FRIDAY3pt AUGUST stroke, 100% 27, 2021 size f VOL.or top 186of newspaper No. 165 = 8.9931 inches AMERICANBANKER.COM Follow us on @AmerBanker Fintechs can help narrow 5 racial gaps: Fed president Accelerating Mary Daly called for new partnerships Through July 31, far more U.S. auto loans had been refinanced among fintechs, banks and community groups aimed at improving long-standing than2.5pt at stroke the sa= 6.75me inches point in the two previous years inequities in the financial system. Page 9 See story on page 2 Berkshire Hills selling 6 insurance business for $41.5 million The sale to the Florida-based insurer Brown 20192pt stroke = 5.75 inches & Brown would give Berkshire Hills Bancorp 1.6M an infusion of capital that it intends to invest in more profitable businesses, executives 2020 said. Page 9 1.7M 1.5pt stroke = 4.6667 inches Cyberattacks draw tech, 7 bank CEOs to White House 2021 for brainstorm Chief executives from across the business 2.1M world are set to join President Biden for a 1pt stroke = 3 inches discussion Wednesday on how industry and 0 200K 400K 600K 800K 1M 1.2M 1.4M 1.6M 1.8M 2M the federal government can partner to improve cybersecurity in the face of debilitating Source: Experian ransomware and cyberattacks. Page 10 Mortgage lender offers 8 vaccinated borrowers a dailybriefing It’s getting harder to keep discount 3 the Fed out of politics In addition to the incentive, Neat Capital in Institutional independence is a big part of Colorado mandated that its employees get What’s driving the boom what makes the work. But inoculated against COVID-19. Page 11 1 in auto refinancing quantitative easing, new forays into climate Subprime borrowers whose credit scores and digital currency and a blurring of the Forbearance numbers decrease, have risen since they bought their cars are line between monetary and fiscal policy 9 with protections set to expire increasingly looking for a better deal. Credit might make that independence harder to The overall pace of both entries and exits unions and small banks are seizing the maintain. Page 4 slowed, even as the private-label securities opportunity, often with the help of fintechs. and portfolio loan segment saw a spike in its (See chart above.) Page 2 Inside ’s plans for a numbers. Page 11 4 banking super app Tech vendors endorse David Marcus, Facebook’s financial Fraud prevention is hit 2 Fed’s caution on central services chief, discusses how its Novi 10 or miss. The misses cost bank digital currency digital wallet and the Diem stablecoin customers dearly. The U.S.’s measured approach will allow project it’s involved in can be the backbone Banks talk a good game about thwarting it to learn from other countries that are of a platform that offers real-time digital fraud and protecting consumers and pioneering their own cryptocurrencies, transactions, acts as a merchant acquirer businesses, but the experiences of this author, according to executives from IBM, R3 and and helps commercial banks handle central a former bank regulator, illustrate how the Public Mint. Page 3 bank digital currencies. Page 7 quality of such efforts varies dramatically from one bank to the next. Page 12 FRIDAY AUGUST 27, 2021 AMERICANBANKER.COM PAGE 2

loans nor refinances them. Instead, it recruits they fell into at the dealership.” AUTO LENDING lenders to join its network by offering them But McWethy is skeptical that new entrants ways to reach borrowers who may be looking into the refinancing market will remain to refinance. committed over the long run. What’s While iLendingDirect does not report Texans Credit Union reaches out to about specific loan volumes, a company spokesman 20,000 auto loan holders per month about a driving the provided an internal chart showing a 177% potential refinance, which can come at a heavy compounded annual growth rate so far in cost to a lender that is new in the market, he 2021, which could almost double next year, said. boom in auto according to the firm’s forecasts. “You see a real desire to get into this market, In the last 15 months, iLendingDirect has but an unawareness,” McWerthy said. “So refinancing been connecting with more small banks, but they’re having to leverage companies like in particular with credit unions, Holgate said. iLending and many others to do it.” By Jon Prior Credit unions, which have long seen auto Despite the market’s recent growth, an even August 25, 2021 loans as a good way to grow their membership, bigger pool of borrowers could soon become A boom in subprime auto lending has given accounted for about 18% of the total U.S. auto interested in refinancing their auto loans, way to a new frenzy for refinancing the same loan market in the second quarter of 2021, according to analysts. borrowers, as small banks and credit unions according to Experian. With auto purchases Roughly 1.6 million homeowners are hunt for sources of loan growth. currently slowed by the international chip still in forbearance plans on their home Rather than relying heavily on dealerships shortage, refinancing could offer credit unions loans, according to the Mortgage Bankers for business, smaller lenders are increasingly a way to supplement the car purchase loan Association. Once this relief is lifted, many of turning to intermediary fintech companies business. those borrowers could look for ways to lower like iLendingDirect to supply new customers Mike McWethy, chief experience officer their monthly payments on other debts. who are not visiting showrooms because auto at Texans Credit Union, which has been “If you went the past year without making inventories remain quite low. offering auto refinancing in the commuter- a mortgage payment, you weren’t too worried Lenders are sometimes halving borrowers’ heavy Dallas-Fort Worth area for years, said about what your car payment was,” said Austin interest rates — or offering even bigger cuts — that three or four nearby credit unions have Kilgore, director of digital lending at Javelin from starting points that can be higher than jumped into the market in the last six months Strategy & Research. “Refinancing an auto 20%, according to industry executives. Many of alone. loan might be a way to manage a household these car owners are hesitant to trade in their “This is the exciting new toy,” McWethy said. balance sheet.” vehicles, particularly in light of skyrocketing Many consumers with overpriced auto It’s unclear if the auto refinancing growth, auto prices, and may now have higher credit loans would be surprised by how much their particularly for subprime borrowers, will scores after using recent government stimulus rates can be reduced, he said. He cited one balloon enough to introduce worrying payments to pay down other debts. particular borrower with an interest rate above amounts of risk in the financial system or Executives at companies that are riding the 20% who got refinanced down to 4%. attract the kinds of unsavory lenders that recent boom are hoping that auto refinancings, “The person who fell in love with a red could raise flags with regulators. which lenders have traditionally viewed warily Toyota Corolla was likely taken advantage of,” Jim Minge, CEO of Texas Trust Credit because car values depreciate, can become a McWethy said. “We can back them out of what Union, said his company has seen “significant” more mainstream product. “We’d like to grow it beyond a niche part of the financial ecosystem,” said iLendingDirect Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 CEO Tom Holgate, who was named to the spot Phone 212-803-8200 AmericanBanker.com in July after the company received a major 3pt stroke, 100% size for top of newspaper = 8.9931 inches infusion from the private equity firm J.C. Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440

