The Banking Dive Outlook on 2022

Some of the narratives Banking Dive sees taking shape for 2022 — crypto, for example — are carryovers from last year, reaching a logical conclusion or forward motion. Others, such as the office-return debate, may be at a pivot point.

Office returns

Given how adamant Goldman Sachs had been last winter to return to the office — "aberration," anyone? — the bank's move to ask U.S. employees to work from home through Jan. 18 if they can is the most glaring signal that the COVID-19 pandemic is far from over.

The omicron variant that is fueling the recent rash of remote-work capitulations is hardly the first virus mutation to prompt banks to delay office-repopulation strategies — several banks prolonged remote work amid the delta variant's swell last summer. However, with omicron, it seems more banks may be accepting that remote work for safety's sake is more necessity than choice.

JPMorgan Chase, another office-return hard-liner, insisted in a memo it is "not changing [its] long-term plans of working in the office." 

“However, with the increase in holiday travel and gatherings, we are allowing for more flexibility during the first two weeks of January to work from home (if your role allows) at your manager’s discretion,” the bank said Dec. 30.

JPMorgan added it expects employees to resume their in-office schedules by Feb. 1.

Bank of America is taking a more granular approach, urging employees to work from home this week. Meanwhile, Citi left its timeline considerably more vague.

“We are asking that you work from home for the first few weeks of the New Year if you are able to do so,” the bank said Dec. 30. “We will continue to monitor the data and provide an update in January on when we expect to be back in the office.”

Jefferies, which on Dec. 8 gave its employees carte-blanche to finish 2021 from home, extended its remote-work directive through "at least Jan. 31."

"Realistically, we do not foresee us all having a safe opportunity to be together in our offices" until then, CEO Richard Handler wrote in a memo posted on Instagram. “We are encouraging everyone to work remotely unless there is a very good reason to be in our office.”

Some banks, such as Wells Fargo and Capital One, have postponed office returns indefinitely. But that stance is still in the minority. Hard chargers like Goldman, while conceding to remote work in the moment, are also doubling down on protective measures once employees do return.

People entering the bank's offices must get a COVID-19 booster shot by Feb. 1, Goldman told its U.S. workers Dec. 27. The bank will also double mandatory testing for in-office workers to twice a week, it said.

Regulatory speed bumps

As worthwhile as it may be to look at individual regulations looming on the horizon in 2022, it may be just as prudent to look at the regulators themselves. New leaders at some regulators — notably, the Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC) — took office in 2021 with the aim to give the rules more teeth. 

From the time Rohit Chopra was confirmed to lead the CFPB, analysts had predicted an uptick in enforcement. The bureau collected about $1.5 billion in consumer redress during the two-year tenure of Chopra's predecessor, Kathy Kraninger, compared with $12 billion in five years under Obama appointee Richard Cordray. Chopra launched an effort in October to collect information on big tech companies' payments systems, with an emphasis on stablecoins.

But perhaps his most impactful move thus far has come in his role as a member of the Federal Deposit Insurance Corp.'s board, where he and former FDIC Chair Martin Gruenberg published a review of bank merger policies without the approval of the regulator's now-outgoing leader, Jelena McWilliams. McWilliams said the FDIC board conducted no such vote and a review had not been approved. Republican lawmakers likened the maneuver to a coup, and Democrats such as House Financial Services Chair Maxine Waters, D-CA, have urged bank regulators to “impose a moratorium on approving any large bank M&A" while a policy review takes place.

McWilliams' resignation, effective in February, eliminates the FDIC board's only Republican roadblock toward completing that initiative. While the review may be geared toward only the most lucrative of bank combinations, it is guaranteed to generate attention throughout the banking industry. However, the maneuver's political polarization could make it increasingly difficult for the Biden administration to fill regulators' remaining vacancies with any candidate whose stance is seen as anything other than moderate. That includes three yet-to-be-announced nominees at the Federal Reserve (and confirmation hearings for two more) and an open post to lead the Office of the Comptroller of the Currency (OCC), the regulator that oversees roughly 85% of the nation's banks.

