RISK EVENTS REPORT

RISK EVENTS REPORT

August 2021

TABLE OF CONTENTS

• Introduction

• Overview

• Risk Events by Category

• Significant Management Changes

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RISK EVENTS REPORT SUMMARY

Capital Performance Group tracks events at financial institutions and financial

technology firms across the country which could have risk implications for the industry.

This sample report focuses on events at large banks in the United States as well as

selected nonbank financial companies, fintechs, and payments companies.

Within each risk type, events are sub-divided into three categories based on the relative

significance of the event or the size of the fine or penalty levied against the institution in

question:

The report contains a recap of legislative actions, proposed regulatory rules and

enforcement actions among U.S. regulatory agencies involved in financial oversight.

Risk events are organized under eight types of risk for easy review:

1. Market/Interest Rate Risk – changes or potential changes to rates

2. Liquidity – changes to markets or regulations that could impact an institution’s

ability to fund its assets

3. Operational – when the failure of a system, process, or person results in a loss or

penalty

4. Credit – instances of increased charge-offs or nonperforming loans in a particular

credit segment

5. Fiduciary & Suitability – when an institution fails to act in the best interest of

either shareholders or clients

6. Regulatory Risk– when an institution is penalized due to noncompliance with a

law or regulation

7. Reputational – ongoing lawsuits/investigations and settlements of lawsuits

8. Strategic – changes in the competitive environment of a market that could impact

the ability of other institutions to meet their strategic goals

H I G H P R I O R I T Y

M E D I U M P R I O R I T Y

L O W P R I O R I T Y



AUGUST 2021 OVERVIEW

NOTABLE RISK EVENTS (PAGES 8-16)

Market/Interest Rate Risk (pg. 8):

• The outlook for business spending and borrowing

remains uncertain. According to a revised forecast

by JPMorgan Chase & Co., corporate spending

growth is expected to decline in 3Q21 to 5.8%

from 12.9% in the 2Q21.

• Growth of business activity slowed in August for

the third consecutive month, according to the IHS

Market flash U.S. Composite PMI Output Index.

• Housing inventory increased in July, which may

indicate that home prices will begin to moderate.

• The COVID-19 Delta variant has begun to

negatively impact businesses. Consumer traffic

decreased in grocery stores, gas stations, gyms,

restaurants and retail stores at the end of July as

reports of the Delta variant spread.

Liquidity Risk (pg. 11):

• Deposits at banks continued to increase in 2Q21,

a trend likely to continue through 3Q21.

Operational Risk (pg. 11):• Goldman Sachs Group, Inc. will require all

employees to be vaccinated by September 7th in

order to be allowed into the office.

• Charles Schwab Corp. announced a delay of its

return to office plans until January 2022 at the

earliest due to the Delta variant.

N O T A B L E R E G U L A T O R Y & L E G I S L A T I V E & E V E N T S ( P A G E S 4 - 7 )• Federal Reserve Chairman, Jerome Powell, signaled that the central bank could begin tapering asset

purchases before the end of the year in light of progress toward maximum employment and controlled

inflation.

• Regulators are starting to scrutinize environmental, social, and governance (ESG) claims made by asset

managers.

• Federal student-loan borrowers who are considered totally and permanently disabled will now be

automatically granted forgiveness on their loans, according to an announcement from the Department of

Education.

• The Biden administration extended the forbearance period on federal student loan payments through

January 31, 2022.

• Acting Comptroller of the Currency Michael Hsu stated that the OCC, Federal Reserve, and Federal Deposit

Insurance Corporation (FDIC) are on an “aggressive timeline” regarding their modernization of the

Community Reinvestment Act (CRA).

Operational Risk (cont’d)

• Morgan Stanley, which previously barred non-

vaccinated employees from entering its New York

offices, will now require its staff to provide proof of

vaccination against COVID-19 by October 1st, and

delayed its return to office date until January.

• Capital One Financial Corporation will require all

employees to be vaccinated and also delayed its

return to office date from September 7th to

November 2nd.

• Wells Fargo & Company, BlackRock Inc., and

American Express Company all delayed their

return to office date until early October.

Credit Risk (pg. 13):

• Criticized loans declined in 2Q21 at 18 of 25 of the

largest U.S. banks, according to S&P Market

Intelligence.

Regulatory Risk (pg. 14):

• The Office of the Comptroller of the Currency

(OCC) and the Consumer Financial Protection

Bureau (CFPB) warned Wells Fargo & Company

that they may impose additional sanctions on the

bank.

Strategic Risk (pg. 16):

• Wells Fargo & Company modified its previous

decision to stop offering personal lines of credit.

• JPMorgan Chase & Co. launched Request for Pay,

a real-time option for the bank’s corporate clients

to pay each other and for consumers to make

certain purchases.