Flowers earlier this year. 2.5pt stroke = 6.75 inches Through July 31 of this year, about 2.1 Managing Editor Dean Anason 770.621.9935 Reporters/Producers million auto loans were refinanced, which was 2pt stroke = 5.75 inches up 23% from the same period last year and a Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 31% increase from the first seven months of Miriam Cross 571.403.3834 1.5ptWashington stroke = 4.6667 inches Bureau Chief Joe Adler 571.403.3832 2019, according to data from Experian. Jim Dobbs 605.310.7780 iLendingDirect estimates that one in four 1ptExecutive stroke = 3 inches Editor, Technology subprime auto loans is overpriced. There could Penny Crosman 212.803.8673 John Heltman 571.403.3847, Allissa Kline 716.243.2679 be as much as $300 billion in outstanding Hannah Lang 571.403.3855 auto debt that, if refinanced, could save each Community Banking Editor Paul Davis 336.852.9496 John Reosti 571.403.3864, Gary Siegel 212.803.1560 borrower as much as $144 per month, Holgate Contributing Editor Daniel Wolfe 212.803.8397 said. Kevin Wack 626.486.2341 Holgate’s firm neither issues new auto

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 27, 2021 AMERICANBANKER.COM PAGE 3 growth in auto refinancing offers over the Executives from IBM, R3 and Public Mint descriptions about what a payment is for in as last 18 months and is starting to reach out to shared their thoughts on CBDCs and on many data fields as needed. nonmembers. So far, he is not worried about Facebook’s attempt to launch its own digital “It would be very hard for banks to move regulators restraining growth in an effort to currency. away from ISO 20022” and “almost impossible” manage risk in a hot market. The Federal Reserve is preparing to launch to suddenly drop that and convert to digital, “A car loan is a car loan,” Minge said. “Unless an initial report next month that would set the Shah said. you drastically change your risk appetite or table for discussing the creation of a CBDC in Early adopters always take risks with any explode your portfolio, the regulators respect the U.S. But that report is likely to establish new technology, and the U.S. doesn’t need that you have to attract market share, in our a timetable that would give the U.S. time to to take on extra risk until it sees how those experience.” study development in other markets. challenges are handled in other regions of The prospect that a better deal might be A CBDC uses an electronic record or digital the world, said Paulo Rodrigues, CEO of available is taking hold among more drivers token to represent a virtual form of the fiat Public Mint. The Dover, Delaware, company every day, Holgate said. But he acknowledged currency in a particular country. Because it is launched a blockchain-based payment that it will be a challenge to continue the centralized, the CBDC would be issued and network in July 2020. momentum once the car market gets back to regulated through a monetary authority in the “Taking a conservative approach, though normal. country. not too conservative, is good, much in the “Some of it is a mental block,” he said about Legacy systems are one reason the United same way Swift has approached technology pitching auto refinancing to borrowers who States lags in adoption of CBDCs — “we are over the years,” Rodrigues said. never thought it was possible. “There are so still using checks in the U.S.,” said Nitin Gaur, many people in America who think a car director of financial sciences and digital assets Learning from Libra payment you get at the dealership is just what at IBM. The panel also reflected on Facebook’s you do.” Gaur was part of a panel of digital commerce aborted attempt to create its own digital experts discussing the state of CBDCs and currency, Libra, which was to be based on a stablecoins in the U.S. and globally during basket of fiat currencies. CRYPTOCURRENCIES last week’s annual virtual Mobile Payments After being forced to drop Libra, Facebook Conference. The online-only conference was helped create the Diem Association, which organized and hosted by the consultant Marla has proposed the Diem stablecoin based on Tech vendors Ellerman. the U.S. dollar and moved operations of that Once the U.S. does decide to create a central payment method and system to headquarters endorse bank digital currency, it could move along well in the U.S., with Silvergate Bank in La Jolla, because of the dollar’s power globally, Guar , as the issuer of the stablecoin. said. “Facebook had its own challenges with Fed’s caution “The U.S. dollar has the privilege of being trust” regarding data handling, security “and the world’s currency,” Gaur said, noting about its early inability to explain the economic on central 75% of all global transactions take place with model of Libra,” Gaur said. “It could not U.S. dollars or backing. explain how it would drive value globally, That the U.S. is moving carefully on a central and that was one of the shortcomings of their bank digital bank digital currency is unsurprising, given its approach.” history of dragging its feet on chip card and As such, it made more sense to ditch the currency mobile payment adoption, panelists said. Libra model and come back with Diem and “For CBDC, a cautious approach is a good the more stable approach of a U.S. bank By David Heun thing for the U.S., whether it lags behind China issuing the stablecoin and supporting it with August 25, 2021 or not,” said Muneeb Shah, product strategy fiat currency, Gaur added. The Federal Reserve’s deliberate approach and commercialization head for payments Any large tech company considering to creating a central bank digital currency at New York-based R3, a bank-supported creating its own digital currency is likely to is appropriate, tech vendors at a recent consortium that facilitates blockchain-like meet with the kind of regulatory resistance conference said. networks. “The U.S. can wait to see how Facebook did. The central bank’s caution gives the U.S. time adoption takes place in China.” “It becomes very difficult to justify that there to see what other early adopters and risk takers Swift, the global financial messaging won’t be any conflicts of interest with the big encounter in regulatory red tape and business standards body, advises central banks tech companies or with their shareholders” and consumer adoption, they said. The Bank contemplating countrywide digital currencies when they become a currency provider, of England, People’s Bank of China, Bank of as well as individual banks thinking about Rodrigues said. Canada and central banks in , Thailand, issuing stablecoins to stick with the ISO 20022 “Big fintechs can, and will, embrace more Venezuela, Sweden, Singapore and other standard for cross-border business payments efficient ways of tackling money movement, countries are further along in developing central in the meantime. Swift positions ISO 20022 as and that is a need the market is expecting,” bank digital currencies, and Russia has been a key standard in legacy operations because he added. “They need to learn how to transfer developing its crypto ruble the past two years. it allows senders to add information and money, just like they did with” email systems.

