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Community Banking News Update - December 2024

Community Banking News Update - December 2024
Community Banking News Update - December 2024
12:00

This month's major stories in community banking and their impact 📣

Welcome to the latest edition of Community Banking News Update, your monthly roundup of the top news that affects community banks and credit unions and why they matter. Read last month’s issue here.

This month we cover the anticipated surge in bank mergers and acquisitions for 2025, the global expansion of cross-border payment systems, Newtek Bank’s zero-fee business checking accounts, the upcoming leadership change at the FDIC, calls for deposit insurance reform following an Oklahoma bank failure, and the challenges community banks face in expanding loan portfolios. How do these developments impact community financial institutions? Read on to find out.

1. Global Expansion of Cross-Border Payment Systems Gains Momentum

A wave of initiatives is expanding cross-border payment systems worldwide, improving accessibility and efficiency for international transactions. Spain has emerged as a leader in Europe by becoming the first banking market fully connected to the European Payments Council's "One Leg Out" instant payments plan. This milestone enables seamless cross-border instant payments, setting a benchmark for other European nations.

In Asia, the National Payment Corporation of Vietnam (NAPAS) plans to enhance QR payment interoperability with China, South Korea, and Japan by 2025, promoting seamless regional transactions. Additionally, India is broadening its mobile international payment connections with neighboring countries to support deeper economic integration.

Meanwhile, The Bank for International Settlements (BIS) released two reports highlighting opportunities to interlink fast payment systems globally, emphasizing the role of APIs and the adoption of the ISO 20022 financial messaging standard in facilitating these advancements.

Why This Matters to Community Banks and Credit Unions

The expansion of international payment systems underscores a critical opportunity for community banks and credit unions to serve their increasingly globalized customer base. As more consumers and businesses engage in cross-border transactions, the demand for convenient, secure international payment solutions is growing. Many customers currently turn to third parties for these services, which erodes their relationship with their primary financial institution. By offering competitive cross-border payment options, community banks and credit unions may better retain these customers, strengthen loyalty, and tap into new streams of non-interest income. Ensuring access to advanced international payment solutions is vital for maintaining relevance and capitalizing on global financial trends.

To read more on how to earn non-interest income through international payments, read our blog: 

 

2. Bank Leaders Anticipate Surge in Mergers and Acquisitions in 2025

A recent survey by Bank Director reveals that 43% of bank executives say their bank is likely to acquire another bank in 2025, up from 35% in the previous year. Key motivations include expanding geographic footprint (37%) and achieving scale to support technological and other investments (43%). Additionally, 55% of potential acquirers believe their bank's stock is sufficiently attractive to facilitate these deals. Recent transactions, such as the Federal Reserve's approval of United Bankshares’ $267 million acquisition of Piedmont Bancorp, and United Community Bank’s sixth M&A deal in as many years, highlight the accelerating trend of consolidation. This anticipated increase in M&A activity is also influenced by economic pressures, rising competition, and an expected easing of regulatory hurdles under the new administration. 

Why This Matters to Community Banks and Credit Unions

For community banks and credit unions, the expected uptick in M&A activity presents both challenges and opportunities. Smaller institutions may face increased competition as larger banks consolidate resources and expand their footprints. However, this environment also offers opportunities for strategic partnerships or mergers to achieve greater scale, enhance technological capabilities, and expand service areas. Proactively assessing potential collaborations could be important in maintaining competitiveness and meeting evolving customer expectations in a rapidly changing financial landscape.

3. Newtek Bank Innovates with Zero-Fee Business Checking Accounts

Newtek Bank, a subsidiary of NewtekOne, Inc., has introduced a zero-fee business checking account product nearly two years after transitioning from a nonbank business development company into a commercial bank. The transformation began with NewtekOne’s acquisition and rebrand of the National Bank of New York City, a move that also positioned Newtek Bank as the nation's top Small Business Administration (SBA) 7(a) lender by dollar volume.

By eliminating fees for ACH transactions, wire transfers, monthly services, and overdrafts, Newtek Bank aims to attract more business deposits. CEO Barry Sloane highlighted that Newtek's focus on originating higher-margin small- and medium-sized business loans allows the bank to offer this fintech-inspired fee-free product.

This initiative complements Newtek's deposit growth strategy, with its deposit base surging from $142 million at the end of 2022 to $745.7 million by Q3 2024, underscoring its successful pivot into banking.

