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ICBA: Costs of Data Breaches Should Be Borne by Responsible Parties
Community banks are absorbing the costs of making their customers whole following the recent data breaches at major retailers such as Target and Neiman Marcus, ICBA told Congress.

In a statement for a Senate Banking Subcommittee on National Security and International Trade and Finance hearing, ICBA said that the costs of reissuing cards, responding to customer concerns and protecting against fraud can be significant and should ultimately be borne by the party at fault for the breach. The association said requiring responsible parties to bear the costs of data breaches would better align incentives to keep consumer data safe and foster good business practices.

In its statement, ICBA also noted that financial institutions have been subject to rigorous data-protection standards under the Gramm-Leach-Bliley Act. To adequately protect consumers and the payments system, all participants in the payments system—including merchants—should be subject to GLBA-like standards, ICBA said.

Additionally, ICBA said that while community banks and other financial institutions are migrating to chip-and-PIN technology for debit and credit cards, this technology may not have prevented the recent retailer breaches and does not protect against fraud in “card-not-present” transactions, such as online purchases.

ICBA has been meeting with congressional offices and reporters on the impact of the data breaches on community banks and their customers and on how community banks respond to such breaches. The association also continues offering data-security resources for community banks and their customers on the association’s online security breach toolkit, including a recording of ICBA’s recent audio call on the data breaches and a best practices guide for community banks.

Read ICBA Statement. Read ICBA Release. Access ICBA Data Breach Toolkit.

ICBA, Coalition Urge Reforms to Strengthen Payments System
In related news, ICBA and a coalition of other financial services trade associations offered Congress several recommendations to help strengthen the payments system and better protect consumers in the event of a breach.

In a joint letter to Senate Banking Committee members, the coalition wrote that:
  • a national data-security breach and notification standard should be enacted to replace the current patchwork of state laws,
  • entities that are responsible for data breaches that compromise sensitive customer information should be responsible for the costs to the extent they have not met necessary security requirements, and
  • unnecessary barriers to effective threat-information sharing between law enforcement and the financial and retail sectors should be removed.
The coalition wrote that protecting the payments system is a shared responsibility and that robust security requirements should apply to all facets of the payments system. Read Joint Letter.

In the News
Op-Ed: Community Banks Punch Above Their Weight
Despite American Banker's sensational headlines to the contrary, the common knowledge that community banks are specialists at small-business lending remains true, ICBA Senior Executive Vice President and Chief of Staff Terry J. Jorde wrote in an op-ed.

Responding to an American Banker story that claimed that community banks are getting “crushed” in small-business lending, Jorde set the record straight. She cited data from various sources showing that community banks continue to punch above their weight when it comes to lending. She also noted that community banks have been busy expanding on the technologies they offer their customers.

“The community bank-small business relationship is not just a story we like to tell. It isn't a fairy tale that we can grow out of,” Jorde wrote. “Because community banks are small businesses themselves, it is in their best interest to keep their customers' best interests a top priority.” Read the Op-Ed.

ICBA Backs Liquidity Coverage Ratio for Megabanks
ICBA told regulators it supports a joint proposal to create a liquidity coverage ratio for large U.S. financial institutions. The LCR, a metric developed by the Basel Committee on Banking Supervision, is a ratio of highly liquid assets to stressed funding outflows over a hypothetical 21- or 30-day period, depending on the size of the financial institution.

In a comment letter to federal banking regulators, ICBA said requiring the largest banks to maintain a portfolio of highly liquid assets is essential in addressing the too-big-to-fail problem and would help mitigate the risk of another big bank bailout.

However, ICBA voiced concerns about the big banks’ limited ability to hold government-sponsored-enterprise securities and to include them in the pool of highly liquid assets, noting that any disruption in the market values of those securities would have a negative impact on community banks. ICBA asked the regulators to determine the reasonable potential for such a move in prices. The association also noted some inconsistencies in the proposal that deal with deposit-outflow rates for certain insured deposits.

Under the regulators’ proposal, the numerator in the ratio represents a portfolio of highly liquid assets that can be quickly sold to meet liquidity needs, and the denominator represents net stressed cash flows over the applicable period. Financial institutions with assets of $50 billion or more would be required to maintain the LCR based on 21-day stressed cash outflows, and firms with assets of $250 billion or greater would have to maintain the ratio based on 30-day stressed outflows. The ratio would have to equal 100 percent. Read ICBA Comment Letter.

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Farm Bill
ICBA Pleased Senate on Verge of Passing New Farm Bill
ICBA said it is pleased the U.S. Senate advanced the farm bill and is expected to bring it up for a final vote this afternoon. The Senate voted 72-22 to limit debate on the Agricultural Act of 2014 (H.R. 2642) and is expected to bring the bill to final vote at 2:30 p.m. (Eastern time) today.

In a statement, ICBA said the farm bill provides a long-term framework for agricultural and rural policies that will benefit rural America, our farmers and ranchers, and the community banks that serve them.

The association said it appreciates that the farm bill furthers key ICBA objectives by strengthening crop and revenue insurance programs, removing term limits on USDA guaranteed farm operating loans, and providing a five-year policy framework. Read ICBA Statement.

Yellen Sworn In as Fed Chairman
Janet L. Yellen took the oath of office to become chairman of the Federal Reserve Board. The oath was administered by Governor Daniel K. Tarullo.

President Barack Obama announced his intention to nominate Yellen on Oct. 9, 2013, and the Senate confirmed her on Jan. 6, 2014. Yellen previously served as vice chairman.

Yellen’s term as chairman ends Feb. 3, 2018, and her term as a member of the board ends Jan. 31, 2024.

ISM: Manufacturing Growth Slows in January
Economic activity in the manufacturing sector expanded in January for the eighth consecutive month but at a slower pace than the previous month, according to the Institute for Supply Management. ISM’s manufacturing index declined 5.2 percentage points to 51.3 in January. The indexes for new orders, production and inventories declined.

Take This Week’s Quick Poll
Take this week’s Quick Poll on financial literacy, and view results from the previous poll on ICBA’s mobile apps. View the Archive.

ICBA Audio Call Next Week Covers New Capital Rules
Community banks are required to adhere to new Basel III capital requirements by Jan. 1, 2015. “Capital Planning 2.0,” a 60-minute audio session scheduled for 11 a.m. (Eastern time) Tuesday, Feb. 11, will address the details and implications of the new rules for community banks. The presentation also will explain how to prepare a capital plan consistent with regulatory pronouncements and suggest some nontraditional alternatives for raising capital. Register Today.

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