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Would a CBDC lead to stronger will start to accept cryptocurrency payments, “further enhance the clarity and timeliness payment rails? which could open the door for more use of the Federal Reserve’s monetary policy The development of CBDCs and stablecoins cases, Shah said. “The appetite is there and communication,” and initially they were held could improve payment network stability and the element of these companies moving into quarterly, after every other FOMC meeting. strength, according to tech executives at the [stablecoins] is there,” he said. Powell bumped that up to eight times per year, conference. Technology experts generally There’s space for more stablecoins, and “we after every FOMC meeting, when he took the agree that digital networks and distributed might eventually see more issued,” including helm of the central bank in 2018. ledgers are better designed for tokenizing in the retail sector, Shah said. Starbucks But the reason these meetings are important and storing data in the cloud, while also customers, for instance, would make is that the Fed is in a structurally unique eliminating some current account coding purchases with digital currency, he said. position: It is a part of the executive branch, methods and payment card numbers that but it is also independent of that executive fraudsters focus on. branch. It is overseen by Congress, but it is not Those benefits are not lost on the U.S. Office MONETARY POLICY funded by congressional appropriations. Its of the Comptroller of Currency. power is centralized in Washington but also Earlier this year, the OCC, making it clear dispersed throughout the country through 12 it neither encourages nor discourages the use It’s getting semi-independent regional Federal Reserve of these new technologies, informed national banks, whose presidents are appointed by banks that they could use stablecoin and harder to their respective boards of directors and rotate blockchain to process payments. on and off the FOMC each year. The agency’s interpretation said the The decisions that this unique institution nation’s banks could use independent node keep the Fed makes can have profound impacts on verification networks — databases designed to the global economy — and, by extension, share information across multiple computers out of politics everyone. That power and independence have — in this process. only been able to survive in a political system if Stablecoins were included because they are By John Heltman the public has confidence in the Fed, and polls tied to the value of fiat currency, which would August 25, 2021 suggest that for the most part, it does. cut down on dramatic value swings. Every six weeks, Federal Reserve Chairman But it’s never been quite as simple as that The OCC letter specified that use of the steps to a podium and reads — presidents and members of Congress have node verification networks and stablecoins a statement from the Federal Open Market tried to exert their influence over monetary “may enhance the efficiency, effectiveness Committee. The statement explains where policy in overt and covert ways many times and stability” of payments and may be the panel has set its rate — the over the years, and the Fed has for the most “more resilient than other payment networks rate at which it pays interest on reserves held part been able to resist that kind of influence. because of the decentralized nature of INVNs.” at the Fed, and effectively a systemwide floor The Fed’s independence isn’t just a In practical use cases, stablecoins and for interest rates across the globe. Powell then “for cause” protection from presidential digital currencies are used for cross-border explains how the FOMC is viewing current dismissal for its leaders or the freedom from B2B payments, but could also be used for economic conditions and when or under congressional appropriations, though those consumer retail remittances. More movement which circumstances its stance on monetary things confer independence in a literal sense. into the retail space would advance security policy might change. And then he takes The Fed’s independence is its perception of and cut costs associated with current payment questions from reporters. competence and political neutrality — it is networks, the experts say. Most people don’t think of this as a tradition, and that tradition is in constant Concurrent development of stablecoins particularly remarkable, and the Fed press motion. and CBDCs would ultimately help developers conferences themselves rarely are. But very With Powell’s term coming to an end in create a network in which the two would be few federal agencies provide these kinds of February 2022, that veneer of independence interoperable and complement each other’s regular press briefings — the White House has that the Fed enjoys could be put into someone advancement. daily briefings, of course, and the Pentagon else’s hands. And more important, the Fed’s “In the next two years, stablecoins could has regular if not daily briefings. The State decadelong course of buying nongovernment be the de facto currency for cross border Department holds press events every week. assets as a part of its monetary policy — a payments,” Shah said. “We are working toward But none of those departments are regulators process known as quantitative easing — that evolution now.” — they respond to world events in real time. could, if left unchecked, pose a greater threat In addition, stablecoin could become a The Fed also responds to world events in to that independence than the exertions of any standard currency in closed-loop systems, real time — certain kinds of events, anyway. politician or party. Shah said. “It could be no different than And it’s important to remember that these “Is there going to be a move to mandate a company like [the energy company] BP conferences are relatively new — former Fed the Fed set a certain amount of interest rates? issuing a fleet card for employee payments Chairman held the first one on No, not that I can see,” said Karen Petrou, within the BP ecosystem; stablecoin could be April 27, 2011, a few years after the financial managing partner at Federal Financial that payment mechanism.” crisis. The reasoning behind these briefings, Analytics. “Is there going to be a move to bring Companies like Amazon and Tesla say they according to the Fed at the time, was to the Fed under the appropriations process or

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 27, 2021 AMERICANBANKER.COM PAGE 5 alter the way even reserve bank presidents are even those nominated by prior administrations the White House and on Capitol Hill?” appointed? Probably not. But that’s preserving led by opposing parties. Martin, the longest- Picking a Fed chair for an administration is only the form of institutional independence. serving Federal Reserve chairman, was not the same as picking a secretary of defense “I think better questions are, ‘Is the Fed — nominated for the position by Harry Truman, or a Supreme Court justice. Senators tend to on its own account, or under pressure — taking and was renominated by Dwight Eisenhower, be very picky about who sits on the Fed — two on or going to take on tasks that inevitably John F. Kennedy and Lyndon Johnson. Alan of Trump’s nominees, Marvin Goodfriend and politicize it?’ Those, I think, are much more Greenspan was first nominated by Ronald Judy Shelton, were denied seats on the board viable initiatives than direct politicization.” Reagan in 1987 and renominated by George of governors because of controversial views H.W. Bush, Bill Clinton and George W. Bush. on monetary policy. But four other nominees ‘An independent operation’ famously declined passed with bipartisan votes. Saikrishna During a press conference in April, to renominate — who was Prakash, a professor at the University of President Biden was asked whether he had nominated by Barack Obama — for a second Virginia School of Law, says senators tend to spoken with Powell since his inauguration. He term as Fed chair, instead choosing Powell, look for independent subject matter experts hadn’t, and when asked why, he said he had at the time the only Republican on the board to fill Fed seats and dismiss unqualified or no intention of telling the Fed chair — or other of governors. (Trump would go on to regret controversial picks. independent federal agencies — how to make the decision, by his own account, as Powell “Most of the people appointed to the Fed their professional judgments. continued the Fed’s program of raising interest don’t view themselves as just apparatchiks of “The Federal Reserve is an independent rates.) a party,” Prakash said. “So as a senator, how operation,” Biden said. “And starting off my Now, with Biden in office and Powell’s do you foster that? By being very skeptical presidency, I want to be real clear that I’m not term coming to a close next February, the about whether this person is going to be going to do the kinds of things that have been administration is mulling whether Powell independent.” done in the last administration, either talking himself should be renominated or swapped But the president also has to satisfy his party to the attorney general about who he’s going out for a like-minded Democrat. But replacing base’s demands for impactful appointments. to prosecute or not prosecute, and under what Powell may not be so straightforward. Sen. Elizabeth Warren, D-Mass., said in July circumstances, or the Fed, telling them what “For the Fed’s own institutional purposes — that she was skeptical of Powell’s renomination, they should and shouldn’t do.” which is to maximize the space within which arguing that his votes in favor of many of the That independence is not as longstanding it makes policy — Powell’s reappointment Trump administration’s regulatory changes for and clear-cut as Biden makes it sound. The is vital,” said Peter Conti-Brown, assistant bank holding companies make the financial Federal Reserve was established in 1913 as professor at the University of Pennsylvania’s system less resilient, harm consumers and subordinate to the Treasury, and behaved Wharton School of Business. “He has what reward investors. that way until after World War II. After a virtually no other candidate has — and no “The chairman of the Federal Reserve has scuffle between the Fed and the Truman other candidate will have, in the event they two obligations. One, to lead us in monetary administration over monetary policy, the become a Biden central banker — which policy, and the second, in regulating the Treasury and Fed issued an agreement in 1951 is incredible bipartisan credibility, the largest financial institutions,” Warren said. that formally divorced debt service obligations likes of which we have not seen since Alan “I have asked the chairman repeatedly from from monetary policy choices, creating a Fed Greenspan.” the time he was nominated about his views that was far more insulated from political That credibility is important because on regulation. I am concerned when I see the influence than it had been before. the Fed’s independence is as much rules weakened rather than strengthened.” Independence is as independence does, perception as reality — and the same is true But there are other nominations to go and different Fed chairs and administrations of other “independent” institutions within around, or soon will be. The Fed board has have respected those limits to greater or lesser government. The Supreme Court was designed one vacancy, and Trump appointee Richard degrees. William McChesney Martin, who the way it was in the Constitution so that it Clarida’s term expires in January, potentially served as Fed chair from 1951 to 1970, butted would be politically independent, though creating another. Randal Quarles’s term as vice heads with Lyndon Johnson over rising interest its members are clearly chosen for political chairman expires in October, and he is widely rates in 1965. Arthur Burns, an appointee reasons. The Justice Department is considered expected to resign sometime early in 2022. of Richard Nixon, apparently went to independent, but the attorney general serves at That could give Biden the opportunity to have considerable lengths to ensure the president’s the pleasure of the president. There is far more his cake and eat it too — renominating Powell reelection by lowering rates heading into 1972. nuance in asserting independence beyond the and giving progressives the representation , first appointed to chair the Fed letter of the law, and that is especially crucial they’re looking for. And Powell is unlikely by Jimmy Carter in 1979, was instructed by for a central bank. to stand in the way of more aggressive bank Ronald Reagan’s chief of staff, James Baker, “Independence, especially in the regulation should it come before him. not to raise interest rates ahead of Reagan’s central banking context, describes a web of “I think that the Democrats would be crazy reelection in 1984 (Volcker claims that he had relationships that the Fed maintains, in order not to reappoint Jay Powell,” Conti-Brown already decided not to raise rates before the to practice central banking policy,” said Conti- said. “Although he did vote consistently on all encounter). Brown. “So is the Fed independent? A better of the Trump administration’s regulatory and Despite these encounters, presidents have question is, What is the Fed’s long-term and deregulatory prerogatives, he did the same traditionally renominated sitting Fed chairs, short-term relationship with political actors in under the Obama administration as well.

