Deputy Seminar, Denver, CO

This is the student handbook for the July 16-18, 2018 Deputy Seminar held in Denver, CO.

CSBS Deputy Seminar Denver, Colorado July 16-18, 2018

Monday, July 16, 2018

7:30 AM

Breakfast

8:30 AM

Welcome Remarks Sebastien Monnet

Vice President, Learning & Development Conference of State Bank Supervisors

8:45 AM

U.S. Economic Outlook Roger C. Tutterow, Ph.D. Professor of Economics & Director, Econometric Center Department of Economics, Finance and Quantitative Analysis Michael J. Coles College of Business Kennesaw State University

9:45 AM

Break

10:00 AM

Dialogue with FDIC Senior Officials Doreen Eberley Director, Division of Risk Management Supervision Sylvia Plunkett Senior Deputy Director, Division of Depositor & Consumer Protection

11:00 AM

Break

11:15 AM

Marijuana, Banking, & Regulatory Approach Roberta Hollinshead Director of Banking Washington Department of Banking

12:15 PM

Lunch

1:30 PM

Supervisory Processes Update Mary Beth Quist

Senior Vice President, Bank Supervision Conference of State Bank Supervisors

2:30 PM

Break

2:45 PM

Impact of New Accounting Standards & CECL Implementation Bud Hollenkamp, CPA

Director BKD, LLP

3:45 PM

Break

4:00 PM

Update and Discussion on DeNovo Activities Cathy Nahnsen Robison Regional Deputy Commissioner California Department of Business Oversight Chris Robinson Director of Examination Support Activities Texas Department of Banking Tod Trulove Assistant Commissioner Tennessee Department of Financial Institutions Jim Cooper (moderator) Senior Vice President, Policy Conference of State Bank Supervisors

5:00 PM

Adjourn

7:30 PM - 9:30 PM Dessert Reception

Tuesday, July 17, 2018

7:30 AM

Breakfast

8:30 AM

Dialogue with FRB Senior Officials Karen Caplan Assistant Director, Division of Supervision & Regulation Ducie Le Assistant Director, Division of Consumer & Community Affairs

9:30 AM

Break

9:45 AM

Strengthening IT Supervision Phillip Hinkle Director of IT Security Examinations Texas Department of Banking Kevin Stouder IT Program Leader Indiana Department of Financial Institutions Mary Beth Quist (moderator) Senior Vice President, Bank Supervision Conference of State Bank Supervisors

10:45 AM

Break

11:00 AM

Accreditation, Data Analytics, and State Profile Matt Comber Senior Director

Jim Cooper Senior Vice President, Policy Mary Beth Quist

Senior Vice President, Bank Supervision Conference of State Bank Supervisors

12:00 PM

Lunch

1:15 PM

Fraud, Forensics, and Internal Controls Risk Management Tiffany Couch, CPA/CFF, CFE Owner Acuity Forensics

2:45 PM

Break

3:00 PM

Workforce Challenges Facilitated Group Discussion

4:30 PM

Adjourn

5:30 PM - 7:30 PM Networking Reception

Wednesday, July 18, 2018

7:30 AM

Breakfast

8:30 AM

Joint Deputy & Legal Seminars - Welcome Remarks Sebastien Monnet

Vice President, Learning & Development Conference of State Bank Supervisors

8:45 AM

CSBS Regulatory & Legislative Update Jim Cooper Senior Vice President, Policy Chuck Cross Senior Vice President, Consumer Protection & Non-Depository Supervision Margaret Liu Senior Vice President, Legislative & Deputy General Counsel

Michael L. Stevens (moderator) Senior Executive Vice President Conference of State Bank Supervisors

10:00 AM

Break

10:15 AM

Blockchain, Smart Contracts, and Ramifications Alanna Gombert Founding Member Digital Asset Trade Association

11:30 AM

Conclusion of the 2018 Deputy Seminar

Deputy Seminar Denver, Colorado July 16-18, 2018

Attendees Arizona Department of Financial Institutions Greg Dunn

gdunn@azdfi.gov

602-771-2822

Arkansas State Bank Department Richard Buzbee

rbuzbee@banking.state.ar.us smarshall@banking.state.ar.us bmoseley@banking.state.ar.us msaunders@banking.state.ar.us

