WEDNESDAY DECEMBER 2, 2020 VOL. 185 No. 231 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Banks, borrowers bristle 5 at SBA questionnaire Who's lending to Latinos on large PPP loans Lenders are worried that the Small Business Among California's biggest lenders, mortgages for Latinos Administration could use borrower made up a larger proportion of portfolios at nonbanks responses to deny forgiveness for many compared with banks Paycheck Protection Program loans that exceed $2 million. Page 8 See story on page 5 Regulators warn banks against 18% 6 using Libor in new contracts 16% The OCC, Federal Reserve and FDIC said that a failure to adequately prepare for the transition 14% away from Libor could undermine banks’ 12% safety and soundness, but also extended the 10% sunset date for many iterations of the interest 8% rate benchmark to July 2023. Page 9 6% 4% Zions’ Simmons reveals cancer diagnosis 2% 7 Harris Simmons, the chairman and CEO of 0% Zions Bancorp. in Salt Lake City, said in a letter Bo fA U. S. W ells JPMor gan Flagst ar Quick en LoanDepo t Calibe r United Fi nance of Bank Fargo Bank Loans Home Shore America to employees that he was recently diagnosed Loans with a form of non-Hodgkin’s lymphoma and would be pursuing a treatment plan over the Source: Greenlining Institute next several months. Page 10

Bank of America says it 8 won’t finance oil and gas dailybriefing Are nonbanks likelier to lend exploration in the Arctic 3 to Black, Latino homebuyers? In November, the Sierra Club singled out Bank A new report from California shows that of America as “the only major U.S. bank not Lockdowns, PPP, Citi’s historic less-regulated mortgage lenders may be to rule out financing for the destruction of the 1 move: The year in banking (Part 1) doing a better than banks of serving Black Arctic refuge” after its five biggest competitors From the industry’s extraordinary response and Latino homebuyers. But consumer updated their policies this year. Page 10 to the coronavirus outbreak to advocates say the data bolsters the case for promoting Jane Fraser to CEO, these are tougher supervision of nonbanks. CFPB gives go-ahead to firms some of the storylines that defined banking (See chart above.) Page 5 9 seeking advisory opinions in 2020. First in a two-part series. Page 2 The agency finalized a policy allowing What PNC has in mind companies to submit formal requests for Fed, Treasury agree to extend 4 for BBVA’s technology clarification on a regulatory issue. The 2 four lending facilities to March 31 BBVA USA was one of the first U.S. banks bureau said it will publish the advisory The central bank will prolong the life of to deploy a real-time core system and to rulings in the Federal Register. Page 10 the Commercial Paper Funding Facility purchase a neobank. Here’s what PNC and three other programs while returning may keep, and what it may jettison, after it Climate risk test asks banks congressionally approved funds for five acquires the U.S. unit of the Spanish banking 10 to look too far down the road separate facilities that will shut down giant. Page 7 Global regulators are considering a universal Dec. 31. Page 5 stress test for climate change that requires lenders to use a 30-year horizon, a difficult and speculative projection of the energy industry that could harm bank financials, Greg Baer writes. Page 11 WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 2

a shattered glass ceiling that deserves It was widely believed that Corbat would YEAR IN BANKING celebration. stay in the job for another few years, but he In some of her first public remarks since announced his pending departure just weeks the announcement, Fraser shared her after Citi accidentally paid $900 million to Lockdowns, achievement with all women in banking. “This lenders of the cosmetics company Revlon first is an accomplishment for us all,” she said. and blamed human error. Citi officials have PPP, Citi’s “And with the extraordinary cadre of women dismissed questions about the timing, saying in our industry, I’m very certain it’s the first of Corbat always planned to retire in 2021. many, many more to come.” But it has left some to wonder if Fraser is historic move: Skeptics might disagree. After all, while perched on what’s known as a “glass cliff,” Fraser’s promotion has rightly been hailed, referring to instances where women in The year in it comes as two of banking’s most prominent business are promoted to leadership jobs at female leaders exit CEO roles. Former moments of crisis. If that is the case, though, KeyCorp Chairman and CEO Beth Mooney, it is hard to imagine anyone whose experience banking who was the first woman to lead a top 20 would have better prepared them for it than U.S. bank when she was appointed in 2011, Fraser. — Allissa Kline (Part 1) was succeeded by Chris Gorman when she retired from the Cleveland-based company Employees work overtime to help small November 29, 2020 in April, while CIT Group’s Ellen Alemany will businesses Under normal circumstances, this would vacate the CEO role at her company when A centerpiece of the Coronavirus Aid, Relief be the time of year when we would be it completes a merger of equals with First and Economic Securities Act Congressed showcasing our selections for Banker of the Citizens BancShares in 2021. Frank Holding passed in March was the Paycheck Protection Year, Community Bankers of the Year and Jr., First Citizens’ chairman and CEO, will Program, and it fell on banks and credit Lifetime Achievement. retain those roles at the combined company. unions to quickly get the hundreds of billions But 2020 was disruptive in a profound Fraser has been viewed as the heir apparent ofdollars in federal aid to small businesses that and pervasive way, so we’re taking a break at Citi since her appointment to president in desperately needed the funds to ride out the from tradition to reflect on the year that was, October 2019. Reports had said she won the pandemic. particularly how the industry responded to job after Wells Fargo had tried to recruit her to Banks large and small needed all hands on the coronavirus outbreak and the protests be its CEO. deck first to get the program up and running over racial equality. Rather than honor the Since joining the $2.2 trillion-asset bank in and then to process what ended up being achievements of a few individuals, we wanted 2004, Fraser has built an impressive resume about 4.5 million loans totaling more than to recognize the regulatory agencies, banks, as a fixer by taking on businesses in turmoil, $500 billion. “It was around the clock,” recalled credit unions and individuals who stepped up including handling the mortgage operation in Bank of America’s head of Small Business to help households and businesses weather the wake of the financial crisis and overhauling Sharon Miller. the economic shocks of the pandemic and operations and controls in Latin America The Herculean effort went beyond just the took meaningful action to help close the racial following scandals at its Banamex unit. Lately small-business team at many banks, including wealth gap. she has been leading the company’s response BofA, which made more than 345,000 PPP We also wanted to highlight some of the to the coronavirus pandemic. loans in a matter of weeks. year’s milestones — finally, a female CEO at a U.S.-based global bank — look ahead at how the year’s events could shape banking and Established 1836 One State Street Plaza, 27th floor, , NY 10004 banking policy in the future, and have a bit of Phone 212-803-8200 AmericanBanker.com fun. It’s a lot to pack into a single slide show, so we’re presenting in two parts over two days. Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 Here’s part one. Managing Editor Dean Anason 770.621.9935 Reporters/Producers Thickest glass ceiling in banking finally Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 breaks Washington Bureau Chief Joe Adler 571.403.3832 For decades it’s been one step forward, two Executive Editor, Technology Miriam Cross 571.403.3834 steps back when it comes to gender diversity Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 at the top in the banking industry, and Jane BankThink Editor Rachel Witkowski 571.403.3857 Fraser’s ascension to chief executive at John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 Citigroup is no exception. Hannah Lang 571.403.3855 But what a step forward it is. Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 Fraser will be the first woman to lead one Digital Managing Editor of the four largest U.S. banking companies Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 when CEO Michael Corbat retires in February,