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“What that means is that Powell, although allow the Fed to pay interest on reserves, but harder time arguing that it can’t. he is quite an expert at bank regulation, he the crisis created a new kind of problem — “Janet Yellen, at one point in 2016, at the simply doesn’t care that much about it. He it needed to pump a lot of liquidity into the Jackson Hole conference, proposed that the takes the view — which I think is the correct financial system fast, and lowering interest Fed buy corporate bonds, and everybody view — that the administration should rates alone would not do the trick. said, ‘Oh, no, we can’t. We need a change of determine the agenda for .” So the Fed began buying assets in exchange law,’” Petrou said. “In 2020 it bought billions of for cash, and that cash went to banks through corporate bonds. And it did that because it felt Mission creep their Fed accounts, and those accounts bear that was necessary to rescue the bond market. This is as good a time as any to point out interest — in fact, that interest rate is what Leaving aside whether that was right, wrong or that the Fed does lots of other things besides the Fed decides on during its Federal Open sideways, once you’ve broken that taboo, the set monetary policy and regulate bank holding Market Committee meetings every six weeks. Fed could theoretically now, without change companies. It also regulates the payments The process of buying assets to inject liquidity of law, say, ‘Climate risk is a systemic risk; system, setting rules for private payment is called quantitative easing, or QE. therefore, we will buy green bonds, because settlement services while also operating its George Selgin, the director of the Cato that’s how we stabilize the economy.’ That’s own such service. It also has something of an Institute’s Center for Monetary and Fiscal totally doable.” academic function, employing more than 400 Alternatives, said that the result of this The law doesn’t allow the Fed to go out and Ph.D. economists, not including the many arrangement is that short-term monetary buy whatever it wants whenever it wants — economists and other scholars that serve in policy can theoretically be managed in the past two crises, the Fed’s purchasing the 12 regional Federal Reserve Banks. independently of the Fed’s balance sheet activities have been directed by Congress. And the result of having this centralized-yet- — expanding the balance sheet doesn’t But other central banks have already started decentralized, sprawling network of top-flight necessarily make inflation spin out of control. expanding what they buy and why. In 2019 talent is that the Fed ends up being tasked “I do think we are experiencing a greater the European Central Bank began buying with complicated financial responsibilities — tendency than perhaps any time in the recent ‘green bonds’ — assets that fund energy and regulating the payment system, for example, past for either the administration or Congress environmental sustainability projects — as while operating its own payment system to put pressure on the Fed to depart from part of their asset purchases. Jeremy Corbyn, at the same time — because it is viewed as its usual mandate and pursue or help the former head of the British Labour Party, competent and on-the-level. government pursue other kinds of ends,” espoused what he called a “People’s QE,” “It certainly creates a strong institutional Selgin said. “With this new setup, the Fed’s where the would buy assets view of itself as a powerful, but independent, capacity to buy this, that and the other thing is that would help working people accumulate straight-shooting institution that is the best much greater. And that has turned it into much wealth. place to take on certain roles,” Petrou said. more of a target for pressure from different Congress has also raided the Fed coffers “The Fed is seen, not just by itself, but also groups, different politicians who would like to before. In the 2015 highway bill, Congress by others as the right place for so critical an see it use that power to buy different kinds of capped the Fed’s excess capital account at $10 infrastructure function.” assets or support different kinds of programs.” billion and directed the surplus funds in that That same motivation to charge the Fed The Fed is only allowed to directly hold account back to Treasury — effectively finding with important government tasks made government-issued obligations, typically some $19 billion to pay for more highways. it a valuable partner during both the 2008 Treasuries. But in the 2008 crisis, the Fed “We’ve already seen it actually done in the financial crisis and the coronavirus pandemic bought hundreds of billions of dollars’ worth United States, when Congress took advantage relief efforts. But that willingness to be the of mortgage-backed securities from Fannie of the Fed’s capital reserves, and essentially buyer of last resort for all manner of financial Mae and , which had recently confiscated them to fund a highway securities could also make it a political target. fallen into government conservatorship, transportation bill,” Selgin said, “So we know Before 2008, the Fed executed its monetary because those assets needed a buyer. When that Congress is capable of looking at the Fed policy operations by buying or selling the COVID-19 pandemic struck, the Fed as a giant piggy bank for various projects. So government securities — either infusing established several facilities to purchase a you can imagine people in Congress or in an more cash into the system to make it cheaper wider range of assets in distressed markets, administration, kind of wringing their hands or selling securities to make lending more including corporate bonds, exchange- and say, ‘Boy, would I like them to, you know, expensive. traded funds and municipal bonds, with the fund this program or fund that program.’ ” But in 2008, at the dawn of the Great assistance of the Treasury and with billions of To be clear, there is no reason to think that Recession, the Fed began a program of paying dollars allocated by Congress to offset losses. the Fed would embrace such asset purchases interest on bank reserves — money that banks But the Fed’s role in buying all kinds of or that it wants to move in this direction. have always had to keep in their Fed accounts different things during a crisis may have Quantitative easing came about because the as part of their membership in the Fed system. exposed itself to political demands — from Fed, the Treasury and Congress had to think Banks have traditionally kept as little in those Congress, say, or the White House or the fast in a crisis to keep the economy afloat, accounts as they could, because those funds public — that it buy green bonds or border and this is what they came up with. And accrued no interest. Because banks saw this wall bonds or some other security that furthers notwithstanding the more recent jump in non-interest-bearing cash reserve as a tax, a political agenda. Even if the Fed has no prices, inflation has been at or below the Fed’s Congress passed a law in 2006 that would interest in pursuing those goals, it now has a target since QE came along.