501-683-3263 501-324-9019 501-324-9019 501-324-9019

Susannah Marshall Baker Moseley Michael Saunders

California Department of Business Oversight Frank Bushnell

frank.bushnell@dbo.ca.gov

916-445-9811 213-897-5346 916-445-2065 213-897-8952

Catherine Nahnsen-Robison

catherine.nahnsen-robison@dbo.ca.gov

Aaron Prosperi

aaron.prosperi@dbo.ca.gov

John Ross

john.ross@dbo.ca.gov

Consumer Financial Protection Bureau Vanessa Careiro

vanessa.careiro@cfpb.gov karyn.mysliwiec@cfpb.gov

202-435-9394 202-754-0345

Karyn Mysliwiec

Georgia Department of Banking and Finance Melissa Sneed

msneed@dbf.state.ga.us

770-986-1646

Hawaii Division of Financial Institutions Tara Murphy

tmurphy@dcca.hawaii.gov

808-586-2814

Indiana Department of Financial Institutions Patrick Land

pland@dfi.in.gov

317-232-3955 317-232-3955

Deron Thompson

dthompson@dfi.in.gov

Iowa Division of Banking Tracy Bergmann

Tracy.Bergmann@idob.state.ia.us Shauna.Shields@idob.state.ia.us

515-281-4014 515-281-4014

Shauna Shields

Kansas Office of the State Bank Commissioner Tim Kemp

tim.kemp@osbckansas.org

785-296-1497

Kentucky Department of Financial Institutions Brian Raley

brian.raley@ky.gov

502-782-9015

Louisiana Office of Financial Institutions Christine Kirkland

ckirkland@ofi.la.gov

225-925-4660

Massachusetts Division of Banks James Barrett

james.a.barrett@mass.gov

617-367-4401

Mississippi Department of Banking & Consumer Finance Sam Hubbard

sam.hubbard@dbcf.ms.gov Charles.Plunkett@dbcf.ms.gov perryanne.thimmes@dbcf.ms.gov

601-321-6908 601-321-6944 601-321-6901

Charles Plunkett

Perry Anne Thimmes

Montana Division of Banking and Financial Institutions Carra Greyn cgreyn@mt.gov

406-248-2742

Nebraska Department of Banking and Finance Kelly Lammers

kelly.lammers@nebraska.gov

402-471-4945

North Carolina Office of Commissioner of Banks Katie Bosken

kbosken@nccob.gov rcampbell@nccob.gov

919-733-3016 919-733-0591

Rowe Campbell

North Dakota Department of Financial Institutions Aaron Webb

aaronwebb@nd.gov

701-328-9935

Ohio Division of Financial Institutions Sheila Schroer

Sheila.Schroer@com.state.oh.us Ingrid.White@com.state.oh.us

614-728-8400 614-728-8400

Ingrid White

Oklahoma State Banking Department Wayne Arbuthnot

wayne.arbuthnot@banking.ok.gov jeff.bagby@banking.ok.gov dudley.gilbert@banking.ok.gov

405-521-2782 405-521-2782 405-521-2782

Jeff Bagby

Dudley Gilbert

South Dakota Division of Banking John Crompton

john.crompton@state.sd.us

605-773-3421

Tennessee Department of Financial Institutions Tod Trulove

tod.trulove@tn.gov

615-289-2156

Texas Department of Banking Travis Graham

travis.graham@dob.texas.gov david.reed@dob.texas.gov chris.robinson@dob.texas.gov

512-475-1300 512-475-1300 512-475-1300

David Reed

Chris Robinson

Utah Department of Financial Institutions Andrea Staheli

astaheli@utah.gov

801-538-8776

Virginia Bureau of Financial Institutions Charles Dickerson

charles.dickerson@scc.virginia.gov Robert.Hughes@scc.virginia.gov Randy.Street@scc.virginia.gov

804-371-9262 804-371-9704 804-371-9269

Robert Hughes Randy Street

Washington Department of Financial Institutions Matthew Harvey

matthew.harvey@dfi.wa.gov

206-639-6050

Wyoming Division of Banking Amanda Ortega

amanda.ortega@wyo.gov

307-777-6604 307-777-5891

Fred Rife

fred.rife@wyo.gov

Speakers Acuity Forensics Tiffany Couch, CPA/CFF, CFE

tcouch@acuityforensics.com

360-573-5158

BKD, LLP Bud Hollenkamp, CPA

bhollenkamp@bkd.com

303-861-4545

Digital Asset Trade Association Alanna Gombert

alanna@metax.io

Federal Deposit Insurance Corporation Doreen Eberley

deberley@fdic.gov splunkett@fdic.gov

917-320-2575 312-382-7552

Sylvia Plunkett

Federal Reserve System Karen Caplan

karen.a.caplan@frb.gov

Ducie Le

ducie.le@frb.gov

Indiana Department of Financial Institutions Kevin Stouder

kstouder@dfi.in.gov

317-232-3955

Kennesaw State University - Michael J. Coles College of Business Roger C. Tutterow, Ph.D. rtuttero@kennesaw.edu

470-578-3278

Texas Department of Banking Phillip Hinkle

phinkle@dob.texas.gov

972-241-1426

Washington Department of Financial Institutions Roberta Hollinshead

roberta.hollinshead@dfi.wa.gov

206-639-6050

CSBS Staff Daniel Berkland Matt Comber James Cooper

dberkland@csbs.org mcomber@csbs.org jcooper@csbs.org ccross@csbs.org mliu@csbs.org tmcvey@csbs.org smonnet@csbs.org mbquist@csbs.org mstevens@csbs.org

202-559-1987 202-728-5750 202-808-3557 202-728-5745 202-728-5749 304-549-9584 202-549-2017 202-728-5722 202-728-5701

Chuck Cross Margaret Liu Tom McVey

Sebastien Monnet Mary Beth Quist

Mike Stevens

COMMENTS ON THE ECONOMIC, BUSINESS AND POLITICAL CLIMATE

Roger Tutterow, Ph.D. Coles College of Business Kennesaw State University rtuttero@kennesaw.edu CSBS 2018 Deputy Seminar July 16, 2018 Denver, CO

