Bank of Montreal has received approval from the the Federal Reserve to acquire San Francisco-based Bank of the West, a combination that will create the 15th-largest U.S. lender.
After the transaction, Bank of Montreal U.S. subsidiary BMO Financial Corp. will have consolidated assets of $286.8 billion, representing about 1% of those held by insured depository institutions in the U.S., according to the Fed. The Office of the Comptroller of the Currency also said it green-lit the merger.
Bank of Montreal said it expects the deal will close on Feb. 1. “We look forward to working with communities across our expanded U.S. footprint to help drive meaningful change at the local level through a strong combination of financial and community-driven investment,” David Casper, the bank’s U.S. head, said in a statement.
The seller, BNP Paribas, will unveil the final impact of the deal on Feb. 7, along with its fourth-quarter earnings, the lender said in a statement on Wednesday. The French bank has said it would dedicate about €4 billion to stock repurchases.
The $16.3 billion deal, the largest ever by a Canadian bank, expands Bank of Montreal beyond its stronghold in the Midwest, across the western U.S. and into California, giving it an active presence in 32 states. When it announced the acquisition, the Canadian bank estimated it would get 1.8 million new customers and $105 billion of assets.
Bank of Montreal struck the deal when it was flush with capital because regulators had prevented Canada’s big lenders from buying back shares or raising their dividends for more than a year. More recently, Bank of Montreal was forced to sell $2.33 billion in equity to top up its capital levels after Canada’s banking regulator increased the industry’s required capital buffers.
Toronto-Dominion Bank is still awaiting regulator approval for its own major U.S. deal, the $13.4 billion acquisition of First Horizon Corp.
Blue Ridge Bankshares has named a president of its fintech division.
On Tuesday the Charlottesville, Virginia, bank announced that Kirsten Muetzel would oversee its fintech practice, which involves managing the bank’s partners, ensuring regulatory compliance and furthering its banking-as-a-service strategy.
Kirsten Muetzel, the new president of Blue Ridge Bank’s fintech division, spent a decade in the Federal Reserve system, including supervising banks in banking-as-a-service relationships.
Previously, Muetzel spent a decade in the Federal Reserve system, including supervising banks in BaaS partnerships, and has served as a chief financial officer and chief risk officer for fintech companies.
“She brings the perfect combination of banking supervision experience coupled with fintech industry knowledge and business acumen,” said Brian Plum, chief executive officer of the $2.9 billion-asset Blue Ridge Bank, in a press release. “Kirsten will be instrumental as we continue building the necessary infrastructure to support current partnerships while preparing the foundation upon which to build future success.”
The bank has run into trouble with regulators before. It had to delay its merger with FVCBankcorp in 2021 after the Office of the Comptroller of the Currency raised concerns and called off the deal in early 2022. In September, a securities filing revealed that the OCC required Blue Ridge Bank to make several changes. It must obtain a non-objection from the OCC before it signs any contracts with new fintech partners or adds new products with its existing partners, refine the ways it complies with the Bank Secrecy Act, and explain how it will improve its monitoring of suspicious activity.
One possible trigger behind this enforcement action: the dissolution of Aeldra Financial, a company that partnered with Blue Ridge to offer U.S. bank accounts to non-U.S. citizens in India. The company ceased operations in August, and various members of Blue Ridge’s board of directors signed the agreement with the OCC one week later.
For banks, the potential losses associated with climate change — and the opportunities from transitioning to clean energy — came into sharper focus during 2022.
With prodding from their regulators, U.S. banks took some steps forward on assessing climate risk, but not as quickly as their counterparts in Europe. Near the end of the year, the Federal Reserve Board proposed new guidelines for large banks on how to manage those risks.
Meanwhile, President Biden signed legislation that provides grants and tax credits to the clean-energy sector — presenting new chances for lenders to profit from energy transition.
What follows is a look back at the year in climate finance.
Seven consumer advocacy groups asked a federal court to dismiss a lawsuit filed by the U.S. Chamber of Commerce against the Consumer Financial Protection Bureau, arguing that discrimination in consumer financial products is pervasive.