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 3

“It was 10,000 of our teammates coming the central bank to return to the Treasury any of loans. — Hannah Lang together, redeployed to our space saying, ‘How emergency funds that went unused by Dec. 31. can we help?’ ” Miller said. “Everyone was And while the Fed still has more tools in Square (finally) gets a bank charter focused on this 24/7. That meant no Easter its toolkit, Powell has become increasingly After a two-year-plus pursuit of an industrial weekend, no Memorial Day, no weekends. … vocal in urging Congress provide more relief to bank charter, which included having to I didn’t hear any complaints either.” struggling businesses and households. withdraw and reapply, the payment processor Jennifer Roberts, the chief executive of “Even if policy actions ultimately prove to Square finally secured approval this past business banking at JPMorgan Chase, said PPP be greater than needed, they will not go to spring from the Federal Deposit Insurance applications hit her bank like a tidal wave. On waste,” Powell said in October. “The recovery Corp. It was quite a hurdle to clear. The last the program’s first day, April 3, Chase rolled will be stronger and move faster if monetary time the FDIC had signed off on an industrial out an online form to collect basic information policy and fiscal policy continue to work side loan company was June 2008. The success of from borrowers. Within an hour, more than by side to provide support to the economy Square, which got a green light along with the 75,000 had completed it, Roberts said. until it is clearly out of the woods.” — Hannah student loan servicer Nelnet, could emerge The $27.5 billion-asset Flagstar Bancorp Lang as a road map for other likeminded fintechs handled more than 3,000 PPP applications trying to enter the banking system. totaling $400 million, a level of volume … But one Fed stimulus effort falls short Square’s road to approval was long and Executive Vice President Brian Dunn called an While the Paycheck Protection Program bumpy. Ever since the company filed its first avalanche. “It was so overwhelming,” yet there was designed to help companies with fewer application, in 2017, Square’s bid drew fierce was no griping about long hours or weekend than 500 employees, the Fed’s $600 billion opposition, particularly from community work, Dunn said. Main Street Lending Program, which rolled banks. FDIC board member Martin “This program was helping our friends, our out over the summer, was intended to provide Gruenberg, who dissented from the agency’s neighbors, our communities get a paycheck a lifeline to companies with fewer than 15,000 approval, cited Square’s limited profitability during the dark days in April and May,” he employees or less than $5 billion in annual as a possible safety and soundness risk for said. “It demonstrated our ability and the revenue. the new bank. But those concerns weren’t entire banking industry’s ability to be there But unlike the PPP — which ran out of funds enough to convince FDIC staff. Still, it’s an for our customers and communities when we so quickly in its first go-round in April that open question whether the FDIC will continue were needed most.” — John Reosti Congress had to allot another $310 billion — to approve industrial bank applications in the Main Street Lending Program has drawn the years to come. The agency may take The Fed uses its entire toolkit to get the little interest from borrowers or lenders. Main each pending and future bid on a case-by- economy through the pandemic … Street loans also have to be paid back, whereas case basis. But controversial or not, the ILC The Federal Reserve’s first big move in PPP loans don’t if borrowers meet certain charter may be fintechs’ most viable route to response to the coronavirus outbreak came requirements. bankhood of all the options. on March 3, when it announced its first The minimum loan amount, which the Square’s industrial bank, headquartered in emergency interest rate cut since 2007. Fed has already twice lowered, is $250,000, Salt Lake City, is expected to launch sometime Days later, even before the outbreak was and many smaller businesses don’t qualify in 2021. It will focus primarily on making officially declared a pandemic, the Fed cut for a loan of that size, bankers have reported. small-business loans to customers on behalf rates even further, to zero, and urged banks And larger companies that do qualify have to of Square Capital, the company’s commercial to use its discount window and even dip into contend with restrictions on dividends and lending subsidiary. capital reserves to access funds they might bonus payments if they choose to accept a Square is well positioned for further growth. need to make emergency loans to customers. loan, which many have said is a nonstarter. Even though the pandemic reduced foot traffic It then began purchasing record amounts The program, which is being funded through for small businesses using Square’s payments of Treasury securities and mortgage-backed the Federal Reserve and Treasury Department service, its peer-to-peer Cash App has helped securities, helped to buoy those markets, through congressional appropriations in pick up the slack. — Brendan Pedersen and would go on to deploy nearly a dozen the CARES Act, also isn’t available to certain emergency lending facilities under section asset-based borrowers in dire need of cash, Stress-testing for climate change gets 13(3) of the Federal Reserve Act, which including commercial real estate firms. real included dusting off financial crisis-era Banks, meanwhile, have been scared off by As if a global pandemic wasn’t enough to programs like the Commercial Paper Funding the terms. The Fed, through a special-purpose contend with, bankers received intensified Facility and the Term Asset-Backed Securities vehicle, purchases 95% of a loan made under warnings this year about another risk Loan Facility. the Main Street terms, but banks remain on confronting their businesses: climate change. Chairman Jerome Powell emerged as the the hook for the other 5% of the loan, making Increasingly frequent and severe weather public face of the crisis response effort, making some lenders apprehensive. events can pose a serious threat to the stability rare appearances on “The Today Show” and In fact, a recent Fed survey found that of the U.S. financial system, government “60 Minutes” to explain the Fed’s actions. bankers do not expect lending through the officials and outside experts warned on The Fed’s response, ultimately, went beyond middle-market business rescue program to multiple occasions. It was the beginning of a what the markets needed and in November pick up anytime soon. As of early November, drumbeat for stress-testing balance sheets for Treasury Secretary Steven Mnuchin ordered the Fed had purchased just $3.95 billion worth climate-related risks.

