WEDNESDAY SEPTEMBER 23, 2020 VOL. 185 No. 184 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Banks can hold stablecoin- 5 related assets for customers, OCC says Summer vacation? The agency issued an interpretive letter on stablecoins two months after permitting Not this year. institutions to provide wallet services for cryptocurrency holdings. Page 7 See story on page 5 Three more former Wells Fargo 6 execs settle civil charges Matthew Raphaelson, Kenneth Zimmerman and Tracy Kidd, all of whom were senior Did not use PTO this summer, 44% executives in the company’s consumer banking unit, have agreed to pay six-figure Used normal amount of PTO, 34% fines in connection with Wells Fargo’s unauthorized account scandal. Page 8 Used less PTO than normal, 22% UBS CEO says it’s hard 7 to sustain culture working at home Sergio Ermotti joined JPMorgan Chase’s Jamie Dimon in expressing concern about the long-term consequences of remote work. Page 8

Source: ValuePenguin by LendingTree Masks on, earbuds in: 8 Verve launches pandemic podcast for staff The credit union turned to a new dailybriefing Credit union employees engagement strategy for employees after the 3 ‘clearly not taking pandemic forced most of the organization to enough’ time off transition to working from home. Page 9 Results-driven Fraser The pandemic has forced the institutions on 1 just the ticket for fixing this year’s Best Credit Unions to Work For Former Citi CEO Pandit Citi, associates say list to be more flexible with their policies for 9 to buy majority stake Jane Fraser, who is poised to become the how and when employees take time off. in title insurer Westcor first woman to lead a major U.S. bank, (See chart above.) Page 5 Westcor has been gaining market share, possesses turnaround experience and strong growing to 5.9% of premiums written in 2Q interpersonal skills that make her well suited Live Oak outpaces larger 2020, versus 3.4% in the first quarter for mending fences with regulators and 4 rivals in moving core of 2019. Page 9 investors, according to present and former system to public cloud colleagues. Page 2 The North Carolina bank deployed Finxact’s States are well equipped new technology, which runs on Amazon 10 to regulate fintechs Fed plan to reform CRA Web Services, to make Paycheck Protection The OCC is trying to seize jurisdiction 2 at odds with OCC rule Program loans and will use it next to offer by arguing that current supervision is The central bank’s proposal to overhaul business savings accounts and CDs. Page 6 haphazard. But states are already working the Community Reinvestment Act differs together to streamline regulation while markedly from the OCC’s regulation in continuing to enforce consumer protections testing, data collection and other and encourage innovation, John Ryan of the areas. Page 3 Conference of State Bank Supervisors writes. Page 10 WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 2

by Reuters. North American response to the COVID-19 SUCCESSION PLANNING “I think one of the things [Fraser] has to pandemic. At one point, about 90% of the be aware of is that there is general frustration company’s workforce was working remotely, about how these issues have lingered for a and most employees are still based at home. Results- long period of time,” Kleinhanzl said. “So she When she succeeds Michael Corbat as may not have a long time to get settled before CEO, Fraser will have to put her fixer-upper driven Fraser she has to come up with a plan. She’s going to skills to work across the entire corporation. have to hit the ground running.” According to colleagues and industry Fixing trouble spots is something of a watchers, at the top of the to-do list will be an just the ticket specialty for Fraser, a former partner at the overhaul of Citi’s internal risk management consulting firm McKinsey & Co. who joined practices and controls, which are back in the for fixing Citi, Citi’s corporate and investment banking spotlight following the revelation last month division in 2004. Over the past 16 years, she that Citigroup accidently paid $900 million to oversaw the massive restructuring of Citi’s creditors of the cosmetics company Revlon. associates global mergers-and-acquisition business A recent Wall Street Journal story said the during the financial crisis, which involved federal regulators plan to hit Citi with a consent say the sale of about $1 trillion of assets; helped order that would require it to improve its risk reconfigure the private bank after the sale management technology and procedures By Allissa Kline of Smith Barney in 2012; and moved from to be more adept at catching problematic September 21, 2020 London to St. Louis to lead the company’s transactions, risky trades and other threats. It Missed financial targets. Mounting investor mortgage business following intense is unknown if there will be a fine. frustration. A mistaken $900 million payment government scrutiny of its foreclosure, robo- CitiMortgage General Counsel Victoria that could lead to federal enforcement action. signing and other practices. Kiehl said Fraser is “big on compliance and And a festering pandemic that continues to not For four years, Fraser was in charge of risk.” The two met in 2013 when Fraser took only upend lives of employees and customers, Citi Latin America, overhauling business the mortgage job and transferred to St. Louis. but also lay bare deep racial and economic structures, controls and ethics across 23 Her impact was immediate—just a day or two inequities. countries including Mexico. She downsized after the company announced her promotion, The list of challenges Jane Fraser will face retail banking and credit card businesses in Fraser was on the ground in her new city, when she steps into the CEO job at Citigroup markets such as Brazil and Argentina and going door to door to meet her new colleagues in February is daunting. But some of those led a $1 billion investment in Citi’s Mexican and making an effort to understand the ins who know the Scottish-born banker, whose subsidiary, Banamex. In October 2019, she and outs of the business. promotion will make her the first woman to was named president of Citi and CEO of the “I had created a book of legal issues, and lead a major U.S. bank, say she is ideally suited U.S. global consumer banking, where she in 2013 we had a lot,” Kiehl said. “The book for the task of mending fences with regulators is in charge of consumer businesses in 19 was probably three inches thick. Jane read the and investors and moving the company countries, leading retail banking and wealth whole thing and asked all kinds of questions forward. management, credit cards, mortgages and about it. From the get-go, she just wanted to “She is a person who, when it comes to operations and technology for those units. know everything.” managing under difficult circumstances, has a Since March, she has been in charge of Citi’s Fraser has not done any media interviews history of doing that,” said David Bailin, chief investment officer at Citi Private Bank, whom Fraser hired away from Bank of America in Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 2009. “What will define her time in office will Phone 212-803-8200 AmericanBanker.com be both specificity and transparency. … Her voice will be, ‘What do we need to do?’ … and Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 ‘Here’s where we’re at and where we need to Managing Editor Dean Anason 770.621.9935 g o.’ ” Reporters/Producers Whatever plan she puts in place needs Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 to happen quickly, according to Brian Washington Bureau Chief Joe Adler 571.403.3832 Kleinhanzl, an analyst at Keefe, Bruyette Executive Editor, Technology Miriam Cross 571.403.3834 & Woods who covers the $2.2 trillion-asset Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 company. That’s because investors are growing BankThink Editor Rachel Witkowski 571.403.3857 weary of compliance issues and waiting for John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 higher returns from an organization whose Hannah Lang 571.403.3855 stock price trades below tangible book value. Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 At 0.56, its price-to-tangible-book ratio is well Digital Managing Editor below that of many of its peers; JPMorgan Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 Chase’s ratio is 1.41, according to data tracked

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 3 since the CEO transition was announced he said. “Now [investors] expect her to take day,” Stewart said. “She sets high standards. Sept. 10. In a memo to colleagues that day, that strategy and apply it to the whole of Citi. But she doesn’t just articulate high standards. she said the company needs to “invest in and Maybe it’s shrinking the bank or defining the She has to figure out how it happens.” enhance [its] infrastructure for a fully digital businesses they don’t need to be in. … I think Stewart said Fraser also has the people skills world; we need to move from remediating management has to define what it wants Citi needed for the CEO role. to fundamentally transforming our risk and t o b e .” “You knew Jane was going to do big things, control environment; and we need to ensure Natasha Lamb, managing partner of the great things,” she said. that we have a culture which demands activist investment firm Arjuna Capital, said Fraser’s personality is a big factor in her excellence in these areas because it will appointing Fraser CEO may help Citi address success, both Bailin and Kiehl said. Last ultimately make us more competitive and some of its challenges because she will bring December, she unexpectedly popped into a improve our ability to serve our customers a different perspective as a woman. Under surprise office birthday party for Bailin and and clients. I am excited for the bank we are pressure from Arjuna, which owns shares of immediately “the room lit up,” Bailin said. building.” Citi stock, it became the first Wall Street bank “If you walk around the St. Louis office, The details of how Citi will achieve those to disclose gender and racial pay gaps first to this day the amount of pictures with Jane standards are sure to be closely watched by on an adjusted basis, then on an unadjusted that people have hung up, you see that all investors. In January, the company revised basis. over the place,” Kiehl said. “She just creates its return-on-tangible-equity targets for 2020. Lamb, who also has not met Fraser, praised followership, which is electrifying.” Instead of 13%, it lowered its expectations to the company’s choice while acknowledging Kevin Wack contributed to this article. 12% to 13% for the year. Then, like so many there is a lot of work to do, especially in risk other banking companies, it abandoned those controls. targets as the pandemic rolled across the “This is not some great solve that’s going to CRA country. solve all of Citi’s problems, but I do think it is a Last week, its shares fell nearly 13%. necessary step and the right step forward for The decline followed the CEO transition the bank to address these challenges,” Lamb Fed plan to announcement and news of the looming said. enforcement action. Fraser’s blend of experiences should serve reform CRA Citigroup has been taking heat from a major her well atop a company that today operates investor, the activist hedge fund ValueAct, in more than 90 countries. Clifford Rossi, who CNBC reported. ValueAct was discouraged met Fraser when he was chief risk officer for at odds with by the company’s financial performance Citi’s consumer lending group, said she “has under Corbat, especially with the missed or a strategic vision, she knows the business very OCC rule changed targets, CNBC said, citing sources well and she’s able to execute.” with knowledge of the matter. That knack for strategic thinking will be By Hannah Lang and Brendan Pedersen ValueAct did not respond to a request for particularly important for Citi’s CEO in the September 21, 2020 comment. A Citi spokeswoman said that current economic environment, since low WASHINGTON — The Federal Reserve “[Citi has] had a constructive relationship interest rates are crimping bank’s profit released a preliminary proposal Monday with ValueAct over the past several years” and margins, Rossi said. to update the decades-old Community continues “to be an important partner” with Citigroup reported a decidedly profitable Reinvestment Act, distancing the central bank Citi today. second quarter, with revenues of $19.8 billion, even further from a CRA rule finalized by the Part of the company’s efforts to reward up 5% on fixed income and markets and Office of the Comptroller of the Currency in shareholders were set back by the pandemic, investment banking. Meanwhile, operating May. the spokeswoman said. In 2017, Citi set a goal expenses of $10.4 billion fell 1%. In the Fed’s advance notice of proposed of returning $60 billion in capital over three Bailin said Fraser will be very specific rulemaking, the agency floated a new stress-test cycles. It was set to exceed that goal, about laying out financial targets and meeting framework in which banks could rely on but halted share buybacks in March alongside the metrics. He pointed to her experience existing data collection and reporting other big banks as the health crisis unfolded, overhauling the Latin America business and requirements, deviating from the OCC’s plan she said. It returned $58.4 billion between the leading Citi through the pandemic as key to request new data points for CRA scoring. third quarter of 2017 and the second quarter of examples of “very big challenges with great The Fed would also include key tests that 2020, she said. complexity” that she has tackled in her career. consumer advocates had blasted the OCC for Kleinhanzl, who has not met Fraser, said “She has hands-on experience dealing with abandoning, such as a separate community he is aware of her track record within the the most difficult things we’ve had to deal development test “with separate financing organization and that it is well suited to with,” he said. and service subtests,” according to the Fed’s dealing with the challenge she faces. Cecilia “Cece” Stewart, a former Citi memo. “The areas that she’s gone into are typically executive who worked with Fraser in the early “Stakeholder feedback indicated that retail areas that need to be turned around, and she’s 2010s, called her a great leader who works and community development activities are made some hard choices and invested in areas hard and is also exceptionally smart. both fundamental to the CRA and essential that were opportunities for high returns,” “I always felt like she just gave 100% every for meeting the core purpose of the statute,”

