THE EVOLVING DEPOSIT LANDSCAPE The Nebraska Independent Banker 2025 • Issue 5 Leadership in Times of Crisis The Rising Threat of Deepfake Scams
INVESTMENT PRODUCTS Municipal Bonds Mortgage-Backed Securities Govt. & Agency Bonds Corporate Bonds Brokered CDs Money Market Instruments Structured Products Equities Mutual Funds ETFs FINANCIAL SERVICES Public Finance Investment Portfolio Accounting Portfolio Analytics Interest Rate Risk Reporting Asset/Liability Management Reporting Municipal Credit Reviews Balance Sheet Policy Development & Review www.FBBSinc.com Exceptional Service INDIVIDUAL ATTENTION 888-726-2880 MEMBER FINRA & SIPC. INVESTMENTS ARE NOT FDIC INSURED, NOT BANK GUARANTEED & MAY LOSE VALUE. * Audit Services are offered thru MIB Banc Services, LLC, a subsidiary of our holding company. MEMBER FDIC 40years GROWING STRONGER TOGETHER Lending Services Operational Services Audit Services* 800-347-4MIB mibanc.com * Audit Services are offered thru MIB Banc Services, LLC, a subsidiary of our holding company.
10 ©2025 Nebraska Independent Community Bankers (NICB) | The newsLINK Group LLC. All rights reserved. The Nebraska Independent Banker is published six times per year by The newsLINK Group LLC for NICB and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of NICB, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The Nebraska Independent Banker is a collective work, and as such, some articles are submitted by authors who are independent of NICB. While a first-print policy is encouraged, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. Nebraska Independent Community Bankers 1201 Lincoln Mall, Ste. 103 Lincoln, NE 68508 (402) 474-4662 nicbonline.com The Nebraska Independent Banker is a publication of The Nebraska Independent Community Bankers Association. 2025 • Issue 5 Take a Look INSIDE 12 18 NICB Executive Committee CHAIRMAN Jim Niemeier Citizens State Bank Friend PRESIDENT/CEO Dexter Schrodt SECRETARY Kelly Lenners First State Bank Nebraska Pickrell TREASURER Arnold Lowell CerescoBank Ceresco IMMEDIATE PAST CHAIRMAN Rick Heckenlively Points West Community Bank Sidney PRESIDENT’S MESSAGE 4 Strengthening Our Community, Together By Dexter Schrodt, President and CEO, NICB FLOURISH 6 Conversations Must Determine Our Innovation Budgets By Rebeca Romero Rainey, President and CEO, ICBA PORTFOLIO MANAGEMENT 8 High Anxiety Yield Curve Shape Reflects Bond Market’s Mood By Jim Reber, CPA, CFA, President and CEO, ICBA Securities 10 The Rising Threat of Deepfake Scams By Brandie Thacker, President & CEO, EPCOR 12 Leadership in Times of Crisis 14 Belief Is the Last Backstop What Easing Bank Capital Rules Really Means for the Treasury Market By Christopher Myers, CEO, B:Side Capital and B:Side Fund 16 Balancing AI-Driven AML With Human Control By Jessica Tirado, CSI 18 Credit Stress Contingencies Why Wait Until It Comes? By David Ruffin, Principal, IntelliCredit®, a Division of QwickRate 20 The Evolving Deposit Landscape What You Need to Know By PCBB 22 NICB Endorsed Partners 22 Associate Members 2025 23 Banker Showcase We Want to Feature You in Our Next Issue of The Nebraska Independent Banker!