R E G U L A T O R Y E V E N T S

1. Federal Reserve Chairman, Jerome Powell, signaled that the agency could begin tapering asset

purchases before the end of the year. Previously, the Fed stated asset purchases would continue at

the current pace until it saw “substantial further progress toward our maximum employment and price

stability goals, measured since last December.”

2. Regulators are starting to scrutinize ESG claims made by asset managers. The Securities and

Exchange Commission (SEC) and federal prosecutors are investigating Deutsche Bank USA

Corporation’s ($119.4B; New York, NY) asset-management arm, DWS Group, due to claims that the

bank overstated its use of sustainable investing criteria to manage its assets. The investigation

indicates regulators’ interest in asset managers’ efforts to offer ESG-related products.

3. Federal student-loan borrowers who are considered totally and permanently disabled will now

be automatically granted forgiveness on their loans, according to an announcement from the

Education Department. The move will affect around 323,000 borrowers holding about $5.8B in loans.

The government will also stop asking such borrowers to provide earnings records.

4. The Biden administration extended the forbearance period on federal student loan payments

through January 31, 2022. The Department of Education categorized the action as a final extension.

5. Acting Comptroller of the Currency Michael Hsu stated that the OCC, Federal Reserve, and

FDIC are on an “aggressive timeline” regarding their modernization of the CRA. Hsu stated, “We

currently have groups that are working pretty much around the clock on coming up with options to

strengthen the CRA to make sure that low and moderate-income communities have their needs met.”

6. The SEC is requesting information and public comment on “digital engagement practices.” SEC

Chair Gary Gensler stated, "While new technologies can bring us greater access and product choice,

they also raise questions as to whether we as investors are appropriately protected when we trade

and get financial advice.”

7. The Supreme Court invalidated the Centers for Disease Control and Prevention’s (CDC)

moratorium on evictions. The court on a 5-4 vote let previous moratoriums stay in place until they

expired on their own terms.

8. The Federal Reserve will provide clarity on its plan to issue its own digital currency in a

September report that will detail its thoughts regarding “a digital dollar, financial stability concerns

regarding private stablecoins and other policy questions related to the digital payments sphere.”

REGULATORY & LEGISLATIVE EVENTS

Regulatory Events continue on the next page.



R E G U L A T O R Y E V E N T S , C O N T I N U E D


Regulatory Events continue on the next page.

9. Researchers estimate that 15.0% of Paycheck Protection Program (PPP) loans were fraudulent

with a majority of the suspicious loans coming from fintechs, according to a University of Texas

study. The loans flagged included unregistered businesses and multiple loans at a single residential

address, amongst other things. Nine of the ten lenders with the highest rates of suspicious loans were

financial-technology firms. The government has been pursuing cases of alleged PPP fraud. As of now,

five hundred people have been charged.

10. The Federal Housing Finance Agency (FHFA) proposed changes to the 2022-2024 affordable

housing goals for Freddie Mac and Fannie Mae. Among the proposed changes are raises in the

goal for single-family home purchases by low-income families from 24.0% to 28.0%, and by very low-

income families from 6.0% to 7.0%. The goal for refinances by low-income families also increased

from 21.0% to 26.0%. Perhaps most notably, the FHFA proposed a new goal that would set a 10.0%

benchmark for qualified single-family lending in census tracts that meet certain demographic and

income targets, the agency’s first goal covering lending to minority neighborhoods.

11. Crypto companies are facing regulatory pressures regarding anti-money laundering and

unregistered securities and exchanges. Over the past month, the SEC, the CFPB and the Treasury

Department announced more than $120.0MM in penalties directed towards digital currency

exchanges and service providers for not complying with federal market regulations and anti-money-

laundering requirements. Regulators say the digital currency platforms must follow existing rules, but

industry players state that it’s time Congress needs to pass laws tailored towards crypto. Gary

Gensler, the chair of the SEC, asked Congress to grant the SEC more authority over cryptocurrency.

12. The FDIC announced another “tech sprint” to assess how banks can withstand major

disruption. Participants will submit proposals pinpointing what tools and capabilities will be most

helpful for financial institutions to test their operational resilience against disruption. FDITECH will

evaluate submissions from banks, nonprofits, academic institutions, private sector firms, members of

the public, and select participants to further develop their proposed solutions.

13. The FDIC is seeking feedback from financial institutions to examine how they can streamline

future examinations. The regulator believes that technology has made the examination process

more efficient and less burdensome for institutions. The feedback is due October 12th.

14. The Department of Housing and Urban Development (HUD) and the FHFA released a

memorandum of understanding (MOU) meant to enhance oversight of FHFA-regulated agencies

and increase enforcement of the Fair Housing Act (FHA). The MOU will be in effect until December

31, 2025.





Regulatory Events continue on the next page, followed by Legislative Events.

