2024 Risk Survey: Bank Leaders Focus on Regulations, Deposit Pricing

A deluge of new and updated regulations, along with enhanced pressures from bank supervisors, has more bank directors and executives worried about regulatory compliance. 

Bank Director’s 2024 Risk Survey, sponsored by Moss Adams LLP, finds rising concerns around regulatory and compliance risk, as well as unease about specific areas, like the Community Reinvestment Act and scrutiny on fee income. 

More than three-quarters of the executives and directors who took part in the survey say they are more concerned about regulatory risk, compared with 66% who said as much last year. Additionally, 39% cite evolving regulatory compliance requirements as a strategic challenge, up from 28% last year. 

Banks continued to scale back their reliance on fee income as the Consumer Financial Protection Bureau and the White House have indicated an intent to crack down on fees, particularly overdraft fees. Forty percent of respondents say they’ve adjusted their bank’s fee structure in anticipation of regulatory pressure, up from 32% who said as much a year ago. Another 10% have adjusted fees in response to direct regulatory pressure. 

Craig Sanders, a partner with Moss Adams, believes many banks are changing their fee structures voluntarily, also due to competitive pressures from neobanks like Chime. Several big banks, including Ally Financial, Capital One Financial Corp. and Citigroup, have also eliminated overdraft fees. “I think that there’s some peer pressure going on there from a fee structure standpoint,” he says. “That will have a cascading effect.” 

In October, the three federal banking regulators — the Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency — issued long-awaited updates to the 1977 Community Reinvestment Act. Intended to better reflect the rise of digital financial services, the proposal outlines new types of assessment areas based on lending done inside and outside a bank’s physical branch footprint.  

Nearly half of bank leaders surveyed say they believe the changes will make compliance with the CRA slightly harder for their bank. Eleven percent say that compliance will be significantly harder, while 35% believe the changes will have no effect. 

A majority of respondents (65%) say their bank has undergone a regulatory exam since the March 2023 failure of Silicon Valley Bank. Of those, more than half (54%) say their most recent exam was more stringent compared to prior exams. They report that examiners paid particular attention to liquidity planning and strategy (77%) in their most recent exam, followed by interest rate sensitivity (50%) and capital planning and strategy (46%). 

But while most executives and directors express heightened concerns about the evolving regulatory climate, almost two-thirds name deposit pricing as their bank’s top strategic challenge. Deposit costs climbed in 2023, according to an analysis by S&P Global Market Intelligence, as more customers migrated to interest-bearing and higher rate deposit accounts.

Margin Pressures Soar 
The percentage of bank leaders reporting a tighter net interest margin jumped to 78% from 26% last year, while 14% say NIM has improved as a result of rising interest rates.

Deposit Retention
More than half (59%) of respondents say they have experienced some deposit loss, with minimal to moderate effects to the bank’s funding base, as a result of rising interest rates. Another 9% have experienced significant impacts on their funding base.

Liquidity Management Challenges
The percentage of respondents who report higher concerns around liquidity risk increased to 76%, from 71% last year. When asked about liquidity management strategies, 59% say their bank would borrow funds from a Federal Home Loan Bank this year, while 49% would raise interest rates offered on deposits.

Stress Test Results
A majority (78%) say their bank conducts an annual stress test. Fifty-eight percent say they’ve adjusted their liquidity plan based on the results of that stress test, and 52% are keeping a close eye on loans set to renew in the next six to 12 months.

Vendor Risk Oversight 
Ninety-five percent of respondents say they assess the cybersecurity practices of the bank’s third-party vendors, while just 40% assess cybersecurity practices for fourth-party vendors. Just 12% say they have faced greater scrutiny by regulators around this issue.

Enhanced Fraud Protection
Ninety percent of bank leaders would be open to using artificial intelligence technologies for fraud prevention and alerts, and 81% would use AI for cyberattack prevention and detection.

To view the high-level findings, click here.

Bank Services members can access the complete results of Bank Director’s 2024 Risk Survey, broken out by asset category and other relevant attributes. To find out how your bank can gain access to this exclusive report, contact [email protected].