The seven consumer groups filed an amicus brief Friday with the U.S. District Court for the Eastern District of Texas asking the court to dismiss the suit, Chamber v. CFPB. The U.S. Chamber and three bank trade groups sued the CFPB in September alleging the bureau violated the Administrative Procedure Act when it adopted a policy in March that, for the first time, claimed discrimination on the basis of age, race or sex — regardless of intent — violates the federal prohibition on “unfair, deceptive or abusive acts or practices,” known as UDAAP. The business trade groups said the change amounted to a power grab that was “arbitrary” and “capricious,” in violation of the APA.
The six advocates claim that financial institutions have a long history of preventing people of color and other marginalized populations from participating fully and fairly in the mainstream financial economy.
A coalition of consumer advocacy groups have filed an amicus brief on behalf of the Consumer Financial Protection Bureau in their legal battle against the U.S. Chamber of Commerce and bank trade groups over the bureau’s unfair, deceptive and abusive acts guidance.
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“Ample evidence shows that discrimination in the financial services industry persists and may be ‘unfair’ in every sense of the word — including, most importantly, the explicit statutory test Congress established to guide the CFPB in determining whether a practice is ‘unfair,’” the consumer groups stated. “The text of the Dodd-Frank Act and commonsense understanding of the word ‘unfair’ reaffirm this truth.”
Under the new policy, the CFPB sought to look for discrimination in a wide range of noncredit financial products including deposit and checking accounts, payments, prepaid cards, remittances and debt collection practices. The amicus brief was filed by Democracy Forward, a nonprofit group, on behalf of the California Reinvestment Coalition, National Community Reinvestment Coalition, National Association for Latino Community Asset Builders, Center for Responsible Lending, Texas Appleseed, and National Consumer Law Center
The consumer advocates argue in the brief that the CFPB is empowered under Dodd-Frank to prevent unfair practices. The groups cite statistical, survey and anecdotal evidence of discrimination. Higher loan denial rates, higher interest rates, costs, and fees, and the use of racial profiling and racially-biased algorithms are among the evidence the consumer groups present that discrimination persists.
“Discrimination is unfair, and it doesn’t take a law degree to recognize that,” Rachel Fried, senior counsel at Democracy Forward, said in a press release. “As the consumer advocates’ brief makes clear, the CFPB was right to clarify that discriminatory practices can fall within Congress’ definition of an unfair practice.”
But it remains unclear whether the consumer groups’ arguments will prevail. The brief alleges that the CFPB has met its burden of proof by citing the three prints of the so-called “unfairness” test laid out in Dodd-Frank. Dodd-Frank states that a practice is unfair if it “causes or is likely to cause substantial injury to consumers;” if an injury cannot be “reasonably avoidable by consumers;” and if the practice is “not outweighed by countervailing benefits to consumers or to competition.”
Banks and financial firms reject the view that the CFPB can examine entities for alleged discriminatory conduct under UDAAP. They argued in their lawsuit that Congress declined to give the CFPB authority to enforce anti-discrimination principles except in specific circumstances. Notably, the Equal Credit Opportunity Act states that financial firms cannot discriminate against credit applicants. Moreover, industry argues that the CFPB made the change to its discrimination policies by updating its examination manual instead of going through the normal public notice-and-comment process.
When the Senate voted to confirm Martin Gruenberg to his second term as official Chairman of the Federal Deposit Insurance Corporation’s Board of Directors Monday, it was an unmitigated victory for the administration and firmed its grip on the bank regulatory apparatus.
Todd Phillips, principal at Phillips Policy Consulting and a former FDIC attorney, said Gruenberg’s appointment is an important milestone for the administration and that his tenure would settle leadership questions at the agency for years to come.
“Marty is a very smart, thoughtful regulator,” Phillips said. “It’s great that he’s going to be at the helm of the agency again for at least another five years.”
Martin Gruenberg, newly confirmed chair of the Federal Deposit Insurance Corp., will have a freer hand to pursue his policy goals, but will also be subject to the same majority-rule dynamics on the agency board that preceded former chair Jelena McWilliams’ departure in February 2022.