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 4 the Fed said in its memo. “Staff believe that community development activities for which “Joint regulatory action will prevent separately evaluating these activities in a banks can receive CRA credit and incorporate confusion and avoid unintended Retail Test and a Community Development uniform metrics into the examination process consequences for banks and the communities Test would better ensure that these activities Under the new framework, smaller banks they serve,” Nichols said. are appropriately taken into consideration.” would be able to opt out of the proposed retail Community advocates favored the Fed’s Having separate retail and community test and community development test and approach out of the gate compared to the OCC development tests would allow the Fed to operate instead under the current CRA regime. rule. tailor CRA metrics for a bank’s local market The ANPR also seeks feedback on whether Jesse Van Tol, CEO of the National conditions, which may have disparities the Fed should set an asset threshold of $750 Community Reinvestment Coalition, called between retail lending and community million or $1 billion that would differentiate the Fed’s ANPR “an encouraging step toward development financing, said Fed. Gov. Lael between the CRA requirements for large banks thoughtful updates to CRA rules.” Brainard in remarks to the Urban Institute and those for small banks. “Unlike the OCC, which earlier this year after the Fed voted to approve the proposal. Smaller banks could also choose to comply enacted an unworkable update to its CRA While the Fed has embarked on a different with the new CRA framework, but they would rules, the Fed has focused on transparent data path from the one the OCC followed, the be evaluated only on their retail lending analysis and qualitative measures of impact central bank indicated that it intends for the activity, unless they wanted to have other on communities, rather than on simplistic new ANPR to be the basis for the agencies activities considered. formulas that are easy to manipulate,” Van Tol to work together on an eventual CRA reform The Fed also suggested that online lenders said. plan. And some observers said the door is still without a physical branch network would be The Fed is also asking for public feedback open to the Fed, OCC and Federal Deposit evaluated within a nationwide assessment on how its proposal could create incentives Insurance Corp. agreeing on a joint plan. area, rather than an assessment area based for bank investments in minority depository Some analysts say that because the OCC’s only on where those banks are headquartered. institutions, community development finalized framework won’t go fully into effect The Fed’s proposal would “strengthen, financial institutions and geographic areas until 2023, that timeline will give regulators clarify and tailor” CRA to better meet the outside of traditional CRA assessment areas, ample time to coordinate on an interagency purpose of the 1977 law, said Brainard, who is like Native American communities. The Fed framework of some kind, regardless of who spearheading the regulator’s revamp. also asks whether banks should receive CRA occupies the White House after this year. The “It has been 25 years since the last consideration for operating branches in Fed’s ANPR will be open for comment for 120 significant revision to the CRA regulation, so it “banking deserts.” days, stretching past the upcoming general is important to get reform right,” she said in a Brainard, speaking at the Urban Institute, election. statement. also underlined that the Fed’s goal was to “The OCC regulation doesn’t really go The law is a top priority for the Fed, echoed overhaul CRA in a way that would promote into effect until January 2023,” said Warren Chair Jerome Powell. Even though the Fed, financial inclusion. W. Traiger, senior counsel at Buckley. “There OCC and Federal Deposit Insurance Corp. “By being inclusive in their lending and is plenty of time, no matter what happens have all appeared to follow separate paths investing, banks help their local communities with the election, for the regulators to come in reforming CRA, Powell emphasized that to thrive, which in turn benefits their core together on this.” stakeholders have encouraged the banking business,” she said. “The recognition of this Others said it helps that the Fed’s board regulators to work together to develop a new mutually beneficial relationship between approved its rulemaking notice unanimously. proposal. banks and their local communities is one of “In a year where partisanship has tainted “Given changes in the banking industry the core strengths of the CRA.” every corner of the political discourse, since the regulations implementing the CRA Under the proposal, small banks operating this is a refreshing exception,” said David were last substantially revised, the measure in rural areas would have greater flexibility in Dworkin, president and CEO of the National before us proposes ways to modernize CRA defining their assessment areas, and would Housing Conference. “Unanimous support assessment areas while maintaining a focus not be required to include areas of counties of a modernized approach to the CRA really on more traditional means to provide banking where banks don’t have a physical presence in sets the table for the FDIC and OCC to come services, like branches, given their importance their assessment areas. together on a unified approach. Banks and to individuals and communities,” he said in a The Fed also recommended designating advocates desperately need that.” statement. certain inequity-plagued areas located beyond The Fed’s plan would evaluate banks on Rob Nichols, president and CEO of the a bank’s reach where banks would be able to retail lending and community development American Bankers Association, said the receive credit for community development according to their asset size. It would also seek Fed’s plan was “an important step toward activities. to modernize CRA assessment areas, which modernizing the Community Reinvestment “Many of the places that I have visited, commentators say have become outdated Act in a manner that benefits communities such as in the colonias, the Mississippi Delta, as banks’ footprints have enlarged beyond and provides banks with regulatory clarity Appalachia, and Indian Country, have few their branch networks. Yet the central bank’s going forward.” bank branches and are located outside of framework would still retain a focus on bank He stressed banks’ desire for a “unified CRA branch-based assessment areas,” Brainard branches as an anchor for CRA activity. framework featuring clear and concise rules said. “Banks need to be confident about The ANPR would also expand eligible for all banks that will stand the test of time.” receiving CRA credit to seek out activities and