By DEXTER SCHRODT President and CEO, NICB PRESIDENT’S MESSAGE 4 NEBRASKA INDEPENDENT BANKER
As I reflect on the 2025 Annual Convention of the Nebraska Independent Community Bankers, held Sept. 18-19 in downtown Lincoln, I am filled with a deep sense of pride and optimism. This year’s gathering was more than a conference — it was a powerful reminder of what makes our association truly special: our shared mission, our enduring relationships and our unwavering commitment to community banking. From the moment our members arrived, the energy was unmistakable. The convention was thoughtfully designed to offer a rich blend of education, inspiration and connection. Our agenda featured timely sessions on cannabis banking regulatory compliance, CRA readiness, banking innovation and economic policy — topics that are shaping the future of our industry. We were honored to welcome an outstanding lineup of speakers, including Gov. Jim Pillen, Director Kelly Lammers of the Nebraska Department of Banking and Finance, Jim Reber of ICBA Securities, Tony Repanich of Shield Compliance, Quentin Leighty of ICBA, Carmen Ramirez of CRA Solutions and Abygail Streff of the Nebraska Farm Bureau. Their insights helped us navigate complex challenges and seize new opportunities with confidence. But beyond the sessions and speakers, what truly stood out was the spirit of connection. Our Thursday evening reception was a highlight — a relaxed and welcoming space where community bankers and vendors could engage in meaningful conversations, share experiences and build new partnerships. The vendor exhibits buzzed with activity as attendees explored innovative products and services designed to support and strengthen their institutions. One of the most cherished traditions of our convention — the PAC fundraiser — once again demonstrated our collective commitment to advocacy. Through generous donations and enthusiastic giving, we raised vital funds to support pro-community banking candidates in the Nebraska Legislature. The NICB-PAC remains the only political action fund in the state exclusively dedicated to advancing the interests of community banks, and your support ensures our voice remains strong and effective. To our vendors: Thank you for your continued partnership. Your presence and engagement enrich our events and empower our members. To our members: Thank you for showing up, participating and investing in our shared mission. Your dedication is the heartbeat of NICB. As we look ahead, let’s carry the momentum of this convention into our daily work. Let’s continue to advocate for our communities, innovate within our institutions and support one another as we navigate the evolving landscape of banking. Together, we are building a stronger, more resilient future for Nebraska’s community banks. STRENGTHENING OUR COMMUNITY, TOGETHER NEBRASKA INDEPENDENT BANKER 5
FLOURISH CONVERSATIONS MUST DETERMINE OUR INNOVATION BUDGETS Innovation is one of those line items that can be hard to wrap our heads around. There’s no formula or silver bullet to determine how much to spend, so we annually face that Goldilocks conundrum of determining what’s too little, what’s too much, and what’s just right. Yet, when faced with that uncertainty, I’ve found that dialogue can be the answer. Conversations with our leadership teams, full staff, and customers will spark ideas that can help us focus on our true needs and evaluate our priorities. Those discussions start with determining how we define return on investment (ROI). With innovation, ROI is about looking through the lens of overall impact, not just how it will affect us financially in the year ahead. Ultimately, budgeting for innovation requires us to reverse-engineer our thinking and consider the price of not acting. We can’t just look at the fees for the technology or the integration; we also need to evaluate the cost of maintaining the status quo. That will help make the innovation investment more concrete and guide our decision-making. We need to identify a particular pain point, evaluate what it currently costs us in terms of staff time, customer attrition, or other relevant variables, consider what may shift in the future, and evaluate both the short- and long-term impact. That analysis helps us gain the concrete awareness needed to make informed decisions. And sometimes not acting is the right choice. Not every solution is going to work for everybody, but thoughtful conversations result in a conscious, strategic decision versus one informed by a reaction to a product price tag. This dialogue is critical to creating an innovation-centric culture that is more about the process than the product. Brainstorming with our teams leads to valuable decision-making, and the ROI comes from the time we spend discussing and taking a proactive approach to problem-solving. Innovation is a journey, not a destination. It’s about enabling a mindset and culture that’s open to considering something different and continuing to shift with the needs of our customers and communities. As the financial services industry continues to evolve, we will increasingly face the challenge of balancing investment in innovation against budgetary constraints. Thoughtful discussions with our teams will shed light on the best approach for our individual banks. In these discussions, we will chart a course that’s right for our organizations, one investment at a time. By REBECA ROMERO RAINEY President and CEO, ICBA 6 NEBRASKA INDEPENDENT BANKER