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Expansion Getting Tired? (Source: National Bureau Economic Research Trough Peak Months October 1945 (IV) November 1948(IV) 37 October 1949 (IV) July 1953(II) 45 May 1954 (II) August 1957(III) 39 April 1958 (II) April 1960(II) 24 February 1961 (I) December 1969(IV) 106 November 1970 (IV) November 1973(IV) 36 March 1975 (I) January 1980(I) 58 July 1980 (III) July 1981(III) 12 November 1982 (IV) July 1990(III) 92 March 1991(I) March 2001(I) 120 November 2001 (IV) December 2007 (IV) 73 June 2009 (II) ??? 108 Average Expansion, Post WWII 58.4

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

GDP = Consumption Gross Investment Contributions To GDP Growth (Source: Bureau ofEconomicAnalysis)

Net Exports Government

2016: Q3 2016: Q4 2017: Q1 2017: Q2 2017: Q3 2017: Q4 2018: Q1 2016: Q3 2016: Q4 2017: Q1 2017: Q2 2017: Q3 2017: Q4 2018: Q1

2.8% 1.8% 1.2% 3.1%

1.92% 1.99%

0.40% 0.36% 0.09%

1.34%

-1.61%

0.03%

1.32% -0.20% 0.22% -0.11%

2.28%

0.64% 0.21% -0.03%

3.2% 1.49% 1.19%

0.36% -1.16%

0.12% 0.51%

2.9% 2.0%

2.75% 0.60%

0.78%

1.22% -0.04% 0.22%

Gross Investment = Nonresidential

Residential

Inventory

0.40% 0.42%

-0.18%

0.16% 1.06% -1.46% 0.12%

1.34% 0.02% 0.26%

-0.20% 0.64% 1.19% 0.78% 1.22%

0.86% 0.82% 0.58% 0.84% 1.28%

0.41% -0.30%

-0.21% 0.79%

0.46%

-0.53%

-0.04% -0.01%

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

ISM’s “PMI” (Source: Institute of Supply Management)

25 30 35 40 45 50 55 60 65

Jul-01

Jul-04

Jul-07

Jul-10

Jul-13

Jul-16

Oct-00

Apr-02

Oct-03

Apr-05

Oct-06

Apr-08

Oct-09

Apr-11

Oct-12

Apr-14

Oct-15

Apr-17

Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

Jan-15

Jan-18

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Industrial Production

10% 15%

0% 5%

-25% -20% -15% -10% -5%

L12M

L6M

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Sep-03

Sep-05

Sep-07

Sep-09

Sep-11

Sep-13

Sep-15

Sep-17

May-04

May-06

May-08

May-10

May-12

May-14

May-16

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Foreign Exchange: Trading Partners (Source: Board of Governors of the Federal Reserve System)

120

110

100

90

80

70

60

Jul-03

Jul-06

Jul-09

Jul-12

Jul-15

Oct-02

Apr-04

Oct-05

Apr-07

Oct-08

Apr-10

Oct-11

Apr-13

Oct-14

Apr-16

Oct-17

Jan-02

Jan-05

Jan-08

Jan-11

Jan-14

Jan-17

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Foreign Exchange: US/China (Source: Board of Governors of the Federal Reserve System)

8.5

8.0

7.5

7.0

6.5

6.0

5.5

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Consumer Sentiment (source: University of Michigan, Survey Research Center)

100 105 110 115

55 60 65 70 75 80 85 90 95

Jul-98

Jul-99

Jul-00

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CONSUMER SENTIMENT

100 110 120 130

50 60 70 80 90

Atlanta National

4Q-94

4Q-95

4Q-96

4Q-97

4Q-98

4Q-99

4Q-00

4Q-01

4Q-02

4Q-03

4Q-04

4Q-05

4Q-06

4Q-07

4Q-08

4Q-09

4Q-10

4Q-11

4Q-12

4Q-13

4Q-14

4Q-15

4Q-16

4Q-17

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Comments from Curtin (source: Richard Curtin, Director of Survey of Consumers, February 2017)

“the gain represents the result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth” “ overall gain in the Expectations Index was due to self-identified Independents, who were much closer to the optimism of the Republicans than the pessimism of the Democrats” “the February Expectations Index was 55.5 among Democrats, 120.1 among Republicans, and 89.2 among Independents”

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Retail Sales (source: U.S. Bureau of the Census, annual rate of growth)

-12% -9% -6% -3% 0% 3% 6% 9% 12%

RS Total RS ex-auto

Jul-01

Jul-12

Oct-98

Oct-09

Apr-04

Apr-15

Jan-96

Jun-02

Jan-07

Jun-13

Mar-05

Mar-16

Feb-06

Feb-17

Dec-96

Nov-97

Sep-99

Aug-00

Dec-07

Nov-08

Sep-10

Aug-11

May-03

May-14

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Auto & Light Truck Sales – H&I Effect (Source: Department of Commerce, in millions)

10 11 12 13 14

Auto Light Truck

4 5 6 7 8 9

Jul-00

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Auto Inventory (Source: Department of Commerce)

5.0

4.5

Inv/Sales

4.0

3.5

3.0

2.5

2.0

1.5

1.0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Leading Economic Indicators (source: Conference Board, % change in last 6 months)

0% 3% 6% 9%

-9% -6% -3%

-15% -12%

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Change in Payroll Employment (Source: Bureau of Labor Statistics)