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Recent years have seen large tracts of arrived in March and “brought almost bankers, bankers say. the devastated by wildfires, everything to a standstill — M&A included,” In the era of COVID-19, though, the idea of hurricanes and flooding, with losses running said Jacob Thompson, a managing director postal banking appears to be gaining traction. well into the hundreds of billions of dollars. of investment banking at SAMCO Capital It started early in the pandemic when So, the rationale goes, banks should perform Markets. Congress passed legislation to give many risk analyses that account for the financial Deal activity has yet to recover — a few individuals earning less than $75,000 a year exposure tied to serious climate events and notable deals aside — and may not do so until up to $1,200 in federal aid. Many Americans from an abrupt transition away from fossil deep into 2021, Thompson and others say. with bank accounts received their payments fuels. Several deals announced late last year or quickly through direct deposit, but millions The results could ultimately lead banks early this year have been called off and many more without bank accounts waited much to set aside more capital for certain types would-be buyers are staying on the sidelines longer to receive their checks in the mail. of loans, work with commercial clients to because they say it’s simply too difficult to So Sen. Sherrod Brown of Ohio, the top minimize their own environmental impact or assess what troubles could be lurking in Democrat on the Senate Banking Committee, even exit certain businesses altogether. sellers’ loan portfolios. Banks made clear in proposed offering government-backed Central bankers abroad have already third-quarter earnings calls that they did not FedAccount digital wallets to individuals. embraced the idea of stress-testing for climate know how the health crisis would affect credit The bank accounts would have no account risk, but it’s been a tougher sell here. Some U.S. quality because there was no telling how long fees or minimum balance requirements and bank regulators have voiced their concerns it would last. would be opened at local banks and post about climate risk, but they had largely “We could see the worst of the impact offices. Americans would be able to receive stopped short of calling for stress-testing. on banks next year,” said Jon Winick, chief government stimulus funds quickly and That began to change in 2020. Early in executive of Clark Street Capital. inexpensively through FedAccounts. the year, some lawmakers pressed federal Winick and others say that once clarity Postal banking has also been endorsed by regulators over climate risk to the financial returns, bank M&A is bound to return to the former Vice President Joe Biden, a Democrat system. Then, in a nearly 200-page report pace of 2019 — or perhaps exceed it because who is now the president-elect. Biden’s issued in September, a subcommittee of the of pent-up demand. The principal motivators unity task force with Sen. Bernie Sanders, Commodity Futures Trading Commission for M&A, scale and cost savings, have only I-Vt., recommended implementing a postal outlined what a climate stress-test pilot should become more important amid the economic banking system as a way to expand access look like. It argued that banking regulators malaise of 2020. to physical banking locations at a time when already have the authority to mandate such The few deals announced this year touted the number of branches is shrinking, creating stress tests. those benefits. The $489 million merger of more so-called banking deserts. The New York State Department of Financial Bridge Bancorp in Bridgehampton, N.Y., and Meanwhile, another postal banking idea is Services appeared to take its advice. Shortly Dime Community Bancshares in Brooklyn, starting to gain some acceptance, even among after the CFTC’s report, the department issued N.Y., announced in July, is a case in point. The banks and credit unions. It was reported over guidance that directed state-chartered banks combined company would instantly double the summer that JPMorgan Chase had held and credit unions to start factoring in the its assets, to more than $12 billion, and the preliminary discussions with the USPS to financial risks linked to serious climate events, plan is to carve out more than $30 million in offer ATMs and other banking services at post adjusting their capital and credit mixes and overlapping expenses. office locations, and while those talks didn’t keeping investors fully informed. “Increased size and scale cannot be scoffed get far, the idea of some sort of public/private Bankers might also reflect on the events of at,” Kevin O’Connor, Bridge’s president and partnership has piqued the industry’s interest. the past year and ask themselves whether a CEO, said shortly after announcing the deal. Some bankers have said they would be open year or two ago they had seriously considered “We’d be able to use the scale to invest in some to such partnerships as long as there’s a a global pandemic among their risks. revenue-generating areas.” — Jim Dobbs competitive bidding process. — Neil Haggerty The CFTC report made a point that may resonate with pandemic-weary bankers: Calls for postal banking get louder Drive-through banking makes a come- “Science clearly indicates that the cost of delay For years, progressives have been back in responding to the risk can be devastating.” advocating for the U.S. Postal Services to Drive-through teller windows were a — Laura Alix make financial offerings available in local ubiquitous feature at branches for decades, post offices as a way to meet the needs of but their popularity waned as digital banking Pandemic upends bank M&A underserved consumers. became more sophisticated and customers no Merger and acquisition activity proved But conservatives, as well as banking and longer had to leave home to deposit a check. robust in 2019, as buyers searched for scale credit union executives, have repeatedly Though some survived, many ended up and efficiencies. Banks announced 257 deals, scoffed at the idea, arguing that banks and being converted into drive-through ATMs. driving one of the liveliest years of the past credit unions already have the infrastructure This year, drive-through windows are back. decade. in place to serve underbanked households Particularly at the beginning of the Expectations ran high early in 2020 for and that the agency responsible for delivering pandemic, customers who would typically another banner run as buyers announced 17 mail to U.S. citizens is simply not equipped visit branch lobbies flocked to drive-throughs, deals in January alone. But then the pandemic to offer financial services. Leave banking to getting an extra layer of protection from

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 5 human contact. Drive-ups were also better not as fast as usual. in its own release. for spontaneous visits when banks required “It is actually better for us” than earlier in The agreement to lengthen the life of appointments to enter the lobby. the year, said Chris Nichols, director of capital those facilities follows an exchange Mnuchin “In March and April, customers were lining markets at South State in Winter Haven, Fla. and Powell had earlier this month, in which up around the corner,” said Jim DeLapa, “We have been able to order and receive a little Mnuchin requested that the Fed vote to extend general manager of Kiran Analytics, part of the more from the Fed. We are not back to normal, the four programs for 90 days past Dec. 31. customer engagement company Verint. but getting there.” Mnuchin also asked that the central bank Banks that were set to close their drive- “No one saw this coming,” Nichols return money appropriated by Congress for throughs put those plans on hold. Fifth Third added, “but it now should be in every bank’s five separate emergency lending programs, Bancorp, for one, plans to keep drive-up pandemic plan.” — Jon Prior which will shut down at the end of this year. windows in its new branches or even add The Fed had pushed back against walk-up windows to inner-city branches. Treasury’s request to return the funds, saying Still, there are doubts about the long-term CORONAVIRUS in a statement that the central bank “would viability of these services. Some customers prefer that the full suite of emergency facilities who were resistant to digital banking before established during the coronavirus pandemic the pandemic have gotten the hang of Fed, Treasury continue to serve their important role as a depositing checks and doing other tasks from backstop for our still-strained and vulnerable their smartphones. agree to economy.” So the renewed surge may not translate into But Powell later agreed to return the unused a full comeback in a post-pandemic future. money, which was used to fund the Main Street “I don’t think the banks that don’t have extend four Lending Program, the Municipal Liquidity them will start looking,” DeLapa said. — Facility, the Primary Market Corporate Credit Miriam Cross lending Facility, the Secondary Market Corporate Credit Facility and the Term Asset-Backed As consumers curtail spending, coin Loan Facility. supply dwindles facilities to The Federal Reserve Bank of Boston, which When banking executives scrambled to is administering the Main Street program, overhaul their business for a socially distanced March 31 issued guidance to lenders last week that they world, so much emphasis was put on — and should submit loans for approval by Dec. 14, so many congratulations shared over — By Hannah Lang adding that it would be unlikely that any loans electronic payments. November 30, 2020 submitted after that point would be processed It was at that moment that old money bit WASHINGTON — The Federal Reserve in time to be purchased by the Main Street back. and the Treasury Department have agreed special-purpose vehicle. As small businesses struggled to stay afloat to extend the life of four emergency while consumers stayed home, about $40 lending facilities, created in response to the billion in change went dormant in American coronavirus pandemic, to March 31. NONBANK households, cutting coin circulation to Treasury Secretary Steven Mnuchin a trickle. Suddenly, takeout restaurants sent a letter to Fed Chair Jerome Powell and retailers couldn’t make change, and Monday approving the extension of the Fed’s Are nonbanks laundromat users were out of luck. Commercial Paper Funding Facility, Money Banking industry representatives and Market Mutual Fund Liquidity Facility, likelier to government officials led by the Federal the Primary Dealer Credit Facility and the Reserve and the U.S. Mint assembled over Paycheck Protection Program Liquidity the summer to develop a plan while new coin Facility. The first two use funding from lend to deliveries were rationed. Major retailers like Treasury’s exchange stabilization fund, while Kroger and 7-Eleven, along with many banks, the other two do not. Black, Latino started awareness campaigns and offered cash “I am pleased that the Federal Reserve incentives and even Slurpees to anyone who Board unanimously voted to approve these brought in their coins. extensions, and I am proud of the work our homebuyers? The Fed’s coin inventories were at their teams have done to successfully execute these lowest in June, a spokesperson for the central programs,” Mnuchin said in a press release. By Kate Berry bank said. Coin allocations to financial The 90-day extension “will facilitate November 30, 2020 institutions have increased steadily since local planning by potential facility participants As policymakers and consumer advocates economies began to reopen, but order limits and provide certainty that the facilities will seeks ways to narrow the racial gap in remained in place on banks late in the year. continue to be available through the first homeownership, a new report suggests The Fed spokesperson said coins were rotating quarter of 2021 to help the economy recover nonbanks are doing a better job of lending to more quickly through the economy, though from the COVID-19 pandemic,” the Fed added minorities than banks in the largest state.