| Bank Stock Loans | Loan Participations | ATM/Debit | International Services | | Cash Management | Securities Safekeeping | Merchant Services | 800-873-4722 | NE: 888-467-5544 | www.bbwest.com Where community banks bank Est. 1980 – 45 years of service to community banks “As a service provider exclusively focused on community banks, Bankers’ Bank of the West is here to help strengthen our clients and the communities they serve.” Across the western states and Great Plains, we’re the place where community banks bank. That’s because we provide the services, technology, and expertise to help you extend your resources, deliver for your customers, and stand out in your market. 5 reasons to partner with us BBW - President and CEO - Bill Mitchell 1. You can unlock efficiencies and cost savings. We can provide sophisticated solutions and economies of scale because we’re powered by hundreds of community banks across our region. 5. Our priorities are aligned with yours. 2. You can expand your capabilities. 4. We’ll never compete for your customers. 3. You can count on prompt, reliable service. • Independent loan review • Loan and credit administration consultation • Strategic planning facilitation • Management, staffing, & succession planning • Acquisition & expansion • BSA/AML compliance • Regulatory risk consultation President, Jim Swanson President, Anne Benigsen • Consulting • Phishing Tests • Vulnerability Management • Security Monitoring Cyber/information security, strategic planning, independent loan review, AND MORE. Consulting Services $ 8.45B assets under management $ 1.9B daily transaction value processed/settled Serving more than 60% of community banks across 7 states
PORTFOLIO MANAGEMENT HIGH ANXIETY Yield Curve Shape Reflects Bond Market’s Mood By JIM REBER, CPA, CFA President and CEO ICBA Securities Let’s start this month’s column with a dose of banality: Be careful what you wish for. For at least four years, all manner of bond market participants — including analysts, consultants, pundits, and, last but not least, investors — have been predicting and hoping for a normally sloped yield curve. Though the longest-on-record inversion finally corrected itself last September when the Fed first cut rates, we did not see a positive slope of even 50 basis points (0.5%) until May. (Trivia fans: The average difference between 2s and 10s was a nice, neat 100 basis points for the past 15 years.) Most community bankers I’ve spoken with this year have been hoping for a steeper curve. Even though the interest rate risk of most banks is well insulated against relatively small rate shocks, the feeling is that a more normal curve shape would help loan officers and liquidity managers to price relative risk. Aligned with this is the notion that we’re in a secular falling rate environment, as evidenced by Fed funds futures that have been projecting between one and four rate cuts by the end of 2025. And now? Wholly unrelated to economic factors are trade policy and fiscal issues that drive interest rates. The Fed may stay on the sidelines for a good long while. And the yield curve? It’s gotten some slope all right — compliments of a “bear steepener.” What It Looks Like Bear steepeners are interest rate maneuvers in which rates rise and longer tenors increase more than shorter ones. They are relatively rare, as most of the time the curve steepens, it’s the result of anticipated or actual rate cuts by the Fed. Why is this? First, I should repeat myself (hackneyed, again) that all rates have trended lower since the 1980s, the last three years notwithstanding. Also, think about what the Fed is trying to accomplish when it employs rate hikes: It is trying to slow down the economy and/or stamp out inflation. Both of those are reasons for the curve to flatten. And now? Long-term investors (say five years and more) are highly concerned about inflation reigniting and the projections of escalating national debt. The Fed, for its part, is having to take a wait-and-see approach, so it’s wholly unclear when or if it will make a change to monetary policy. The result is the 2025 bear steepener, in which the longest rates are hitting multiyear highs. 8 NEBRASKA INDEPENDENT BANKER
2013 Hissy Fit In the lexicon of veteran portfolio managers and community bankers is the “Taper Tantrum.” This occurred in 2013, when the U.S. economy was still working through the Great Recession. The Fed, then chaired by Ben Bernanke, was in the middle of a quantitative easing (QE) phase of buying a lot of bonds in the open market. The chairman made some comments about slowing down the scale of the purchases, which the market was not expecting, and longer bonds had a hard sell-off. The 10-year note’s yield rose well over 100 basis points in four months, and all the while, the Fed was still into QE. It turned out the Fed didn’t taper its purchases for over a year following the bombshell press conference. In fact, its forward guidance continued to suggest an accommodative monetary policy. Bond market yields eventually retreated to pre-Tantrum levels, as inflation never reared its head. That period of history remains a benchmark example of a bear steepener in the fixed-income market. What Could Work What if short rates remain anchored at or about where they are now, and longer rates remain annoyingly elevated? First, and to stay on the vapid track, I’d like to point out the obvious. Your community bank’s bond portfolio will continue to be underwater, and mortgage lending will