On February 23rd, the Federal Deposit Insurance Corporation (FDIC) announced a consent order with Tennessee-based Lineage Bank regarding its third-party risk management program and financial technology (fintech) partners. This order underscores the regulatory attention on BaaS banks and fintech clients, signaling concerns about potential risks in the financial system.

Last year saw turmoil in the banking industry. The multiple bank failures of 2023 sparked regulatory intensity that will undoubtedly continue into 2024 and the federal agencies’ commitment to addressing key priorities before the fall election will fan the flames.

Apollo Management Chief Economist Torsten Slok said that a re-accelerating US economy, coupled with a rise in underlying inflation, will prevent the Federal Reserve from cutting interest rates in 2024.

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Lorie Logan became president of the Dallas Fed in August 2022 after more than two decades at the New York Fed, where she rose from an entry-level analyst to become one of its most senior officials, managing the central bank’s balance sheet...That’s turned Dallas into an important if unlikely source of information on “quantitative tightening” as the Fed navigates the fraught process of once again trying to reduce its footprint in financial markets, after buying up assets to cushion them from the blow of the pandemic.

The reality is that the US economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December. As a result, the Fed will not cut rates this year, and rates are going to stay higher for longer.

The FDICs' confidential tally of lenders with with financial, operational or managerial weaknesses had grown by eight banks to 52, representing 1.1% of the institutions it oversees. The total assets held by those firms increased by $12.8 billion last quarter to $66.3 billion.

Canadian pension funds have been among the world’s most prolific buyers of real estate, starting a revolution that inspired retirement plans around the globe to emulate them. Now the largest of them is taking steps to limit its exposure to the most-beleaguered property type — office buildings.

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Texas had 463 commercial foreclosure filings in the 12 months ending with January, according to a new report by Attom Data Solutions. Texas ranked third nationally for commercial foreclosures with 56 filings last month — a 143% year-over-year increase in the number of properties red-flagged for foreclosure by lenders in January.

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COVID-19 appears to have had a lasting negative impact on demand for commercial real estate. Federal regulators are aware of the risks to commercial real estate, but the Fed’s stress test provides a false sense of security. The finding that large banks are equipped to absorb losses on CRE loans in case of a CRE crisis is encouraging, but small banks have provided the bulk of CRE bank loans...The commercial real estate-small bank nexus exposes the US economy to a vulnerability that could threaten financial stability and either cause a recession or make a mild recession more severe.

Payments veteran Dan Schulman sees a future in which consumers pool their financial relationships with a handful of large players, as everything from daily spending to credit, savings and payments merge into a single digital experience.

As the country’s banking giants expand, some consumers are looking for smaller alternatives. It’s a trend at the center of a Tuesday (March 5) Wall Street Journal (WSJ) report, which says that these banking customers have found that switching to community lenders and credit unions offers a more personal touch and greater savings.

Metropolitan Commercial Bank will exit its banking-as-a-service relationships this year. The decision, announced in the bank’s 10-K filing last week, follows an earlier decision to exit all consumer-facing BaaS relationships.

Generative AI (gen AI) is poised to become a catalyst for the next wave of productivity gains across industries, with financial services very much among them. From modeling analytics to automating manual tasks to synthesizing unstructured content, the technology is already changing how banking functions operate, including how financial institutions manage risks and stay compliant with regulations.

"Large organizations are learning how to deal with the introduction of AI,” Bank Leumi CIO Eyal Efrat said at Calcalist and Bank Leumi’s Mind the Tech conference in New York. Stephen Chase, Vice Chair, AI & Digital Innovation, at KPMG added, “There are many companies that need help and AI technologies that are still not ready to be integrated."

Under the consent order, Lineage Bank must implement an enhanced risk management program overseen by its board of directors, increase capital levels, and let go of some fintech partners.

The precipitous developments surrounding the failures of Silicon Valley Bank and Signature Bank in 2023 along with the sudden bailouts of First Republic and Credit Suisse were remarkable. All are fresh reminders that as organisations engage in strategies to pursue higher returns, they are also taking on greater potential risks.