200 400 600

-1000 -800 -600 -400 -200 0

Jul-02

Jul-07

Jul-12

Jul-17

Jan-00

Jan-05

Jan-10

Jan-15

Mar-04

Mar-09

Mar-14

Nov-00

Sep-01

Nov-05

Sep-06

Nov-10

Sep-11

Nov-15

Sep-16

May-03

May-08

May-13

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

State Employment (Net Change) (source: Bureau of Labor Statistics)

12% 15% 18% 21%

0% 3% 6% 9%

-6% -3%

Utah

Kentucky Iowa

Arkansas Ohio

Idaho

Texas

Maine

Rhode Island Vermont Illinois

Hawaii

Alaska

Florida

Indiana

Oregon

Virginia

Kansas

Arizona

Nevada

SouthCarolina Tennessee Georgia

Pennsylvania Missouri

Montana

Alabama

Michigan

NorthDakota Colorado

Maryland

WestVirginia Wyoming

California

Delaware

Nebraska

Louisiana

Massachusetts NewYork

Oklahoma

Wisconsin

Minnesota

Mississippi

New Jersey

Washington

Connecticut

NewMexico

District ofCol

SouthDakota

NorthCarolina

NewHampshire

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

US Employment Shift by Sector (Source: Bureau of Labor Statistics)

10%

L12M L5Yr

8%

6%

4%

2%

0%

-2%

-4%

-6%

Fin

Info

Govt

Total

Const

Manuf

Mining

T T & Util

Other Serv

Educ & HC

Leis & Hosp

Prof & Biz Ser

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Labor Force Participation

68%

66%

64%

62%

60%

LFPR

58%

E/P Ratio

56%

54%

Jul-82

Jul-99

Jul-16

Apr-78

Oct-86

Apr-95

Oct-03

Apr-12

Jan-74

Jun-75

Jan-91

Jun-92

Jan-08

Jun-09

Feb-81

Mar-88

Feb-98

Mar-05

Feb-15

Nov-76

Sep-79

Dec-83

Aug-89

Nov-93

Sep-96

Dec-00

Aug-06

Nov-10

Sep-13

Dec-17

May-85

May-02

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Labor Force Participation

90%

1996 2006 2016

80%

70%

60%

50%

40%

30%

20%

10%

0%

16 to 19 20 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 to 74 75 +

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Prices: Still talk of Deflation/Inflation? (source: Bureau of Labor Statistics) • CPI rose by 0.2% in May after having been down up 0.2% and down by 0.1% in April and March. • Core CPI rose 0.2% in May – after rising by 0.1% and 0.2% in two previous months. • Overall CPI up 2.8% over last 12 months. Core up 2.2% over same period. • Energy component was up by 0.9% last month and up by 11.7% over the last 12 months • “Core PCE” – 1.8% over L12M, 2.0% over L6M.

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Crude Oil: West Texas Intermediate (Source: US Energy Information Administration)

140

120

100

80

60

40

20

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

Jan-16

Jan-18

Sep-04

Sep-06

Sep-08

Sep-10

Sep-12

Sep-14

Sep-16

May-05

May-07

May-09

May-11

May-13

May-15

May-17

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Natural Gas: Henry Hub Spot (Source: US Energy Information Administration)

10 12 14 16

0 2 4 6 8

Jul-02

Jul-13

Oct-99

Apr-05

Oct-10

Apr-16

Jan-97

Jun-03

Jan-08

Jun-14

Mar-06

Feb-07

Mar-17

Feb-18

Dec-97

Nov-98

Sep-00

Aug-01

Dec-08

Nov-09

Sep-11

Aug-12

May-04

May-15

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Construction Cost w/o Energy (Source: BLS PPI & ABC)

-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

M/M Y/Y

Iron and Steel

Prepared Asphalt

Softwood Lumber

Concrete Products

Steel Mills Products

Inputs to Construction

Inputs to Nonres Construct

Nonferrous Wire and Cable

Plumb Fixtures and Fittings

Fabric Struct Metal Products

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Federal Funds Rate Short Rates Finally Start Moving (Source: Board of Governors of Federal Reserve System)

25%

20%

15%

10%

5%

0%

Jan-80

Jan-85

Jan-90

Jan-95

Jan-00

Jan-05

Jan-10

Jan-15

Sep-81

Sep-86

Sep-91

Sep-96

Sep-01

Sep-06

Sep-11

Sep-16

May-83

May-88

May-93

May-98

May-03

May-08

May-13

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Market’s FFR Outlook (Source: CME Group)

120%

175-200 bps 200-225 bps 225-250 bps 250-275 bps 275 - 300 bps

100%

80%

60%

40%

20%

0%

8/1/2018

9/26/2018

11/8/2018

12/19/2018

1/30/2019

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Comments on LIBOR/SOFE

• LIBOR fading away? • SOFE is secured, based on actual transactions. • Transitions on exiting contract will be challenging. • Derivatives have longest exposure

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

10-Year Treasury Bonds (Source: Board of Governors of Federal Reserve System)

0% 1% 2% 3% 4% 5% 6% 7%

Jul-02

Jul-07

Jul-12

Jul-17

Jan-00

Jan-05

Jan-10

Jan-15

Mar-04

Mar-09

Mar-14

Nov-00

Sep-01

Nov-05

Sep-06

Nov-10

Sep-11

Nov-15

Sep-16

May-03

May-08

May-13

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

“PIIGS Revisited” (Source: European Central Bank)

