By Doris Quiros, Senior Vice President
Supervision, Regulation, and Credit
Federal Reserve Bank of Atlanta
Dear colleagues,
Events in Ukraine have shaken us all. Our thoughts are with the people of Ukraine and those of you who have family or friends caught up in the conflict. We hope for a peaceful solution, or at least as peaceful as possible, very soon. In the meantime, we will continue to closely monitor events in Ukraine here in Atlanta and across the Federal Reserve System to assess the economic and financial impacts, and to see if actions should be taken to address emerging risks, including changes in the cyber threat environment.
Banking Outlook Conference
I would like to thank all of you who were able to attend the Banking Outlook Conference on February 24. Our theme this year, Banking on Success in a Digital Era, cut across industry groups, and we heard from regulators, bankers, and industry experts on the seismic shifts occurring in the financial services industry. In some cases, those shifts have been jumpstarted by innovation and technological advances, but we also heard how business and consumer preferences continued to shift and evolve during the pandemic and in virtual environments. The pandemic has transformed our thinking around many established norms and reinforced the need to continually reassess and adapt business practices to the environment and what might be just around the corner.
We heard from Ali Wolf, chief economist at Zonda who said, “Lot inventory holds the key to future homebuilding.” Speaking from the Sixth District perspective, I know that a lot of time and investment have been put into land development since the onset of the pandemic, and these factors will be important for housing pricing and stability.
I was encouraged by our bankers’ panel moderated by our partners at the Graduate School of Banking at Louisiana State University. The panel revealed some of the ways regional bankers are succeeding in a digital world. Community bankers are expanding talent recruitment, continuously assessing new products and services, strengthening IT-related controls, and encouraging mobile banking. While the panelists agreed that our business environment has changed dramatically and presents new opportunities, we were reminded that community banking remains a personable, face-to-face business and that relationship building, community, and personal touch are hallmarks that are competitive advantages and here to stay. If you are interested in viewing the replay of the panel or other conference sessions, or if you would like to subscribe to Federal Reserve publications and other events, please email supervision@atl.frb.org.
We also heard from Ana De Sousa and Allan Perraud, Federal Reserve experts, on the increasing use and interest in cryptocurrencies and their accounting implications. The Federal Reserve hosts an annual accounting roundtable in the fall among community bank CEOs and their external auditors covering trends and hot topics like these. I hope that interested bankers, auditors, and accountants will attend and bring their questions.
State of the District
Fourth-quarter asset quality metrics were largely unchanged from the prior quarter, with loan losses and net charge-offs near historic lows. A majority of the banks in the District haven’t adopted the new current expected credit losses (CECL) methodology and primarily rely on historical losses and qualitative adjustments based on economic condition to determine the appropriate allowance level. Banks will need to adopt the CECL methodology in 2023, at which time there could be more volatility in community banks’ allowance levels from quarter to quarter. Despite the strong asset quality metrics, some banks remain concerned about the potential for increases in delinquencies going forward in 2022. Capital levels at Sixth District community banks generally held steady in the fourth quarter of 2021, with the majority of banks meeting well capitalized. Our quarterly State of the District section assesses Sixth District banks' earnings and financial position. (You can hover over the charts’ lines to compare changes over time or click "export" to use a chart you like for your own presentations.)
Resources
I hope you have had the opportunity to read the recent issue of Consumer Compliance Outlook. Among other topics, the fourth issue of 2021 discusses the Federal Emergency Management Association’s flood insurance initiative and the new factors it will consider in its risk rating methodology.
I encourage you to submit comments to proposals from the regulatory agencies as appropriate. The feedback received is important to the Federal Reserve and other regulatory agencies as it promotes clarity and understanding. Recent releases relate to improvements in the US payment system that make payments faster, cheaper, convenient, and more accessible. The Board of Governors released a discussion paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation. It examines the pros and cons of a potential central bank digital currency and opened a comment period of 120 days from January 21, 2022, to get public input.
At the Federal Reserve Bank of Atlanta’s sixth biennial real estate conference, academic and industry experts presented their latest research and discussed solutions for addressing housing needs, supply, and affordability. Atlanta Fed president Raphael Bostic and Edward Glaeser, author and professor of economics and chairman of the Harvard University department of economics, met for a virtual fireside chat that focused on how the COVID-19 pandemic and responses, such as the increase in telework, have altered the housing landscape. The Atlanta Fed’s commercial and residential real estate experts offer their commentaries using these tools in our articles and podcast episodes.
Supervisory and regulatory updates
- On November 7, 2021, the Fed released its most recent Supervision and Regulation Report that summarizes banking conditions and the Federal Reserve’s supervisory and regulatory activities, in conjunction with semiannual testimony before Congress by the vice chair for supervision.
- The Federal Deposit Insurance Corporation, the Federal Reserve System, and the Office of the Comptroller of the Currency have issued a final rule that requires a banking organization to notify its primary federal regulator of any computer-security incident that rises to the level of a notification incident as soon as possible and no later than 36 hours after the banking organization determines that a notification incident has occurred. The compliance date is May 1, 2022. It is important that financial institutions continue to promptly notify their primary regulator of any security breach involving sensitive customer information as required under Supervisory Letter SR 05-23 / CA 05-10.
- On January 10, 2022, the Federal Reserve Board finalized a technical rule that will streamline reporting requirements for member banks related to their subscriptions to Federal Reserve Bank capital stock.
- Also released on January 20, 2022, was a discussion paper on the pros and cons of a central bank digital currency.
Moving ahead
Along with the banks, the Atlanta Fed’s Supervision, Regulation, and Credit Division has created efficiencies through virtual examinations and ongoing supervision. Old models of two-week onsite examinations are being reevaluated as we return to an in-person environment. I like the old adage work smarter, not harder, and that’s what we’ll do. We’ll remain risk-focused, identify opportunities where it makes sense to be onsite with bank management, and work to strike the right balance between virtual examinations, on-site examinations, and off-site surveillance work. We already were on this path toward implementing our risk-focused Bank Exams Tailored to Risk (BETR) examinations before the pandemic. I encourage our bankers to check out Ask The Fed: An Update on the Federal Reserve’s Supervisory Posture for Small Banks as Pandemic Conditions Improve, where you will hear my Board and System colleagues discuss our supervisory posture and refined approach to examination work.
To enhance collaboration between institutions and regulatory agencies, the Federal Reserve has launched Supervision Central, its new technology platform to support examination activities and offsite monitoring processes at community and regional organizations. This technology will serve as a web application for document submission and data exchange.
We hope you'll explore our website. We are always available to discuss any concerns you might have. We appreciate your efforts in working with your customers and providing broader support to the communities you serve. Connect with us by subscribing to our mailing lists and follow us on social media. Since the pandemic, I have been more active digitally and through LinkedIn, and next month I will participate in my first podcast discussing the regulatory environment. I hope you will check it out.
Yours sincerely,
Doris Quiros
Senior Vice President, Supervision, Regulation, and Credit
The Federal Reserve Bank of Atlanta