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Steven Kelly, a research associate at the Yale of the Troubled Asset Relief Program, which there. There are certainly conditions in which Program on Financial Stability, said there’s a directly injected hundreds of billions of dollars the Fed will sit back and kind of shrug its big difference between what the Fed is willing into banks. shoulders and tell people to kick rocks.” to do in a financial crisis and what it might be “I think it goes back to TARP. The original As the economy emerges from COVID — willing to do under normal circumstances. TARP was a very wide open, very huge check,” and that emergence has been somewhat less The Fed picked winners and losers in 2008 Campbell said. “I think the Federal Reserve linear than experts had hoped — deciding and 2020 — bailing out banks and other firms has since 2008 taken on a much greater just how much monetary accommodation to in the former case, buying a wide range of responsibility of solving some of the greater offer and to whom is going to be increasingly securities, corporate bonds, ETFs and other existential threats that are coming about, and difficult for the Fed. If a dramatic decline in the assets to forestall a sell-off in the latter. But the I think there’s some arguments to suggest value of cryptocurrencies wipes out billions in alternative to those actions was doing nothing, there’s been a blending of fiscal monetary value, does the Fed step in the way it did for and that choice would have had political policy. And where does one end and where corporate bonds? If household formation is consequences for the Fed as well. does the other begin?” stalled for a want of affordable entry-level “Certainly the Fed has at least the perceived The risk is that the blending of fiscal housing, can the Fed convincingly argue that role in picking winners and losers,” Kelly said. and monetary policy becomes normal and it can do nothing to boost the housing supply “I would say that’s a less political job than inconsequential, Selgin said, because once it when it already bought billions in mortgage- letting everybody lose, and that to me would is viewed as unremarkable it isn’t that much backed securities? If hurricanes and wildfires be a bigger threat to its independence.” of a leap to direct the Fed to buy assets in a become more commonplace, does the Fed nonemergency setting. have an obligation to treat climate change as Blurred lines “The crisis creates a situation where an a systemic risk? It’s also important to acknowledge that the innovation may be justified,” Selgin said. “It’s becoming harder, not easier, to become Fed hasn’t done any of these operations on its “But if you’re not careful, that innovation a Fed chairman,” Campbell said. “If inflation is own — emergency asset purchases in the last will end up being abused in noncrisis times. here to stay, if some sectors heat up, if there’s two crises happened in coordination with the If you allow it to, you’ve set things up so that a bubble somewhere, if there’s a debt crisis — Treasury Department and Congress. Going in noncrisis times, it’s possible to resort to whatever we’re coming into, whatever the next along with Congress and Treasury made the a measure that was originally meant to be a crisis is, it is very unpopular, and will be very Fed a team player, but it doesn’t mean that if crisis or emergency measure.” unpopular to start tapering. the right advocates asked the Fed in the right It’s also worth remembering what the Fed’s “Now more than ever, it’s really important way they might get their assets purchased — independence is for — as William McChesney that there be an independence of the Fed. there would have to be some kind of directive Martin said, to take away the punch bowl just We’re on the precipice of having to make some from Congress. as the party is getting good. Put another way, very difficult decisions, I believe, that are going “I think there’s a strong argument to be the Fed is supposed to be willing and able to to be perhaps the right thing for the economy.” made at the Fed didn’t need the Treasury for let recessionary conditions take hold if it’s for [what] it did,” Kelly said. “That being said, if the good of the greater economy. the Fed was to do some seriously risky lending In 2008 the Fed, Treasury and Congress DIGITAL CURRENCIES where expected losses would be involved, it went to extraordinary measures to save would need the Treasury to do that. And that’s teetering firms not because they didn’t where this kind of formulaic mission comes in deserve to fail, but because their failure Inside for the Fed, in that it’s very focused on its very would inflict catastrophic collateral damage specific mandate.” on the rest of the economy. And in 2020, the Facebook’s These emergency actions by the Fed, economy ground to a sudden halt because of Treasury and Congress were made in the name a pandemic and millions of Americans were of financial stability, but those actions have out of work through no fault of their own, and plans for a made it a little less clear what the distinctions on principle the government was not willing are between fiscal policy — spending money to let them starve. But those are extraordinary banking super on something because Congress and/or the circumstances that reach far beyond simple administration feel that something is a priority market stability or market correction. — and monetary policy, where the Fed buys “They were really staring into the abyss in app assets or adjusts rates to ensure maximum March 2020, and so the Fed basically threw employment and stable prices. the kitchen sink at this problem,” Kelly said. By John Adams Chris Campbell, former assistant secretary “And when it turned out corporate bonds August 26, 2021 of the Treasury for financial institutions from didn’t really need much help, they didn’t buy Facebook’s financial services chief says 2017 to 2018 and now chief strategist at the that much. And they hold the facility, and now the social network is unbowed by the rush of consulting firm Kroll, said the blurring of those they’re selling the stuff. And if an oil and gas companies into the digital banking market, lines between fiscal and monetary policy company gets in trouble tomorrow, the Fed’s even as its cryptocurrency wallet and other is a direct outgrowth of the extraordinary not going to be there for it. If crypto blows up ventures have yet to get off the ground. measures undertaken in 2008 with the passage tomorrow, the Fed’s probably not going to be The public’s embrace of digital banking

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 27, 2021 AMERICANBANKER.COM PAGE 8 during the pandemic has drawn in new and Messenger, or as a stand-alone to users represents an unparalleled new distribution competition, which in turn will attract more with a government ID. The Novi wallet will not channel with global scale and reach.” consumers to the market and benefit all charge transaction fees, with Facebook earning For Diem, the Novi wallet is the foundation players, David Marcus said in an interview this revenue from enabling merchants to accept for a super app, starting first with the storage of week. stablecoin payments. unused, prepaid balances, Crone said. The San “Very few people were talking about The merchant support and inexpensive Diego-based Silvergate Bank, which supports stablecoins and central bank digital currencies transactions are part of the lure for banks to minting, burning and storing Diem, “takes in the time when we started pushing for what support Novi, Marcus said. center stage as the gateway bank for Diem” was then Libra in 2019,” Marcus said. Facebook Even if consumers open a Novi account, Crone said. is building the Novi digital wallet and belongs most will want to retain a bank account, Marcus Silvergate did not return a request for to the coalition of firms that plans to launch the said, adding that can aid the banks’ ability comment. The $5.6 billion-asset Silvergate is Diem stablecoin, which was formerly called to reach new merchants. It can also provide key to Diem’s final approval in the U.S. Diem Libra. more consumers for bank-supported financial earlier this year moved its headquarters to “The reality is our mission really hasn’t services. There’s already a version of this California from Switzerland, and chose La changed,” Marcus said. “We feel that the current model that predates Novi and Diem. WePay, Jolla, California-based Silvergate to issue the payment structure in the U.S. is antiquated and a subsidiary of JPMorgan Chase that provides stablecoin. Silvergate has experience with there’s room for improvement.” payment technology to merchants through blockchain and crypto and is regulated in the Marcus said Novi and Diem can power an an application programming interface, uses U.S., which puts Diem in a position of issuing open, interoperable protocol using blockchain Facebook to enroll clients. dollar-backed stablecoins through a regulated technology and smart contracts to make “The banks can cement and reinforce bank. payments faster and cheaper than traditional their role through this Novi-Diem payments In an earlier interview with American Banker, transaction processing. Facebook’s base of protocol,” Marcus said. Diem Association CEO Stuart Levey said the digital payment users then could be sold Banks are increasingly partnering with technology that underpins the stablecoin can additional financial services developed in technology companies with large customer speed up to the payments system, cutting fees partnership with other financial institutions. bases to speed financial services