Saule Omarova, the latest candidate to fill the OCC slot, withdrew her nomination in December after a particularly contentious appearance on Capitol Hill, where, among other issues, some Republicans attacked her upbringing in the former Soviet Union.

Despite its lack of a permanent figurehead, however, regulatory progress at the OCC has remained steady. Under Acting Comptroller Michael Hsu, the agency has — cautiously — followed through on its promises. It said in November it would lay out a framework of expectations surrounding big banks' management of climate risks. The framework dropped a month later. The OCC said in July it would rescind the Trump-era rewrite to the Community Reinvestment Act. And by December, it did. Hsu has announced other intentions, saying the OCC would re-examine Trump-era policies regarding cryptocurrency activities and crypto firm charters. And that it would conduct a review of overdraft policies. Expect the OCC to keep its word.

Change won't always be quick. After a months-long "crypto sprint," bank regulators essentially kicked the can down the road, saying they plan to issue guidance throughout 2022 regarding banks' engagement with digital assets. But given a focus on stablecoins by the treasury secretary and others, regulators clearly intend for this to be a promise kept.

Meanwhile, the SEC appears champing at the bit to mark its territory in regulating crypto. Under Gary Gensler, the regulator took issue with several firms' interest-bearing accounts. Brokerages, too, may be in for stiffer regulations. Toward the end of 2021, companies such as Coinbase and Ripple laid out their visions of how they would like to be regulated — with the former calling for a new regulator to oversee the space (after, to some extent, accusing the SEC of mission creep) and the latter leaning toward the Commodity Futures Trading Commission (CFTC).

Finally, the Federal Reserve — albeit on a delayed timeline — could issue its long-awaited paper on the prospect of a central bank digital currency. (Update: It did.)

Digital assets and cryptocurrencies

While on the subject of crypto, 2021 yielded key developments in that space that have shown financial institutions are likely leaving money on the table if they choose to watch from the sidelines.

While banks have had legitimate reasons to remain cautious, the growing interest in digital assets among consumers and investors has spurred fintechs, neobanks and traditional firms to carve out their services regarding crypto.

Some of the nation’s largest traditional firms can no longer be considered holdouts, with major players like BNY Mellon and others introducing varying services that allow their clients to engage with the assets. 

This broader adoption comes as fintechs and neobanks see their decisions to participate in the sector as yet another way to showcase the innovative thinking they say differentiates them from incumbents.

As banks of varying sizes and market reach respond to growing demand for crypto services, crypto custody firms such as Anchorage Digital are securing funding and partnerships. 

“As more and more institutions look to add crypto services into their offerings, we find ourselves at an inflection point," Diogo Mónica, the company's president and co-founder, said in a statement, adding the firm’s recent $350 million capital raise will help it meet an “unprecedented institutional demand” for the rapidly evolving market.

As mentioned in the previous section, regulators have taken notice and are expected to release guidance for banks regarding crypto in 2022, the result of a months-long “crypto sprint” conducted by the OCC, Federal Reserve and FDIC. 

As evidenced by a pair of December congressional hearings focused on digital assets and stablecoins, lawmakers have expressed measured curiosity about the space and the potential benefits and pitfalls crypto could usher in for consumers.

As the sector continues to grow, crypto firms will likely continue to tout the financial inclusion benefits of digital assets, while urging Congress not to take a heavy handed approach to regulation in 2022.

However, Ashley Ebersole, a former SEC enforcement attorney, said he doesn’t expect the crypto regulatory situation to change dramatically in 2022 from where it is now. 

“Chair [Gary] Gensler of the SEC has said that they need no new law to operate in the crypto space. And the CFTC has similarly not appeared to suffer from a legal deficit,” said Ebersole, who is now a financial regulatory partner with law firm Bryan Cave Leighton Paisner. “I don’t see a new law coming in this space unless it comes from Congress or the White House. The process to enact any new law that originates from either of those sources is long and cumbersome, so my guess is that things will continue as they are for the foreseeable future, perhaps with increased enforcement activity.” 

