Deputy Seminar, Chicago, IL

CSBS Deputy Seminar Chicago, Illinois July 24-26, 2019

Tuesday, July 23, 2019

5:30 PM – 7:30 PM Networking Reception

Legal and Deputy Seminars’ Joint Networking Reception

Wednesday, July 24, 2019

Breakfast

8:00 AM

Welcome Remarks & State Regulatory Perspectives Deborah A. Hagan Secretary Illinois Department of Financial and Professional Regulation

8:30 AM

CSBS Policy and Legislative Update Jim Cooper Senior Vice President, Policy

9:00 AM

Chuck Cross Senior Vice President, Consumer Protection and Non-Bank Supervision Margaret Liu Senior Vice President, Legislative and Deputy General Counsel

Michael L. Stevens (moderator) Senior Executive Vice President

Break

10:30 AM

Contingency Planning Risks and Strategies for State Regulatory Agencies Tim Kemp Acting Commissioner Kansas Office of State Bank Commissioner

10:45 AM

Catherine Reyer General Counsel Texas Department of Banking

Ingrid White Deputy Superintendent for Banks Ohio Department of Financial Institutions

Lunch

12:00 PM

U.S. Economic Outlook Lamont Black Assistant Professor of Finance Driehaus College of Business, DePaul University

1:30 PM

Break

3:00 PM

Dialogue with the FDIC Doreen Eberley Director Division of Risk Management Supervision Todd Hendrickson Acting Senior Deputy Director Division of Depositor and Consumer Protection

3:15 PM

4:30 PM Adjourn 7:30 PM - 9:30 PM Dessert Reception

Thursday, July 25, 2019

Breakfast

8:00 AM

CSBS Data Analytics and Practical Applications Brennan Zubrick Senior Director, Analytics

8:30 AM

Tracy Bergmann Chief Examiner Iowa Division of Banking Jim Cooper (facilitator) Senior Vice President, Policy

Break

9:45 AM

Dialogue with the Federal Reserve Ducie Le Assistant Director Division of Consumer and Community Affairs Todd Vermilyea Senior Associate Director Division of Supervision and Regulation

10:00 AM

Break

11:00 AM

The Evolution of the Federal Reserve’s Payment System Kirstin E. Wells Principal Economist, Division of Reserve Bank Operations and Payment Systems Federal Reserve Board of Governors

11:15 AM

Lunch

12:15 PM

CSBS Supervisory Processes Update Mary Beth Quist Senior Vice President, Bank Supervision

1:30 PM

Break

2:30 PM

Workforce Challenges Facilitated Group Discussion

2:45 PM

Break

3:45 PM

Workforce Challenges (cont.) Facilitated Group Discussion

4:00 PM

Adjourn

5:00 PM

Friday, July 26, 2019

Breakfast

8:00 AM

IT/Cyber Supervision and Tabletop Exercise Holly Chase Regional Manager Massachusetts Division of Banks

8:30 AM

Phillip Hinkle Director of IT Security Examinations Texas Department of Banking

Break

9:45 AM

Dialogue with FinCEN Mark Enis Senior Liaison Officer FinCEN

10:00 AM

Open Forum & Conclusion of the 2019 Deputy Seminar

11:00 AM

Deputy Seminar Chicago, Illinois July 24-26, 2019

Attendees Arkansas State Bank Department Gary Bush

gbush@banking.state.ar.us

501-324-9019 501-324-9019 501-324-9019

John Householder Baker Moseley

jhouseholder@banking.state.ar.us bmoseley@banking.state.ar.us

California Department of Business Oversight Devin Bragg

devin.bragg@dbo.ca.gov sukyee.lok@dbo.ca.gov

916-531-5290 213-576-5788 213-897-5346 916-445-2065

Sukyee Lok

Catherine Nahnsen-Robison

catherine.nahnsen-robison@dbo.ca.gov

Aaron Prosperi

aaron.prosperi@dbo.ca.gov

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 lsasaki@dcca.hawaii.gov

808-586-2814 808-586-2820

Laura Sasaki

Idaho Department of Finance Mary Hughes

mary.hughes@finance.idaho.gov

208-332-8030

Illinois Department of Financial & Professional Regulation Chasse Rehwinkel

chasse.rehwinkel@illinois.gov

312-793-0471

Indiana Department of Financial Institutions Kristy Hubele

krhubele@dfi.in.gov dthompson@dfi.in.gov

317-499-4623 317-232-3955

J. Deron Thompson

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 Louisiana Office of Financial Institutions Jonathan Finley Maine Bureau of Financial Institutions John Barr

tim.kemp@osbckansas.org

785-296-1497

jfinley@ofi.la.gov

225-925-4660

john.a.barr@maine.gov

207-624-8561

Michigan Department of Insurance and Financial Services Aaron Luetzow leutzowa@michigan.gov