14%

Mar-15 Jun-15 Nov-15 Feb-16 May-16 Oct-16 Jun-17 Sep-17 Jan-18 Apr-18

12%

10%

8%

6%

4%

2%

0%

Portugal

Ireland

Italy

Greece

Spain

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Large Scale Asset Purchases (source: Federal Reserve System) • QE1 (March 2009) – $1.25 T in MBS

– $200B in Agencies – $300M in Treasuries • QE2 (November 2010) – $600B in Treasuries • Operation Twist

– Swapped $667B in longs for shorts

• QE3 (September 2012)

– $85B/month agency MBS & Treasuries – Taper begins December 2012

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Fed: Securities Held Outright

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

Jan-16

Jan-18

Sep-04

Sep-06

Sep-08

Sep-10

Sep-12

Sep-14

Sep-16

May-05

May-07

May-09

May-11

May-13

May-15

May-17

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

2-10 Treasury Spread (bps)

400

300

200

100

0

-100

-200

-300

Jun-76

Nov-77

Apr-79

Sep-80

Feb-82

Jul-83

Dec-84

May-86

Oct-87

Mar-89

Aug-90

Jan-92

Jun-93

Nov-94

Apr-96

Sep-97

Feb-99

Jul-00

Dec-01

May-03

Oct-04

Mar-06

Aug-07

Jan-09

Jun-10

Nov-11

Apr-13

Sep-14

Feb-16

Jul-17

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Loan Spread over COF Widening?

20 40 60 80 100

Large & Med Small

-100 -80 -60 -40 -20 0

Jul-91

Jul-96

Jul-01

Jul-06

Jul-11

Jul-16

Apr-90

Oct-92

Apr-95

Oct-97

Apr-00

Oct-02

Apr-05

Oct-07

Apr-10

Oct-12

Apr-15

Oct-17

Jan-94

Jan-99

Jan-04

Jan-09

Jan-14

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

MBA Mortgage Activity: Purchase & Refinance (Source: Mortgage Bankers Association)

0 100 200 300 400 500 600 700 800 900

Purch Refi

1997 - Q1

1997 - Q3

1998 - Q1

1998 - Q3

1999 - Q1

1999 - Q3

2000 - Q1

2000 - Q3

2001 - Q1

2001 - Q3

2002 - Q1

2002 - Q3

2003 - Q1

2003 - Q3

2004 - Q1

2004 - Q3

2005 - Q1

2005 - Q3

2006 - Q1

2006 - Q3

2007 - Q1

2007 - Q3

2008 - Q1

2008 - Q3

2009 - Q1

2009 - Q3

2010 - Q1

2010 - Q3

2011 - Q1

2011 - Q3

2012 - Q1

2012 - Q3

2013 - Q1

2013 - Q3

2014 - Q1

2014 - Q3

2015 - Q1

2015 - Q3

2016 - Q1

2016 - Q3

2017 - Q1

2017 - Q3

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Debt Balance and Mix (source: Federal Reserve Bank of New York Credit Panel/Equifax)

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CRE Loan Standards: Net Tightening (Source: Federal Reserve System, Senior Officers Lending Survey)

10 20 30 40 50

ADC Non-Res Multifam

-20 -10 0

2013 Q4

2014 Q1

2014 Q2

2014 Q3

2014 Q4

2015 Q1

2015 Q2

2015 Q3

2015 Q4

2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

90+ Days Delinquent by Loan Type (source: Federal Reserve Bank of New York Credit Panel/Equifax)

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Charge Off Rates at Commercial Banks (source: Board of Governors of the Federal Reserve System)

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Biz CRE

Jul-94

Jul-01

Jul-08

Jul-15

Jan-91

Jan-98

Jan-05

Jan-12

Mar-92

Mar-99

Mar-06

Mar-13

Sep-95

Nov-96

Sep-02

Nov-03

Sep-09

Nov-10

Sep-16

May-93

May-00

May-07

May-14

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Credit Unions: Credit Quality

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Delinquency Ratio Net Charge-Off Ratio

1Q-07

3Q-07

1Q-08

3Q-08

1Q-09

3Q-09

1Q-10

3Q-10

1Q-11

3Q-11

1Q-12

3Q-12

1Q-13

3Q-13

1Q-14

3Q-14

1Q-15

3Q-15

1Q-16

3Q-16

1Q-17

3Q-17

1Q-18

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

NCUA Data: 1Q 2018

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CS/S&P Home Price Index (Source: S&P Case Shiller)

-80% -60% -40% -20% 0% 20% 40% 60%

Bust Net

Miami

Dallas

Minneapolis Detroit

Washington Tampa

Seattle

National-US Atlanta

Denver

Boston

Phoenix

Chicago

Portland

Los Angeles Comp-20

Comp-10

Charlotte

New York

Cleveland

San Diego

Las Vegas

San Francisco

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Construction Spending: By Sector (Source: U.S. Bureau of Census)

-50% -40% -30% -20% -10% 0% 10% 20% 30%

Residential Non-Residential

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Sep-03

Sep-05

Sep-07

Sep-09

Sep-11

Sep-13

Sep-15

Sep-17

May-04

May-06

May-08

May-10

May-12

May-14

May-16

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Non-Residential Construction (Source: U.S. Bureau of Census)

