Financial Institutions

Under current generally accepted accounting principles (GAAP), financial institutions generally amortize the premium on callable debt securities as an adjustment of yield over the contractual life of the instrument — that is, until maturity date. If that callable debt security is called prior to maturity, the entity would record a loss in earnings equal to the unamortized premium.The Financial Accounting Standards Board (FASB) has proposed shortening the amortization period for all callable debt securities (including municipal securities) purchased at a premium from the maturity date to the earliest call date because: Concerns that current GAAP excludes callable debt securities from consideration of early repayment of principal even if the bank is certain that the call will be exercised. Callable debt securities are generally quoted, priced and traded assuming a model that incorporates consideration of calls (also referred to as “yield-to-worst” pricing)...

At the same time that banks have increased their reliance on information technology (IT) vendors and other third parties to protect and secure bank systems and customer information, cyber attacks have increased in frequency and severity. Examiners urge bank management to regularly assess their cybersecurity risks, preparedness for mitigating those risks and ability to respond should an attack occur. In June 2015, the Federal Financial Institutions Examination Council (FFEIC) released the Cybersecurity Assessment Tool (CAT), a repeatable and measurable process to evaluate and rate a financial institution's inherent risk profile and cybersecurity maturity. Use of the CAT is voluntary, but recommended since the FFIEC IT Examination Handbook, the National Institute of Standards and Technology (NIST) Cybersecurity Framework and industry-accepted cybersecurity practices were used in the development of the CAT...

Tuesday, 01 November 2016

Preparing for CECL implementation: Facts to know and tips to follow for a smooth transition

Written by Heather Funsch, CPA, and Heidi Cieslik, CPA

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, also known as the current expected credit loss (CECL) model. While financial institutions have several years to prepare for the implementation of this significant standard, there are steps and information to consider today to ensure a seamless and successful adoption. Changes required under CECL CECL has a significant impact on how financial institutions calculate credit impairment. The standard replaces the current “incurred loss” approach with an “expected loss” model...

Regulatory agencies listened to bankers’ feedback when developing a proposal to address concerns about the regulatory reporting burden of the current Call Report (FFIEC 041). A careful balance must be struck in redesigning the form. On one end of the scale: balancing financial institutions’ requests for a less burdensome reporting process. On the other: the need to collect enough data to monitor financial institutions' condition (including performance, safety and soundness)...

Monday, 03 October 2016

How will Bitcoin affect the financial institution industry?

Written by Rehmann Team

As online merchants increasingly accept Bitcoins as a form of payment, it’s making lawmakers and financial institution regulators nervous. Bitcoin advocates concede that while they will not replace the dollar, the euro or gold, virtual currencies will certainly be disruptive. Anthony Gallippi, co-founder and CEO of BitPay — a Bitcoin payment processing company — said, "Banks charge many fees to consumers. With Bitcoin, users can handle many of their daily payment needs themselves and avoid bank fees, so banks relying on fee revenue could be impacted the most...

Monday, 03 October 2016

Fair lending violations continue

Written by Rehmann Team

The Consumer Financial Protection Bureau’s (CFPB) Fair Lending Report, issued in May 2016, reported that in 2015 its fair lending oversight and enforcement efforts resulted in $108 million in restitution paid to consumers whose lending transactions were impacted by discriminatory practices. The CFPB report noted these among the most common violations: • 12 CFR 1002.4(a): Discrimination on a prohibited basis in a credit transaction. This rule states that “a creditor shall not make any oral or written statement, in advertising or otherwise, to applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application...

Monday, 03 October 2016

Holding information hostage: the rise of ransomware

Written by Rehmann Team

Your computer screen freezes and all you see is a pop-up message telling you you’ve been hacked, your files have been encrypted and you will have a pay a hefty fee to get a decryption key. It’s a scenario that is playing out more and more frequently across personal and enterprise networks as hackers infiltrate systems and perpetrate ransomware scams that restrict access to files or threaten permanent data destruction unless a ransom is paid. According to the FBI, when ransomware first came onto the scene, computers became infected via email attachments containing malware. The increasingly sophisticated schemes now include “drive-by” incidents where users infect their computers by simply visiting a compromised website...

Monday, 03 October 2016

Deposit insurance funding costs to decline

Written by Rehmann Team

More than nine out of 10 small financial institutions are likely to pay less for deposit insurance beginning in the current quarter, according to the Federal Deposit Insurance Corporation (FDIC). That’s because the reserve ratio —the amount in the Deposit Insurance Fund (DIF) to insured deposits — reached 1.17 percent at the end of June, the highest level in more than eight years. The ratio had been negative following the financial crisis, resulting in higher assessments...

The Department of Labor's (DOL) recent updates to salary thresholds under the Fair Labor Standards Act (FLSA) are likely to impact how and how much financial institutions pay a variety of their employees. The FLSA guarantees most U.S. workers at least the federal minimum wage for every hour they work, as well as overtime (at one and a half times their regular rates of pay) for hours they work beyond 40 in a workweek...

While no new regulatory requirements were released, the Federal Financial Institutions Examination Council’s (FFEIC) recent statement reiterates the importance of financial institutions’ active management of the risks associated with interbank messaging and wholesale payment networks, including authentication, authorization, fraud detection, and response management systems and processes. There is a sense of urgency surrounding this issue because recent cyber attacks in these areas have compromised wholesale payment environments by bypassing information security controls, fraudulently obtaining credentials to infiltrate systems, disabling security controls, and quickly transferring stolen funds across multiple jurisdictions to avoid recovery of the funds. FFEIC recommends that an institution’s leadership undertake these steps to protect vulnerable systems: Conduct ongoing information security risk assessments to incorporate new and evolving information and implement controls in response to identified risks  Ensure third-party service providers perform effective risk management, conduct regular testing of their security controls, and are contractually obligated to provide incident reports when issues arise that might impact the financial institution Perform security monitoring to ensure intrusion detection systems, firewalls and antivirus protection are up-to-date and configured properly Protect against unauthorized access by limiting the number of credentials, especially administrator accounts, and the ability to easily assign elevated privileges to access critical systems; establishing strict credential expiration periods and promptly terminating unused credentials; and conducting regular audits to review access to critical systems for both employees and contractors Implement and test controls around critical systems including limiting the number of sign-on attempts and locking accounts once thresholds are exceeded, establishing alerts when controls and passwords are changed, encrypting sensitive data and storing backed-up data offline Enhance information security awareness with mandatory training programs, including how to identify and prevent phishing attempts Participate in industry information-sharing forums such as the Financial Services Information Sharing and Analysis Center (FS-ISAC) and U.S...

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