remain a challenge. Cash flows from your mortgage Slow and steady wins the race. Education on Tap Community Bank Conference in November ICBA and Stifel announce the inaugural Community Bank Symposium on Nov. 12-14, in Hilton Head, South Carolina. This event will feature discussions about industry trends and opportunities and a presentation from ICBA’s Government Relations team. A variety of social activities will also be offered. For more information or to register, contact your Stifel rep or visit icbasecurities.com. securities will be limited, and not many bonds will be called away by the issuers. Finally, for some good news: It’s possible that longer-duration securities are reaching the point of being oversold. The 30-year Treasury has touched levels in 2025 that haven’t been seen in 18 years. If the Fed is forced to delay rate cuts, floating rate securities could offer relative value, even if the yield curve has some slope. The suggestion, therefore, is a tried-and-true strategy: the barbell. Roughly equal amounts of short and long bonds, employed in this uncertain environment, will likely produce some tactical wins. To conclude, here’s one more cliché: “Slow and steady wins the race.” Jim Reber, CPA, CFA (jreber@icbasecurities.com), is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. NEBRASKA INDEPENDENT BANKER 9
THE RISING THREAT OF DEEPFAKE SCAMS By BRANDIE THACKER President & CEO, EPCOR Deepfake technology, powered by AI, is rapidly evolving, presenting a significant and growing threat to financial institutions and their customers. These sophisticated techniques can create highly realistic fake videos, audio recordings, and images, making it increasingly difficult to distinguish between genuine and fraudulent communications. This has led to a surge in deepfake scams targeting financial institutions, businesses, and individuals, resulting in substantial financial losses and erosion of trust. The Mechanics of Deepfake Fraud Deepfake scams often involve manipulating existing media or creating entirely new synthetic content to impersonate trusted individuals, such as executives, family members, or customer service representatives. Fraudsters use these impersonations to: • Trick Individuals Into Transferring Funds: Criminals may use deepfake audio or video to convince victims to make unauthorized payments. For example, a financial worker in Hong Kong was tricked into paying out $25 million after fraudsters used deepfake technology to impersonate the company’s chief financial officer. • Bypass Identity Verification Systems: Deepfakes can be used to create fake IDs or circumvent biometric authentication measures, allowing criminals to open fraudulent accounts or access existing ones. • Spread Misinformation and Manipulate Markets: Deepfakes can be used to create false narratives that can destabilize financial markets. In one instance, deepfake images of a Pentagon explosion caused a drop in the Dow Jones Index within minutes. • Exploit Personal Relationships for Financial Gain: Scammers may use deepfakes to impersonate family members or romantic partners, soliciting money under false pretenses. The Impact on Financial Institutions Financial institutions are particularly vulnerable to deepfake fraud due to their reliance on trust and authenticity; however, risk is rising for all businesses. The consequences of successful deepfake attacks can be severe, including: • Financial Losses: Deepfake fraud has resulted in billions of dollars in losses for businesses and their customers. One report indicates that the financial sector experienced an average loss of $600,000 per company due to deepfake fraud. • Reputational Damage: High-profile deepfake scams can erode public trust in financial institutions, leading to customer attrition and decreased market value. • Operational Disruption: Responding to and recovering from deepfake incidents can strain limited cybersecurity budgets and resources. • Increased Regulatory Scrutiny: Financial institutions that fail to adequately protect against deepfake fraud may face fines and increased oversight from regulatory bodies. The Impact on Customers Customers are also at significant risk from deepfake scams, facing potential: • Financial Losses: Individuals can be tricked into transferring large sums of money to scammers impersonating trusted contacts. • Identity Theft: Deepfakes can be used to steal personal information, leading to identity theft and further financial harm. • Emotional Distress: Victims of deepfake scams may experience significant emotional distress and trauma. 10 NEBRASKA INDEPENDENT BANKER
Financial institutions are particularly vulnerable to deepfake fraud due to their reliance on trust and authenticity; however, risk is rising for all businesses. Key Statistics • Deepfake fraud attempts in the financial sector have increased by 2,137% in the last three years. • The financial sector is one of the most targeted industries, accounting for 40% of all deepfake attacks. • Fraud-related losses tied to deepfakes reached $12 billion in 2023 and are projected to soar to $40 billion by 2027. • The average loss for financial institutions due to deepfake fraud is around $600,000 per company. Protecting Against Deepfake Scams Financial institutions and customers must take proactive steps to protect themselves from deepfake scams. These include: • Implementing Advanced Detection Technologies: Financial institutions should invest in AI-powered tools that can detect deepfakes