517-284-8688

Minnesota Department of Commerce Michael Crow

michael.crow@state.mn.us

651-539-1726

Mississippi Department of Banking & Consumer Finance Sam Hubbard

sam.hubbard@dbcf.ms.gov

601-321-6908 601-321-6901

Perry Anne Thimmes

perryanne.thimmes@dbcf.ms.gov

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

406-970-7269

Nebraska Department of Banking and Finance Darcy Bailar

darcy.bailar@nebraska.gov kelly.lammers@nebraska.gov

402-471-4935 402-471-4945

Kelly Lammers

New York State Department of Financial Services Yolanda Ford North Carolina Office of Commissioner of Banks Rowe Campbell North Dakota Department of Financial Institutions Ryan Spah rrspah@nd.gov

yolanda.ford@dfs.ny.gov

212-709-1610

rcampbell@nccob.gov

919-733-0591

701-328-9931

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

Oregon Division of Financial Regulation TK Keen

tk.keen@oregon.gov

503-947-7226

South Dakota Division of Banking Bret Afdahl

bret.afdahl@state.sd.us

605-773-3421

Tennessee Department of Financial Institutions Tod Trulove

tod.trulove@tn.gov

615-289-2156

Texas Department of Banking Melissa Dvoracek

melissa.dvoracek@dob.texas.gov michelle.hodge@dob.texas.gov chris.robinson@dob.texas.gov jacque.willardson@dob.texas.gov

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

Michelle Hodge Chris Robinson Jacque Willardson

Utah Department of Financial Institutions Tom Bay

tbay@utah.gov

801-538-8835 801-538-8830

Dan Gardiner

dgardiner@utah.gov

Virginia Bureau of Financial Institutions Robert Hughes

robert.hughes@scc.virginia.gov dustin.physioc@scc.virginia.gov

804-371-9704 804-786-0831

Dustin Physioc

Washington Department of Financial Institutions Matt Harvey

matthew.harvey@dfi.wa.gov

206-639-6050

Speakers DePaul University Lamont Black

lblack6@depaul.edu

312-362-5617

Federal Deposit Insurance Corporation Doreen Eberley

deberley@fdic.gov tohendricks@fdic.gov

917-320-2575

Todd Hendrickson

Federal Reserve Board of Governors Ducie Le

ducie.le@frb.gov

202-974-7018 202-452-3000

Todd Vermilyea Kirstin E. Wells

todd.a.vermilyea@frb.gov kirstin.e.wells@frb.gov

FinCEN Mark Enis

mark.enis@fincen.gov

703-905-5025

Massachusetts Division of Banks Holly Chase

holly.chase@mass.gov

617-956-1500

Texas Department of Banking Phillip Hinkle

phinkle@dob.texas.gov

972-241-1426 512-475-1327

Catherine Reyer

catherine.reyer@dob.texas.gov

CSBS Staff James Cooper Chuck Cross Margaret Liu Tom McVey

jcooper@csbs.org ccross@csbs.org mliu@csbs.org tmcvey@csbs.org smonnet@csbs.org mbquist@csbs.org mstevens@csbs.org bzubrick@csbs.org

202-808-3557 202-728-5745 202-728-5749 304-549-9584 202-549-2017 202-728-5722 202-728-5701 202-559-4746

Sebastien Monnet Mary Beth Quist Michael Stevens Brennan Zubrick

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CSBS ANALYTICS – DATA STRATEGY AND SSO

Deputies Seminar July 2019

CSBS Single Sign-On – Phase One

SSO Phase Two

CSBS Website csbs.org

Keys to Digital Transformation & Data Strategy

QUESTIONS?

CSBS Data Working Group

Internal Use Strategic Planning Form Exploratory Task Force

Kick-off Meeting with CSBS

Brainstorming and Testing

Implementation and Adoption

CSBS Support

Public Website Charts and Graphs

Presentation Information

Exit Agenda

Speaker / Panelist

Federal Regulator Meetings

Assess Impact of New Regulatory Proposals Community Bank Leverage Ratio (CBLR)