15. Rohit Chopra is expected to step up the CFPB’s enforcement efforts in the retail banking and

fintech sectors if he is confirmed as director. Acting director Dave Uejio has told staff the agency’s

two main priorities are “consumers facing hardship due to COVID-19 and the related economic crisis,

and racial equity.”

16. The Federal Financial Institutions Examination Council (FFIEC) issued guidance on risk

management for authentication of financial institutions services and systems, addressing

business and consumer customers that access digital banking services and financial institution

information systems. The guidance discusses how multifactor authentication can mitigate some risks

and lists specific resources to assist financial institutions with building security around access

management.

17. The nomination of Federal Reserve Chairman Jerome Powell to serve second term as Chairman

of the Federal Reserve faces growing resistance from prominent Democrats who feel that

Powell has eased regulations pertaining to large banks. Chairman Powell’s current term ends in

February 2022.

18. The SEC approved Nasdaq’s proposal to require companies listed on its exchange to meet

certain diversity requirements. Nasdaq’s goal is for U.S. companies to have at least one director

that is a woman and one board member who self-identifies as a member of a racial minority or the

LGBTQ community.

19. The Biden administration is considering nominating Saule Omarova, a former special adviser

for regulatory policy and current professor of banking law at Cornell, as head of the OCC.

Analysts expect Omarova to prioritize regulation of cryptocurrency operations and fintech firms.

20. The Federal Reserve announced capital requirements for each of the 34 banks based on how

well each firm performed in the June stress tests. The capital requirements will take effect on

October 1st. The ratios are part of the new "stress capital buffer" regime established by the Fed,

which allows the central bank to set custom capital requirements for each bank, depending on how

severely each firm faced losses under the annual stress test. The June results found that even in a

severe downturn, banks would have more than enough capital to stay above regulatory minimums.

21. The Acting head of the OCC said the bank regulator is conducting a review of bank overdraft

policies. The regulator is looking into specific banks that make high volumes of revenue off overdraft

fees as well as the industry as a whole.

22. The Financial Crimes Enforcement Network (FinCEN) named Himamauli Das as its new acting

director. Das has worked for the National Security Council, the White House and Treasury and State

Departments in the past, but most recently served as senior managing director for the risk and

compliance firm K2 Integrity.





Market and Interest Rate Risk follows on the next page.

23. A report by the Bank for International Settlements (BIS), a consortium of central banks and

financial regulators, recommended that tech companies playing a critical role in payments and

other areas should be subjected to stricter regulatory scrutiny.

L E G I S L A T I V E E V E N T S

1. The U.S. Senate passed a $1.0T Infrastructure Investment and Jobs Act aimed at supporting the

country’s transition to clean energy generation and vehicle electrification. The bill includes a

new tax-reporting requirement for cryptocurrency brokers to report digital asset transactions worth

more than $10.0K to the Internal Revenue Service (IRS). The Department of the Treasury announced

plans to issue guidance on what the bill considers “brokers” in conjunction with the bill.

2. Senator Joe Manchin, (D-WV), sent a letter to Federal Reserve Chairman Jerome Powell

requesting that the central bank start reducing its asset purchase program. “With the recession

over and our strong economic recovery well underway, I am increasingly alarmed that the Fed

continues to inject record amounts of stimulus into our economy by continuing an emergency level of

quantitative easing,” Manchin wrote.

3. New York State passed a new law to reduce overdraft fees. It requires state-chartered banks to

pay checks in the order they are received, or from the smallest to the largest dollar amount.

Observers believe that the new law may not have much impact on its own, but it could bring upon

broader reform.



MARKET/INTEREST RATE RISK

Market and Interest Rate Risk continues on the next page.

8/24 The outlook for business spending and borrowing remains uncertain. According to a

revised forecast by JPMorgan Chase & Co. ($3.7T; New York, NY), corporate

spending growth is expected to decline in 3Q21 to 5.8% from 12.9% in the previous

quarter. U.S. banking aggregate C&I loans were down 4.9% from the linked quarter

and 13.3% lower from the prior-year period. Moreover, companies are sitting on a

record amount of cash due to uncertainty revolving around the COVID-19 Delta

variant. Cash and short-term investments on corporate balance sheets in 2Q21 were

at an all-time high at $6.8T, a 2.6% increase from the previous quarter. However,

some bankers speculate that commercial clients may be ready to increase credit line

utilization.

8/23 Recent economic indicators are indicating a slowdown in economic growth. Growth

of business activity slowed in August for the third consecutive month, according to

the IHS Market flash U.S. Composite PMI Output Index. The index declined to 55.4

from 59.9 in July, reaching the lowest pace since December. Additionally, The

Conference Board’s index of leading economic indicators (LEI) rose 0.9% in July to

116. “While the Delta variant and/or rising inflation fears could create headwinds for

the U.S. economy in the near term, we expect real gross domestic product (GDP)...

growth for 2021 to reach 6.0% year over year, before easing to a still-robust 4.0%

growth rate for 2022,” said Ataman Ozyildirim, senior director of research at The

Conference Board.