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The findings by the Greenlining Institute, evidence to bolster the case that regulators nonbanks topped the list in lending to both a nonprofit based in Oakland, Calif., show should focus more attention on nonbanks Latino and Black borrowers, though lending the eight largest nonbank mortgage lenders including the types of loan products they to Black borrowers was significantly lower in California lent more of their respective originate and outreach being made to low overall compared with their percentage of the portfolios to Black and Hispanic homebuyers and moderate-income communities. population. than top bank lenders in the state. “In California, nine of the top 15 home New American Funding in Tustin, Calif., Independent mortgage bankers say the purchase lenders are unregulated non-bank topped the list in lending to minorities main reason for the difference in lending lenders that do not offer traditional banking with 28% of its loan volume in California to minorities is that nonbanks are focused services, operate largely online, and are not last year going to Latino borrowers and 4% solely on mortgage lending rather than subject to the Community Reinvestment Act, to Black borrowers. Freedom Mortgage, selling a wide array of products to the same so their lending is not regularly assessed to a large nonbank lender and servicer in customers. determine whether they meet the credit and Mount Laurel, N.J., made 21% of its loans in “We are in business to make loans, so if borrowing needs of the communities where California to Latinos and 4% to Blacks. Other a borrower qualifies for a loan, we’ll make they operate,” the report said. top nonbank lenders in the state included it,” said Scott Olson, executive director of Nonbanks account for 90% of so-called Finance of America Mortgage, in Horsham, Community Home Lenders Association, nonconventional lending backed by the Pa.; United Wholesale Mortgage, in Pontiac, a trade group of independent mortgage Federal Housing Administration and the U.S. Mich., which does business as United Shore bankers. “Banks are in business to make Department of Veterans Affairs. Nonbanks Financial; and Caliber Home Loans, in profits based on a wide range of products. also originate about half of all conventional Coppell, Tex. Making a small profit on a loan may not loans backed by Fannie Mae and Freddie Among banks, Flagstar Bank in Troy, help them in their business plan because Mac. Mich., topped the list in lending to minorities they want to cross-sell them insurance and Rawan Elhalaby, Greenlining’s senior with 12% of its loans in California going to securities and a lot of other products.” economic equity program manager and Latinos and 2% to Blacks. The other six banks Greenlining analyzed loans made by the author of the report, “Home Lending to — MUFG Union Bank, JPMorgan Chase, top 15 mortgage lenders in six metropolitan Communities of Color in California,” said Wells Fargo, U.S. Bank, Bank of America and regions in California: Sacramento, San banks have largely retreated from FHA — each originated just 1% of their Francisco, Oakland, Fresno, Los Angeles lending, which accounts for some of the gap loan portfolios to Blacks and 10% or less to and San Diego. The analysis of 2019 Home in lending to minorities. Latinos in California. Mortgage Disclosure Act data found that “Banks say they can’t afford to make the The housing market is one of the few Black, Latino and Native American borrowers riskier loans,” Elhalaby said. “They complain positive standouts of the economy, while received far fewer loans overall than white that they are more regulated than nonbanks other sectors that have taken a beating from borrowers. Loans to Black, Latino and and can’t afford to make concessions that the coronavirus pandemic, but some signs Native American borrowers totaled 97,420, nonbanks do.” point to trouble ahead. More than 5 million compared with 157,696 for white borrowers. Banks pulled back from FHA lending borrowers have requested forbearance from But when comparing the top eight after the financial crisis out of fear that if paying their mortgage. nonbanks, Greenlining found that just over a borrower defaulted, the bank could be Housing inventories were already running 18% of their mortgage portfolios on average sued by the Justice Department under the low heading into the pandemic in March. Low were made up of loans to Latino borrowers. False Claims Act. Before the financial crisis, mortgage rates and skyrocketing demand That figure was just over 8% for the top about 50% of loans insured by the FHA were for homes caused the Mortgage Bankers seven banks. On average, just over 3% of the originated by depository institutions, but that Association to project a record $3.14 trillion nonbanks’ portfolios were loans to Black number is now closer to 15%. in lending volume this year. borrowers, compared with 1.1% for the “Nonbanks seem to be taking more share Greenlining is advocating that banks average of the bank portfolios. from the banks each year,” said Jim Coffrini, increase their branch presence in rural “In several regional markets, non- president and CEO of Sierra Pacific Mortgage communities and provide more funding for bank lenders make twice as many home in Folsom, Calif. broadband deployment in underserved areas. purchase loans to low-income borrowers as While some banks have closed branches The group also wants more funding be made mainstream banks,” the report said. in minority neighborhoods, nonbanks have to nonprofits to support homeownership The new data comes as some expect access increased marketing to low- and moderate- counselors for first-time homebuyers. to homeownership may attract more attention income communities. Congress would have to pass legislation from the incoming Biden administration. “Many products coming from traditional to add nonbanks to the Community A national focus on racial inequality has banks are inaccessible because branches Reinvestment Act. The Office of the heightened the focus on anti-redlining just as don’t exist in these communities, and people Comptroller of the Currency overhauled regulators take on a sweeping overhaul of the of color are not making relationships with enforcement of the law for its banks in a rule Community Reinvestment Act. bankers or loan officers,” Elhalaby said. finalized in May, but other bank regulators Community and advocacy groups have “Across the board, people of color are largely have declined to support the OCC plan. A long wanted to include nonbanks under the underrepresented in home lending.” recent draft reform outline by the Federal CRA. The Greenlining data suggests there is Of the 15 top lenders in California, all eight Reserve suggests that the agencies’ CRA

