 2020 AMERICANBANKER.COM PAGE 9 and distrust. We eschewed self-absorbed ratio regulations that I’m optimistic we would of chief compliance officer of its U.S. references to “I” and “me” and focused on have finalized by now. Like the rules already operations. “we” and “us,” as do all effective teams with a available to community banks, credit unions Christine Lowthian, who joined HSBC in shared mission, such as the U.S. military. merit similar regulatory relief that doesn’t 1994, started her new job at HSBC Bank USA A successful board is anchored in respect impair capital or create a safety and soundness this week, according to an internal memo and trust. To that end, Rick and I met together risk. from Colin Bell, the group chief compliance after each board meeting (with the general I’d be remiss if I did not also note the officer, and Michael Roberts, the president counsel present to assure adherence to accomplishments of former Chairs Mike and CEO of HSBC North America Holdings. sunshine laws) to discuss our communication Fryzel and Debbie Matz, who worked together Lowthian joined HSBC as a global processes and dissemination of information. in a collegial manner during some of the most compliance officer for HSBC Futures and Above all, we met one-on-one to ensure that challenging days of the 2008 financial crisis. held several roles, including global head consultation between our offices came early Their bipartisan work laid the foundation for of regulatory compliance for commercial and often, and that there were no secrets or the success of the credit union community banking and head of regulatory compliance, hidden agendas. Those actions built trust and over the past decade. overseeing regulatory compliance provided the foundation for successful board Collegiality, collaboration and teams supporting all of the bank’s U.S. actions. bipartisanship really do matter. Not only do businesses. She was appointed interim Perhaps the principal advantage of working they create a highly functional board and chief compliance officer at HSBC Bank USA together as professional colleagues is that it higher staff morale, they lay the foundation for in April. affords the board the opportunity to develop the development and implementation of the “Christine’s wealth of experience in and implement a series of big ideas, instead big ideas that help credit unions grow, thrive liaising with various regulatory agencies of a group of limited-scope, low-hanging-fruit and prosper in a safe and sound, prudently across the globe will be an invaluable initiatives. Our big ideas initiatives included: regulated manner, all in accordance with the asset for us in the U.S. market as we seek • Field-of-membership reform and letter and spirit of the Federal Credit Union to execute the growth strategy within a multiyear litigation with the American Act. If a board adopts this governance model, sustainable and effective risk management Bankers Association that recently ended in little need will develop to count votes, as all framework and enhanced regulatory a United States Supreme Court victory for members and staff will work together in good environment,” Bell and Roberts said in a the agency. faith to achieve each shared goal. news release. • Examination flexibility and modernization, This article has been updated to reflect a Lowthian is based in New York and foundational work on virtual examination correction regarding the amount of money leads a team of 600. She reports to Bell and and reimagining of the agency’s IT returned to credit unions following the merger Roberts. infrastructure systems. of the Temporary Corporate Credit Union HSBC Bank USA is the U.S. arm of HSBC • Top-to-bottom reorganization of the Stabilization Fund and the NCUSIF. Holdings in London, the global banking agency, including the closing of two field giant that is renewing a major cost-cutting offices and the reduction of leased space J. Mark McWatters is board member and initiative after putting it on hold during the by 80%. former chairman of the National Credit Union early months of the coronavirus pandemic. • Merging the Temporary Corporate Administration. When it was announced in February, the Credit Union Stabilization Fund into the plan included the elimination of 35,000 NCUSIF, thereby permitting the payment jobs worldwide, including a 15% reduction of nearly $900 million back to credit COMPLIANCE in headcount in the U.S. and closing unions, avoiding over $700 million in approximately 80 branches. new assessments, enhancing the safety As of December, the bank had 10,000 and soundness of the NCUSIF by over $1 HSBC employees in the U.S. It has about $202 billion, and setting the stage for recoveries billion of assets and 150 branches here. q from the failed Corporates. promotes • Developing, proposing or finalizing © 2020 Arizent and American Banker. rules and guidance on a variety of All rights reserved. crucial topics, including the overhead Lowthian to transfer rate, capital planning and stress testing, voluntary mergers, call report head of U.S. modernization, consumer protection, subordinated debt, the appeals process, bylaws, payday alternative loans and more. compliance If we had gone forward together as a board, I believe the next big idea we tackled would By Allissa Kline have been sensible, safe and sound capital July 23, 2020 reform, including risk-based net worth, HSBC Holdings has promoted a longtime subordinated debt and credit union leverage compliance executive to the position

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