Strategic Planning

CSBS Data Analytics Exploratory Task Force

Kick-Off Meeting with CSBS

Task Force Members

• Brainstorm and Test CSBS Data Analytics

• Develop and Implement an Adoption Plan

• CSBS Support

Let’s take a closer look…

CSBS DATA ANALYTICS – EXAMPLE OF CHARTS USED IN AN EXIT MEETING

Loans to Total Assets

Q1 2018, 83%

Q4 2017 82% STATE Exam

85%

Q4 2014, 77% STATE Exam

80%

Q2 2016, 79% FDIC Exam

75%

70%

Q4 2017, 65%

65%

60%

Q4 2017, 64%

55%

50%

Bank

State

FDIC Community Banks

Figure—1

Liquid Assets as a Percent of Average Assets

Q1 2018, 13% National Peer = 20% State Average = 27%

25%

20%

15%

10%

5%

0%

Cash & Due

FFS

IBB

AFS

Total

Trendline

Figure—2

Brokered Deposits to Total Deposits

Q1 2018, 67% Rank: 3rd out of 5,227 FDIC Community Banks

80%

Q1 2017, 69%

70%

Q4 2014, 56% STATE Exam

60%

Q2 2016, 64% FDIC Exam

50%

40%

30%

20%

10%

0%

Bank

State

FDIC Community Banks

Figure—3

Figure—4

Wholesale Funding Maturity Distribution 12/31/2014

$300

$250

Millions

Year-end 2014: These sources = 56% of total assets

$200

17%

$150

$125

11%

$91

$100

$76

$59

$50

$26

$20

$-

0-3 Months

4-12 Months

12-24 Months

24-36 Months

36-60 Months

60-180 Months

Brokered Deposits

FHLB Listing Service Fed Funds Purchased

Figure—5

Wholesale Funding Maturity Distribution 3/31/2018

$300

38%

$250

These sources = 61% of total assets

Millions

$215

$200

$171

$157

$150

2%

$100

$80

$50

$22

$-

0-3 Months

4-12 Months

12-24 Months

24-36 Months

36-60 Months

60-180 Months

Brokered Deposits

FHLB Listing Service Fed Funds Purchased

Total

Figure—6

Total Risk Based Capital Ratio

23%

21%

Q4 2017, 19.09%

19%

Q4 2017, 19.08%

17%

Q1 2018, 11.70%

15%

Q2 2016, 11.05% FDIC Exam

Q4 2014, 11.62% STATE Exam

Q4 2017, 11.06% STATE Exam

13%

11%

9%

1/1/2019 - Min. Total Capital Ratio Plus Conservation Buffer increases to 10.50%

Q3 2008, 9.20% Merger with another bank

7%

5%

Bank

State

FDIC Community Banks

Figure—7

Net Loss to Average Total Loans & Leases

1.90%

As of 3/31/2018: Net Loss of 1.99% (or 16.8MM) would result in TRBC Ratio falling to 9.998% (BLACK LINE)

1.40%

As of 12/31/2017: Net Loss of 1.28% (or 10.5MM), would result in TRBC Ratio dropping to 9.997% (ORANGE LINE)

0.90%

0.40%

-0.10%

Bank Net Loss to Avg. Total Loans & Leases

Figure—8

Adversely Classified Items Coverage Ratio

50%

46%

43%

45%

40%

35%

30%

25%

25%

19%

20%

15%

13%

15%

11%

10%

10%

10%

6%

5%

0%

2010Q1 State

2011Q1 FDIC

2012Q3 State

2013Q3 FDIC

2014Q4 State

2016Q2 FDIC

2017Q4 State

2006Q2 FDIC

2007Q3 State

2009Q1 FDIC

Figure—9

Loan Mix Percent of Gross Loans & Leases 12/31/2014

Loan Mix Percent of Gross Loans & Leases 12/31/2017

2%

3%

3%

6%

9%

14%

7%

27%

31%

2%

9%

9%

2%

6%

29%

39%

C&D

Multifamily

C&D

Multifamily

Non Farm Non Residential C&I Ag Op Ag RE 1-4 Family

Non Farm Non Residential C&I Ag Op Ag RE 1-4 Family

Individuals

Individuals

Figure—10

Figure—11

Long-Term Assets and Long-Term Liabilities As a Percent of Total Assets

Q4 2017, 62% STATE Exam Rank: Highest in State

70%

60%

Q2 2016, 60% FDIC Exam

Q4 2014, 58% STATE Exam

50%

40%

30%

Q4 2014, 13% STATE Exam Q2 2016, 11% FDIC Exam

20%

Q4 2017, 4% STATE Exam

10%

0%

Long-Term Assets > 5 years

Long-Term Liabilities > 3 years

Figure—12

DURATION ANALYSIS

12/31/2014 12/31/2017

Investments

6.12 3.66 3.93 4.89 1.97 2.63

4.33 4.20 4.22 4.83 1.35 1.90

Loans

All Earning Assets

Non-maturity deposits Time certificates All Paying Liabilities

Duration Mismatch

1.30

2.32

Figure—13

Interest Rate Risk - Model Results 12/31/2014

40%

12.0%

7.0%

20%

2.0%

0%

-3.0%

-20%

-8.0%

-13.0%

-40%

-18.0%

-60%

-23.0%

-28.0%

-80%

-200

-100

Flat

+100

+200

+300

+400

Ramped

NII - Year 1 (Left Axis)