-20% -10% 0% 10% 20% 30% 40% 50%

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Office

Power

Lodging

Religious

Health care

Educational

Commercial

Public safety

Water supply

Amuse & Rec

Manufacturing

Transportation

Communication

Highway and street

Conserv and develop

Sewage & waste disp

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

US Housing Permits: SF and Total (source: U.S. Bureau of Census)

1100 1400 1700 2000 2300

Total SF

200 500 800

Jul-99

Jul-02

Jul-05

Jul-08

Jul-11

Jul-14

Jul-17

Oct-98

Oct-01

Oct-04

Oct-07

Oct-10

Oct-13

Oct-16

Jan-98

Apr-00

Jan-01

Apr-03

Jan-04

Apr-06

Jan-07

Apr-09

Jan-10

Apr-12

Jan-13

Apr-15

Jan-16

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

US Housing Permits: Multi-family (Source: U.S. Bureau of Census)

600

500

400

300

200

100

0

Jul-05

Jul-12

Oct-03

Oct-10

Oct-17

Jan-02

Apr-07

Jan-09

Apr-14

Jan-16

Mar-03

Feb-06

Jun-08

Mar-10

Feb-13

Jun-15

Mar-17

Sep-06

Sep-13

Dec-04

Dec-11

Nov-07

Nov-14

Aug-02

Aug-09

Aug-16

May-04

May-11

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

The Demographics: Boom & Bust (Source: CDC, US Bureau of Census)

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Home Prices & CPI (Source: S&P Case-Shiller & Bureau of Labor Statistics)

110 130 150 170 190 210

CPI Case-Shiller

50 70 90

Jul-03

Jul-10

Oct-01

Oct-08

Oct-15

Jan-00

Apr-05

Jan-07

Apr-12

Jan-14

Mar-01

Feb-04

Jun-06

Mar-08

Feb-11

Jun-13

Mar-15

Dec-02

Sep-04

Dec-09

Sep-11

Dec-16

Nov-05

Nov-12

Aug-00

May-02

Aug-07

May-09

Aug-14

May-16

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

House Prices: Net

60%

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

Kentucky Iowa

Indiana Utah

Arkansas Ohio

Missouri Idaho

Texas

Pennsylvania Minnesota Maine

Illinois

Alaska

Hawaii

Alaska

California Florida

Oregon

Kansas

Virginia

Connecticut Nevada

West Virginia Georgia

Vermont

Washington Montana

Alabama

Michigan

District of Col Colorado

Maryland

Wyoming

New Jersey Delaware

South Dakota Nebraska

Louisiana

New York

Oklahoma

Massachusetts Wisconsin

Mississippi

Tennessee

New Mexico

North Dakota

Rhode Island

North Carolina

South Carolina

New Hampshire

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CS/S&P Home Price Index (Source: S&P Case Shiller)

-80% -60% -40% -20% 0% 20% 40% 60%

Bust Net

Miami

Dallas

Minneapolis Detroit

Washington Tampa

Seattle

National-US Atlanta

Denver

Boston

Phoenix

Chicago

Portland

Los Angeles Comp-20

Comp-10

Charlotte

New York

Cleveland

San Diego

Las Vegas

San Francisco

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Household RE Equity (Source: Board of Governors of Federal Reserve System)

14000

12000

10000

8000

6000

4000

2000

Jul-01

Jul-04

Jul-07

Jul-10

Jul-13

Oct-00

Apr-02

Oct-03

Apr-05

Oct-06

Apr-08

Oct-09

Apr-11

Oct-12

Apr-14

Oct-15

Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

Jan-15

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

2017 Migration (source: NAMS Report)

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018 Tax Reform: Some Headlines • Corporate tax rates cut 35% to 21% - changes value of loss carry forwards, but lower cost of capital • Preferential treatment for pass-through. • Individual rate lowered in some brackets. • Standard deduction increase, but exemption disappear and limits on SALT and other preferred items will more than offset for some. • AMT filers reduced. • Global taxation reduces inversion and encourages repatriation. • ACA individual mandate disappears. Currents Issues in Fiscal Affairs • Federal: – Government default avoided in 2011, 2013 & 2015 – where from here? – Back in Play : Affordable Care Act (Mandate gone), Keystone, Dodd- Frank, EPA, NLRB – Now in Play : Tax Reform (done for now), Infrastructure – Always was in Play : SCOTUS. – New Play: Revising Trade • States: – Tax Reform Initiatives in other States – does SALT matter? – Recent gains in manufacturing facilities due to “reshoring” – SE states domination biz location ranking, but not exclusive. – Amazon HQ2 – changes the way we compete? • Local: – RE valuation and revenues rising, fiscal distress moderating » Bilateral vs Multilateral » Lumber deals and tariffs – Does the Deficit Matter?