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 5 investments in these areas.” inequities, where banks could receive credit truth is Americans don’t take enough time The Fed additionally sought in its proposal for community development activities that off of work and it’s not good for us,” said Matt to minimize the data collection and reporting often lie beyond the boundaries of a bank’s Schultz, chief credit analyst at LendingTree. burden on banks, recommending new branches,” Brainard said. “When times are stressful — and certainly metrics that would rely on existing data, and 2020 has been one of the most stressful years tailoring additional collection and reporting we’ve been through — people need breaks, requirements to bank size. CORONAVIRUS and the survey shows we’re clearly not taking In a statement, acting Comptroller of the enough of them.” Currency Brian Brooks said that the national Many credit unions said they’ve seen a bank regulator welcomed the Federal Credit union higher-than-usual number of employees Reserve’s plan. holding back from using vacation time this “Public input and discourse fuels employees year. With that in mind, some CUs have continuous improvement, and we look temporarily lifted requirements on the forward to reviewing the comments for minimum number of consecutive business potential insight into our own rulemaking ‘clearly days taken for vacation during the year, a that applies to national banks and savings common rule many financial institutions associations,” Brooks said. “We are pleased not taking use as part of their internal fraud-prevention to see that many of the principles on which strategies. we worked together and that the OCC, FDIC, Easing of those policies has contributed and Federal Reserve agreed upon prior to the enough’ time to fewer vacations at Fairwinds Credit Union finalization of the OCC rule in May will be part in Orlando, Fla., this year. Cathy Hertz, EVP of their rulemaking discussion.” off of human resources, said management Yet even though the Fed said its goal is to discussed the fraud-prevention issue before “build a foundation for the agencies to develop By Aaron Passman approving the change, and the program will a shared, modernized CRA framework that has September 21, 2020 sunset at year-end, with the regular policy broad support,” it is unclear how that would The coronavirus forced credit unions to resuming at the start of 2021. Hertz said the happen. The OCC finalized its CRA framework quickly rework many of their paid time off credit union continually performs internal without the support of the Fed or the FDIC. benefits for employees, but the ongoing audits and evaluations of staff members to “I think it’s important to recognize that with nature of the pandemic and the likelihood monitor for fraud, and leadership is confident the path we’re on today, there are effectively that it could stretch into next year have forced that adequate safeguards are in place. two separate rules,” Brainard said. “We did many institutions to continually update those Fairwinds and others have also modified want to provide a very long comment period policies. guidelines around carrying over or selling — 120 days — [and] we did choose to issue an Across the asset spectrum, the vast majority back unused vacation time. Coastal Federal advance notice of proposed rulemaking. And of institutions included in this year’s Best Credit Union in Raleigh, N.C., allows staff of course there is a window on in which there is Credit Unions to Work For rankings reported members to carry over some unused vacation plenty of opportunity I think for the agencies to some sort of modification to PTO protocols time into the following year or sell back a benefit from feedback from stakeholders, and in the wake of COVID-19. Employees at many certain amount, and will do so at least through to come together on a consistent approach. CUs are taking advantage of new flexibilities next year. That’s certainly my hope.” for staying home with family members who “We relaxed some of those requirements Several elements of the Fed’s memo mark a are sick or children starting the year with because we didn’t want to put pressure on clear contrast with the OCC’s approach. virtual school. people to use your time off,” said Joe Mecca, Notably, while the OCC had to request But because of fears surrounding how the VP of communications. “There are fewer specific data from banks after issuing its initial virus spreads and concerns about travel, many opportunities to use that time [and] we know proposal and ultimately punted on specific Americans are not taking vacations. That’s they might benefit from selling back more scoring thresholds in its final rule, the Fed’s leaving many credit unions with sizable pools than they have in the past.” proposal stressed that its framework would of employees who have significant amounts of Going too long without taking time off, said “would rely to the greatest extent possible on unused vacation time left for 2020. Schultz, can contribute to job burnout and existing data and [tailor] additional collection A new study from ValuePenguin, a division extra stress in personal relationships and other and reporting requirements.” of LendingTree, found 44% of American aspects of life, “which is the last thing any of us Yet the Fed’s notice does retain elements workers did not use any of their paid time need right now. The truth is that even though of the OCC’s rule. For example, the Fed is off this summer and 22% took less time off we may not be able to fly off to Paris or get on considering an “illustrative list” of the kinds than normal. A whopping 72% of American a plane and go across the country, there are of activities most often granted CRA credit, consumers didn’t take vacations this year, still plenty of opportunities to get out to do similar to a list that the OCC unveiled in according to the research. something a little different,” such as short road December of 2019. And, similar to the OCC “Americans have always prided themselves trips. “ … These may not be trips that would be approach, the Fed’s outline will consider on working hard and having a blue-collar at the top of your list in normal times, but they designating “certain areas, based on persistent work ethic, and working hard is great but the can still be really useful and stress-reducing.”