diversification, and time for remittances and government Those services could include payments using a trend called embedded payments. Apple payments for stimulus, unemployment central bank digital currencies. Card, which partners with Goldman Sachs compensation and food stamps. Diem still awaits approval in the United to offer financial services to ’s user “The fact that Diem will be issued by States, with the White House Working Group base, is one of the better known examples of a regulated bank, Silvergate, should allay on Financial Markets and the Treasury the trend. PayPal has also discussed building a regulators’ concerns,” said Eric Grover, a Department reportedly examining the project super app, and the crypto exchange Coinbase’s principal at Intrepid Ventures. — along with other stablecoins such as Tether public listing has provided funding for its foray Marcus also contends Diem and Novi to — to ensure security and stability. Diem in into payments and other services. help commercial banks support central bank the past has asserted its stablecoin is matched There are also other stablecoins already digital currencies. directly by traditional U.S. dollars. In an email in the market ahead of Diem, such as Circle’s The U.S. and countries around the world are this week, Diem said it’s continuing to work USDC, which recently surpassed $27 billion in pursuing or considering central bank digital with regulators. circulation. Circle has expressed a willingness currency projects, partly to move funds faster “I feel like these projects have been put in to be regulated as a bank, signaling that it plans to consumers and to counter China’s quick opposition with the banking industry, but that’s to apply for a bank charter. advancement on a digital yuan. not the way I see it,” said Marcus, who is also Even without approval for a stablecoin, While CBDCs are still taking shape, there will on Diem’s board. “If there’s a better payment Facebook would have a considerable advantage likely be a role for banks in disbursement. One structure and less cost to settle transactions, in building a financial super app. Facebook potential role for Diem would be an integrator everyone can benefit.” has nearly 3 billion users and a substantial of different central bank digital currencies, a Facebook’s Novi digital wallet, which will existing payments business. Facebook reports use case detailed in a recent Citigroup Future support the Diem stablecoin, is approved “in Facebook Payments has enabled $100 billion of Money report. nearly every state” and it would not launch in volume during the last four quarters, and is While CBDCs are often positioned as a way where it is not approved, Marcus said. Novi is used in more than 160 countries for payments to counter the influence of private stablecoins scheduled to launch by year-end, he said. in 55 currencies. Facebook also operates a QR such as Diem on central bank monetary policy, In addition to traditional currency code payment service that launched earlier Marcus contends the technology that supports payments, customers will be able to use this year. stablecoins can help connect banks to CBDCs, Facebook’s Novi to convert Diem to traditional “New accounts aren’t opened in a branch or or make the CBDCs interoperable. Other currency to send to other users. The recipients a contact center. They’re opened digitally at the financial institutions such as Visa and Ripple can convert Diem to traditional currency to end of someone’s network. There’s no bigger are also developing technology to provide make payments, or make stablecoin payments platform than Facebook’s products,” said connective tissue for CBDCs. directly to supporting merchants. Richard Crone, a payments consultant. “Diem “We still don’t know if a central bank digital Novi will also offer a peer-to-peer payment with the Novi digital wallet is about creating a currency will become a thing, but the point I’m app and is accessible via Facebook, WhatsApp new account more than a new currency. Diem making is stablecoins don’t solve problems

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 27, 2021 AMERICANBANKER.COM PAGE 9 by themselves, they serve to build a new relief funds, but community banks and growth, said Marla Blow, president and chief infrastructure to make payments cheaper and fintechs can help ease those difficulties, operating officer of the Skoll Foundation, more accessible,” Marcus said. of San Francisco which helps invest in entrepreneurs around There’s pressure on the U.S. government President Mary Daly said Wednesday. the world. and private sector to bring new innovations to Daly called for new partnerships among These fintech leaders should be payments, argues Marcus, contending China’s fintechs, banks and community groups empowered to show how those solutions digital yuan is a threat to the U.S. financial aimed at finding solutions to racial inequities work and roll them out more broadly, Blow system. in the financial system, arguing that doing so said. “If [the U.S.] is not the one innovating in is good for business. “[There] is a real possibility to drive change payments, others will,” said Marcus, referencing Daly spoke at an event focused on a new in fintech and then expand that change into China’s digital yuan project, which is aimed at report on fintech and racial equity. The the entire banking system,” she said. curtailing the dollar’s influence as a reserve report by the San Francisco Fed and the currency — as well as big technology firms Aspen Institute highlighted difficulties that such as Facebook. “China is powering ahead minority-owned businesses faced in securing M&A and its views are not only domestic. They have Paycheck Protection Program loans, as well as international ambitions.” problems that some minorities experienced The China reference hints at Diem’s push to with government stimulus checks. Berkshire gain final approval from regulators, according Those challenges reflect a “systemic to Grover. “It is politically astute of Marcus to risk” for economic policymakers, Daly said, Hills selling reference China,” Grover said. “The U.S. is in a reducing the effectiveness of policies aimed at cold war with China, and the People’s Bank of softening the blow of downturns. She likened China has a digital yuan pilot active in 10 cities.” the situation to one in which the government insurance Marcus recently argued legacy payment promises to distribute water to a “desperately systems are costly, slow and not connected thirsty” population, but only some people business for with each other. The Facebook exec added have the pipes to get water delivered. these rails don’t serve the needs of the world’s “A financially healthy community is a 1.2 billion unbanked, citing figures from the resilient community,” Daly said. “You want $41.5 million World Bank. There are 62 million unbanked things paid back? Make sure that … people Americans, according to the Federal Reserve. have access to the things that allow them to By John Reosti “There’s no chance that in five years the get back on their feet in a shock and allow August 25, 2021 market is still running payments over an them to grow and create a cushion when the Three months after its chief executive infrastructure that was created in the 1970s economy is good.” unveiled plans to shed noncore business and takes three days to clear,” Marcus said in Though fintechs and innovation are not a lines, Berkshire Hills Bancorp in Boston the interview. “Banks should be part of this “panacea,” the report launched Wednesday has announced plans to sell its 21-year-old change, and could benefit from faster and offers some examples of progress, Daly said. insurance subsidiary. cheaper payment rails.” The report highlighted the nonprofit fintech The $12.3 billion-asset Berkshire Hills SaverLife, which offers rewards for savings, said late Tuesday that it is selling Berkshire and a tool from app-maker Propel that helps Hills Insurance Group to the insurer Brown FINANCIAL INCLUSION people check their Supplemental Nutrition & Brown in Daytona Beach, Florida, for $41.5 Assistance Program balances. million. The deal price includes $1.6 million It also included a chapter from the Accion to fund executive goodwill purchase price Fintechs can Opportunity Fund, a nonprofit small- payments to executives of Berkshire Hills business lender that says its long-standing Insurance. The sale is expected to close in help narrow partnership with LendingClub helped ensure the third quarter. that it could respond to customers’ needs “This transaction allows us to simplify during the pandemic. our operating model, repurpose valuable racial gaps: Many microlenders, community resources and redeploy capital to support development financial institutions and core businesses and strategic initiatives that San Francisco minority-owned banks are interested in will enhance long-term stakeholder value,” pursuing the partnership model, and banks CEO Nitin Mhatre said in a press release. and fintechs have also expressed interest over Berkshire Hills telegraphed the insurance Fed president the last year, Daly said. But any successful group’s sale in May, when it announced arrangement requires a deep understanding plans to focus on the businesses it said By Polo Rocha of the tools that are most useful to offered the best prospects for growth, August 26, 2021 underserved communities, she added. including small-business and asset-based Structural gaps made it harder for Such rootedness is partly why fintechs lending and wealth management. Insurance communities of color to access pandemic led by people of color have seen significant was nowhere on the list.