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Election 2016: What Did Everyone Miss? (Source: Iowa Electronic Markets)

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Election 2018: Just Down the Avenue (Source: Iowa Electronic Markets)

CSBS - 2018 DEPUTY SEMINAR Denver, CO– July 16, 2018

Banking the Marijuana Industry 2018 CSBS Deputy Conference

Washington Department of Financial Institutions Roberta Hollinshead Director of Banks

AGENDA History of Washington legalization Interaction with State and Federal counterparts Written Guidance Cole Memorandum FinCEN Guidance (FIN-2014-G001) How to comply who does what? Examination tips and lessons learned Q&A

History in Washington State 2001 Washington Decriminalization - policy in which individuals caught possessing small amounts of cannabis will not face criminal prosecution, and instead will be subject to only some type of lesser civil penalty. 2012 Washington Legalized I 502 passed by voters in 2012. Legalized small amounts of marijuana for adults 21 and over, taxes businesses, and designates revenue for healthcare, substance abuse and education. Had until December 31, 2013 to establish rules.

did not start until 2014

Washington State - The Industry Today Data as of 6/5/2018 Producer/Grower Licenses Issued: 1,196 Outstanding Applications: 48 Processor Licenses Issued: 1,272

Outstanding Applications: 66 Retailers (maximum of 556) Licenses Issued: 501 Outstanding Applications: 109

http://www.lcb.wa.gov/records/frequently-requested-lists

Interaction with State & Federal Counterparts State Level: Liquor and Cannabis Board (LCB) State task force Federal Level: FinCEN FRB, FDIC, NCUA Ensure consistency via examiner training

Written Guidance - Cole Memorandum

Issued in August 2013 - establish DOJ position on MRBs operating in compliance with state laws and eight priorities.

limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent,

Cole Memorandum Priorities 1. Prevent distribution to minors; 2. Prevent revenue from going to criminal enterprises, gangs, and cartels; 3. Prevent diversion of marijuana from states where it is legal under state law to other states; 4. Prevent state-authorized activity from being used as a cover for trafficking of other illegal drugs or illegal activity; Cole Memorandum Priorities 5. Prevent violence and use of firearms in cultivation and distribution of marijuana; 6. Prevent drugged driving and exacerbation of other adverse public health consequences associated with marijuana use; 7. Prevent growth of marijuana on public lands; and 8. Prevent marijuana possession or use on federal property.

Cole Memorandum 2 nd Memo Issued in February 2014 addresses provide services to MRBs operating in compliance with state laws and eight priorities.

implicate any of the eight priority factors, prosecution for these offenses may not be appropriate

services to a marijuana-related business knowing that the business is diverting marijuana from a state where marijuana sales are regulated to one where such sales are

U.S.C § § 1956, 1957, 1960 or the BSA might be

FinCEN Clarifying Guidance Issued February 2014 (same day as 2 nd Cole Memo) to clarify how provide services to MRBs consistent with BSA obligations Refers directly to the Cole Memo priorities must conduct customer due diligence and perform ongoing monitoring to assess compliance with Cole Memo Priorities

FinCEN Guidance - SARs

Three new kinds of SARs Marijuana Limited Marijuana Priority Marijuana Termination

Framework is intended for direct MRBs as evidenced by footnote 7.

provided indirectly, the financial institution may file SARs based on existing regulations and guidance without distinguishing between Marijuana Limited and Marijuana

Direct MRB Indirect MRB

Your customer sells, processes, or grows marijuana Maintains deposit or lending relationship with the bank

Your customer transacts business with a direct MRB Examples: Leases space to direct MRB

Sells products or services to direct MRB Employed by direct MRB

FinCEN Guidance Red Flags Red Flags to distinguish Priority SARs Business receives more revenue than for federal and state tax purposes. Individuals conducting transactions appear to be acting on behalf of undisclosed parties of interest. Comingling of funds with personal accounts of owner(s) or manager(s). Refer to guidance for the rest!

Liquor and Cannabis Board License Application Ongoing monitoring Enforcement visits Violation and penalty notices

with the LCB and law enforcement (if necessary) to ensure all 8 priorities are met.

How To Comply? Due Diligence at Account Opening Verify license status and business registration. Review license application. Develop understanding for normal and ongoing Monitoring Review publicly available information periodically. Look for potentially suspicious activity consistent with red flags described. Refresh information obtained as part of customer due diligence on a periodic basis and commensurate with risk. Expected activity for the business. Cole Memorandum Priorities 1. Prevent distribution to minors; Primary Method: Site visits and surveillance conducted by LCB. 2. Prevent revenue from going to criminal enterprises, gangs, and cartels; Primary Method: LCB application process and transaction monitoring by Bank 3. Prevent diversion of marijuana from states where it is legal under state law in some form to other states; Primary Method: Traceability system monitored by LCB. 4. Prevent state-authorized activity from being used as a cover for trafficking of other illegal drugs or illegal activity;

Primary Method: Traceability system monitored by LCB and transaction monitoring by bank.

Cole Memorandum Priorities 5. Prevent violence and use of firearms in cultivation and distribution of marijuana Primary Method: LCB site visits. 6. Prevent drugged driving and exacerbation of other adverse public health consequences associated with marijuana use; Primary Method: Law enforcement. 7. Prevent growth of marijuana on public lands; and Primary Method: Licensee application approved by LCB. 8. Prevent marijuana possession or use on federal property. Primary Method: Law Enforcement. What should the FI do and lessons learned? Determine Board approved risk tolerance BSA Policy should distinguish between permissible and prohibited banking activity for MRBs SAR Procedures should be enhanced to include Limited/Priority/Termination Framework and Red Flags Price for risk Lessons learned on Examinations Stories industry

repeal the Cole

Memo prosecutorial discretion. What will FinCEN do?