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 7 policy but could get a further makeover. according to Sam Kilmer, senior director at 2021, with many steps to go in the process.” But Olson said adding nonbanks to the Cornerstone Advisors. CRA regime wouldn’t make sense. In the investor call announcing the Dropping the Alnova core “Nonbanks are leading the way in making merger, PNC Chairman and Chief Executive The fact that PNC is bringing BBVA mortgage loans to underserved and minority William Demchak said the combined USA’s data into PNC’s applications strongly borrowers,” Olson said. “CRA stands for company will run primarily on PNC’s suggests that PNC won’t be using the real- Community Reinvestment Act,” which means infrastructure. For instance, PNC is expected time Alnova core system BBVA co-developed “banks and other depositories that take funds to keep its existing core system and it is not with Accenture and deployed in 2012. At the from a community through deposits should buying BBVA’s data centers. time, it was heralded as one of the very few reinvest in those communities. Independent “We’re going to be able to onboard real-time bank transaction engines in the mortgage banks by contrast don’t take virtually all of what they do into our U.S. deposits out of communities.” technology platform,” he said. “We literally Todd H. Baker, a senior fellow at Columbia are going to lift and shift into a scalable PNC University’s Richman Center for Business, platform that effectively takes that total cost Law & Public Policy, said that dispensing DATA CENTER down to nothing. On the application side, with BBVA USA’s core systems makes sense with few exceptions, we’ll port the data onto given PNC’s cost-cutting goals. our applications,” Demchak said. “Once you make the decision that you’re What PNC Acquiring companies tend to think going to retain your own core systems their technology is better than that of and not theirs, then you have to evaluate has in mind the company they’re buying, observed everything that ties into that core and say Peter Wannemacher, principal analyst at to yourself, ‘I’m going to have to convert Forrester. He also surmises that PNC wants this to interact with my core; is that worth for BBVA’s the technology integration to happen doing?’ ” he said. “PNC didn’t buy BBVA quickly. USA for its technology. There were some technology “You don’t want to do it so quickly that nice things like Simple and Azlo that they it violates compliance or things like that,” might be able to make more valuable across By Penny Crosman Wannemacher said. “But it may be that PNC the larger footprint. But they didn’t buy the November 30, 2020 is thinking it’s better to integrate fast and bank because they thought that its software BBVA USA has been known over the then upgrade as they need to.” was better.” years for its investments in forward-looking Demchak said that BBVA USA has some The Alnova core enabled Open Platform technology, including a $362 million real- client-facing technology that would be to be built on top of it, according to Shamir time core system, its $117 million acquisition worth keeping. Though he didn’t specify Karkal, who at the time was in charge of the neobank Simple, and investments which applications these were, the front- of Open Platform, a unit of BBVA USA in the digital business bank Azlo and open end applications he referred to may include that provides application programming banking initiatives. Simple, the neobank BBVA acquired in interfaces and help to companies that want But now BBVA is being sold to PNC 2018 and Azlo, the digital bank for small to embed banking services in their offerings. Financial Services Group, and PNC has businesses that was developed within BBVA This would include technology companies indicated that that it’s planning significant USA and is majority owned by it. A BBVA that want to offer electronic payments, for cuts from BBVA’s expenses, particularly in USA spokeswoman confirmed that PNC will example. (Karkal was also one of the original technology. Question, which technology will acquire Simple, Azlo and Open Platform. co-founders of Simple and is now the CEO PNC keep and what will it jettison? “They’ve been heavy investors in of Sila, a fintech he co-founded that helps The $445 billion-asset PNC announced in technology, largely on the digital side,” other fintechs quickly develop technology mid-November it had agreed to acquire the Demchak said. “On the front-end side to for Know Your Customer and Know Your U.S. subsidiary of -based BBVA for clients, they have some really attractive Business compliance, as well as other $11.6 billion. BBVA USA has $104 billion of products that probably haven’t been services.) assets and is headquartered in Houston. brought to scale yet that we can help with. The Alnova core is unusual in that it PNC, of Pittsburgh, expects to achieve cost Those products will come over into our supports real-time, rather than batch savings in excess of $900 million, or about environment. But that’s an easy lift and shift transactions. This can be helpful in 35% of BBVA’s annual noninterest expenses, as well.” providing an accurate picture to customers by 2022, largely through operational and Asked for more specific details about of where their funds are and in offering real- administrative efficiency improvements. post-merger technology plans, a PNC time payment services, such as the ability Technology is one area where PNC expects spokeswoman said, “It is just too early for for insurance companies to disburse funds to find significant savings, Robert Q. Reilly, us to be able to comment on these specific to disaster survivors immediately. its chief financial officer, said during a details as the transaction is subject to But Kilmer pointed out that many banks November 16 investor call. customary closing conditions, including don’t support real-time transactions and are It’s normal for an acquirer to fold an regulatory approval, before it is completed. fine with that. acquiree’s technology into its infrastructure, We expect the transaction will close in mid- “They’ve figured out a way to fake it,” he

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 8 said, with memo posting and other methods acquired for. The thing for PNC to think onto big loans with short maturity periods. of communicating about transactions through, I think, is that the old world is “This becomes a staffing and logistical during the day, even if the transactions are dead. Nobody’s walking into branches. Are nightmare for all banks,” said Julio Gonzalez, processed in a batch overnight. they going to come back in droves in 2021? CEO at Engineered Tax Services in West Palm And many banks don’t want their I doubt that.” Beach, Fla., adding that lenders should be commercial banking transactions to clear contacting their clients to help them prepare instantly because they need to go through a for the questionnaire. review process, Kilmer said. PAYCHECK PROTECTION The SBA has not released a timetable for PROGRAM its loan-review program. The agency did not What’s the future for Simple and Azlo? respond to requests for comment on the With both Simple and Azlo, BBVA ran questionnaire. into the challenge many banks face when Banks, There are concerns that certain aspects of they introduce digital-only brands: fear of the questionnaire could increase the risk of cannibalizing their existing business lines. borrowers forgiveness being denied. “It’s very hard within an organization to The biggest worry centers on timing. build support for products and processes The survey asks borrowers to compare that essentially undercut existing cash-cow bristle at SBA their second-quarter results with those from businesses,” Baker said. “Companies know a year earlier, using data derived after most those cash cows aren’t going to last forever,” questionnaire small businesses received their PPP loans. but in the meantime they fuel the earnings The stimulus package that led to the PPP’s that deliver executive bonuses. April launch required borrowers to make “Simple was the leading neobank when it on large PPP a good-faith certification that a loan was was bought by BBVA,” Baker said. “It’s still a necessary based on the situation when they good app and it provides a lot of capability,” loans applied. Baker said. “But unless it’s freed to pursue There could be instances where a business, an independent path to profitability, it’s By John Reosti worried about its viability, requested and going to be hard for Simple not to fall into November 30, 2020 received a PPP loan, only to have better- the same kind of limbo land at PNC that it Lenders and borrowers are objecting to than-expected financial performance after ended up in at BBVA.” a questionnaire many fear might lead to receiving the funds, industry observers said. The challenger banks that have been the Small Business Administration denying The mismatch in time frames “has successful, like Chime, have a few things in forgiveness for untold numbers of Paycheck borrowers very frustrated,” said Nathan common, Kilmer said. Protection Program loans. Rogge, CEO of the $1.5 billion-asset Bank “They typically have a dedicated The SBA issued guidance last week of Southern California. “There’s a lot of entrepreneur, their own identity and requiring lenders to send a nine-page consternation there.” their own marketing,” he said. “It’s not a questionnaire to small businesses that Bank of Southern California, which funded technology problem at all. It’s a cultural borrowed $2 million or more under the PPP. more than 3,000 PPP loans totaling $500 problem and it’s predominantly one of Lenders are also responsible for routing the million, has 33 loans that would be subject to accountability and energy.” completed surveys to the agency. the questionnaire, according to data released For digital-only brands to work within Once a notification letter is received, by the SBA and Treasury Department. None banks, they need to be separate entities with lenders have five business days to upload of those large loans have been forgiven, independence and leadership, Kilmer said. the “standard loan review documentation” Rogge said. “Digital is not a channel to Chime or Varo, and notify borrowers. The SBA is giving “The government has continued to move it’s what they do,” Kilmer said. “In any U.S. borrowers 10 business days to complete the the goalposts on the banks, change the bank, the digital channel is one of many questionnaire and return it to their lenders. criteria, the requirements, their obligations,” things they do.” “Failure to timely respond to any SBA said Rachel Goldman, a lawyer at Bracewell PNC has its own digital bank offering, request may result in a delay in SBA’s in New York. Virtual Wallet, and it may want to support remittance of the loan forgiveness amount … “You have to keep in mind there was the that app more heavily than Simple. or in a determination that the borrower was imperative to get the money out as soon as Some observers say Simple, Azlo and ineligible for the loan or ineligible to receive possible,” Goldman said. “Banks were being Open Platform are valuable assets for PNC the loan amount or loan forgiveness amount criticized at the beginning for not doing and with the right support, any one of them claimed,” the SBA said in a letter to lenders. enough.” could grow to be worth more than BBVA Such a process will challenge borrowers Nearly 30,000 PPP loans topped $2 million, USA itself. For instance, if Simple could and lenders that are already grappling with or just 0.6% of all approved loans, according expand its user base into the millions, the a resurgence of the coronavirus, industry to data released by the SBA and Treasury. way Chime has, it would be profitable. observers said. And there is concern the In terms of dollar value, they accounted for “Chime is at a $15 billion valuation,” SBA could use borrower responses to deny about a fifth of the $525 billion approved Karkal noted. “That’s more than BBVA was forgiveness requests, leaving lenders holding under the program.

