Banking Brief: Financial Services Insights

Since early 2023, there has been consistent reporting of possible turbulence and increased default risk relating to commercial real estate loans. These concerns are driven by historic levels of maturing debt, which is in many cases secured by real estate that has taken a sharp hit in value.

Recently, the Consumer Financial Protection Bureau (CFPB) released a report on the use of chatbots, such as ChatGPT, etc., by financial institutions. The report highlighted that chatbot use, as automated teller machines and offshore customer call centers before them, are increasingly used by financial institutions to streamline processes and lower operating costs. The CFPB report details a number of challenges in the use of chatbots, as well as guidance for successful deployment by financial institutions.

On June 6, 2023, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly released final guidance on managing risks associated with third-party relationships. The guidance is intended to promote consistency in supervisory approaches and replaces each agency’s existing guidance on the topic.

With the economy tightening and interest rates continuing to increase to amounts greater than have been seen in the recent past, lenders are facing more requests for assistance from debtors who are unable to repay their loans in accordance with their original terms. Hence, workouts are becoming an evermore important tool for lenders seeking to protect the collectability of their loans.

Reports of potential trouble in commercial real estate lending have steadily increased this year. 

With the take-over of Silicon Valley Bank and the bankruptcy filing of its parent, the closing of Signature Bank, and the $30 billion rescue package for First Republic Bank from eleven of the largest banks in the U.S. on March 16, the banking industry has entered into a new world.

On February 14, 2022, BlockFi Lending LLC (BlockFi) settled charges with the SEC and state securities regulators for a total of $100 million in penalties.