Multiple forms of legislation that may or may not move forward (Bipartisan support) Current administration mixed messages Significant growth in the industry across the country States will be reliant on tax revenue

Questions? https://dfi.wa.gov/banks/marijuana

Roberta.Hollinshead@dfi.wa.gov Director of Banks

CSBS Deputy Conference

The Latest From the Supervisory Processes Team

Mary Beth Quist,, SVP Bank Supervision

Outline

• Meet the team • Governance overview

• Interagency Examination Tools • CSBS Examiner Resources • Current Supervisory Matters – CRE

– FinCEN’s CDD Rule Implementation – Marijuana Banking – CECL Implementation – Policy changes at Federal Agencies – Industry Tools – IT/Cyber Supervision

• FFIEC-related developments

Meet the team

• Mary Beth Quist – Senior Vice President of Supervisory Processes – mbquist@csbs.org / 202-728-5722 • Kyle Thomas – Vice President of Supervision and Accreditation – kthomas@csbs.org / 202-407-7131 • Jami Flynn – Director, Bank Supervision – jflynn@csbs.org / 202-728-5718 • Dan Berkland – Director, Bank Supervision – Dberkland@csbs.org/ 202-559-1987

Governance: Committee and Working Groups

SSPC Members • Susannah Marshall (AR), Chair • Chris Dietz (IN), Vice Chair • Albert Forkner (WY), Exec Comm Liaison • District I - Sara Cabral (RI) • District II -Pete Angus (IA) • District III -Rhoshunda Kelly (MS) • District IV - TBD • District V -Susan Dumontet (WA) • At Large - Amanda Ortega (WY) • At Large - Aaron Prosperi (CA)

• SSPC

– Priorities & Members

• SERT • Technology Committee • Risk ID Team • IT Advisory • BSAAdvisory

• NonDepository Trust Working Group • NonDepository IT/Cyber Supervision Development Working Group

SSPC Principles (approved August 2017): • Improve the effectiveness of state regulators by: – Offer timely outreach & training through webinars, job aids, and regular communication. – Identify solutions to issues in certain states for the benefit of other states. – Leverage the state system’s inherent risk detection capabilities to advance a risk-focused approach to supervision • Be a source of tools and resources for the state examination workforce. Specifically: – Develop appropriate tools to support the state supervisory process and mitigate challenges faced by state regulators. – Ensure state regulators have access to data and intelligence that allows them to remain risk-focused, working through the CSBS Data Analytics Taskforce (DATa). – Ensure the state regulator view is considered during all interagency exam tool development initiatives. • Promote Consistency and Seamless supervision between financial services regulatory agencies both State and Federal by : – Leverage the expertise of the State Examiner Review Team and the CSBS Tech Committee to develop consistent views and approaches to examination and department challenges. – Coordinate supervisory processes between state and federal agencies. – Support and provide input into advocacy of the State Liaison Committee of the FFIEC, including the representatives of the FFIEC Taskforces.

SSPC 2018-2019 Priorities In addition to approved policy principles, the SSPC has identified the following priorities: 1. Work closely with the Performance Standards Committee (PSC) to develop and/or modify standards that are critical to the success of the CSBS Accreditation Program that promote consistency and high standards. 2. Develop strategies to address examination staffing challenges and other resource constraints. 3. Have an active role and drive the outcomes of the FFIEC Examination Modernization Initiative and workstreams. 4. Further the objectives in CSBS Vision2020 related to supervision, including enhancing the state role in TSP supervision (to include involvement in the Significant Service Provider (SSP) program. 5. Work with SERT/Risk ID team to draft and issue timely Bulletins and Spotlights. 6. Catalog and discuss state regulatory relief efforts and best practices. 7. Cybersecurity Priorities- As cybersecurity continues to evolve and impact the financial services sector, members will receive regular briefings on cybersecurity workstreams, concerns and threats; members will offer recommendations to other states to enhance state cybersecurity supervision. 8. Work closely with the NonDepository Trust Working Group to provide direction and guidance to enhance state supervisi0n of these entities.

Exam Tools: what’s available?

ED MODULES

FFIEC IT HANDBOOK

https://knowledgecentral.federalreserve.org

FFIEC BSA EXAM MANUAL

FDIC system changes • FDICconnect • ViSION • GlobalScape

CSBS Examiner Support Tools & Resources

• Examiner Dashboard/Bank‐at‐a‐Glance – Data@csbs.org • Job Aids • Risk Bulletins & Spotlights – Coming SOON:  Appraiser Availability • Examiner Fact Sheets – Transition Away from LIBOR (June 19) – General Data Protection Regulation ( GDPR) (coming soon)

• Liquidity Tool – SSPC established a working group to explore

Current Supervisory Matters

Risks: Commercial Real Estate

• Increasing number of banks that exceed 2006 CRE Guidance levels

• CRE Workprogram (state/FDIC developed and released in 2017) – 2017 Examination results

• Development activity concentrated in urban centers

FinCEN’s CDD Final Rule

• Effective Date May 11, 2018 • FinCEN issued FAQs – April 2018 • FFIEC Examination Procedures/Workprogram issued May 2018 – Examiner Webinar – (recording available)

– CDD Examination Workprogram – Beneficial Ownership Workprogram • COMING SOON : FFIEC Infobase Update

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