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Many of the PPP’s biggest participants are of the Currency or the Justice Department. USD Libor contracts to mature before Libor among those with the most big-ticket loans. “If there’s an audit or review of large loans experiences disruptions.” JPMorgan Chase, Bank of America and it is shown that there’s a pattern where Libor had been the centerpiece of interest and PNC Financial Services Group each controls failed, that financial institution rate risk hedging for decades before a rate originated more than 1,000 PPP loans of $2 will be exposed to regulatory scrutiny,” said manipulation scandal broke in 2012, in million or more, according to data compiled Thomas Kokalas, a lawyer at Bracewell. which several large contributing banks were by the SBA and Treasury. Truist Financial had “What we’re really talking about on the found to be routinely manipulating their rate 980 loans approved that exceeded $2 million. bank side is having them follow through on quotes to their own ends. The Federal Reserve Lenders and borrowers are paying basic [AML] controls and procedures that are Bank of New York convened the Alternative close attention to the issue. The SBA’s straightforward, which banks know how to Reference Rate Committee in 2014 to either announcement that it would collect data has do, such as verifying borrower information,” fix the problems with Libor or identify a better been viewed more than 10,600 times since Kokalas added. “While this can be pretty interest rate benchmark. The ARRC settled the agency unveiled its plan in the Federal simple, it can become difficult for banks to on the Secured Overnight Financing Rate, Register on Oct. 26. stay on top of this depending on the volume.” or SOFR, in 2017 as its preferred alternative, The SBA approved more than 5 million PPP though some banks say they prefer still other loans for about $525 billion between April 3 interest rate benchmarks to SOFR. and Aug. 10, when new originations ceased. LIBOR Regulators said in their statement that it The loans were intended to give borrowers is critical for banks to undertake the Libor the means to keep paying employees during transition in earnest or face enhanced the pandemic and resulting economic Regulators supervisory scrutiny. shutdowns. Loan proceeds spent on salary “Given consumer protection, litigation, and benefits, occupancy and other basic warn banks and reputation risks, the agencies believe expenses are eligible to be forgiven. entering into new contracts that use USD Almost as soon as PPP launched, big- LIBOR as a reference rate after December 31, ticket loans emerged as a sore spot, as large, against using 2021, would create safety and soundness risks well-known companies such as Shake Shack, and will examine bank practices accordingly,” Ruth’s Chris Steak House and the Los Angeles Libor in new the regulators’ statement said. Lakers were approved for funds the public “New contracts entered into before thought was intended for struggling small December 31, 2021 should either utilize businesses. The revelations led the SBA and contracts a reference rate other than LIBOR,” the the Treasury, the program’s administrators, regulators continued, “or have robust fallback to announce plans to review loans greater By Brendan Pedersen language that includes a clearly defined than $2 million. November 30, 2020 alternative reference rate after LIBOR’s Alex Sanchez, president and CEO at WASHINGTON — Federal regulators discontinuation.” the Florida Bankers Association, said the urged banks on Monday to stop using the The guidance from regulators builds on a questionnaire adds insult to injury for London interbank offered rate, or Libor, in recent string of developments surrounding struggling small businesses. their contacts and to begin transitioning away the outgoing financial benchmark. In early “A lot of these businesses suffered a great from the benchmark “as soon as practicable.” November, the OCC, FDIC and Federal deal in April and May,” Sanchez said. “SBA In an interagency statement, the Office Reserve announced that banks could use any needs to stick to the program as the terms of the Comptroller of the Currency, Federal reference rate as a replacement to Libor. were unveiled. Otherwise it’s unfair.” Reserve and Federal Deposit Insurance Corp. The regulators supplied a handful of In a Nov. 17 letter to Treasury Secretary said that “[f]ailure to prepare for disruptions “limited circumstances” in which banks Steven Mnuchin and SBA Administrator to USD LIBOR, including operating with could continue to enter into new contracts Jovita Carranza, more than 80 trade insufficiently robust fallback language, could that use LIBOR as a reference rate, such groups, including the American Bankers undermine financial stability and banks’ as certain transactions that would hedge Association, Consumer Bankers Association safety and soundness.” potential exposure to Libor as the benchmark and Independent Community Bankers Monday’s statement coincided with an winds down. of America, criticized the questionnaire. announcement from the ICE Benchmark The FDIC, OCC and Federal Reserve The groups proposed replacing the survey Administration — a subsidiary of the emphasized that their statement “should with narrative statement from borrowers Intercontinental Exchange that administers not be read as announcing that the LIBOR reaffirming their good-faith certifications. Libor — that it would cease publication of its benchmark has ceased, or will cease.” Some industry observers are worried that one-week and two-month Libor settings as The Bank Policy Institute — a trade lenders could encounter bigger issues if it is planned on Dec. 31, 2021, but would extend association representing the largest U.S. determined that their underwriting was lax the sunset dates of the remaining Libor banks — called the announcement of an or they ran afoul of anti-money-laundering settings to June 30, 2023. That extension, extension of most Libor contracts to 2023 laws. That could involve several agencies, the Fed said in a separate press release also “a prudent step that will help facilitate an including the SBA, Office of the Comptroller released Monday, “would allow most legacy orderly transition away from LIBOR.”

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the parent company or one of its subsidiary Donald Trump is advancing plans to auction CORPORATE GOVERNANCE banks for at least several years, and some have drilling rights in the Arctic National Wildlife been with Zions for a decade or more. Refuge. Zions’ president and chief operating officer, Bank of America has said it aims to position Zions’ Scott McLean, has been president since itself as a leader in environmental, social and 2014 and before that, he was CEO of Zions’ governance matters in the financial industry Simmons subsidiary Amegy Bank, which he joined in through underwriting green bonds, reducing 2002. Chief Financial Officer Paul Burdiss has carbon emissions and supporting global been with Zions since 2015 and previously climate initiatives. It has a goal of achieving reveals worked for SunTrust and Comerica. Scott net-zero emissions by 2050. Anderson, the president and CEO of Zions Ben Cushing, a senior campaign cancer Bank, has been with the company since 1990. representative for the Sierra Club, said the banks’ policies call into question future projects in the Arctic. diagnosis CLIMATE CHANGE “Now that every major American bank has stated unequivocally that they will not finance By Laura Alix this destructive activity, it should be clearer November 30, 2020 Bank of than ever that any oil company considering Harris Simmons, the chairman and CEO of participating in Trump’s ill-advised lease sale Zions Bancorp. in Salt Lake City, was recently America should stay away,” he said in a statement. diagnosed with a form of non-Hodgkin’s lymphoma, according to a company filing on Monday. says it won’t REGULATORY GUIDANCE In a letter to employees of the $70 billion- asset Zions, Simmons said that a routine finance oil colonoscopy on Veterans Day ultimately led to CFPB gives a diagnosis of Mantle Cell Lymphoma. While his outlook is positive, Simmons said his and gas go-ahead to schedule would be disrupted over the next few months as he pursues treatment. exploration in “I’m highly optimistic and upbeat about firms seeking what my future holds. I expect to live for many additional years, and to be fully productive the Arctic advisory for a long time to come,” he said in the letter. “I take great comfort in the fact that we have By Bloomberg News a strong management team who can capably December 01, 2020 opinions carry on during any of my brief absences.” Bank of America said that it won’t provide Simmons, who is 65, has been with Zions project financing for oil and gas exploration By Neil Haggerty since 1970 and has spent more three decades in the Arctic after facing opposition from November 30, 2020 as its chief executive. He was named American environmentalists. WASHINGTON — The Consumer Financial Banker’s Banker of the Year in 2018. “There’s been misunderstanding around Protection Bureau finalized a policy on While this particular diagnosis has been our position, but we have not historically Monday that enables financial firms to seek “pretty gloomy” in the past, Simmons said participated in project finance for oil and gas formal advisory opinions from the agency he will undergo a relatively new form of gene exploration in the Arctic,” Larry Di Rita, the in order to gain more clarity about a specific therapy, recently approved by the Food and bank’s head of public policy and strategy in regulatory policy. Drug Administration, at the MD Anderson Washington, said Monday in an interview. “Regulatory certainty promotes compliance Cancer Center in Houston. He began the “But given that misinterpretation, we’ve if the law applies and avoids unnecessary initial, non-chemo stage of treatment on determined that it’s time to codify our existing compliance costs if the law does not,” the Thanksgiving Day, he said. practice into policy.” bureau said. In a note to investors, Janney Montgomery Environmental campaigners have criticized The CFPB’s advisory opinion policy states Scott said the diagnosis did not affect its rating the Charlotte, North Carolina-based lender that any person or entity can submit requests of the company. The firm added that Zions for its stance. In November, the Sierra Club for advisory opinions to the agency. Agency “has a strong management team capable singled out Bank of America as “the only staff will review requests and determine when of leading the company during Simmons’ major U.S. bank not to rule out financing for it is appropriate to issue a formal advisory absence and the credibility with investors to the destruction of the Arctic refuge” after its opinion. Once advisory opinions are issued, limit uncertainties until Simmons returns.” five biggest competitors updated their policies they will be made public through the Federal Many of Zions’ top executives have been with this year. The administration of U.S. President Register.