8/23 Recent economic indicators are indicating a slowdown in economic growth. Growth

of business activity slowed in August for the third consecutive month, according to

the IHS Market flash U.S. Composite PMI Output Index. The index declined to 55.4

from 59.9 in July, reaching the lowest pace since December. Additionally, The

Conference Board’s index of leading economic indicators (LEI) rose 0.9% in July to

116. “While the Delta variant and/or rising inflation fears could create headwinds for

the U.S. economy in the near term, we expect real gross domestic product (GDP)...

growth for 2021 to reach 6.0% year over year, before easing to a still-robust 4.0%

growth rate for 2022,” said Ataman Ozyildirim, senior director of research at The

Conference Board.




MARKET/INTEREST RATE RISK, CONTINUED

8/27 About 3.2 million Americans told the Census Bureau that they weren’t employed

between August 2nd and August 16th because of concerns about the COVID-19 Delta

variant, up 30.0% from the previous polling period over the last two weeks of July.

Statistics for domestic air travel, leisure and vacation bookings, restaurant dining,

traditional retail sales and applications for jobs that entail close personal contact,

such as childcare, are showing a downturn.

8/11 The inflation rate remained elevated in July. Consumer prices rose 5.4% in July from

a year earlier, which was the same pace as June and the highest 12-month rate since

2008, according to the Department of Labor. However, some observers see signs

that inflation is steadying. Jefferies economist Thomas Simons predicting that “at

some point, we are going to see the rate of increase come off.”

8/11 Rising rent and home prices play an important role in inflation and could put pressure

on the Fed to raise interest rates. In a June report, economists at Fannie Mae said

they expected the rate of shelter inflation to pick up from around 2.0% in May to 4.5%

over the coming years—and even higher, if house price growth doesn’t cool off soon.

8/9 Consumers’ expectations for price inflation at the one-year horizon were unchanged

at 4.8% in July, according to the Federal Reserve Bank of New York’s monthly

Survey of Consumer Expectations. Expectations for the inflation rate in the next three

years increased month-over-month from 3.6% to 3.7%, which represents the highest

level since August 2013.

8/6 The U.S. economy added 943,000 jobs last month, according to the Department of

Labor. That figure was well above the 850,000 economists surveyed by Dow Jones

had forecasted. Moreover, the unemployment rate dropped to 5.4% from 5.9% and

the payroll increase was the highest since August 2020. The sector showing the most

increases was leisure and hospitality, followed by education and professional and

business services.


Market and Interest Rate Risk continues on the next page.

M E D I U M P R I O R I T Y ( C O N T ’D )

8/15 The COVID-19 Delta variant has begun to negatively impact businesses. Consumer

traffic began to decrease in grocery stores, gas stations, gyms, restaurants and retail

stores at the end of July, as reports of the Delta variant spread. Moreover, consumer

sentiment fell 13.5% in the first half of August from July. This marked one of the

sharpest declines since 1978, according to the University of Michigan. Small-

business confidence dropped in August to 39.0% from 50.0% in July. Small

businesses that rely on traditional work patterns are anticipating cash flow and

property value struggles as companies continue to delay return to office plans.



MARKET/INTEREST RATE RISK, CONTINUED

8/6 Consumer credit demand picked up in June according to Federal Reserve data,

which showed an increase in consumer credit at a seasonally adjusted annual rate of

8.8%. Non-revolving debt – which includes auto loans and student loans – grew 7.2%.

Revolving debt, which includes credit cards, expanded at an annual rate of 22.0%.

8/4 Executives at the largest banks said their business clients have recently increased

requests for credit lines that can be drawn quickly for spending on inventory, labor or

expansions. Among large banks, there has been an average 21.0% increase in

unused commercial and industrial credit compared with the prior year, according to

Janney Montgomery Scott analysts.

8/4 JPMorgan & Chase Co. CEO, Jamie Dimon, stated that interest rates are still low

even as the economy recovers “mostly because central banks around the world have

bought $12.0T of bonds.” He further explained that the monetary stimulus could

potentially lead to higher inflation.

8/4 A Federal Reserve survey found that 31.0% of senior loan officers reported stronger

C&I loan demand in the last three months. It was the first time in over a year that

more loan officers reported an increase in demand than a decrease. In an interview,

RBC Capital Markets analyst Gerard Cassidy said, “The senior loan officer survey

was very encouraging. In the C&I area, in particular, you saw the demand number

quite a bit higher.” Cassidy also added, “That should bode well for total loans growth

this year and next year.” The survey also showed that banks eased lending standards

to firms of all sizes across all loan categories.