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 6

Ohio-based Atomic Credit Union has not “One of the lasting effects of the pandemic FIS in 2014 and sold under the name Profile. seen staff members putting PTO usage on for businesses is that it will have forced them Mahan and Sanchez first met decades ago hold, but many are taking time off in shorter to become more flexible and understand how in the office of John Reed, then the chairman amounts or doing staycations rather than important that is for employees,” said Schultz. and CEO of Citibank, when Citi chose Mahan’s traveling. Management is permitting extended “Every business is going to approach that previous company, S1 Corp., to provide its carryover of vacation and sick time into next differently, but I think that’s something that front-end software and Sanchez Computer year. While it hasn’t made a decision for 2022, is no longer going to be a theoretical thing. Associates to provide core-processing Julie Maple, VP of human resources, said many The pandemic will have given us all a real-life software. of Atomic’s policies have been based around example of how these things can work and About three years ago, Mahan asked provisions in the Families First Coronavirus then companies just need to decide how they Sanchez to build an open, fintech-friendly, Relief Act. want to go going forward.” real-time core banking system that Live Oak “If that gets extended … past Dec. 31, [2020], could use. A year later, Sanchez launched we would definitely consider extending things Finxact with $12 million in capital from Live for our employees into 2022,” she said. CORE CONVERSIONS Oak Ventures and others. Some credit unions this fall are also seeing Last year, Finxact received $30 million employees use time off to help school-age in equity investments from the American children with virtual learning. About 30 Live Oak Bankers Association, SunTrust Banks, Live Fairwinds employees are working from home Oak Bank and others. It also received a rare, in order to support virtual learning, while an outpaces official blessing from the ABA. additional 16 have taken paid leave available “He has created a headless core processor to them through the Families First legislation that the world can develop to, to provide in order to help kids attending school online. larger rivals in functional parity to the oligopoly,” Mahan said For those working while kids are home, “We in an interview last year, referring to Sanchez. set parameters in place at the beginning of the moving core “We strongly believe that open wins.” school year,” explained Hertz. “Crew members Finxact’s transaction processing system had to be available four [consecutive] hours has a connector to Salesforce’s financial out of what we consider to be our standard system to services cloud, so that banks can use customer business hours … [and] the other four hours relationship management software and could be done before or after work as long as public cloud financial applications built using Salesforce they satisfy their responsibilities.” tools. It has also been integrated with Cedar About 80% of Coastal’s workforce is By Penny Crosman reporting software and Apiture digital banking currently working at home and the credit September 21, 2020 software as well as legacy core providers like union has not seen a spike in PTO usage on Live Oak Bank has begun deploying a core Fiserv and FIS. account of virtual schooling. “It sounds like banking system from Finxact that runs on Finxact offers one of the first core systems most people are managing the balance,” said Amazon Web Services. to run in the cloud and be sold as software as Mecca. The move is significant because the use a service — in other words, paid for with a per- None of the credit unions interviewed for of core banking systems that live on a public user monthly subscription fee and little capital this story said they expected any issues with cloud, rather than an internal mainframe or outlay and hardware maintenance. cost management as a result of PTO policy private cloud, is still rare. changes. The time and expense had already The founders of Finxact and the Wilmington, Going live at Live Oak been allocated in the budgets, many said, so N.C.-based Live Oak have a long history in Deploying a new core system is never easy, the only difference is how and when that time financial technology. and Live Oak’s case is no exception. gets used. Live Oak, which has $8 billion in assets, “It’s been a bit of a journey for us as Many institutions have also seen lower costs was founded in 2007 by Chip Mahan, who Finxact got off the ground and got started,” than expected this year due to unplanned also started the very first online bank, Security said Huntley Garriott, president of Live Oak. expense reductions. First Internet Bank, in the 1990s. Live Oak is “Building a new core is not for the faint of a Small Business Administration lender that heart.” “There’s expenses we’re not seeing because caters to medical professionals and has a The bank is converting to the new core in of a lack of opportunities to do them,” said strong technology bent. The bank created its phases. Mecca. “We always do a big employee party; own loan origination software and spun it off The first thing it did with Finxact is book that didn’t happen this year. … You’re seeing into a software company called nCino in 2011. Paycheck Protection Program loans. The other expenses [such as travel] that have just nCino held an initial public offering in July bank originated 11,000 PPP loans this year, a gone away for lack of opportunity to do them.” that valued it at $7 billion. huge increase over the 1,200 Small Business Most credit unions have been up front that Finxact is a core banking startup founded Administration loans it made last year. these modifications are temporary, but the by Frank Sanchez, who along with his brother “Our ability to scale was largely a part of our longer they last, employees may expect them created core banking software that many ability to book all of those efficiently onto the to become permanent. banks use today. That software was bought by new core,” Garriott said. The bank’s existing

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 7 core system vendor could accept manually Apple, but that the fintechs are able to offer, pretty clearly an individual breach that could loaded PPP loan applications, but Live Oak are superior customer experiences than banks happen anywhere to anyone.” needed to automate the booking of those are currently offering,” Garriott said. Amazon and its cloud competitors have an loans to handle the volumes of applications it Another advantage of the new core is the unmatched ability to scale, to build security received. ability to integrate with other types of software and deliver something cost effective, Garriott “There were some very specific aspects of business customers already use, such as said. that origination process around employment accounting and enterprise risk systems. “It’s really remarkable, and it’s hard to see records and payroll that broke the existing SBA “Our ability to do that is light-years above how you would go back,” he said. application process,” Sanchez said. “There what we could do if we were still on a legacy was