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When determining which requests to could handle a broadly destructive health with much richer history and data to support pursue, the CFPB said it will prioritize “open pandemic that blindsided the world. But projections. questions” within its purview that can legally they’re also preparing for another headwind: The even greater challenge, however, be addressed through an interpretive rule. The climate change. is to predict how banks will change their agency said it will issue an advisory opinion if As key financial intermediaries, banks businesses over that same timeline. The it views the opinion as an “appropriate tool” have an important role to play in managing a average weighted maturity of a commercial- for answering firms’ questions. transition away from carbon, but there is one and-industrial loan is three years, so a bank’s In the final policy, the CFPB signaled idea that does not appear ready for prime portfolio would turn over 10 times in a 30- that it will not issue advisory opinions on time: stress testing for climate change. year stress horizon. Of course, to the extent interpretive issues that are subject to ongoing Fortunately, U.S. banks are fully engaged that climate change dims the prospects investigations, enforcement actions or on assessing and disclosing climate risks. of a given industry or company, the bank planned rulemaking. And perhaps more importantly seeking to would take one of those ten opportunities to The formal advisory opinion policy follows develop markets to assist in a transition away reduce its exposure and lend to a firm whose years in which the agency has provided from carbon-intensive business. prospects have brightened. informal, nonbinding staff opinions when For example, the Partnership for Carbon Here’s an example. Assume a U.S. bank has a firm needs clarification about a specific Accounting Financials recently announced a revolving line of credit to Ford Motor Co. practice or product. The CFPB has stopped a global standard to allow banks, asset Most would predict that the climate change short of written advisory opinions that offer an managers and investors to use a common risk of that loan is relatively low, as the bank interpretation of the law and can be extended method of reporting greenhouse gas can decide to terminate it if Ford’s gas- to other firms in similar situations. emissions tied to lending and investment powered vehicles lose market share over the The financial industry has largely portfolios. years. There is also the distinct possibility that supported the implementation of a formal Financial innovation is also underway as Ford will increase its production of electric advisory opinion policy as a means for 2019 had a record issuance of green bonds vehicles. And of course, the bank could also bringing regulatory clarity, while consumer exceeding $250 billion, and development hedge the risk by lending to Tesla as well, or advocates have warned that a formal advisory of green asset-backed-securities, hedging buying credit insurance on Ford. opinion policy would roll back regulations by products and reforms to carbon-offset So, what is a bank to assume for the next reinterpreting existing laws and enable firms markets. In terms of risk management, banks 30 years? The U.K. test would require a bank to shirk consumer protection responsibilities. are actively developing their climate scenario to model cash flows and collateral values Along with the issuance of its final advisory analysis capabilities to understand the risks over the next 30 years, reflecting “judgments opinion policy, the agency issued two advisory they face across their businesses. about how companies would be positioned opinions. But some regulators have suggested going in light of both their underlying risks and The agency issued an advisory regarding the further in an attempt to quantify those risks opportunities, including an assessment scope to which earned wage access products for capital purposes using government-run of their current mitigation and adaptation can be considered extensions of credit, as well climate stress testing. Such testing comes plans.” an advisory opinion that certain education with assumptions about how the climate will But what could that possibly mean? And loan products are subject to disclosure evolve, how governmental policy will change how relevant is such an analysis when a bank requirements under the Truth in Lending Act. and how both will affect bank borrowers. has the option simply to exit the credit at Those are very difficult projections to make, multiple intervals along the way? And that is and can become highly speculative over the just the supply of credit. BANKTHINK longer term. Presumably, carbon-intensive businesses For perspective, consider in 2008 when that begin to perform poorly will shrink, the United States was a major importer of oil reducing their demand for credit, and thereby Climate risk and natural gas, it was universally projected banks’ exposure to any subsequent default. to face higher prices for the former and a Climate stress tests do not appear to take this test asks shortage of the latter. Ten years later, the factor — basically, half the equation — into U.S. was the world’s largest producer of both account. oil and natural gas, the largest natural gas Certainly, it is important for bankers and banks to look exporter in the world and among the three their regulators to measure and manage largest oil exporters. climate-related financial risk in a way that too far down Remarkably, United Kingdom and provides an accurate picture of what is at European climate stress tests envision a 30- stake. But trying to capture climate change year projection with embedded assumptions effects decades in advance — without the road about how global energy markets will considering the extraordinary adaptability change over that period. For perspective of the financial system and economy — By Greg Baer (and humility), consider that the Federal and incorporating those results into the November 30, 2020 Reserve’s financial stress tests have a time regulatory capital framework is no easier Bankers have shown this year they horizon of two to three years, even in an area than predicting how pandemics or machine