in real-time. • Strengthening Identity Verification Processes: Multi-factor authentication, liveness detection, and other advanced verification methods can help prevent deepfakes from bypassing security measures. • Educating Employees and Customers: Training programs can help individuals recognize the red flags of deepfake scams. • Promoting a Culture of Skepticism: Individuals should be wary of unsolicited requests for money or personal information, especially if they seem unusual or urgent. • Verifying Information Through Multiple Channels: Always confirm the legitimacy of requests through alternative channels, such as contacting the supposed sender directly. EPCOR is a not-for-profit payments association that provides payments expertise through education, advice, and member representation. EPCOR assists banks, credit unions, thrifts, and affiliated organizations in maintaining compliance, reducing risk, and enhancing the overall operational efficiency of the payments systems. Through our affiliation with industry partners and other associations, EPCOR fosters and promotes improvement of the payments systems which are in the best interest of our members. For more information on EPCOR, visit epcor.org. Educate With Bite-Sized Videos EPCOR is committed to raising awareness about various fraud schemes and scams, including those involving deepfakes. Their latest “Did You Know?” video provides valuable information on how to spot and avoid these scams. The bite-sized format of the “Did You Know?” series is perfect for sharing education forward with staff and clients to raise awareness and prevention tips for deepfakes and other fraud scams. To watch EPCOR’s latest “Did You Know?” video on deepfakes, scan this QR code. https://www.youtube.com/ watch?v=tBzE1ownQv8 To explore the video library on EPCOR’s YouTube channel, scan this QR code. https://www.youtube.com/user/ EPCORPymnts NEBRASKA INDEPENDENT BANKER 11
LEADERSHIP IN TIMES OF A crisis within an organization can happen at any time, whether it be a new piece of legislation that turns the industry on its head, a pandemic that brings society to its knees, or something in between. Effective leadership during a crisis can significantly influence the eventual outcomes for your team and organization. It goes without saying that when faced with a crisis, normal routines are disrupted. If a company is not prepared, policy and procedures often go out the window, leading to confusion and a breakdown of communication lines. Even the best employees can become reactionary, making decisions based on what they think is best to solve the problem that is happening in front of them. Additionally, a crisis can cause a far-reaching domino effect of challenges. For example, if a supplier within a supply chain is disrupted, retailers in turn may not be able to meet customer demands, leading to poor customer satisfaction. And with today’s tech-savvy consumers, bad news can spread fast. We all know how a few poor online reviews can affect the financial bottom line. As a leader, the way you handle a crisis sets the tone for the entire team, good or bad. If you are prepared for the unexpected, it can significantly reduce any fear and anxiety that your employees might be feeling. There are real benefits to being proactive and having a “just-in-case” backup plan ready to roll out at a moment’s notice. Proactive leadership involves meticulous planning and preparation. It allows an organization, in the event of a crisis, to move from Plan A to Plan B and implement the necessary changes smoothly. And the good news is that you don’t have to make these plans alone. Involving the management team — and employees when appropriate — helps to foster a sense of commitment and plan ownership within your organization. By not having a crisis management plan in place, employees can and most likely will lose trust in leadership. Believe it or not, leading by influence on a day-to-day basis can help a company’s upper management prepare for a crisis. This type of leadership guides and inspires others through actions, words, and ideas as opposed to solely relying on title, authority, or position. It involves skills like active listening, setting a good example, and building strong working relationships with the team. Attention to and development of these skills is absolutely vital. The idea that a leader will be forged in a crisis — that they will rise to the occasion with skills previously unseen — is simply unrealistic. But if you have the skills that keep you involved and show a true interest in employee well-being, and you are consistent in your behavior, you’re more likely to conduct yourself in the same way during a crisis. Taking a proactive and strategic approach to crisis management involves a number of core elements: • Identification: Conduct risk assessments to help identify potential crises before they occur. • Planning: Develop plans and procedures that specifically address various scenarios, including resource allocation and communication protocols. • Communication: Establish strong lines of communication. Without clear, transparent communication, no plan, no matter how good, will work. It’s been said that communication makes the world go round, and to that point, in a crisis, effective communication is vital to making CRISIS 12 NEBRASKA INDEPENDENT BANKER