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Partisan scuffles left Gruenberg — who has served on the FDIC board in various capacities since 2005 — serving as acting chair since February, and vacancies have left the board operating with the bare minimum number of members for that time. Gruenberg’s predecessor, Trump-appointed board Chairman Jelena Mcwilliams, resigned from the agency after Democratic board members Gruenberg, CFPB Director Rohit Chopra and acting Comptroller of the Currency Michael Hsu launched a review of bank merger policy against her wishes. Gruenberg was elevated to acting Chairman upon her resignation.
But without an official Senate appointment, Gruenberg’s place at the helm of the board was tenuous. At the same time as Gruenberg’s nomination was confirmed, the upper chamber also confirmed Republicans Jonathan McKernan and Travis Hill to fill the remaining vacancies on the board.
Under FDIC board rules, the party with control of the Senate could select their board member nominee to replace an acting chairman. Some Democrats worry future election power shifts could complicate regulatory efforts. Todd Philips also addressed the board’s lingering partisan precarity saying, “if Democrats lose in 2024, we would potentially end up with a situation where Marty is a Democratic Chair with a Republican board, and we may see a similar fight [like with that of former Chairman Mcwilliams].”
Jaret Seiberg, policy analyst for Cowen Washington Research Group agreed, saying that future elections would more explicitly dictate the direction of the agency going forward.
“[Democratic] control is likely only as long as there is a Democrat in the White House,” Sieberg said. “The CFPB director is a voting member of the FDIC. A Republican would put a new director in charge of the agency. That would then create a three-vote GOP majority. Under the precedent that Democrats set last year, the Republicans would control the agency’s agenda.”
Others see Gruenberg’s appointment as good for the FDIC, with the Chairman now able to focus less on the risk of replacement, and more on regulation itself.
Carl Tobias, Williams professor of Law at the University of Richmond, said Gruenberg’s confirmation gives him a freer hand to pursue his and the administration’s agenda.
“It’s one thing to be acting, and another thing to be the head for a pretty long time,” Tobias said. “This time he has the authority to move, and he has the majority, so it might be a good time to be in charge.”
The newly appointed chairman’s goals for the next few years remain to be seen, but given his statements and the collapse of crypto firm FTX, digital assets are sure to be targeted for more explicit regulation. In a Senate Banking Committee hearing with fellow regulators last month, Gruenberg indicated he would work closely with his fellow regulators to prevent the kind of mass market disruptions seen this year.
“Crypto-assets bring with them novel and complex risks that, like the risks associated with the innovative products in the early 2000s, are difficult to fully assess,” Gruenberg said. “As [the regulators] develop a better collective understanding of the risks associated with these activities, we expect to provide broader industry guidance on an interagency basis.”
Gruenberg also made clear his crypto concerns extend to stablecoins, a particular type of digital asset often claimed to be pegged to real-world assets like currencies, U.S. Treasury securities, or commercial paper. The chairman has noted, however, that some of the technology used for digital speculation could have utility in a more formal and regulated setting.
“The distributed ledger technology upon which [stablecoins] are built may prove to have meaningful applications and public utility within the payments system,” Gruenberg said at November’s Senate Banking hearing on regulatory oversight. “This raises a host of important policy questions that will be the subject of careful attention by all of the federal financial regulators.”
In addition to addressing cryptocurrencies, some familiar with the agencies predicted Gruenberg would pursue a stronger focus on bank merger reform and revising bankruptcy protocols.
“We believe that means the agency will tighten bank merger standards with a broader focus on how to measure competition,” Sieberg said. “This should mostly impact smaller banks, which are the bulk of whom the FDIC oversees.”
Sieberg also said that the FDIC could compel top-tier holding companies of regional banks to take greater responsibility for restructuring company debt and equity in the event of a bankruptcy.
“We continue to expect the Fed and FDIC will impose at least a version of single-point-of-entry on regional banks,” Sieberg said. “That could result in higher regional bank capital requirements.”