M&A

When the Bank of Montreal agreed in December to pay $16.3 billion to help French lender BNP Paribas get out of the U.S. retail banking business, it all but assured that 2022 would be a more subdued year for mergers and acquisitions than its predecessor.

M&A in 2021 split its time between two narratives: foreign banks offloading cost-inefficient U.S. footprints, and U.S. banks expanding their business into banking-adjacent spaces.

2020 gave us hints of the former when PNC paid $11.6 billion to acquire BBVA's U.S. retail banking operations, prompting questions of which fellow foreign juggernauts would sell. HSBC in May spun off much of its network to Citizens — and a little to Cathay Bank. Japan's Mitsubishi UFJ Financial Group in September agreed to sell its U.S. banking arm to U.S. Bank. Even Israel's Bank Leumi cut its U.S. business loose.

Many of the biggest pieces have fallen into place, leaving banks looking around the margins to expand. And 2021 showed there's plenty of that business to go around. JPMorgan Chase made more than 30 such deals last year.

The nation's largest bank may be an outlier — regulations prohibit it from acquiring additional U.S.-based deposit-taking institutions because JPMorgan Chase already holds more than 10% of U.S. deposits. So it spent 2021 picking up a U.K. robo-adviser, inserting itself into the payments business of two German conglomerates, buying a college financial planning business and even a restaurant platform. Not everything worked. It also perpetuated the cliche that Americans don't understand soccer.

JPMorgan did, however, get in on another space that is bustling with deals: healthcare. The bank announced the debut of Morgan Health — meant to boost the quality of medical care for JPMorgan employees and to improve health equity and medical cost control — in May, three months after Haven, a health venture the bank backed in cooperation with Amazon and Berkshire Hathaway, suspended operations.

Other banks bought and innovated their way into the health niche. Capital One in October announced plans to purchase Minneapolis-based healthcare investment bank TripleTree. Cincinnati-based Fifth Third Bank in June moved to buy Provide, a digital platform for healthcare practices. Its cross-Ohio rival, Cleveland-based KeyBank, launched the digital bank Laurel Road for Doctors in March. 

It's safe to expect smaller-scale niche M&As throughout 2022.

The future of the SAFE Banking Act

The past year was a disappointing one for supporters of the Secure and Fair Enforcement (SAFE) Banking Act.

While the bill, which would provide protections for banks that serve legal cannabis businesses, is no stranger to defeat — SAFE Banking has been introduced in every Congress since 2013 — many proponents believed 2021 would finally be the year the legislation would pass.

With the 2020 election awarding Democrats control of the Senate — the chamber that had served as a major roadblock for the bill — SAFE Banking’s future looked promising. 

But efforts among some Senate Democrats to push for broader cannabis reform ahead of the narrower SAFE Banking Act ultimately stalled the bill’s momentum. 

Even though the House passed the bill in April, Senate Majority Leader Chuck Schumer, D-NY, and Sen. Cory Booker, D-NJ, argued the text doesn’t do enough for wider cannabis reform and mostly serves the interests of the banking industry. 

Attention turned instead to the Cannabis Administration and Opportunity Act (CAOA), draft legislation that would remove cannabis from the federal list of controlled substances and expunge federal nonviolent marijuana crimes.

SAFE Banking supporters attempted to fold the legislation into the 2022 National Defense Authorization Act (NDAA), but the text was ultimately left out of the defense spending bill. 

Rep. Ed Perlmutter, D-CO, one of SAFE Banking’s strongest advocates, told Banking Dive in December he still plans to push for the legislation next year. (That will, however, be his last push, as he announced he will not run for re-election in November.)

“While it was frustrating to see the SAFE Banking Act excluded from the final NDAA, I believe we advanced the cause and made headway in terms of educating and raising awareness about this problem and the benefits of the bill,” he said in an email. “As I’ve said before, I will continue to pursue every possible avenue to get SAFE Banking over the finish line and signed into law sooner rather than later.”

In an interview with Marijuana Moment in December, Perlmutter hinted at potential other legislative vehicles he could fold SAFE Banking into, should a stand-alone measure once again fail. But he declined to share specifics, saying “it’s premature to talk about.” 