a lot of activity around modifying and core,” Garriott said. extending the application origination process For instance, Live Oak works with a lot of DIGITAL CURRENCIES to a very specific workflow that was driven veterinarians, pharmacists and dentists. Each by PPP. It was a one-off, we had to react fast. of those industries has a handful of practice And in the volumes that we’re talking about, it management or enterprise management Banks had to be an automated, end-to-end process.” software programs that handle scheduling, Even ACH payment instructions were built inventory management and other tasks. can hold into the workflow, he said. “When you’re just starting or setting up a Sanchez’s team is now working with nCino new practice and you’re signing up for that to build an automated PPP loan forgiveness new software, could you not have a way of also stablecoin- process. setting up a new bank account in a way that’s embedded?” Garriott said. “The customer has related assets Getting to market quickly already typed in all of their information to The new core lets the bank design and register for that software, validated who they deploy products more flexibly, Garriott said. are — why are they then going and starting for customers, “Flexibility matters in two ways, primarily,” a new bank account and having to type in he said. “One is product design, so we can the exact same information again, when that OCC says create or shift products, we change an interest data can just be fed through an [application rate, we can offer a reward.” programming interface]?” By Brendan Pedersen It takes a long time and is expensive to And when practice or office managers want September 21, 2020 design and deliver a new product through a to check on their business’s cash flow, instead WASHINGTON — The Office of the legacy core, he said. of logging out of their day-to-day software and Comptroller of the Currency on Monday Last week, the bank launched digital then logging into their bank account, the bank cleared national banks to hold stablecoin- savings accounts and certificates of deposit for would like to embed certain banking functions related assets for customers, two months after business customers through Finxact. into that software to deepen the relationship the agency permitted institutions to provide Small businesses that have received PPP with customers. custody services for cryptocurrency holders. loans from the bank can open a new business The cash-flow and payment data from the Stablecoins, a cryptocurrency typically account with a tap or two, according to practice management software could also be pegged to a government currency, have been Sanchez. All information about the business useful to the bank in making credit decisions, trumpeted as a viable and secure form of that was gathered in the loan application is Sanchez said. finance by acting Comptroller of the Currency applied toward the deposit product. Large banks like Citi have been trying to Brian Brooks. Before coming to the OCC, “It’s pretty rare for someone to be able to do the same thing for their big corporate Brooks served as chief legal officer of the open a business account perfectly seamlessly customers, by integrating Treasury functions cryptocurrency exchange Coinbase. straight through,” Garriott said. within enterprise resource planning software The OCC issued an interpretive letter Live Oak hopes to soon start offering from providers like Oracle. Payment fintechs signed by OCC Chief Counsel Jonathan Gould checking accounts. Later, it will combine like Square and PayPal also integrate point-of- clarifying that national banks can place assets deposit, payment and lending products. sale and credit systems. in reserve accounts that are tied to stablecoins The ability to be all-digital is important to The bank has been testing the Finxact in a “hosted wallet.” A hosted wallet typically Live Oak, which is a cashless bank that doesn’t software for a while, Garriott said. It will run refers to a kind of cryptocurrency account that have any branches other than its headquarters. its old core alongside Finxact for a time, then is safeguarded by a third party. Garriott said the Finxact core and the convert all existing customers to the new “National banks and federal savings customer experience software from Apiture system. associations currently engage in stablecoin will help Live Oak compete with fintechs. Garriott is not troubled by the data breach related activities involving billions of dollars Apiture is another Live Oak family member that Capital One Financial suffered last each day,” Brooks said in a statement. “This — it started in 2017 as a joint venture between summer to customer data it had stored in AWS. opinion provides greater regulatory certainty First Data Corp. and Live Oak. “I think anytime the industry faces for banks within the federal banking system “The seamless customer experiences that something, there’s a concern and a ripple to provide those client services in a safe and every customer expects from Amazon and effect,” he said. “But this seems like it was sound manner.”

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Gould wrote that “stablecoin issuers may executives in Wells Fargo’s consumer banking Both Zimmerman and Kidd consented desire to place assets in a reserve account unit. The Office of the Comptroller of the to conditions on future employment in the with a national bank to provide assurance that Currency found in settlements announced banking industry, including a requirement the issuer has sufficient assets backing the Monday that they either knew or should have that they notify the OCC within 20 days of stablecoin in situations where there is a hosted known about what the agency described as accepting certain positions. wallet.” the unit’s systemic sales misconduct problem. “[W]e conclude that a national bank may Raphaelson, Zimmerman and Kidd did not hold such stablecoin ‘reserves’ as a service to admit to wrongdoing, but they all agreed to WORK FROM HOME bank customers,” he wrote. cooperate with the agency in litigation related The letter explicitly does not address the to sales misconduct at the bank. Five other implications involving “un-hosted” wallets, former Wells executives, including onetime UBS CEO which are typically controlled individuals, consumer banking head Carrie Tolstedt, are rather than institutions. currently facing civil charges. says it’s hard An interpretive letter issued by the OCC In January, the OCC announced civil in July cleared national banks to hold hosted settlements with three additional former wallets on behalf of customers. In the letter Wells Fargo senior executives: onetime CEO to sustain Monday, Gould wrote, “Banks may receive John Stumpf, former Chief Administrative deposits from stablecoin issuers, including Officer Hope Hardison and former Chief Risk culture deposits that constitute reserves for a Officer Michael Loughlin. They agreed to pay a stablecoin associated with hosted wallets.” combined $21 million in penalties, including a “In connection with these activities, $17.5 million fine to be paid by Stumpf. working at a national bank may also engage in any The scandal, which emerged in 2016, activity incidental to receiving deposits involved thousands of employees