With Gruenberg confirmed by an enduring Democratic Senate majority, concerns about partisan struggles may be deferred for now. Democrats will control the Senate and White House for the time being, but if this year’s close election is any indication, the bank regulatory apparatus may be increasingly susceptible to political pendulum swings.
And with all five FDIC Board members seated for the first time in many years, the only acting principal at a federal banking regulator is acting Comptroller Michael Hsu. Some have speculated that Gruenberg’s confirmation could provide momentum for making Hsu’s seat official. However, the unique nature of the position makes acting comptrollers less dependent on congressional majorities.
Daniel Meade of Cadwalader, Wickersham & Taft LLP says that while President Biden has a freer hand in the next Congress to appoint a permanent head at the Office of the Comptroller of the Currency, the law also lets him make that decision more or less at the time of his choosing. ,
“While President Biden may very well nominate someone (possibly including Mr. Hsu) to be confirmed as Comptroller, the National Bank Act permits an acting Comptroller to stay at the pleasure of the Secretary of the Treasury,” Meade said.
What started as a trickle of overdraft-fee policy changes in 2021 became a flood in 2022 as a growing number of large and midsize banks made their policies more consumer-friendly.
The list includes megabanks like Citigroup, which this year became the largest U.S. bank to eliminate overdraft fees entirely, and Wells Fargo, which recently launched a new small-dollar loan program to help customers avoid overdraft charges.
It also includes regional banks such as Charlotte, North Carolina-based Truist Financial, which dropped all fees tied to transactions that get rejected because the customer lacks sufficient funds, as well as charges for overdraft protection transfers.
The pressure on banks to reform overdraft policies has been mounting for years, with consumer advocates and lawmakers arguing that such policies are particularly harmful to lower-income customers. More recently, Biden-era regulatory changes and competition from lower-cost online competitors have put pressure on large banks to reconsider their strategies.
Here’s a look back at American Banker coverage from 2022 that highlights the evolution of overdraft policy.
Texas lawmakers grilled finance industry executives they summoned to a remote corner of the Lone Star State for a hearing Thursday, questioning whether their environmental, social and governance policies are hindering state pension investments.
The GOP-led committee on state affairs called the hearing amid growing concern in the party that financial firms are pushing a “woke” ideology with investing rules tied to ESG issues. They summoned officials from BlackRock, State Street and Institutional Shareholder Services to defend their practices before a committee made up of seven Republicans and two Democrats.
Harrison County Courthouse, Marshall, Texas. Photographer: Joe Sohm/Visions of America/Universal Images Group/Getty Images
Republican state Sen. Lois Kolkhorst cited a Harvard Business Review study this year that showed ESG funds tend to lag behind the overall market.
“We have a commitment to our retired teachers and we have a commitment to our retired state employees to do better with our money,” Kolkhurst said at the hearing in Marshall, in eastern Texas. The state is the nation’s largest energy producer.
BlackRock’s head of external affairs, Dalia Blass, stood by the firm’s record in handling the assets of its clients in the state.
“We are really proud of our performance for the Texas institutions that have entrusted us with their money,” Blass told the panel. “We have one bias: to get the best risk-adjusted returns for our clients.”
The setting, chosen because it’s in the district represented by the panel’s chair, was unusual for Wall Street. With a population of almost 25,000, Marshall is 150 miles (241 kilometers) east of Dallas, 70 miles south of Texarkana and about as far as can be from the world of high finance.
The committee is focused on how ESG policies may impact Texans’ retirement savings, but the investigation is part of a broader effort by GOP officials around the country to push back against what they see as progressive ideologies among corporations. New York-based BlackRock, the world’s largest asset manager, is a frequent target.
Florida’s chief financial officer has urged state pension funds to remove BlackRock as an asset manager over ESG concerns, while Louisiana and Missouri have pulled a combined $1.3 billion from the company this year. In August, Texas included the firm on a list of those it says boycott the energy industry. Republicans have also clashed with PayPal Holdings and the Walt Disney Co. over their policies.
