Community bankers want the Fed to provide a real-time payments network so they don’t have to rely on the private real-time payments system that is being developed by The Clearing House (TCH).
The Independent Community Bankers of America (ICBA) has come out strongly in favor of a big role for the Federal Reserve in real-time payments. including developing and operating a real-time gross settlement (RTGS) system to provide access and foster ubiquity for all financial institutions regardless of size or charter. And it urged the Fed to act as soon as possible and reminded the Fed of its goal of having a real-time payments system in place by 2020.
It responded to complaints the Fed might slow widespread adoption of the TCH system. While it may slow adoption of the private system it will hasten the development of end-to-end-user interfaces by providing the access and ubiquity to needed to enable them.
David G. Schroeder, senior vice president for federal governmental relations, writing on behalf of the Community Bankers Association of Illinois (“CBAI”), which represents 320 Illinois community banks, urged the Federal Reserve to implement fast and secure payments.
“An essential feature of these Improvements, and which we believe only the Federal Reserve is uniquely positioned to provide, is open and fair access to the Payments System for all community banks regardless of size, charter type or location, to meet the existing and evolving payment needs of their customers and communities.”
Community banks play a vital role across the country, the association’s statement said.
“While community banks account for only approximately 20% of banking assets, they extend almost 50% of the loans to small businesses and an ever higher percentage of agricultural loans; and approximately one in five counties in the nation are only served by the physical presence of a community bank. A Payments System that does not serve all banks equally or which disadvantages community banks will have a devastating impact on the nation’s consumers, small business and agriculture.”
The association said it is concerned by a private-sector payments solution owned by the largest banks.
“The recent and ongoing misdeeds of many of the largest financial institutions have greatly harmed consumers, endangered the entire financial system and resulted in the worst recession since the Great Depression.”
The Illinois association, which created a 12-member task force to study the Faster Payments initiative, said the Federal Reserve System should maintain its dual role as the Payments System’s regulator AND as an operator and service provider.
The Illinois bankers also pointed to the importance of an active Fed role in event of a financial disruption.
“As these disruptions occur, with little or no warning, the Federal Reserve’s Proposed Improvements must already be fully operating so that it can immediately provide payment services for everyone.”
On the ideal time to market, the association was clear.
“CBAI believes the ideal time for the Federal Reserve to deliver the Proposed Improvements to market is as soon as is practically possible…While CBAI appreciates the thoughtful and inclusive approach the Federal Reserve has taken in the exploration of faster and more secure payments, NOW is the time for the Federal Reserve to move forward with implementing the Proposed Improvements.”
William Rosacker, president of United Bankers Bank in Bloomington, MN said that on the Fed faster payments task force “the large banks stymied or watered down nearly all the industry task forces’ recommendations.”
Greg Rayon form First State Bank Southwest in Worthington, MN said “It is critical for the safety and soundness and independence of our payment system to be controlled by the Federal Reserve System. We should not allow the private sector to control our payment systems.”
Krista Fischer from APP FreedomBank, had a complaint; “The proposed 3-5 year plan is much too slow.”
In South Bend, IN CEO Chris Murphy at 1st Source Bank displayed skepticism.
“While there is a faster payment system being developed in the private sector it is not available and may never be available to all banks. It has been very slow to develop and many of us are subject to our system and the core providers timing and pricing. Also the interests of the largest banks are now and may be even more so in the future at odds with the continued success of Community Banks across the United States.”
He too complained the Fed has been moving too slowly.
"The Federal Reserve System participation has now been considered for many years with no real action being taken. The private sector solutions, in spite of being given the time to establish themselves, have been very slow to roll out and then almost not available to smaller institutions.”
Mark Field at Liberty Bank in Liberty, IL criticized both the large banks and the tech companies that provide the systems smaller banks can’t afford to develop.
“As a rural, community bank, I cannot depend on the benevolence of the largest 25 banks in the country to control such a system while they have the absolute power to raise fees or refuse access to my bank or my customers at any point in time. Neither can I depend on the largess of a handful of core software companies who routinely extract exorbitant fees from banks for every little thing a bank needs to take care of its customers.”
Aaron A. Kness, president/CEO of Iowa State Bank & Trust Co. in Fairfield, IA raised the issue of customer privacy in personal payments.
“A provider such as Zelle is owned and controlled by the largest banks in the U.S. When customers of a community bank utilize Zelle they provide these larger banks with their private financial information, creating substantial risk to the community bank. There currently exists no alternative for the community bank to offer its customers, which is why the Federal Reserve’s involvement is so critical.”
Whatever the Fed decides, it should decide soon said, among others, Jeff Plagge president & CEO of Northwest Financial Corp. in Arnols Park, IA.
“Delaying key decisions will only delay the progress of moving forward with faster and real time payments. Many community banks will just stand on the sidelines until the Fed announces their intentions. And if the Fed decides to push forward with both proposals, they need to do it with urgency and work with the industry…”