Why This Matters to Community Banks and Credit Unions

Newtek’s fintech-inspired approach signals a shift in the financial landscape. As customer expectations increasingly align with the transparency and cost-effectiveness of fintech products, community banks and credit unions face growing pressure to adapt. By rethinking their fee structures and enhancing digital capabilities, these institutions may be able to remain competitive while continuing to prioritize the local, personalized service their customers value. 

4. FDIC Chair Martin Gruenberg to Step Down January 19

Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg has announced his resignation, effective January 19, 2025, a day before the inauguration of President-elect Donald Trump. Gruenberg has been a central figure at the FDIC since 2005, serving multiple terms as both chairman and acting chairman. His tenure has recently been overshadowed by allegations of fostering a toxic workplace culture, including issues of sexual harassment and discrimination, leading to calls for his resignation.

Gruenberg's departure paves the way for the incoming administration to appoint new leadership at the FDIC, potentially signaling shifts in regulatory policies. This transition occurs amid ongoing discussions about banking regulations, including proposed changes to capital requirements for large financial institutions.

Why This Matters to Community Banks and Credit Unions

The leadership change at the FDIC could lead to significant regulatory shifts affecting community banks and credit unions. New appointees may prioritize different aspects of financial oversight, potentially altering compliance requirements and supervisory approaches. Community financial institutions can stay informed about these developments to adapt effectively to any changes in the regulatory landscape, ensuring continued compliance and strategic alignment with new policies.

5. CFPB Director Rohit Chopra Calls for Deposit Insurance Reform Following Oklahoma Bank Failure

In the wake of the October 2024 failure of Oklahoma's First National Bank of Lindsay, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra has urged Congress to reevaluate federal deposit insurance limits. Speaking at a closed Federal Deposit Insurance Corporation (FDIC) board meeting, Chopra advocated for removing or significantly increasing insurance caps on payroll and non-interest-bearing operating accounts. He highlighted the disparity between the treatment of depositors at small community banks and those at larger institutions, noting that during the 2023 collapses of Silicon Valley Bank and Signature Bank, regulators protected all depositors to prevent systemic crises. In contrast, depositors at smaller banks like First National Bank of Lindsay often face losses on uninsured funds, a situation Chopra deems "fundamentally unfair." 

Why This Matters to Community Banks and Credit Unions

Chopra's call for reform underscores a competitive imbalance affecting community banks and credit unions. The current deposit insurance framework can disadvantage smaller institutions, as their customers may face greater risk of loss on uninsured deposits compared to clients of larger banks perceived as "too big to fail." Reforming deposit insurance limits could level the playing field, enhancing depositor confidence in community banks and credit unions. This change may help maintain the viability of smaller financial institutions that play a vital role in serving local communities.

6. Community Banks Face Challenges in Expanding Loan Portfolios

Community banks are experiencing a slowdown in loan growth, with median sequential loan growth for banks under $10 billion in assets at 1.2% in the third quarter of 2024, down from 1.9% a year earlier. Total gross loans and leases for this group reached $2.45 trillion as of September 30. Notably, 13 of the 20 largest community banks reported declines in quarter-over-quarter loan balances.

Factors contributing to the deceleration in loan growth at community banks include elevated interest rates, which have dampened borrower demand, and a strategic pullback from commercial real estate (CRE) lending. Many banks are reducing their CRE loan portfolios in response to remote work trends that have increased vacancy rates in office buildings, as well as nearby apartment complexes and retail properties. While loan losses in these sectors have not surged, the collective decision to limit exposure in vulnerable CRE markets has made it challenging to expand overall loan portfolios.

Why This Matters to Community Banks and Credit Unions

While some are hopeful that anticipated interest rate cuts and a more lenient regulatory environment under the incoming administration will stimulate loan demand, the outlook remains uncertain, and community banks may need to explore innovative strategies to drive loan growth. Staying agile and responsive to market conditions will be crucial for sustaining growth and competitiveness.

Note: This blog is intended for general informational and educational purposes only and does not provide financial services advice. It should not be considered a substitute for professional guidance.

Acceleron builds patented software that allows community banks and credit unions to conduct international payment transactions profitably through a correspondent banking marketplace. Serving over 200 financial institutions and facilitating more than $1 billion in international payments annually, Acceleron helps small banks generate non-interest income and compete more effectively with high-fee big banks. Our solutions integrate seamlessly with top payments platforms, ensuring quick implementation and smooth operation. 

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