8/3 Sales of securities backed by riskier commercial real-estate (CRE) loans have surged

to a record high, indicating investors’ demand for higher-yielding debt and

expectations for a recovery in business properties.


Liquidity Risk and Operational Risk follow on the next page.



LIQUIDITY RISK

Operational Risk continues on the next page.

8/24 Deposits at banks continued to increase in 2Q21, a trend likely to continue through

3Q21. Balances increased 1.3%, or $228.2B, from 1Q21 to 2Q21, which experts

attribute to a heightened sense of caution among Americans due to the COVID-19

Delta variant. The seasonally adjusted 2Q21 annual deposit growth rate of 13.4% was

the second highest in 15 years. Federal Reserve data shows that deposit growth

increased by a seasonally adjusted $341.6B from June 30th to August 11th.


OPERATIONAL RISK

8/24 Goldman Sachs Group, Inc. ($1.4T; New York, NY) will require all employees to be

vaccinated by September 7th in order to be allowed into the office. Employees who

do not abide by the vaccine mandate will be required to work from home.

8/19 Charles Schwab Corp. ($574.5B; Westlake, TX) announced a delay of its return to

office plans until January 2022 at the earliest due to the contagious Delta variant.

8/17 Morgan Stanley ($1.2T; New York, NY), which previously barred non-vaccinated

employees from entering its New York offices, will now require its staff to provide

proof of vaccination against COVID-19 by October 1st. The additional step is needed

to “provide greater comfort for those working in the office,” the bank told staff in a

memo.

8/12 Capital One Financial Corporation ($423.4B; McLean, VA) will require all employees

to be vaccinated and delayed its return to office from September 7th to November

2nd. The internal memo announcing the news also mentioned that unvaccinated

employees will continue working from home and “will be supported in doing so.”

8/6 A number of banks have postponed their return-to-office plans. Wells Fargo &

Company ($1.9T; San Francisco, CA) and BlackRock, Inc. ($177.0B; New York, NY)

have both announced the delay of a return to office until early October. BlackRock

employees have the choice of returning to the office now with or without masks, but

Wells Fargo employees are required to wear a mask. Meanwhile, American Express

Co. ($187.0B; New York, NY) is postponing its full return-to-office plans in the U.S.

until at least October 11th due to rising infections from the COVID-19 Delta variant.




8/30 PNC Financial Services Group, Inc. ($554.8B; Pittsburgh, PA) announced an increase

in its minimum wage rate from $15 per hour to $18 per hour. The change will go into

effect on November 22nd.

8/25 Fraud complaints related to crypto have grown exponentially in recent months,

according to the Federal Trade Commission (FTC). Peter Diskin, assistant regional

director at the Atlanta SEC office, stated crypto’s popularity has become a way for

fraudsters to get people’s attention.

8/25 Parent of Deutsche Bank USA Corporation, Deutsche Bank AG, is only allowing fully

vaccinated employees onto its U.S. trading floors.

8/19 Charles Schwab Corp. announced that it will give most employees a 5.0% pay raise

in response to record stock market levels. The raise is said to reward employees for

their contributions “during the most challenging times”.

8/18 JPMorgan Chase & Co. reported a potential data breach from May 24th to July 14th

which might have allowed customers to view the account details of other customers

on the bank's website or app. The bank stated that that customer information has not

been used inappropriately.

8/16 State Street Corporation ($326.5B; Boston, MA) is vacating its two New York City

office locations to accommodate a hybrid workforce. Many of State Street’s New York

employees have worked remotely and employees who needed an office could go into

work but offices remained sparsely occupied. The bank is giving New York-based

employees the option to work in offices in New Jersey and Stamford, Connecticut.

8/13 Suspected online fraud attempts in global financial services climbed 38.3% in the

U.S. and 18.8% globally in 2Q21 compared with the same period in 2020, according

to TransUnion’s Global Fraud Solutions midyear report.

8/10 JPMorgan Chase & Co. broadened its previously announced pay raises to include

junior analysts in its corporate and investment banking unit and first-year associates

that will be joining the bank’s MBA program in 2022. The decision is a response to

the competitive market for banking analysts and the burnout faced by employees.

8/10 A snap poll of FA-IQ’s industry participants shows 48.0% of respondents are

continuing with face-to-face meetings, despite the spread of the Delta COVID-19

variant, while 38.0% of respondents say Delta has caused them to revise their

thinking and to avoid face-to-face meetings when possible. Furthermore, 14.0% of

respondents say they have been avoiding in-person meetings since the pandemic

began.


Operational Risk continues on the next page, followed by Credit Risk and Fiduciary & Suitability Risk.