NII - Year 2 (Left Axis)

EVE (Right Axis)

Figure—14

Interest Rate Risk - Model Results 12/31/17

40%

12.0%

7.0%

20%

2.0%

0%

-3.0%

-20%

-8.0%

-13.0%

-40%

-18.0%

-60%

-23.0%

-80%

-28.0%

-200

-100

Flat

+100

+200

+300

+400

Ramped

NII - Year 1 (Left Axis)

NII - Year 2 (Left Axis)

EVE (Right Axis)

Figure—15

Net Interest Margin and Federal Funds Rate

3.80%

4.00%

3.69%

3.66%

3.70%

3.50%

3.64%

3.56%

3.60%

3.00%

3.50%

2.50%

3.40%

3.36%

3.40%

2.00%

1.75%

3.30%

1.50%

1.50%

3.20%

1.00%

0.75%

0.50%

3.10%

3.10%

0.50%

0.25%

0.25%

0.25%

3.00%

0.00%

2012

2013

2014

2015

2016

2017

2018Q1

NIM (Left Axis)

FF Rate (Right Axis)

Figure—16

POTENTIAL FEDERAL RESERVE ACTIONS TO SUPPORT INTERBANK SETTLEMENT OF FASTER PAYMENTS Presentation to CSBS Deputy Seminar, July 25 2019 Kirstin Wells, Federal Reserve Board

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

1

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

AGENDA

• Provide an overview of faster payments and the role of the Federal Reserve • Discuss interbank settlement concepts and real-time gross settlement for faster payments • Discuss potential Federal Reserve actions: • 24x7x365 RTGS Settlement Service • Liquidity Management Tool • Open up for discussion

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

2

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

FASTER PAYMENTS AND THE ROLE OF THE FEDERAL RESERVE

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

3

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

U.S. PAYMENT SYSTEM AT A CROSSROADS

The digital era has fundamentally changed the nature of everyday interactions and commerce

A gap has emerged between the capabilities of traditional payment methods and the payment capabilities expected in the digital era – fast, convenient, accessible

Faster payments address this gap by allowing payments to be sent and received immediately, and at any time

The Federal Reserve and the payment industry have been working together to determine the best path forward, such that the benefits of faster payments can be enjoyed broadly by the public

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

4

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

THE GOAL: A ROBUST RETAIL PAYMENT SYSTEM FOR THE FUTURE

Today, some payments may seem “fast,” but in reality inefficiencies, delays, and risks remain: • Recipients may not be able to broadly use funds received instantly • Senders can’t reach anyone they want nationwide • Interbank settlement is often deferred, creating risk

Key Consideration: A robust retail payment system for the future requires a payment infrastructure that can support and sustain continued innovation in safe, broadly accessible faster payment solutions

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

5

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

THE ROLE OF THE FEDERAL RESERVE

• In 2015, the Federal Reserve issued Strategies for Improving the U.S. Payment System, a multi-faceted plan to enhance the speed, safety and efficiency of the U.S. payment system • In 2017, the industry asked the Federal Reserve to develop a 24x7x365 settlement service for faster payments • The industry’s request reflects the Federal Reserve’s foundational role in settlement of interbank obligations • The Federal Reserve Board requested comment on potential actions that could support a safe, modern payment infrastructure for interbank settlement of faster payments

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

6

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

INTERBANK SETTLEMENT CONCEPTS AND REAL-TIME GROSS SETTLEMENT FOR FASTER PAYMENTS

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

7

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

WHAT IS A SETTLEMENT SERVICE?

End-User Service

Sender

Receiver

Clearing

Bank A

Bank B

Clearing Intermediary

Sender’s account debited

Receiver’s account credited

Settlement

Settlement Service

Bank A’s account

Bank B’s account

Interbank funds flow

Payment message flow

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

8

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

REAL-TIME GROSS SETTLEMENT OF FASTER PAYMENTS

The Federal Reserve believes real-time gross settlement (RTGS) – payment-by- payment settlement in real time – would provide the safest and most efficient infrastructure for settlement of faster payments. • Speed of settlement aligned to speed of underlying payment • Interbank settlement risk inherently avoided

• Clearing functions potentially simplified • Globally, new settlement services in support of faster payment are typically based on RTGS

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

9

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL FEDERAL RESERVE ACTIONS TO SUPPORT FASTER PAYMENTS

Objective: Promotion of ubiquitous, safe, and efficient faster payments in the United States through facilitation of real-time interbank settlement Potential Federal Reserve actions : • Develop a 24x7x365 RTGS Settlement Service for faster payments • Develop a Liquidity Management Tool to support RTGS services