The firms have struggled with how to respond, often trying to assure conservative critics that they embrace fossil fuels while at the same time telling environmentalists they’re committed to helping to fight climate change. Vanguard Group recently announced it was leaving the world’s largest climate-finance alliance, saying it would help “provide the clarity our investors desire.” The company was slated to join the hearing but was then excused.
“We do not pick and choose what to invest in,” Lori Heinel, global chief investment officer for State Street Global Advisors in Boston, told the committee. “More specifically, we do not discriminate against energy companies, or any other sector.”
ESG’s impact on the fossil-fuel industry is of particular concern to lawmakers worried that it could dry up funding sources. In August, the committee sent letters to the four firms asking for documents and testimony from executives related to their investing and consulting practices and any impacts on state pensions.
“When there’s no funding for energy projects, energy projects don’t get done, energy costs go up, jobs go away and the cost of everything we buy goes up,” committee Chairman Bryan Hughes said Thursday. “This is real. This is family security. This is national security.”
Republicans in the U.S. Senate have also homed in on how the biggest asset managers use their stakes in public companies to cast proxy votes, alleging they favor a “liberal political agenda,” according to a report from Banking Committee staff. They called for congressional probes into how the firms influence corporate policies on carbon emissions reduction, board diversity or racial-equity audits.
The economy was one of the defining issues of the midterm elections, with inflation and the rising cost of living topping the list of concerns for American voters.
Now, a divided Washington faces the task of finding common ground to tackle these pocketbook challenges. Supporting an open and competitive economy should be a top priority, because a competitive marketplace means more choices and lower costs for consumers, businesses and the economy.
But Washington can help unleash even more consumer benefits by modernizing its approach to financial policy and regulation. Taking an affirmative, risk-based approach to regulation will help unleash the competitive benefits of financial technologies for more Americans, from the young person using an alternative payments platform to purchase items interest-free to the local coffee shop owner reaching new customers online or the daughter managing her elder parent’s finances through budgeting apps.
Other countries and regions are updating their regulatory frameworks to account for these developments, providing greater regulatory certainty to fintechs and increased consumer choice. Modernizing the U.S. financial regulatory framework to address fintech innovations will help ensure U.S. competitiveness from a global perspective. Pilots and sandboxes that carry the appropriate safe harbors could help facilitate policymakers’ efforts to encourage and advance responsible innovation.
Consumers’ top reason for using fintech is to access their financial information in real time from anywhere, but payments are a crucial area needing modernized policy. Giving a broader set of firms, including financial technology companies, access to federal payment rails would help lower costs, drive competition and speed up payments for consumers. That can start by ensuring the leading payments companies can access infrastructure like FedNow, a real-time settlement service that the Federal Reserve is developing to facilitate instant payments 24 hours a day, every day.
Innovations in artificial intelligence and machine learning are also bringing competition to financial services. The responsible use of AI/ML technologies helps lower costs, increase efficiency, expand fairness and enhance access to credit. But there is a need for clear guidelines to continue fostering the use of AI/ML, both for the companies using the technology and the regulators overseeing it.
Strengthening consumers’ control of their financial data and affirming their right to choose their preferred financial services is critical to ongoing innovation and competition in the marketplace. The Consumer Financial Protection Bureau is leading efforts to establish consumers’ data rights through Section 1033 rulemaking. Conversations are also ongoing on Capitol Hill and elsewhere about the future of alternative credit services like buy now/pay later and early wage access products, which help consumers take control of their finances.
Financial technology can mean the difference between being able to pay a bill on time and incurring an overdraft fee, or weathering a short-term financial shock and turning to a predatory lender. At a time when almost40% of American adults don’t have enough savings to cover a $400 emergency, these fintech advances are meaningful because they give consumers alternatives to expensive legacy financial products.
Consumers are turning to fintech because they prefer speed, convenience and transparency. It’s time for our financial policy to catch up and embrace these critical drivers of consumer-friendly services. Modernizing our approach to financial policies will be essential for America to remain competitive moving forward and can be an area of productive common ground for a new Washington.