OPERATIONAL RISK, CONTINUED



8/6 JPMorgan Chase & Co. announced that it will require all employees, regardless of

their vaccination status, to wear masks in its offices due to the spread of the COVID-

19 Delta variant. Unvaccinated employees will be required to get daily health checks,

COVID tests twice a week and will be barred from attending gatherings of more than

25 people.


Regulatory Risk follows on the next page.

OPERATIONAL RISK, CONTINUED

CREDIT RISK


8/30 Criticized loans declined in 2Q21 at 18 of 25 of the largest U.S. banks, according

to S&P Market Intelligence. This represents the third quarter in a row that

criticized loans declined, although those balances still remain elevated compared

to 2019 levels.


8/27 Construction loan delinquencies plummeted at U.S. banks in 2Q21, while outstanding

construction loans as a share of gross loans increased. The volume of delinquent

loans fell 19.3% from 1Q21 to 2Q21 and was down 4.3% on a year-over-year basis.

8/6 Banks continued to reduce their loan loss reserves in light of an improved credit

quality outlook. Of the 94 U.S. banks with more than $10.0B in total assets that

reported 2Q21 earnings through July 30th, 73 recorded a negative provision.

FIDUCIARY & SUITABILITY RISK

8/19 The SEC sued Robo-adviser SoFi Wealth LLC, a unit of SoFi Technologies Inc. (San

Francisco, CA), for $300.0K for failing to disclose conflicts of interests regarding the

circumstances in which money managers transferred client assets from third-party

exchange-traded funds (ETFs) into two new investment vehicles sponsored by SoFi.

Also, according to the SEC, SoFi did not take into account the tax consequences to

clients arising from the transfers.




Reputational Risk follows on the next page.

REGULATORY RISK

8/31 The OCC and the CFPB warned Wells Fargo & Company that they may impose

additional sanctions on the bank. The regulators are frustrated with Wells Fargo’s

lack of progress in improving its governance and risk controls and in

compensating victims of sales scandal victims.


8/30 The U.S. Court of Appeals in New York reinstated a $343.1MM lawsuit against

Citigroup Inc. by the trustee representing victims of Bernard Madoff’ Ponzi scheme.

The law suit alleges that “Citigroup accepted money despite internal suspicions that

Madoff’s trading activity and investment returns were a sham.”

8/26 Companies and regulators are requesting that the Financial Industry Regulatory

Authority (FINRA) end Robinhood Markets Inc.’s ($18.1B; Menlo Park, CA) practice of

gifting a free share of stock to new customers. Brokerages are required to provide

proxy materials to a public company’s shareholders ahead of annual meetings, which

the company then reimburses for the cost of distribution. Companies are asking

FINRA to implement a rule similar to that approved by the SEC which, “prohibits

brokers from seeking reimbursement for delivering proxy materials to investors who

received shares from their broker at no cost.”

8/2 JPMorgan Chase & Co. has been responding to requests from the SEC for

information regarding a previous order for employees to save work-related messages

on their personal phones. The bank is discussing settlements over the inquiries, but a

resolution is still uncertain.

8/2 PayPal Holdings Inc. ($73.8B; San Jose, CA) is the subject of separate investigations

by the SEC and the CFPB. The SEC is investigating whether the interchange rates on

debit cards with PayPal’s brand on them were consistent with federal regulations.

The CFPB is investigating PayPal’s peer-to-peer payments app Venmo’s

unauthorized funds transfers and collection processes.




Reputational Risk continues on the next page, followed by Strategic Risk.

REPUTATIONAL RISK

8/24 Truist Financial Corporation ($522.0B; Charlotte, NC) and EVERFI Inc. announced a

no-cost literacy program for all elementary students nationwide. The interactive,

online program will teach children to read and is available for educators, community-

based organizations and families.

8/18 Ally Financial Inc. ($180.5B; Detroit, MI) is making a $30.0MM investment to help

black-owned businesses and fuel development in black communities. The bank made

a $5.0MM investment in a venture capital fund created for women of color by women

of color called Fearless Fund. Furthermore, the bank made a $25.0MM investment in

SoLa Impact's Black Impact Fund, a group of real estate-related funds focused on

investing in Black and Brown communities in major urban markets.

8/18 PNC Financial Services Group, Inc. pledged $20.0B to environmental support over an

undisclosed five-year period. PNC’s environmental finance goal consists of four

pillars: green buildings, renewable energy, clean transportation, and environmental

sustainability-linked bonds and loans.

8/17 A mid-level manager at HSBC North America Holdings Inc. ($245.4B; New York, NY)

left the bank due to his frustration with the response speed to a report he wrote

alleging racism inside the bank. The bank responded by saying, “To achieve our

commitments, we are strengthening our recruitment processes, partnering with

specialist search firms, and enhancing talent development opportunities.”

8/14 PNC Financial Services Group, Inc. raised $700.0MM for its inaugural social bond

that will finance or refinance social projects focused on affordable housing,

socioeconomic advancement and empowerment, and access to essential services.

