Amid Rising Uncertainty, a Path Forward

By Monica C. Meinert

Walt Disney, one of America’s most famous entrepreneurs and innovators, once observed that “times and conditions change so rapidly that we must keep our aim constantly focused on the future.”

Disney’s words remain remarkably relevant today, after a year that brought so many rapid, unprecedented changes to modern life. As this article was written, 2020 had drawn to a close, a presidential transition was well underway, much of the American workforce was still working from home and, while vaccine distribution had begun, the COVID-19 pandemic continued to dominate daily life.

The balance of power in Washington reset itself in a significant way following the outcome of two Georgia Senate runoff races in early January that both resulted in Democratic wins—setting Democrats up for majorities in both the House and Senate (where the balance of power sits at 50-50 with Vice President Kamala Harris casting a tie-breaking vote). That same day, the nation was rocked by a dark afternoon of deadly violence on the steps of the U.S. Capitol when a mob sought to disrupt the peaceful transition of power and the certification of the 2020 presidential election results.

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Undoubtedly, 2021 will bring a new host of unprecedented challenges as the nation continues to grapple with bringing the pandemic under control and addressing the deep and concerning political divides that only seem to widen by the day.

But bankers have always excelled at managing the challenges of the present while keeping their eye on the future, and as 2020 came to a close, members of ABA’s Government Relations Council gathered virtually to discuss the coming year and the critical policy issues likely to top the agenda.

Coronavirus and economic recovery

Overwhelmingly, the coronavirus response and economic recovery were top of mind for bankers. “Our industry is a critical and foundational key ingredient to addressing massive economic dislocation associated with COVID-19,” ABA President and CEO Rob Nichols told the GRC. “That’s how we’ll be positioning our industry—as a partner and ally both to congressional leadership, the administration leadership and in an ongoing manner with the regulatory leadership as well. “

Shortly after the GRC met, Congress passed a long-awaited COVID-19 relief bill that included, among other things, a restart of the Paycheck Protection Program—with special set-asides of PPP funds for community development financial institutions and minority depository institutions serving low-to-moderate income communities—and a second round of $600 economic impact payments. It also extended until Jan. 1, 2022, the provisions from the first CARES Act regarding troubled debt restructurings, which ABA had strongly advocated.

As banks geared up to execute the second round of PPP funding and work with the next administration and Democratic Congress on additional COVID-19 relief measures, GRC Chairman Jim Rieniets, president and CEO of InsBank in Nashville, Tennessee, emphasized that bankers will be a critical voice in the conversation around the nation’s economic recovery. “Bankers across the nation are the ones that can know best where and how those challenges that are so pronounced during the pandemic that requires our attention.”

Diversity, equity and inclusion

In response to an unforgettable summer of civil unrest over issues of racial inequity, banks nationwide doubled down on their commitment to ensuring diversity, equity and inclusion in financial services. And with a new Democratic administration and Congress, DEI issues are likely to remain a high priority for policymakers as well as bankers and will be a key point of industry engagement.

“First and foremost, it’s just the right thing to do,” says ABA VP Robin Cook. “We know that here are too many people that are underbanked in this country, and that small businesses and communities of color don’t always have the access to capital that they need. This year’s renewed conversation about race and social justice issues have really elevated those points.”

To broaden access to the financial system, particularly to low-to-moderate-income communities, ABA is engaged in an effort to encourage all banks to offer a Bank On-certified deposit account. Thousands of bank decision-makers have visited the Bank On certification site and, at press time, more than 60 banks had submitted formal inquiries or free applications to have a financial product certified.

“The facts are that our industry has a great story to tell on many of these issues,” Cook adds. “Demonstrating our commitment to DEI also helps us build constructive relationships with the civil rights and consumer advocacy community—those are the groups that are going to be very important to a new administration.”