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

10

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL 24 X 7 X 365 RTGS SETTLEMENT SERVICE

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

11

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL 24 X 7 X 365 RTGS SETTLEMENT SERVICE

• Real-time, payment-by-payment interbank messaging and settlement in Federal Reserve accounts • 24x7x365: Operating around the clock, every day (weekends and holidays) • Full payment information (clearing and settlement) carried in payment message • Available to depository institutions eligible to hold a Federal Reserve account • Agents could submit payments on behalf of a depository institution • Access through Reserve Bank channels (FedLine) • End-of-day balances recorded for each day of the week

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

12

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL 24 X 7 X 365 RTGS SETTLEMENT SERVICE

End-User Service

Sender

Receiver

Clearing

Bank A

Bank B

Sender’s account debited

Receiver’s account credited

Settlement

Settlement Service

Bank A’s account

Bank B’s account

Interbank funds flow

Payment message flow

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

13

©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL LIQUIDITY MANAGEMENT TOOL

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

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©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL LIQUIDITY MANAGEMENT TOOL

• A way to move money outside standard business hours between a master account and another Federal Reserve account used to support 24x7x365 real-time settlement services for faster payments

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

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©2018 FederalReserve Banks.Materials are not tobeusedwithout consent.

POTENTIAL LIQUIDITY MANAGEMENT TOOL

End-User Service

Sender

Receiver

Clearing

Bank A

Bank B

Sender’s account debited

Receiver’s account credited

Settlement

Private-Sector Settlement Service

Bank A’s ledger entry

Bank B’s ledger entry

Reserve Banks

Bank A’s master account

Bank B’s master account

Joint Account

Interbank funds flow

Payment message flow

Liquidity Transfers

STRATEGIES FOR IMPROVING THE U.S. PAYMENT SYSTEM

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Enhancing IT/Cybersecurity Supervision

2019 CSBS Deputy Seminar

Phillip Hinkle – Texas Department of Banking Holly Chase - Massachusetts Division of Banks Mary Beth Quist- CSBS

State of the States As of year end 2018

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CSBS IT Advisory Team

• Mission • Membership

• 42 Total members • 25 States represented

• Topics:

• FFIEC IT Handbooks • Bank and TSP IT Supervision processes & Exam Tools • Cybersecurity Supervision and threats • InTREx workprogram • Emerging Issues

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States Token Access to FS-ISAC

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Cyber Threat is BIG & Getting Worse!

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Threat Landscape Categories of Threats Actors

ORGANIZED CRIME

Theft of Money

Disruption and Theft of Secrets

NATION-STATES

HACKTIVIST

DDoS Attacks

Stolen Customer Databases and Secrets

INSIDER

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Accelerating Threats

CryptoLocker Ransomware

2009 DDoS Attacks

Ping-Pong (Bouncing Ball)

Mirai Botnet

Love Bug

SWIFT Thefts

Stuxnet t

Robbery while ATM is loaded

Zeus

ATM Blackbox

Melissa

2017

2007

1980

2000

2010

1990

25 years

12 Years

Prior to 2007, viruses were primarily written for mischief

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Democratic People's Republic of Korea

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You Are the Target !

Watering Hole

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Risks To Economies and Banks:

• Adversaries may attack a dozen smaller banks rather than attempt breaching a mega-bank.

• Potential media coverage of a dozen community banks could have devastating impact on community banking.

• A loss of confidence in community banks could result in large shift to mega-banks.

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Risks To Banking Departments

• Failures due to IT risks will occur. • SWIFT thefts should be a wakeup call. • Don’t wait for another bank failure to act

• Are you prepared to explain to a state congressional panel or governor’s office your evaluation of cyber threats after a major breach / MSB failure? • Are you prepared to explain your efforts to protect local economies and consumer PII?

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Status of Cybersecurity • The persistent Internet attacks are a societal issue. • Attacks are more frequent, more advanced, and techniques more available. (Ransomware, SWIFT)

• Cyber Initiatives Have Stalled • No significant FFIEC initiative since June 2015

• “Small banks”, have reverted to a compliance thinking • Many state bank regulators are focused on credit quality, not safe & sound operations.

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Examinations

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2018 State IT Examinations

Total Bank IT Exams: 1,535

Total TSP Exams: 46

Have TSP Authority: 29

Do NOT have TSP Authority: 17

The Future of IT Supervision?

Pooled Resources???