8/10 Former female employees of Goldman Sachs Group, Inc. are suing the bank,

claiming gender bias exists in the bank’s pay and promotion decisions. The plaintiffs

claim to have statistical analysis and data provided by Goldman that support their

claims of systemic discrimination.

8/6 United Services Automobile Association ($209.2B; San Antonio, TX) filed a lawsuit

against PNC Financial Services Group alleging patent infringement on USAA’s

mobile remote deposit capture systems by PNC's bank subsidiary, PNC Bank, NA.

USAA had previously sued PNC in 2020 for different patent infringements related to

the same technology.




REPUTATIONAL RISK, CONTINUED

Strategic Risk continues on the next page.

8/2 Bank of America Corporation ($3.0T; Charlotte, NC) will invest $314.0MM in NY

Green Bank, a state-financed backer of sustainable infrastructure projects. The

investment represents the largest-ever private fundraising deal by a green bank in

the U.S., according to the Coalition for Green Capital, a nonprofit organization.

8/2 An analysis by The Federal Reserve Bank of New York examined who received

forbearance relief on a range of debt types during the coronavirus pandemic. The

researchers found that low-income renters and debtors, and those from nonwhite

and less-educated households, received forbearance in greater numbers on many

forms of debt, such as rent, auto and credit card loans. High-income households

were granted forbearance on mortgage repayments in greater numbers.


STRATEGIC RISK


8/20 JPMorgan Chase & Co. launched Request for Pay, a real-time option for the bank’s

corporate clients to pay each other and for consumers to make certain purchases. The

new product allows for immediate wholesale payments between companies, or certain

consumer-to-business transactions, such as someone buying a car. The bank is

testing the product with an unnamed fintech partner.

8/18 Wells Fargo & Company modified its previous decision to stop offering personal lines

of credit. The bank will keep the option available for clients who actively use them or

for clients who want to reactivate old lines of credit. However, the bank will not offer

personal credit lines to new clients.

8/31 PayPal Holdings Inc. is considering the launch of a stock trading platform that would

allow U.S. users to trade individual stocks within its application. PayPal will consider

partnering with or acquiring an existing broker/dealer.

8/25 Citigroup Inc. asked for regulatory approval to begin trading CME Bitcoin futures

in an attempt to address the increasing demand among institutional clients for

cryptocurrency.





STRATEGIC RISK, CONTINUED

8/23 Wall Street firms issued over $42.0B in private-label mortgage-backed securities

in 2Q21. Although Freddie Mae and Freddie Mac still dominated the mortgage

bond market, the $42.0B quarterly figure was the highest since the start of the

pandemic and one of the highest since the financial crisis. Goldman Sachs Group,

Inc., Morgan Stanley, and JPMorgan Chase & Co. were among the largest issuers

last quarter. 8/22 Centre, the consortium including Coinbase Global Inc., stated that all USD Coin

reserves will shift into cash and short-term U.S. Treasuries. Until August, Coinbase

claimed that the USD Coin was backed completely by dollars. However, Centre

revealed that only 61.0% of the reserves were in risk-free assets, some of the

reserves were in risky assets like corporate debt and certificates of deposit with

foreign banks.

8/19 Robinhood Markets Inc. executives spoke about plans to introduce recurring

investment and deposit and withdrawal functionality to its cryptocurrency business.

CEO Vladimir Tenev cited the excitement around cryptocurrency on the platform

saying, “adding more coins, that’s something we’re looking to. And crypto interest

and rewards are something that we’re also hearing about.”

8/18 PayPal Holdings Inc. will no longer charge late fees for missed payments on their buy

now, pay later, effective October 1st.

8/12 U.S. Bank NA, a subsidiary of U.S. Bancorp ($558.9B; Minneapolis, MN), announced

that it will acquire Bento Technologies Inc., a financial technology company that

provides payment and expense management services to small and midsize

businesses. The acquisition is a part of U.S. Bank’s plan to simplify cash flow and

money management for small businesses.

8/11 Citigroup Inc. launched a new lending platform called Bridge Built by Citi that will

connect small and mid-size enterprises

(SMEs) with lenders in their regions through digital channels. The pilot will include

18 banks and will be available across the Southeast and Rockies regions.

8/11 Robinhood Markets Inc. announced its plans to buy Say Technologies LLC, an

investor communication platform, for $140.0MM. In a blog post, Robinhood wrote

“Together, we’ll find new ways to expand what it means to be an investor through

new products and experiences that democratize shareholder access.”






8/10 Venmo, PayPal’s peer to peer payments application, launched a feature that allows

holders of its credit cards to automatically buy cryptocurrencies with cashback

rewards earned on their purchases. Credit cardholders can buy Bitcoin, Ethereum,

Litecoin and Bitcoin Cash through “Cash Back to Crypto” and will not be charged

fees for the transactions.

