Page 9 - October 24, 2024 Bulletin

aRTiCLeS

FHFA Issues Climate Risk Bank Branches Remain Vital Part
Guidance for Federal Home Loan of Small-Business Lending
Banks Small-business lending remains a staff-driven service for banks with

The Federal Housing Finance Agency has issued guidance to the only 3% of banks fully automating the process, and only for very
Federal Home Loan Banks on managing climate-related risks “to small loans, according to the FDIC’s Small Business Lending Survey.
support a safe and sound operating environment.” The survey also found that most small business borrowers are usually
located within 40 miles of a bank branch.
The guidance states that each FHLBank should integrate climate-
related risk management into its existing enterprise risk management The FDIC survey is conducted every six years, with the results from
framework. Such frameworks should cover governance, metrics this year’s report reflecting bank responses collected in 2022 and
and data, scenario analysis, climate-related risk reporting and early 2023. In an accompanying speech, FDIC Chairman Martin
communication, and natural disaster response and support for Gruenberg said that despite the COVID-19 pandemic leading to
climate resiliency, according to FHFA. widespread adoption of remote communication, the survey’s results
show that small-business lending still takes place largely in person,
“Although it is difficult to predict exactly how and when climate- either at a bank branch or during an onsite visit.
related risks will manifest themselves, the FHLBanks should be
prepared to respond to these risks to operate in a safe and sound “This doesn’t mean some things haven’t changed, particularly in
manner that supports their mission,” the guidance states. the way that banks communicate with borrowers,” Gruenberg
said. “For instance, the survey finds that a third of banks allow
Read more: https://www.fhfa.gov/sites/default/files/2024-10/AB- borrowers to complete at least some parts of a small-business loan
2024-04_FHLBank-System-Climate-Related-Risk-Management.pdf application online, whether consulting about products, submitting
an application or signing closing documents. However, only 5% of
Bank Customers Still Feel banks let borrowers complete the loan process entirely online. This

Squeeze of Inflation fact, along with that of the majority of banks requiring a branch
or site visit to complete the loan process, lends further support to
The percentage of U.S. bank customers who are financially healthy the notion that the local branch is still a key part of small-business
only modestly improved in August while the number of customers lending.”
who say the cost of goods is increasing faster than they can afford has The survey found that nearly all U.S. banks make loans of up to $1
increased, according to the latest bank customer survey by J.D. Power.
million to small businesses, with half of banks making loans of up
The number of bank customers who were financially healthy rose to $3 million. Three in ten banks, including more than half of large
slightly from 31% to 32% in August. At the same time, 44% of banks, can approve a small and simple loan within one business day.
bank customers fell into the “vulnerable” category, down from Three in four banks approve their typical loan within 10 business
45% in July. J.D. Power measures financial health by combining days.
consumers’ spending/savings ratio, creditworthiness and safety net About half of banks were using or considering using a financial
items like insurance coverage.
technology provider in their small-business process, according to
Also, for the first time in four months, the number of bank the survey. Still, the vast majority of banks engage in “high-touch
customers who say that the cost of goods is increasing faster than practices” and believe these practices to be crucial for generating
their income increased, rising from 66% in July to 68% in August. and maintaining relationships. About four in five banks define
Many customers said prices for goods such as gasoline and grocery their geographic market for small-business lending based on their
items have gone down, although roughly one in three said they have branch footprint, which averages about 40 miles from their branch
not seen any improvement in prices. locations.
“For banks, this creates an interesting dilemma,” J.D. Power said. More than nine in 10 banks often compete with another bank for
“With so many customers making choices, both financial and small-business lending, but competition with credit unions and
political, based on inflation, yet such a sizeable portion of them other nonbanks appears to have increased since the previous survey
refusing to track their finances, it is difficult to build an outreach was fielded in 2016, the FDIC said. Small banks are more likely to
strategy. Banks will need a multipronged approach that incorporates compete with credit unions, while large banks are more likely to
financial literacy, vigilance and planning to help customers out of the compete with fintech lenders, credit card issuers and other financing
cycle of stress that they’ve been experiencing.” companies.
Read more: https://www.jdpower.com/business/resources/even- Read more: https://www.fdic.gov/publications/2024-report-small-
inflation-eases-bank-customers-us-struggle-find-relief business-lending-survey

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