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Equifax Multi-State Examination

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NIST Cybersecurity Framework

Identify assets to protect & threats to them Protect those assets Detect attacks in progress Respond during an attack Recover to return to normal operations

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Cyber Hygiene - CIS Critical Controls www.cisecurity.org

City of Baltimore – Ransomware – $18 million to fix, major disruption Uber – Stolen PII of 57 million users - $148 million to fix

• Cause: Unpatched MS vulnerability

• Cause: Failure to secure credentials

Sample of Major Cyber Incidents

• Cause: Unpatched vulnerabilities

Marriott/Starwood – Stolen card and PII of 383 million users

• Cause: Failure to secure credentials

Target – Stolen Card and PII of 110 million users

• Cause: Weak infrastructure and server configuration

City of Atlanta – Ransomware -- $20 million to fix

It is the failure to have fundamental controls that lead to most breaches, not the latest high-tech exploit.

Moving Forward ……

Examination resources are thin. Should we scale back control reviews to the most critical ???

Should we mandate a scope for internal and external IT audit coverage for most IT controls ???

Bank IT/Cyber Exam Resources

• FFIEC IT Handbooks • InTREx Workprogram- Update July 2019 • New IT Profile • New Support and Delivery Core Module • FRB Base • BECTF/CSBS Best Practices • FFIEC CAT & CEP • NIST CSF, CIS Top 6, and FSSCC Profile

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State Stories

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Steps States should Consider:

• Action Items: • Evaluate if your banking department has the right focus on cyber for all entities. • Ask for additional resources – or reallocate resources to cyber if not. • Put IT/Cyber in every kick-off and board meeting • Talk to Nonbank entities about security thinking (NIST CSF) • Direct Nonbank entities to CIS Top 20)

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Questions?

Lamont Black Assistant Professor of Finance Dreihaus College of Business, DePaul University

1 E. Jackson Blvd. Chicago, IL 60604

Phone: (312) 362-5617 lblack6@depaul.edu

Lamont Black is an Assistant Professor of Finance in the Driehaus College of Business at DePaul University in Chicago. Black is also the Academic Director for the Center for Financial Services. Prior to joining the faculty of DePaul, Black was an economist at the Federal Reserve Board of Governors in Washington, D.C. His main research interests are in the areas of banking, corporate finance and macroeconomics. Current research projects analyze commercial real-estate securitization and the spillover of financial shocks through the banking system. His research has been published in several journals, including Journal of Money, Credit and Banking; Journal of Banking and Finance; and Journal of Financial Stability. He has served as a referee for the Review of Financial Studies and Management Science among other journals. In his work on banking policy, he contributed to issues including incentive compensation, bank liquidity requirements, and European banking. Black teaches commercial banking (FIN512) and money and capital markets (FIN513) in the Kellstadt Graduate School of Business at DePaul. He also teaches money and banking (FIN320) and international finance (FIN340) at the undergraduate level. Black received a PhD in Finance from the Kelley School of Business at Indiana University in 2007, as well as a PhD in Economics. He received his bachelor's degree in Modern Thought and Literature from Stanford University.

James M. Cooper Senior Vice President- Policy Conference of State Bank Supervisors 1129 20th Street NW 9th Floor Washington, DC 20036 202-808-3557 jcooper@csbs.org

James M. Cooper serves as Senior Vice President for Policy with the Conference of State Bank Supervisors (CSBS). Jim represents the state banking system in the development of public policy in the areas of financial stability, prudential supervision, and consumer protection. He helps lead CSBS state-federal coordination efforts and also serves as a deputy to the state banking member of the Financial Stability Oversight Council. Cooper joined CSBS after more than 30 years of experience in bank supervision and regulation. Previously, he served as the deputy director of depository institutions at the Indiana Department of Financial Institutions. In this role he oversaw the supervision and examination of all state-charted depository institutions in Indiana, including banks, credit unions, corporate fiduciaries, savings banks, and savings associations. Cooper is a native of Crawfordville, Indiana and a graduate of Hanover College.

Chuck Cross is Senior Vice President of Consumer Protection and Nondepository Supervision for the Conference of State Bank Supervisors. In this role, he manages a team that oversees multistate supervision support for mortgage, money services businesses, payday lending, debt collection and other nonbank supervisory areas. Additionally, he is lead staff to the CSBS NonDepository Supervision Committee (NDSC) and the State Coordinating Committee (SCC) in the coordination of the state system with the Consumer Financial Protection Bureau (CFPB). Emphasis includes consumer protection and supervision policy, examination protocols, and supervisory processes. Chuck was on detail assignment to the U.S. Department of Treasury as a “Founding Member” of the CFPB Implementation Team from 2010 to 2011. His responsibilities included early process development for supervision and response to consumer complaints. Chuck was the Director of the Washington DFI Division of Consumer Services from 2003-2006. Prior to Director, Chuck was the Division’s Enforcement Chief. Earlier in his career Chuck was an examiner for both the FDIC and the State of Washington Division of Banks.