8/10 PNC Financial Services Group, Inc. and Coinbase, Inc. (San Francisco, CA)

announced a partnership to provide PNC customers with “more seamless access” to

cryptocurrency investments, according to a report from CoinDesk. The same source

reported that PNC intends on revealing a cryptocurrency offering within the next few

quarters.

8/10 Truist Financial Corporation announced that it would end its partnership with fintech

GreenSky after agreeing to acquire Service Finance Co. LLC, a point-of-sale

financing solutions provider for the home improvement industry, for $2.0B.

8/5 JPMorgan Chase & Co. partnered with NYDIG to provide a passively managed

bitcoin fund to its private bank clients. Reportedly, the private fund will act as a port

to a bitcoin ETF, if crypto ETFs get approved by the SEC. Clients have not made

investments in the fund yet.

8/3 Goldman Sachs Group, Inc. will focus more on fees from wealthy clients and pension

funds to earn asset management revenue, in order to reduce its exposure to venture

capital and equity investments. The firm stated that it wants to shrink its equity

investments portfolio by 20.0%, despite the fact that equity investments earned $3.7B

in 2Q21, the highest amount ever earned by that particular business line.

8/3 Wells Fargo & Company will now allow wealthy clients, defined as individuals making

over $200.0K in annual gross income or with a net worth over $1.0MM, to participate

in an “actively managed cryptocurrency strategy.” Wells Fargo will initially only offer

private placements for investing in crypto assets due to the lack of an SEC approved

ETF.

8/2 Goldman Sachs Group, Inc. intends to increase base salaries for junior investment

bankers. According to an internal human resources portal, second-year analysts will

now make $125.0K, while first-year associates will earn $150.0K.




Significant Management Changes follow on the next page.


8/1 Square, Inc. ($13.8B; San Francisco, CA) has acquired Afterpay Ltd., an Australian-

based buy-now, pay-later (BNPL) platform, for $29.0B. Square plans to incorporate

Afterpay’s BNPL service into its existing ecosystem as the “bridge between Cash

App, the consumer-oriented money transfer and investing application, and its Seller

ecosystem.” Square’s CEO Jack Dorsey believes the acquisition provides Square

with a competitive advantage adding, “We see a lot of competitors with a seller

ecosystem and a consumer ecosystem, but there are very, very few with both

together.”




SIGNIFICANT MANAGEMENT CHANGES

D A T E B A N K M A N A G E M E N T C H A N G E

8/24 Bank of

America Corp.

Announced Vice Chairman Anne Finucane and COO and

President of Global Banking and Markets Thomas Montag are

retiring.

8/17 Truist

Financial

Corp.

Appointed President and Chief Operating Officer William H.

Rogers Jr. as Chief Executive Officer, succeeding Kelly S. King on

September 12th, 2021. King will transition to the role of executive

chairman of the board of directors.



NOTE ON THIS REPORT

T H E RE P O RT

This report is designed to provide information on events impacting a certain group of banks and

financial technology companies. It is not meant to be a comprehensive view of every fine or

penalty levied against any financial institution operating in the United States.

Events involving insurance or investment banking are not included in this report.

This report is based on publicly available information and there may be details related to mergers

and acquisitions, fines or penalties, and the settlement of lawsuits that are not publicly disclosed.

CPG has tried to capture as much detail available to the public as possible in our summaries of

events.

O UR S O URC E S

All information related to bank asset sizes and location comes from S&P Global Market

Intelligence.

In addition, we leverage a variety of sources in our work to track risk, legislative, and regulatory

events, including the following:

PUB L IC ATION S

▪ American Banker

▪ New York Times

▪ Financial Times

▪ Wall Street Journal

▪ S&P Global Market Intelligence

▪ News Summaries from Various Financial

Services Trade Publications

RE G UL ATORY PRE S S RE L E AS E S

▪ Consumer Financial Protection Bureau

▪ Department of Justice

▪ Federal Deposit Insurance Corporation

▪ Federal Reserve Board

▪ Financial Crimes Enforcement Network

▪ Department of the Treasury and other

federal agencies

▪ Financial Industry Regulatory Authority

▪ Office of the Comptroller of the Currency

▪ Securities & Exchange Commission



CAPITAL PERFORMANCE GROUP IS HELPING BANKERS IDENTIFY NEW STRATEGIC

OPPORTUNITIES AND TRANSFORM BUSINESS MODELS.

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Lead Generation

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Sales and Marketing

Workflow Alignment

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Optimization

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Management Program

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Optimization Modeling

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for Profitability & Financial

Planning Systems

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& Redesign

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Monitoring

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Contact Claude Hanley, Partner: [email protected]/703-861-8623

www.capitalperform.com @CPG_DC

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RISK EVENTS REPORT