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 12 learning will affect banks by 2050. staffer Neera Tanden to lead the Office of Key for the Biden administration is passing Regulators should instead ensure that Management and Budget. Cecilia Rouse, a fiscal stimulus package that bolsters climate risks are well understood and formerly of the Obama administration and consumer finances and supports additional appropriately disclosed. They shouldcurrently dean of Princeton University’s spending. The Fed is set to maintain an encourage innovative efforts by financial School of Public and International Affairs, accommodative monetary policy to help companies to develop markets that can will head the Council of Economic Advisers. drive growth. smoothly speed up a transition to a greener Both roles require Senate confirmation. History suggests Yellen will be sworn in economy. Adewale Adeyemo, a former senior by early February. Among her first tasks Beyond finance, policymakers managing adviser at BlackRock Inc. who is president of will be to decide what to do about the Fed’s a transition to a green economy have far President Barack Obama’s foundation, will be pandemic lending programs. Outgoing more effective tools available to them, such nominated as the deputy Treasury secretary. Treasury Secretary Steven Mnuchin has as direct regulation or through market At the top of their to-do list will be to break said some will sunset on Dec. 31. She may mechanisms. Stress testing for banks, a deadlock in Congress over additional relief find a way to extend them, which is the Fed’s however, seems a highly inefficient vehicle spending, an effort that would be far easier if preference, or perhaps redesign them since and one that risks degrading the integrity of Democrats win two Georgia Senate seats in many remained largely untapped. financial regulation. runoff elections next month to wrest control of the chamber from Mitch McConnell’s Market stability Greg Baer is the president and CEO of the Republicans. Investors predict that with a less volatile Bank Policy Institute. Yellen is seen winning easy confirmation boss than her predecessor, Yellen can be a in the Senate. While she occasionally sparred stabilizing force on . with Republican lawmakers as Fed chair, she’s President Donald Trump’s practice of POLICYMAKING widely respected, and some GOP senators policymaking by tweet sowed unpredictability publicly complimented her selection, which for businesses and investors. Yellen’s tenure Biden has yet to make official. at the Fed — as chairman, vice-chairman, It’s official: At 74, she will be the oldest Treasury governor, and San Francisco Fed president — secretary in recent memory, and the first means that she’s keenly aware of the market Yellen is woman to lead the agency. Biden on Monday impact of her words, a stark contrast with also chose Adewale Adeyemo, a former senior Trump administration officials. senior adviser at BlackRock Inc., to be deputy “The markets love this appointment Biden’s pick Treasury secretary. because being the former Federal Reserve Yellen would be the second person in the chair, there’s no surprises about her thinking,” for Treasury modern era to serve as both Fed chair and said Peter Mallouk, chief executive of Creative Treasury chief, after Jimmy Carter appointee Planning. By Bloomberg News William Miller, and the only one to also have Yellen comes as something of a relief to November 30, 2020 led the White House Council of Economic Wall Street after talk of Biden’s potentially President-elect Joe Biden took a significant Advisers, which she did in the Clinton choosing Sen. Elizabeth Warren, a nemesis step this week toward addressing the administration. of big banks with a preference for stronger damage to the U.S. economy inflicted by the “Biden made a clever pick with Yellen,” financial regulation, as his Treasury chief. coronavirus pandemic, naming an economic said economist Marc Sumerlin of Evenflow But it’s the influence of progressive team led by his for Treasury secretary, Macro in Washington. “She’s nonpartisan, Democrats like Warren that steered Biden former Federal Reserve Chair Janet Yellen. has earned everybody’s respect, and can give away from current Fed Governor Lael In Yellen, Biden will have a battle-tested intellectual heft to the stimulus argument Brainard. Before Election Day, Brainard was a policymaker who can draw on her nearly more than anyone else could have.” favorite for Treasury secretary among Biden’s two decades at the Fed to help rebuild an Here’s a look at her challenges ahead. advisers. Biden’s allies have since asked that economy in dire need of government cash Brainard remain at the Fed, where she’s the and confidence. Biden has called for trillions Stimulus lone Democrat on the board. of dollars in new stimulus to aid the small and The U.S. economy is showing signs of mid-size businesses that are the nation’s jobs further erosion as coronavirus cases spiral Financial regulation engine. and some states begin to shutter businesses The party’s liberal wing appreciates Yellen Yellen’s expected to champion what she’s again in a bid to slow the spread. The U.S. for her support of tighter financial regulation, called “extraordinary fiscal support” to help outbreak threatens to be a drag on the for which she’ll be the point person in the the pandemic-ridden economy — deficit nascent labor market recovery, with jobless Biden administration. That will thrust her spending that she says is affordable given claims ticking up and payroll gains forecast to into anticipated policy battles between extraordinarily low interest rates. slow further. progressives and moderates over the policing Biden also announced other picks for Nine months into the pandemic, more of Wall Street. his economic policy team early Monday, than 6 million people still claim extended The most liberal lawmakers want to restore including longtime Democratic policy unemployment assistance. and even toughen post-financial crisis rules

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY DECEMBER 2, 2020 AMERICANBANKER.COM PAGE 13 weakened during the Trump administration. whether to continue sanctions imposed cutting-edge companies. But centrists may push for a more cautious on Chinese officials for their crackdown SVB Capital manages $5.5 billion of assets approach, arguing that it would be a mistake on human rights, and she’ll inherit Trump across multiple funds. to clamp down on banks at a time when the administration restrictions aimed at cutting SVB, the parent of Silicon Valley Bank, economy is imperiled. off Chinese technology companies’ access to has had a longstanding relationship with As Treasury chief, Yellen will lead the American intellectual property. WestRiver, participating in previous deals Financial Stability Oversight Council, the Yellen has spoken in favour of liberalizing together. Erik Anderson, WestRiver’s founder powerful group of regulators that tries to trade and has publicly disagreed with and CEO, is expected to join SVB as executive identify and rein in emerging threats posed Trump’s position that China’s management chairman of the new capital credit platform by the industry. Since it was created through of its economy swelled the U.S. trade deficit. and as chairman of SVB Capital’s advisory the Dodd-Frank Act, the FSOC has become a She said in February that “we haven’t seen” committee. forum for agencies like Treasury, the Fed and any evidence that duties on Chinese goods “WestRiver Group has been a fantastic the U.S. Securities and Exchange Commission made U.S. manufacturers more competitive partner to SVB for the past eight years,” to collaborate on oversight. or more likely to hire. SVB Capital President John China said in a Yellen’s record indicates she may use the At Treasury, Yellen would also decide press release. “Together we have supported position to push for new rules on so-called whether to continue branding China as a innovative companies across the country shadow lenders, such as money-market currency manipulator in biannual reports. with the financing they need to scale.” mutual funds and investment banks that are The U.S. label has no practical effect, but adds The deal will give SVB an expanded outside the Fed’s reach. to tensions between the world’s two largest presence in Seattle, where it has a loan In recent years she’s sounded alarms in economies. production office. q particular about leveraged lending — loans While not singling out Beijing, Yellen extended to businesses that are already said in 2019 that it was “really difficult and © 2020 Arizent and American Banker. highly indebted — due to concerns that the treacherous” to determine when a country All rights reserved. economy could suffer significant job losses is massaging its currency to gain a trade if the corporate borrowers start defaulting. advantage. A weaker exchange rate, she said, Shadow banks are very active in leveraged may just be a byproduct of looser economic lending. policy.

Foreign relations What’s less clear about Yellen is whether M&A she’ll embrace the Treasury secretary’s role as an occasional economic aggressor. While international economic diplomacy will be SVB Financial part of her purview, taking her to Group of 20 meetings that she participated in as Fed to buy Seattle chair, she’ll now play a much larger role in U.S. foreign policy. Part of her new remit will be to work with investment the State Department and other national security agencies to manage the vast U.S. firm sanctions portfolio. But as Biden indicated during his presidential campaign, his early By John Reosti agenda will include repairing ties with November 30, 2020 allies damaged by Trump’s “America First” SVB Financial Group in Santa Clara, Calif., position. has agreed to buy WestRiver Group, a debt Mnuchin and predecessors including investor based in Seattle. Hank Paulson played central roles in WestRiver, founded in 2002, focuses on managing trade policy and relations with financing technology and life sciences firms. China. It remains to be seen if Biden will SVB did not disclose the price it will pay. hand Yellen the same power. The deal is expected to close by the end of The new administration will also need to this year. decide whether to scrap, keep, or escalate The $97 billion-asset SVB said it will create the billions of dollars in tariffs levied against a division within its SVB Capital unit to focus Chinese imports, and whether to stick to the on meeting larger debt requirements of partial trade deal Trump signed with Beijing commercial banking and investment clients. in January or seek to renegotiate it. The division will also offer institutional Yellen also will be involved in determining investors more opportunities to invest in

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