Doreen R. Eberley Doreen R. Eberley is the Director of the FDIC Division of Risk Management Supervision. She was previously senior deputy director for supervisory examinations in the Division of Risk Management Supervision at the FDIC. Before that, she was the New York regional director for the FDIC. Eberley joined the FDIC's Division of Liquidation in Bossier City, Louisiana, in 1987, and became a commissioned bank examiner in Charlotte, North Carolina, in 1990. She served in a number of senior leadership positions during the financial crisis, including acting deputy director for strategic planning and resource management, participating in the development and oversight of the Temporary Liquidity Guarantee Program (TLGP) Program, and acting regional director for the Atlanta region. Eberley also served as acting deputy to former FDIC chairman Sheila Bair and Chairman Martin Gruenberg, providing advice on policy matters affecting the FDIC's operations and the banking industry. Eberley holds a B.A. in Economics from Cornell University in Ithaca, New York, and an MBA from Emory University in Atlanta, Georgia.

Mark Enis Senior Liaison Officer Financial Crimes Enforcement Network U.S. Department of the Treasury

Mr. Enis joined the Financial Crimes Enforcement Network (FinCEN) in 2005. In his role as a Senior Liaison Officer, his duties include serving as FinCEN’s primary information-sharing liaison to state regulatory agencies regarding Bank Secrecy Act/Anti-Money Laundering (BSA/AML) examination programs, matters of significant BSA non-compliance, dissemination of BSA/AML guidance and advisories, and all matters in support of our shared mission to safeguard our financial system from criminal abuse, including money laundering and terrorist financing. Mr. Enis began his career as an FDIC bank examiner from 1975 to 1991. From 1991 to 1999, Mr. Enis assisted various financial institutions in resolving all matters subject to enforcement action taken by state and federal banking regulators. From 1999 until joining FinCEN, Mr. Enis held the following positions within the banking industry: chief lending officer, chief financial officer, chief risk management officer, and BSA/AML compliance officer.

Deborah Hagan Secretary Illinois Department of Financial and Professional Regulation For over 36 years, Hagan has been a strong and exemplary advocate for consumer protection in the Office of the Illinois Attorney General. In her role as leader of the Consumer Protection Division, she advanced and defended the interests of Illinois consumers in critical areas such as mortgage origination and servicing, student loan servicing, debt collection, identity theft and other areas of financial risk. Hagan has played a critical leadership role in many groundbreaking settlements on the state and national level, helping to recover billions of dollars in restitution for victims of consumer fraud and other wrongful conduct. In addition to her current role which she has held since 2004, Hagan has served as bureau chief, deputy bureau chief and assistant attorney general. She received her Juris Doctor from the University of Dayton School of Law and her Bachelor of Arts in political science from Miami University.

Updated 7/5/19

Ducie Le Assistant Director Federal Reserve Board

Ducie Le serves as Assistant Director in the Division of Consumer & Community Affairs at the Federal Reserve Board in Washington, DC. At the Federal Reserve, she oversees the work of the Fair Lending Enforcement Section and the Mergers & Acquisitions Section. Prior to her current role, Ducie led the Federal Reserve’s UDAP Enforcement Section which evaluates whether specific institutions have violated Section 5 of the FTC Act. Before returning to the Federal Reserve in 2013, Ducie served as Associate General Counsel for Capital One in its headquarters in McLean, Virginia. At Capital One, she led the company’s Regulatory Policy Team. Prior to joining Capital One in 2006, Ducie was an attorney at the Federal Reserve Board for seven years where her responsibilities included drafting regulations and guidance implementing such laws as UDAP, TILA, ECOA, and GLBA. Ducie began her legal career as an attorney with the U.S. Department of Justice. Ducie received her J.D. from the Georgetown University Law Center and her undergraduate degree from the College of William & Mary.

Margaret Liu Senior Vice President, Deputy General Counsel Conference of State Bank Supervisors

Margaret Liu is Senior Vice President and Deputy General Counsel at the Conference of State Bank Supervisors (CSBS). Margaret oversees CSBS’s work with Congress, leads staff support for the CSBS Emerging Payments Task Force, and provides legal support across CSBS and its affiliated organizations. Prior to joining CSBS in 2009, Margaret worked as a consultant on financial services policy issues and at Fannie Mae, where she held several positions, including Vice President in the Single Family Mortgage Business and Vice President for Industry Relations. Margaret received her J.D. from the University of Chicago and her undergraduate degree from Harvard College. Margaret has served as Chair of the State Banking Law Developments Subcommittee of the ABA Banking Law Committee. She is also a former President of Women in Housing and Finance.