Rep. Earl Blumenauer, D-OR, meanwhile, appeared confident the Senate could pass SAFE Banking in 2022. 

“We’ve given them a bill. It is clean. It has broad support in the Senate,” he said, according to Marijuana Moment. “That’s the simplest effort, but there will be vehicles going back and forth. And you will see there will be strong support to make sure that we don’t come up short on this again.”

The bill’s supporters are “playing the long game here, and we are in the best position we’ve ever been with the Senate,” Blumenauer said in December. “I’m confident, when we get these aligned, that we’ll be able to move.”

As new COVID-19 cases decline from the towering heights reached earlier in January, big banks are setting definitive return dates in their quest to bring employees back into the physical workplace.

Throughout 2021, COVID-19 variants posed major headwinds to banks hoping to bring workers back to the office.

The spiraling caseload brought on by the delta variant last summer forced many banks to alter their game plans and shutter offices.

Afterward, banks across the country adopted widely varying stances on working from home.

Some firms have maintained wait-and-see approaches. Wells Fargo, for example, has continually postponed plans to return to the office, with five delays since August.

And Capital One gave up on prognosticating a return timeline in October. The McLean, Virginia-based firm said it would give employees 30 days’ notice before reopening offices.

By contrast, JPMorgan Chase opened its U.S. offices to all employees in May — often on hybrid schedules — and most had resumed in-person work by late November, according to The New York Times.

Morgan Stanley CEO James Gorman in June told a financial services conference, “If you can go to a restaurant in New York City, you can come into the office," adding, "[By] Labor Day, I’ll be very disappointed if people haven’t found their way into the office and then we’ll have a different kind of conversation."

Even Citi — among the first banks to float a hybrid schedule back in March — asked workers in September to come into the office at least two days a week. As COVID-19 cases declined, in-person work seemed to be re-emerging as the industry norm.

Omicron variant changed plans

But the breakout of the omicron variant in the U.S. forced many businesses, including banks, to shutter offices once again. A mid-December survey by Gartner found that 44% of companies delayed or altered their plans to work in person.

A slew of Wall Street giants, ahead of the holidays, began advising employees to work from home.

Even return-to-office hard-chargers like Gorman capitulated amid the mounting public health crisis.

“I was wrong on this,” Gorman said in December. “I thought we would have been out of it past Labor Day and we’re not.

“I think we’ll still be in it through most of next year,” he added. “Everybody’s still finding their way and then you get the omicron variant; who knows, we’ll have pi, we’ll have theta and epsilon, and we’ll eventually run out letters of the alphabet. It’s continuing to be an issue.”

Goldman Sachs CEO David Solomon, who once called remote work an “aberration,” asked employees to work from home until Jan. 18 if possible. The firm pushed back its return date again in January, and reopening is now slated for Feb. 1.

Bank of America permitted employees at New York City offices to work from home over the holidays, and then in January, the Charlotte, North Carolina-based firm encouraged employees to stay home a while longer. 

JPMorgan Chase, Citi and TD, likewise, advised employees to work from home at the end of the year.

Now, as many employees kick off the first weeks of 2022 from their home offices, several banks are again eager to usher workers into the office as soon as possible.

JPMorgan told employees in a memo, “we expect everyone to return to their in-office schedule no later than February 1,” according to CNN.

Citi and BNP Paribas have both marked Feb. 7 to start bringing workers back into the office.

The French giant plans to gradually ramp up in-person work capacity to 50%, an employee told Reuters. The bank had an office capacity around 25% to 30% at the end of 2021, the source said.

And as in-person work regulations ease in the U.K., a growing number of firms are calling London-based bankers back into the office.

“We are now free to gather in our offices, without restriction, where we are better able to generate the energy and collaborative spirit on which Citi thrives,” the bank's Europe, Middle East and Africa CEO David Livingstone and U.K. chief James Bardrick wrote in an email to bank employees seen by Bloomberg. JPMorgan also joined in the call to return London bankers to their desks.

But COVID-19 cases remain high — and some firms have employed a new tool to prod workers’ return: vaccine mandates.

