Capital buffers, AML litigation and payments costs

Fed stress test leaves large-bank capital buffers unchanged. All 32 tested banks stayed above minimum Common Equity Tier 1 requirements in a severely adverse scenario with a 39% commercial real estate price decline, a 30% house-price decline and unemployment peaking at 10%. Aggregate capital fell 1.6 percentage points after more than $708 billion in modeled loan losses, and American Banker reported the Fed will preserve stress capital buffers while weighing process changes as soon as next year.

Megabanks split over GSIB short-term funding denominator. The Fed proposal would remove risk-weighted assets from the denominator of the short-term wholesale funding component of the global systemically important bank surcharge. JPMorgan Chase and Bank of America objected that the change could distort risk measurement, while Goldman Sachs and Morgan Stanley backed the revisions.

Rhinebeck Bancorp MHC approves mutual-to-stock conversion plan. The 8-K reported special-meeting voting results approving the amended and restated plan converting Rhinebeck Bancorp, MHC from a mutual to a stock holding structure. The stated status is plan approval, not a reported completed conversion for Rhinebeck Bank.

FirstBank Puerto Rico faces Epstein-related AML lawsuit. A Jane Doe lawsuit alleges FirstBank Puerto Rico and parent First BanCorp maintained more than 30 Epstein-related entity accounts and ignored anti-money-laundering protocols. The complaint also alleges the bank did not file legally required suspicious activity reports until two weeks after Epstein's 2019 arrest.

ABA says Nacha’s ACH return-timeframe proposal would raise smaller-bank operating costs. Nacha has proposed shortening Automated Clearing House return timeframes for items typically returned without human decisioning by a receiving depositary financial institution. ABA said the change would require systems reengineering, exception processing, vendor coordination and staffing-model changes, with disproportionate costs for community and regional banks.

Banks still face cost, fraud and scaling hurdles in real-time payments. Even with evident demand from small businesses and other users, banks remain unsure which customer segments to target and must absorb integration costs and fraud controls as they try to scale FedNow and RTP.

Bank-fintech partnership bill would mandate an agency study. House and Senate lawmakers introduced the Bank-Fintech Partnership Enhancement Act, and the House Financial Services Committee cleared it unanimously. The bill would require banking agencies to study how bank-fintech partnerships affect community bank health, competition, innovation, consumer protection and product availability.