Access to the banking system

Another critical issue likely to loom large over the banking industry in the year ahead is the growing cadre of nonbank financial services providers—and the extent to which they will be granted access to the banking system.

View ABA’s 2021 policy priorities in the Blueprint for Growth. Read it at
“Non-bank competitors, some enormous tech companies and other innovative startups are continuing to explore ways to deliver banking services, acquire customers and access payments systems—often times outside of the legal structure imposed on banks,” observes ABA EVP Jess Sharp. “We’re seeing more examples of nonbanks seeking some form of bank charter, often in specialized ways that allow them to avoid portions of the banking regulatory structure.”

One such example is that of Figure Technologies, which applied to the OCC last year for a new special-purpose national bank charter that would allow it to operate as a national bank while accepting uninsured deposits—a move ABA strongly opposed. Bankers raised concerns during the GRC meeting about the competitive implications—especially for community banks—of new players entering the market that are operating outside of the established banking regulatory framework.

“If you give them an un-level playing field—or just a better playing field—that will cause [banks]to lose more business,” one banker commented during the GRC meeting. “In the end, banks that are in rural areas serving special-purpose niches, you start taking away mass deposits.”

From a policy perspective, “our goal has always been twofold,” adds ABA SVP Rob Morgan. “First, to make sure that banks have the clarity to adopt new technology, and second, to ensure that while that’s happening, these new business models that are coming into play don’t create an un-level playing field that puts banks at a disadvantage.”

Climate change

Risks associated with climate change have been moving steadily into focus for the banking industry over the last several years, with regulators worldwide beginning to take more vocal stances on the need to understand and manage these risks appropriately.

“The debate over climate is going to happen,” ABA’s Nichols told GRC members. “I think our industry is better positioned if we’re part of that conversation.”

The Biden administration has indicated that it intends to make climate change a top priority issue and to embed climate policy into all aspects of governing. That, coupled with Democratic control of the Congress, means that it will be essential for bankers to constructively engage on climate issues—both to ensure that misguided approaches do not advance and that those that do are pro-growth, market-based, and grounded in sound and reliable metrics and standards.

Some areas that are ripe for industry engagement, according to ABA SVP Joe Pigg, include the development of agreed-upon metrics for reporting climate-related disclosures, prudential risk management of climate related risks, transition-related subsidies and the development of carbon markets.

Pigg—who heads ABA’s working group on environmental, socially responsible and corporate governance, or ESG, factors—adds that the industry should also consider how the move to a reduced-carbon future will affect bank clients. “While we’re concerned about direct effect on banks and the financial sector, a lot of what we see coming out of the Biden administration is likely going to be aimed at regulating producers themselves that particularly have an impact on climate. Those are our customers in a lot of instances,” he says. “We want to make sure that there is a transition plan so that targeted entities are not so negatively impacted as to wipe out a sector or put certain businesses at a great disadvantage.”

Other issues at play

Aside from these critical issues, it’s also possible that policymakers could move to address cannabis banking—a longstanding priority for ABA. The association has long supported the SAFE Banking Act, which would provide a safe harbor for depository institutions seeking to serve legitimate cannabis-related businesses in states where such activity is legal and which was passed by the House in the last Congress.

Policymakers will also be putting pen to paper on regulations implementing the FY 2021 National Defense Authorization Act—which survived a presidential veto at the end of 2020 and was successfully enacted. The bill includes key changes to anti-money laundering rules; among other things, it directs the Financial Crimes Enforcement Network to establish and maintain a national registry of beneficial ownership information that banks may in turn rely on when complying with customer due diligence requirements.

ABA has been engaged on AML reform for many years, and through its banker-led working groups will continue to work constructively with regulators as they enact the first significant changes to the AML compliance regime in nearly two decades.

Among other things, ABA will also continue its vigorous advocacy to ensure a level playing field between taxpaying banks and tax-exempt credit unions, encourage the formation of de novo banks and support pro-growth policies that will help the economy thrive.


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