Keeping the office safe 

Several Wall Street firms have set definitive dates for when they expect workers to report vaccination and booster statuses to retain employment.

Citi, for example, said it would fire workers who did not upload their vaccination card or request an exemption by Jan. 14. The bank gave a $200 “thank you” to employees who provided proof of inoculation by Dec. 8.

The bank's human resources chief said in a LinkedIn post Jan. 13 that it had achieved 99% compliance with the policy, although at least one employee was said to have opted to quit rather than receive the jab.

JPMorgan, until mid-December, permitted unvaccinated employees to work in its office buildings as long as they were tested for COVID-19 semiweekly. In response to a New York State Department of Health mandate, JPMorgan began to require that everyone entering nine Manhattan office buildings be vaccinated.

Still, the bank opted to let local restriction dictate its vaccination rules rather than adopt a one-size-fits-all approach.

“Unlike any other policy we’ve ever had, we’re not trying to be consistent,” JPMorgan CEO Jamie Dimon told CNBC.

Goldman Sachs will require all employees returning in person to work Feb. 1 to be not only vaccinated but boosted, CNN reported. Everyone entering Goldman Sachs offices will be subject to COVID-19 testing twice weekly.

Morgan Stanley began restricting unvaccinated people from entering its New York City and Westchester County offices since July, and has required U.S.-based employees to provide proof of COVID-19 vaccination since October.

Bank of America workers are not required to get vaccinated, but they must wear masks and get tested, according to The Charlotte Observer.

That outlet said fellow Charlotte-based bank Truist is tracking the number of unvaccinated remote workers, though most of the bank’s office workers are still working remotely.

As 2022 gains momentum, a number of unknown quantities loom in the banking regulatory sphere. Among the most substantive debates may be how to regulate cryptocurrency — or, more specifically, which agency should. 

Toward the end of 2021, several crypto firms sketched out their visions of how they would prefer to be regulated. Coinbase — weeks removed from scrapping the planned launch of an interest-bearing lending product after it said the Securities and Exchange Commission (SEC) threatened to sue — proposed the U.S. create a new regulator. Ripple, which has had its own tussle with the SEC, leaned toward the Commodity Futures Trading Commission (CFTC).

Lawmakers in January weighed in, as the Republican and Democratic leaders of the Senate and House Agriculture committees expressed, in a letter to CFTC Chairman Rostin Behnam, their concerns about fraud and manipulation in decentralized finance. They asked Behnam what the CFTC is doing to protect consumers and how it might collaborate with other regulators, emphasizing the “critical role” the agency plays in the space.

The subtext may very well be: Don’t let the SEC overstep. SEC Chairman Gary Gensler has said he hopes to bring crypto trading platforms under his agency’s oversight this year.

“If the trading platforms don’t come into the regulated space, this will be another year of the public being vulnerable,” Gensler told The Wall Street Journal.

Gensler’s agency has led a charge singling out crypto products as unlicensed securities, typically using the 1946 Howey test as precedent in the argument that crypto should fall under the SEC’s domain.

The lawmakers, in their letter to the CFTC, stressed Bitcoin and Ethereum’s status as commodities — and Gensler, too, has said he considers Bitcoin a commodity but hasn’t commented on Ethereum. 

Bitfury CEO Brian Brooks, himself a former regulator, indirectly criticized the SEC’s approach during a December hearing in front of the House Financial Services Committee, urging lawmakers to scale up their thinking. 

"Instead of focusing only on micro questions such as whether a particular token is a security or whether a particular exchange-traded fund may be offered, it would be worthwhile for the elected branches of government to grapple with the bigger questions,” he said.

For example, he added, "is it consistent to take the position that only banks should be allowed to issue stablecoins, but then fail to grant bank charters to the largest issuers of stablecoins? … Or does it make sense to bring enforcement actions challenging certain cryptoassets as unregistered securities, but then fail to allow those assets to be registered and trade on a national securities exchange or alternative trading system?"

Fed knowns and unknowns

If the “what” of this year’s regulatory agenda seems daunting, potential pitfalls to rulemaking progress may first hinge on the “who.”