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Insurance has been a significant necessary cybersecurity changes. contributor to the company’s noninterest CYBERSECURITY The meeting will focus on ransomware, the income, so revenue will take a hit going root causes of malicious cyber activity, and forward. Berkshire Hills Insurance Group how to ensure that cybersecurity is baked generated $10.8 million in commissions and Cyberattacks into technology sold by industry from the fees in 2020 and $11 million in 2019. start, according to the official. Through the first six months of 2021, the draw tech, Other participants include chief executives insurance unit generated $5.4 million in from International Business Machines and revenue, down 6.3% from the same period ADP as well as from the banking giants in 2020. bank CEOs to Bank of America, TIAA-CREF Individual & “While we readily acknowledge that the Institutional Services and U.S. Bancorp; the company is reducing fee income, which White House energy companies Southern Co. and Duke investors often prefer to spread income, we Energy; and water and wastewater utilities also recognize this was a subscale business including American Water Works Co. with mediocre returns,” Mark Fitzgibbon, for brainstorm who covers Berkshire Hills for Piper Sandler, Critical infrastructure, workforce wrote Wednesday in a research note. “The By Bloomberg News After a meeting with Biden, several key transaction strikes us as quite logical.” August 25, 2021 cabinet secretaries will lead three breakout Brown & Brown has offered jobs to all Chief executives from across the business sessions with the industry participants. Berkshire Hills Insurance Group employees, world are set to join President Biden for a Homeland Security Secretary Alejandro and Berkshire plans to refer clients to the discussion Wednesday on how industry Mayorkas and Energy Secretary Jennifer firm after the deal closes. Brown & Brown and the federal government can partner Granholm will lead a session on critical expects to operate Berkshire Hills Insurance to improve cybersecurity in the face of infrastructure resilience, with executives Group as a stand-alone unit led by John debilitating ransomware and cyberattacks. from the energy and water sectors. Flaherty, currently a senior vice president at The White House will meet with industry Commerce Secretary Gina Raimondo and Berkshire Hills. leaders to announce new public-private head of the Small Business Administration Brown & Brown ranks as the fifth-largest initiatives as well as cybersecurity workforce Isabella Guzman will meet with tech and independent insurance brokerage in the U.S., training efforts to fill the approximately insurance executives, including from so the partnership arrangement will “serve 500,000 open jobs in the industry. Biden has Travelers Cos., on improving the security of our customers better with an expanded called Apple CEO Tim Cook, Alphabet Inc.’s cloud and tech systems. offering of insurance solutions,” Sean Gray, Google CEO Sundar Pichai, Amazon.com Chris Inglis, the nation’s first national president and chief operating officer at CEO Andy Jassy, Microsoft CEO Satya Nadella, cyber director, will lead a third session Berkshire Hills Bank, said in the release. and JPMorgan Chase CEO focused on cybersecurity workforce. He will The insurance sale is the biggest strategic to Washington to make commitments on meet with leaders from education groups move Berkshire has undertaken since hiring workforce development and improvements including Girls Who Code, Code.Org and Mhatre in January to replace Richard Marotta, to cybersecurity in their sectors, according to several universities. who stepped down abruptly in August 2020. a senior administration official. Anne Neuberger, the deputy national In December, Berkshire announced plans to The meeting follows massive cyber and security adviser for cyber and emerging rationalize its branch network, agreeing to ransomware attacks over the past year on technology, and Jen Easterly, director of the sell eight branches in Pennsylvania and New critical infrastructure, including that of Cybersecurity and Infrastructure Security Jersey to the $26.8 billion-asset Investors Colonial Pipeline Co. and JBS SA, as well Agency, will also participate in the event. Bancorp in Short Hills, New Jersey, and as software and cloud providers such as The goal of the event is to announce new shutter another 16 branches in New York. Microsoft and SolarWinds, which have largely cyber workforce initiatives and convene the While Berkshire Hills is exiting insurance, been perpetrated by cyber groups based in public and private sector to share new ideas other banks have moved to bulk up in the Russia and China. and new discussions on improving cyber space. Earlier this month, the $14.8 billion- Biden’s administration continues to collaboration, the official said. asset Community Bank System in Syracuse, point to cybersecurity as a priority amid New York, announced the acquisition of a the uptick in attacks. Among the actions Boston brokerage firm it said would push the White House has taken this year is an annual insurance revenues to approximately executive order directing federal agencies $35 million. to boost security protocols and mandating The $1.8 billion-asset Colony Bankcorp cyber incident reporting from large pipeline in Fitzgerald, Georgia, announced plans to companies. But more collaboration is needed launch an insurance subsidiary in July after between private companies and government, agreeing to acquire an agency in Macon, the official said, adding that the private Georgia. sector in many cases has more authority or influence than the government to make

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vaccination rates. one basis point to 3.35%. MORTGAGES “We have real conversations with Both exits and entries showed limited our teammates about empathy and the activity, according to the MBA. “The share of importance of vaccinations,” ” Johnson said. loans in forbearance was little changed, as Mortgage “We have a colleague with a serious auto- both new requests and exits were at a slower immune deficiency that can’t be vaccinated pace compared to the prior week. In fact, exits lender offers — and I’m not sure any of us could live were at their slowest pace in over a year,” said with ourselves if we caused her to become Mike Fratantoni, MBA’s senior vice president critically ill because we were too selfish to get and chief economist, in a press statement. vaccinated poked.” Forbearances among Ginnie Mae loans, Neat’s approach to its staff’s vaccination consisting of mortgages taken through borrowers a status, and new $500 program, could just government-backed programs, dropped be the beginning of similar mandates. On three basis points from 3.95% to 3.92% of Aug. 23, the Food and Drug Administration weekly share. Conventional mortgages held discount upgraded Pfizer-BioNTech’s vaccine to full by and Freddie Mac saw the approval from emergency use authorization percentage in forbearance also fall three basis By Paul Centopani for ages 16 and up, which provides companies points, from 1.69% the prior week to 1.66%. August 25, 2021 the grounds to make it a requirement. While forborne loans backed by Ginnie With coronavirus vaccination rates Mae or GSEs both accounted for a smaller plateauing and delta variant infections percentage within their investor categories surging, one mortgage lender is throwing MORTGAGE SERVICING relative to one week earlier, the number of money at the problem. private-label securities and portfolio loans Neat Capital will offer its purchase and in forbearance jumped 10 basis points to refinance mortgage applicants a $500 Forbearance 7.15% of total volume, up from 7.05% the discount on loan closing costs with proof of previous week. The CARES Act did not offer vaccination. Unvaccinated borrowers will numbers any COVID-related protections for PLS and also qualify for the credit as long as they portfolio loans. present valid medical or religious deterrents “Portfolio and PLS loans now account for to the inoculation. decrease, almost 50% of all depository servicer loans in Neat is also interested in starting or joining forbearance and almost 40% of IMB servicer a coalition for promoting vaccinations with loans in forbearance, which highlights industrywide, according to CEO Luke the importance of this investor category,” Johnson. Fratantoni said. “Financial services companies are protections The number of forbearances currently in always slow to lead progress,” Johnson extensions