In a recent Financial Institution Letter (FIL-46-2013), the FDIC signaled a heightened interest in banks’ interest rate risk management practices. The agency is concerned that many banks aren’t “sufficiently prepared or positioned for sustained increases in, or volatility of, interest rates.” As a result, in a rising interest rate environment, institutions with a “decidedly liability-sensitive position” could experience declines in net interest income, deposit run-off, deposits and rate-sensitive liabilities that reprice more quickly than earning assets, and other issues.
The FDIC strongly urges bank boards and management to analyze on- and off-balance-sheet exposure to interest rate volatility and take appropriate steps to mitigate the risk. Examples include rebalancing earning asset and liability durations, proactively managing nonmaturity deposits, increasing capital, and hedging.
You can read the FIL at http://fdic.gov/news/news/financial/2013/fil13046.html.
Educate customers about fraud prevention
Historically, when bank customers are victimized by wire transfer fraud, the bank has been liable for the loss. But in a March 2013 case, a federal court ruled that the liability shifted to a customer that opted out of security measures offered by the bank.
In Choice Escrow and Land Title, LLC v. BancorpSouth Bank, a business customer sued its bank after fraudsters used an employee’s user ID and password to make a $440,000 wire transfer out of the customer’s account using the bank’s Internet-based wire transfer system. The customer declined to use dual controls — which required two individuals with separate user IDs and passwords to enter and approve transfers — because it frequently had only one employee working at a time.
By offering commercially reasonable security procedures and documenting the customer’s waiver of those procedures, the bank protected its interests, but it likely lost a customer. The bank could have protected itself and customers by educating them about the need for security procedures, discussing the reasons for waiving the procedures, and exploring potential alternatives. In this case, additional authentication procedures, such as hardware tokens or passcodes sent by text message, might have prevented the fraud.
Elder financial abuse may now be reported
The Gramm-Leach-Bliley Act generally prohibits financial institutions from providing consumers’ nonpublic personal information to third parties without first notifying consumers and giving them an opportunity to opt out. But in recent joint guidance, seven federal regulators — including the SEC, CFPB, FDIC, OCC and Federal Reserve Board — clarified that it’s generally acceptable to report suspected elder financial abuse to the appropriate authorities.