And here, lawmakers face a host of knowns and unknowns, too. Sometimes in the same body.

The Federal Reserve Board of Governors, for example, consists of seven seats. But as of now, only four are filled. 

Senate Banking Committee Chairman Sherrod Brown, D-OH, told Bloomberg he plans one hearing in early February to address all three of President Joe Biden’s picks for the open roles. While Democrats may welcome — for expediency — the prospect of lumping them together, the strategy could backfire if one of the nominees tests poorly.

The focus of the hearing undoubtedly will be Sarah Bloom Raskin. For one, the role for which she’s nominated — vice chair of supervision — is more pivotal for policy than that of other Fed governors. For another, she’s a known quantity. She served as a governor at the Fed from 2010 to 2014 and contributed to rules implementing Dodd-Frank Act-related changes. 

But she has also been an outspoken advocate to overhaul the way the Fed addresses climate change.

Raskin, in a May 2020 New York Times opinion piece, criticized the Treasury and Fed for allowing oil, gas and coal companies to be eligible for government-backed emergency-lending relief early in the COVID era.

That has raised a red flag from at least one prominent Republican on the Senate Banking Committee, ranking member Pat Toomey of Pennsylvania.

“I have serious concerns that she would abuse the Fed’s narrow statutory mandates on monetary policy to have the central bank actively engaged in capital allocation," Toomey told Bloomberg in a statement.

The question stands: Will lawmakers approve Raskin given what they know of her climate stance? If so, that bodes well for her fellow Fed nominees, Lisa Cook and Philip Jefferson. 

To be sure, they will get their own examination during the hearing. But if lawmakers fail to separate their views on Raskin from those regarding the other nominees, Cook's and Jefferson's chances may suffer, too.

The Brainard test

As a test case, the banking sphere can look at how the full Senate treats another known quantity: Lael Brainard, the Fed governor Biden nominated to fill the central bank's other vice chair role.

Brainard and Fed Chair Jerome Powell last week each fielded questions from senators on the central bank's role regarding climate change — but Brainard's generated considerably more pushback.

Powell said the Fed had a “narrow” yet “important” role in climate-change policy, asserting the central bank is “looking at climate stress tests," calling them "a key tool going forward.”

However, when Toomey asked Brainard two days later whether her support for more climate research and analysis at the Fed was "a precursor to direct capital away from" fossil-fuel companies, she said, "We would not tell banks which sectors to lend to or not lend to, but we do want to make sure they are measuring, monitoring and managing [their] material risks.”

She also noted, "I have not suggested we do stress tests for climate" — to which Toomey said he saw “little more than a semantic difference” between the Fed’s climate scenario analysis and a full-fledged stress test. 

Brown projected Powell would win bipartisan support for a second term. “I don’t see more than a small, small handful of ‘no’ votes on the committee, and I can’t imagine there are that many on the floor,” he told Bloomberg. However, no Republican senators pledged, after Brainard's hearing, to vote for her. She was confirmed to her governor role in 2014 by a 61-31 margin.

If Brainard's tally is narrower in 2022, it could signal a tougher road for Raskin, Cook and Jefferson.

Still another factor may prompt Republicans to withhold support from nominees seen as more liberal-leaning: fear that putting more Democrats on regulatory bodies may shift the power dynamic. Although there are only four Fed governors, three are still Republicans. Approving Biden's slate of nominees would give the central bank a 4-3 Democratic bent.

And the dust-up between Democratic members of the Federal Deposit Insurance Corp. (FDIC) board and the regulator's outgoing chair, Jelena McWilliams, is still fresh in mind.

“A five-member board overturned 88 years of tradition and independence with Biden political appointees, led by [Consumer Financial Protection Bureau] Director Rohit Chopra, forcing out the FDIC chairman before her five-year term was up, strictly for partisan reasons,” Sen. Bill Hagerty, R-TN, said during Powell's hearing, according to American Banker. “This incident causes me to worry that an activist block at the Federal Reserve Board could sideline you.”

Powell replied the Fed has “a history ... of working collaboratively and coming together and getting consensus on issues.”