accounted for 82.3% of their total said. “Operating in a heavy regulatory set to expire volume. Forborne homeowners in the initial environment diminishes a desire to take on stage of their plans made up 10%, while important community issues, particularly in By Spencer Lee forbearance re-entries equaled 7.7%. a heavily politicized context. Vaccinations are August 23, 2021 Many distressed homeowners who entered becoming a reasonable expectation of safety Mortgages in COVID-19 forbearance plans forbearance in the first weeks of the 2020 and companies face real risks if they make decreased only slightly between August 9 pandemic shutdown will begin dropping out their clients sick.” and 15, according to the latest data from of their COVID-related protection plans in Based in Boulder, Colo., Neat is mandating the Mortgage Bankers Association, but the the coming weeks. Borrowers were initially vaccination for its employees, though they numbers still continued a streak of weekly eligible for six months of relief, with the can be exempt for medical or religious drops dating back to March. option of two six-month extensions, for a reasons. All unvaccinated workers must wear The share of COVID-related forbearances total of 18 months, during which time no loan a mask at all times while in the office. came in at 3.25% of total outstanding mortgage payments would be due. September is the Currently, official vaccination policies volume — accounting for approximately first month when a large number of COVID- vary around the housing industry. Remax, 1.6 million borrowers — according to the related protections will end. a real estate brokerage with independently MBA’s Weekly Forbearance and Call Volume The share of forbearance requests in the owned and operated franchises, has well- Survey. The week’s share came in one basis total weekly servicing volume edged down established remote work options and relies point lower from 3.26% recorded the prior slightly compared to the previously weekly on its employees to make the best decisions week. Among independent mortgage banks, reporting period — from 0.06% to 0.05%. for themselves, a company representative or IMBs, forbearances made up 3.48% of The call-center volume share of the servicing said. Multiple states are offering scholarship volume, up two basis points on a weekly portfolio also decreased, down to 7.3% from raffles and even lottery entries for vacation basis, while the percentage of forborne 7.5% the prior week. stays and cash prizes in order to boost mortgages at depository banks decreased Of the 36.9 million mortgages currently

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 27, 2021 AMERICANBANKER.COM PAGE 12 being serviced, 25% are Ginnie Mae loans, by wire transfer to A Jones LLC, but sent to improvement in its regulatory compliance. with 56.4% backed by either Fannie Mae or a different account with a different bank None of these letters received a reply. Freddie Mac. The remaining 18.59% share than the usual one. As soon as the CEO of It was all too easy for Bank B to wriggle belongs to the PLS/portfolio segment. A Jones LLC learned that the expected fee out of its obligations. On one level, an had been paid into an account at Bank B, error was made, and that should have been he contacted the relevant branch. Bank B’s acknowledged and settled. On another level, BANKTHINK staff refused to provide any information more serious questions require an answer. to the CEO, because his company did not Bank B makes a great show of its know- have an account with Bank B. Documentary your-customer requirements for opening a Fraud evidence, the invoice and the international business account on its website. The process wire transfer, were provided. involves in-person meetings at the branch prevention The CEO then took the matter up with the with the need to disclose details about local police. Their investigation uncovered the directors of the company, including that the name of the company associated confirmation of identity, and the need to is hit or with the account number on the client’s provide documentation of the business’ invoice was, in fact, not A Jones LLC. A registration at state level. But, in this case, miss. The complaint was made to Bank B’s Enterprise the company holding the account, the Complaint Management Office. The reply recipient of the wire transfer intended for stated, “Based on our research, we’ve A Jones LLC, does not even appear on the misses cost determined that your account was handled state’s list of licensed businesses. appropriately.” But I’d argue that the fault is Banks receiving wire transfers should customers quite clear. be obliged to check the account name Copies of the invoice sent to A Jones and number. Banks might complain that LLC’s client were provided, as was the wire manually checking discrepancies would dearly. transfer, which gave the name A Jones LLC, take too long, but IT resources of all kinds along with the address of Bank B and an are now available to raise red flags when By Oonagh McDonald account number there. The payment was such discrepancies appear. A bank like Bank August 25, 2021 put into the account number provided on B would then find it much harder to ignore The banking industry talks a good game the invoice. But the name on that account theft by accounts created with the purpose about preventing fraud and protecting certainly was not A Jones LLC. That should of stealing money or engaging in other people and businesses from bad actors, but have been entirely plain to the Complaint criminal activities. my personal experiences illustrate how the Management Office. It is hard to see how Bank B continues to refuse to investigate quality of such efforts can vary dramatically the investigators in that department could further or to take any action toward restoring from one bank to the next. have missed the discrepancy or how they the stolen funds. On discovering that one of my checks, could fail to understand the significance of As a former financial regulator, I’m more thought to be “lost in the mail,” had been the error. than disappointed. Behind every red flag cashed at the intended recipient’s branch, It is a clear red flag if the name of the are real people and legitimate businesses I contacted my bank, Bank A. Its fraud intended recipient of the wire transfer does in danger of getting hurt by scammers. For investigation department acted quickly, and not match the name associated with the many of these would-be “targets” — perhaps after examining the cashed check, found that account number where the payment is sent. most — $109,000 is a meaningful amount of the signature had obviously been forged. Plainly a very basic step in fraud prevention loss. The amount of the check — $1,500 — was — checking that the intended recipient and If banks can protect them by merely immediately refunded to my account, and I the actual recipient have the same name — checking that the names match when a wire was asked to write another check, marking did not happen. transfer is sent — and surely banks not only it “replacement check.” Bank A settled the Furthermore, the police investigation can, but should — then there should be no issue promptly and efficiently, and I was revealed that the funds were withdrawn acceptable excuse not to do so. able to discuss what had happened with the immediately upon receipt. Another red flag. fraud investigation team. The FBI also conducted a limited Oonagh McDonald is a consultant and That could not be more different from the investigation, but declined to take the matter the author of “Fannie Mae and Freddie treatment I and others at a business, which any further, because, we’re told, the amount Mac: Turning the American Dream into a we’ll call A Jones LLC, received from Bank B. of the transaction was not high enough to Nightmare” and “Lehman Brothers: A Crisis One of our company’s directors apparently warrant the additional effort. of Value.” She was formerly a member of had her email account hacked, and an Letters were sent to Bank B’s CEO, its Parliament in the United Kingdom as well as a invoice was sent to her long-standing client chairman and its newly appointed head of director of the Financial Services Authority. q requesting payment for services rendered. compliance. All of these and other senior The client was expecting the invoice, so the appointments had been made to restore © 2021 Arizent and American Banker. requested fee of $109,000 was promptly paid Bank B’s reputation and to ensure an All rights reserved.

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