opening home from stablecoin issuers,” Gould wrote. “As millions of potentially unauthorized customer with any deposit product, a national bank accounts. By Bloomberg News or [federal savings association] that accepts A Wells Fargo spokeswoman said Monday September 22, 2020 reserve accounts should be aware of the laws that the company has made fundamental UBS Group CEO Sergio Ermotti added and regulations relating to deposit insurance changes over the last four years to its business his voice to a chorus of finance executives coverage, including deposit insurance limits, model, compensation programs, leadership concerned about having so many employees and the requirements for deposit insurance and governance. working remotely. to ‘pass through’ to an underlying depositor, if “The OCC actions against former It’s especially difficult for banks to create applicable.” employees,” the bank spokeswoman said in and sustain cohesiveness and a culture when an email, “are consistent with our belief that employees stay at home, he said at a Bank we should hold ourselves and individuals of America conference on Tuesday. A rate CRIME AND MISCONDUCT accountable, and that significant parts of the of 85% of people working remotely is “not operating model of our Community Bank sustainable” for banks and a normal level for were flawed at that time” UBS should be about 20% to 30% at any time. Three more “We are committing all necessary resources JPMorgan Chase Chairman and CEO Jamie to ensure that we operate with the strongest Dimon said last week that he sees prolonged former Wells business practices and controls, maintain the remote work inflicting serious social and highest level of integrity, and have in place the economic damage, while BlackRock CEO appropriate culture,” the spokeswoman said. Larry Fink said he worries that working Fargo execs “The company is different today, and we are remotely results in a lack of productivity and doing what’s necessary to regain the trust of all collaboration. settle civil stakeholders.” While some big Wall Street firms are Raphaelson, a former group finance officer seeking to get staff back to the office, there in Wells Fargo’s consumer banking unit who is are already signs of how challenging that charges on the OCC’s list of potential witnesses in the could be. JPMorgan sent some workers home ongoing civil case, agreed to pay a $925,000 after an employee in equities trading tested By Kevin Wack civil money penalty. He also consented to a positive for COVID-19. September 21, 2020 ban from the banking industry. Europe is no different. Traders at Barclays’ Three former senior Wells Fargo executives Zimmerman, who left Wells Fargo in 2016, London headquarters were sent home at have agreed to pay six-figure fines to regulators agreed to pay a $400,000 penalty. He is a former the start of this month after two employees in connection with the bank’s unauthorized head of the deposit products group in the tested positive for coronavirus, according account scandal. bank’s consumer banking unit. Kidd, a former to Financial News. Staff who had interacted Matthew Raphaelson, Kenneth head of human resources in the consumer with the pair were sent home to quarantine Zimmerman and Tracy Kidd were all once banking unit, agreed to pay $350,000. for 14 days, it said, citing a Sept. 2 memo.

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Barclays declined to comment. employee-communication strategies in the With medical opinions and governmental U.K. Prime Minister Boris Johnson wake of the pandemic. recommendations seemingly changing by encouraged office workers to stay home when Verve began podcasting in late 2018, but the day, a conscious effort was made for the possible. Johnson on Tuesday tightened the in March it shifted its focus to the COVID-19 podcast to include only practical pandemic- U.K.’s coronavirus restrictions and warned response, making the podcast available to all related information that affected branches, Britons the new rules are likely to be in place 300 employees. The platform Podbean was members and team members, Steede said. for six months, as the government tries to used in order to allow team members to access “Members would have an opinion about stamp out a resurgence of the disease. the content on their mobile devices outside of the medical and government responses, but UBS employs just short of 70,000 people the office, and the nine-week series saw a total their beliefs or our beliefs as the hosts was in 50 countries and had 80% of its worldwide of 286 downloads — not the purpose of the podcast,” she said. staff at home during the height of the a 13.5% increase over pre-pandemic “We knew offering our opinions would take pandemic. Chief Operating Officer Sabine listening trends. On top of that, episodes the focus away from how well we responded Keller-Busse said earlier this year that as were longer than normal, running closer to and how proud we could feel to be a member many as a third of its employees could work 30 minutes instead of the standard 10 or 15 of this team. Our intent was always to share remotely on a permanent basis. minutes. what Verve was doing to keep make a positive “Our culture is incredibly important to us impact in our members’ and our team and we are always thinking of new ways we members’ lives.” EMPLOYEE can connect with our team members. We COMMUNICATIONS create and offer written communication, videos, blog posts, and the podcast is one M&A more way to reach our team members,” said Masks on, Sarah Nachman, a learning and development designer. Former Citi earbuds Americans’ appetite for podcasts has also grown substantially. More than twice as many CEO Pandit to people listen to podcasts on a monthly basis in: Verve now than in 2013, according to one study, and that figure is expected to continue to rise. buy majority launches Verve’s podcast, though only available to employees, fits in with the broader theme of stake in what Doug Wilber, CEO of Denim, a social pandemic media company based in St. Louis, called “social selling” — allowing staff to share ideas title insurer podcast for and experiences even when separated due to social distancing. Westcor “There’s added authenticity when staff marketing messages come from people By Brad Finkelstein instead of brands,” Wilber said. “A robust social September 21, 2020 By W.B. King media and social selling program can help a Orogen Group, an investment firm September 22, 2020 credit union team efficiently and authentically controlled by former Citigroup CEO Vikram As credit unions quickly shifted staff to engage with the audiences who matter most.” Pandit, will acquire a majority ownership remote work when the pandemic hit, industry Nachman said the success of the COVID- stake in Westcor Land Title Insurance Co., the leaders were forced to rethink how they focused podcast series supported her nation’s largest independent underwriter. communicate with employees. colleagues’ belief that fellow employees would The terms of the deal were not disclosed. “In the beginning of the pandemic there was be receptive to hearing timely communication The transaction is subject to customary so much uncertainty and we thought: How through this medium. regulatory approvals. can we provide our team with the information “Managing the podcast internally allows us “Most aspects of the financial services they need? How can we make our team aware to quickly pivot and change our programming landscape are being modernized, and we of what other teams in the organization are to meet our team members’ needs,” she said. believe Westcor is at the forefront of bringing doing to support them and our members?” While a podcast could be used as a vehicle new and innovative approaches to the title recalled Kristin Steede, vice president of for promoting products and services, Steede insurance industry,” Pandit, now Orogen’s learning and development at Verve, a credit said it was decided that the focus would chairman and CEO, said in a press release. union in Oshkosh, Wis. “The answer was the remain on “what we were doing to better “We see a tremendous opportunity to leverage podcast.” serve the needs of our impacted members, technology to improve efficiency, make Verve’s podcast is one of a host of different our communities and what our support teams agents’ lives easier, and enhance the customer ways the institutions in this year’s Best Credit were doing to assist our member-facing team experience.” Unions to Work For rankings have shifted their members.” Westcor ended the second quarter with

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY SEPTEMBER 23, 2020 AMERICANBANKER.COM PAGE 10 a market share of 5.9%, as measured by the Currency have turned up the volume on streamlines examinations of nationwide premiums written among all of the nation’s their assertions that the regulation of financial payments firms beginning in 2021. Payments independent title underwriters. That share technology and payments companies is companies that have licenses in more is a high for this group, since the industry unchecked and ungoverned unless the OCC than 40 states will undergo one annual consolidated in the mid-2000s, according intervenes. At the same time, the agency is comprehensive exam to satisfy all state to the American Land Title Association. saying that the current system in which states compliance oversight. Currently the program Westcor’s share in the first quarter was 5.2% regulate fintechs is too cumbersome for applies to the nation’s largest payments and and in the first quarter of 2019 it was 3.4%. companies to navigate. cryptocurrency companies that combined In comparison, the smallest of the That is confusing and contradictory. But move more than $1 trillion a year in customer four national mortgage insurers, Stewart what is clear is that the OCC wants to charter funds, and we expect more companies to Information Services, had a second quarter and regulate fintechs even though its role is qualify as they scale. market share of 10.1%. to regulate institutions that take deposits. Another initiative, the Multistate Money “We believe that the values and vision we Let’s set the record straight: The fintech Services Businesses Licensing Agreement, share with Orogen will allow us to continue to services used by millions of American every creates a more efficient MSB licensing expand our business and deliver exceptional day, from buying a cup of coffee to purchasing process by curbing legal and procedural service to our customers,” said Westcor a house, are overseen by a robust system of duplications. To date, 29 states have signed President and CEO Mary O’Donnell, who is rules and guardrails. on. If one of these signatory states reviews also the current president of ALTA. The state system of supervision aims key elements of state licensing for a money Westcor was founded in 1993 by a group to keep the bad players out and give the transmitter, other participating states agree of title agents. The Maitland, Fla.-based compliant financial entities room to innovate to accept the findings. The process has shown company’s business is 100% agent driven, and grow, regardless of whether they are a to reduce the time for a company to obtain a unlike its larger competitors, which all source large company or small startup. license by two-thirds. a significant portion of their business directly. In recent years, state regulators have Among these many initiatives, state Agents are believed to control 60% of all title been tracking and matching the rapid clip regulators have committed to looking ahead business. of innovation in the fintech sector. Just think at what changes need to be made to be as But the larger underwriters are looking about how many more technology financial effective as the entities we regulate change in to bring those agents under their control. services we use today that have been made the next year, five years and even 10 years. We In a deal announced on Sept. 16, Stewart available only in recent years, like Venmo, are exploring what we need for the workforce purchased Alaska-based agency Yukon Title Square and Coinbase. of tomorrow and how we can better use data Co. State regulators are evolving with and technology for supervision. Among Westcor’s affiliated companies is technology advancements as well, creating The OCC’s claims that fintech firms are Closepin, which offers automated closing a more harmonized system of supervision unchecked and ungoverned are perplexing, agent compliance validation technology. across the nation. The Conference of State as they ignore the work of state regulators. Citigroup served as financial advisor Bank Supervisors has spent considerable Like fintechs, the state system is robust and to Westcor in the transaction, and Mayer time with fintech companies to understand evolving. State regulators hold fintech entities Brown served as legal counsel. Davis Polk & their perspective on being accountable to accountable to safety and soundness and Wardwell served as legal counsel to Orogen multiple state regulators, particularly as they local authority while allowing for innovation. and Greenberg Traurig served as regulatory want to scale their footprint nationwide. We enforce consumer protections. We have a counsel. Pandit’s partner in Orogen is another Through CSBS, states have coordinated clear mission. investment company, Atairos. with each other to find ways to focus on risk and streamline processes that benefit both John W. Ryan is president and CEO of the companies and state agencies. We’ve built Conference of State Bank Supervisors, the BANKTHINK better data-sharing resources and made nationwide organization of state banking sure that consumer protections stay at the and financial regulators from all 50 states, forefront of change. the District of Columbia and the U.S. States are The result is a number of initiatives territories. q known as Vision 2020 that advance the state well equipped regulatory system. Earlier this year, CSBS © 2020 Arizent and American Banker. rolled out the State Examination System, a All rights reserved. single technology platform that increases to regulate the amount and the speed in which state regulators gather information from fintechs fintechs and other nonbank financial entities, using data analytics to evaluate risk. By John Ryan Just last week, CSBS announced a state- September 21, 2020 initiated program called Money Services Leaders at the Office of the Comptroller of Business (MSB) Networked Supervision that

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