1129 20 th Street, N.W. • Ninth Floor • Washington, DC • 20036 www.csbs.org • 202-296-2840 • FAX 202-296-1928

Mary Beth Quist Senior Vice President- Bank Supervision Conference of State Bank Supervisors 1129 20 th Street NW 9 th Floor Washington, DC 20036 202-728-5722 mbquist@csbs.org

Mary Beth serves as the Senior Vice President for Bank Supervision at the Conference of State Bank Supervisors (CSBS). In this capacity, Mary Beth is responsible for bank supervisory matters and federal coordination. Current responsibilities are focused on state supervisory best practices; cybersecurity, BSA and Technology Service Provider supervision; and the modernization of Examination Tools. CSBS is a forceful advocate for the state banking system, providing the state perspective on federal regulatory policy proposals that directly affect state-chartered banks and state bank supervisors. CSBS facilitates state representation on the Federal Financial Institutions Examination Council (FFIEC), the coordinating body of state and federal regulatory agencies. We serve to coordinate among the state banking departments on supervisory related issues. We also represent state banking agencies’ needs and perspectives on technology issues, particularly the development of automated examination tools. During times of national emergencies, we serve as a critical conduit between state supervisors and the federal government, helping to ensure the continuous operation of the financial services sector. Prior to joining CSBS in January 2001, Mary Beth worked for the Federal Reserve Bank of Richmond as a commissioned bank examiner. In this capacity she performed examinations of state member banks and holding companies. She served as a Federal Reserve System project manager for the development of an interagency examination tool. Mary Beth is a graduate of Randolph-Macon College in Ashland, Virginia. She lives in Glen Allen, Virginia with her husband, Tim, and two sons.

Michael L Stevens Senior Executive Vice President Conference of State Bank Supervisors

Mike is the Senior Executive Vice President at the Conference of State Bank Supervisors (CSBS). He is responsible for leading the organization’s government relations, communications, and professional development functions. Mike also serves as the principal deputy to the state banking member of the Financial Stability Oversight Council. Prior to his appointment in September 2011, Mike served as the Senior Vice President for Regulatory Policy, representing the state banking system in the development of policy in the areas of financial stability, prudential supervision, and consumer protection. He joined CSBS in 1999 to work in all facets of CSBS’s Professional Development Division. Mike is a frequent instructor and speaker on banking policy, examinations, and financial analysis. Mike serves on the faculty of the Graduate School of Banking at Colorado. He also serves on the advisory board of the Center for Innovation in Banking and Financial Services at the University of Utah. He began his regulatory career as a bank examiner for the Iowa Division of Banking, where he served 11 years. Mike is a graduate of the University of Nebraska at Omaha. He lives in Ashburn, Virginia with his wife, Becki, and two children.

Todd Vermilyea Bio Todd Vermilyea is currently a Senior Associate Director for Community and Regional Supervision, Enforcement, and Data with the Federal Reserve Board of Governors. In this role, Todd has responsibility for the Federal Reserve’s examination program for community and regional banks as well as oversight and coordination of the exam function. Todd has spent a career in bank supervision including roles as a community bank examiner, fair lending specialist, and retail lending expert. Todd’s previous leadership positions include roles in large banking supervision, risk, and surveillance. Todd was a founding member of the LISCC Operating Committee and Todd was project manager for the first CCAR stress test. Todd has a PhD in economics and a bachelor's degree in business administration from the University of South Carolina. Todd has published papers in several leading economic journals. Research topics of focus include central bank decision making, fair lending, and supervisory treatment of retail credit.

Kirstin Wells is an Economist at the Federal Reserve Board in Washington, D.C. Kirstin’s career has been focused on regulatory and policy analysis of financial market infrastructures including large-value and retail payment systems and derivatives CCPs. Prior to joining the Board in 2017 Kirstin was an officer at the Options Clearing Corporation, the Federal Reserve Bank of Chicago, and Wachovia Corporation. Kirstin received her doctorate in Public Policy from the University of North Carolina Charlotte.

Brennan Zubrick Senior Director, Analytics and Research Conference of State Bank Supervisors 202.559.4746 (p) / 202.510.4889 (m) bzubrick@csbs.org Brennan Zubrick is the senior director of analytics and research at CSBS where he oversees the various analytics initiatives for organization. His team supports the entire CSBS Analytics platform. Brennan is responsible for coordinating the activities of the Data Working Group, a committee of CSBS members who purpose is to guide the development agenda of the analytics team. Prior to joining CSBS Brennan worked in the research and economics division of the Mortgage Bankers Association for eight years where he provided strategic direction on a host of mortgage-related data- intensive projects. Brennan graduated from the College of William and Mary in 2008 with a bachelor’s in business administration.