it through difficult times successfully. Communication can make the difference between your business weathering the storm or suffering operational and/or reputational damage. • Response: Assign roles and responsibilities to implement your plan in the case of a crisis. This may involve taking immediate action to protect your people and property, as well as informing stakeholders. Leaders should be open to new approaches and willing to adjust strategies as the situation evolves. • Recovery: Assess your plan once normal operations are restored. What parts worked? What can be done better? Take this opportunity to learn and improve preparedness plans. However, it’s important to remember that even the best plan can fail if people are not prioritized, both employees and leaders alike. Strong leadership in action can help employees understand that a crisis does not have to lead to the destruction of the organization or the loss of their jobs. In fact, the ability of those in charge to be agile and make decisions may give employees hope as they realize that their leaders were prepared for the event and competent enough to get them through it safely. Equally as important is self-care, especially during times of crisis. Leaders should take time to eat healthy and make sleep a priority. When possible, try to find a moment to step back from the situation, refocus and find perspective. And, don’t try to do it all yourself. After all, you’ve spent time planning and preparing your team — give your plan and your employees the chance to make things work. Crises are bound to happen, but with a little planning and a lot of teamwork, you can successfully navigate the storm instead of bracing for impact. 100 South Phillips Avenue, Sioux Falls (605) 335-5112 | Teresa Thill advantage-network.com HELPING GROW YOUR NON-INTEREST INCOME As a regional leader in providing financial institutions with EFT services, we have solutions to help you grow your non-interest income. • Debit card services • Card production • Marketing support • ATM services • Fraud monitoring From conversion onto the Network to daily operations, our team of local experts will have your back every step of the way. Reach out, and let’s start a conversation! NEBRASKA INDEPENDENT BANKER 13
BELIEF IS THE LAST BACKSTOP When a financial system can no longer stand on its own, it leans on illusion. That’s what the June 18, 2025, quiet regulatory move was really about. Most people didn’t see it. That’s not a knock on them — it’s by design. The headlines were filled mostly with war and politics. Meanwhile, the real news came wrapped in beige. A footnote in a press release. A whisper in financial regulatory circles. But don’t let the silence fool you. What just happened was loud — deafening, if you know how to listen. Here’s the short version: On June 18, 2025, federal regulators proposed easing capital rules for banks. Specifically, they want to loosen the Supplementary Leverage Ratio (SLR), a rule that forces big banks to hold capital against their assets, including U.S. Treasurys. Translation: Banks can now load up on government debt without needing to hold extra cash in reserve. No penalty. No capital buffer. No friction. If that sounds technical and boring, stay with me because, under the hood, this is something else entirely. This is a quiet admission that the Treasury market — the bedrock of the global financial system — is starting to buckle. And we’re out of clean fixes. The Cracks Beneath the Surface To understand why this matters, you need to know what the U.S. Treasury market really is. It’s not just where the government borrows money. It’s the foundation of global finance. Treasurys are considered “risk-free” assets. They’re used as collateral in just about every corner of the financial system — from home mortgages to hedge fund leverage. When the Treasury market works, everything else has a shot at working too. When it breaks, the ripple effects are massive. Right now, it’s starting to break. The U.S. is issuing $1-2 trillion in new debt every quarter. That’s not a typo. Every quarter. At the same time, major foreign buyers — China, Japan, and others — are stepping back. Some are outright selling. Pension funds can’t keep up. Insurance companies are maxed out. Retail demand is inconsistent. There’s just too much debt chasing too few willing buyers. So yields rise. Volatility increases. And liquidity — the ability to buy or sell large amounts without moving the price — starts to disappear. That’s where regulators stepped in. A Quiet Backdoor Instead of fixing the core problem — too much debt, not enough demand — regulators did something else. They relaxed the rules that prevent banks from binging on Treasurys. It’s not quite a bailout, but it’s close. It’s a quiet version of yield curve control. The government is nudging banks to buy more of its debt, without saying that out loud. It’s not being done through the front door, like a formal Fed policy. It’s being done through the back door — in the plumbing of financial regulation. And that should make you pause because this kind of move doesn’t happen when things are fine. It happens when By CHRISTOPHER MYERS CEO, B:Side Capital and B:Side Fund What Easing Bank Capital Rules Really Means for the Treasury Market 14 NEBRASKA INDEPENDENT BANKER
confidence is fading, when the people behind the curtain start to worry that the system can’t hold. Not a Policy Shift — A Confession What happened on June 18, 2025, wasn’t a new policy. It was something more honest. It was a confession — a recognition that the market can’t stand on its own anymore. That real demand for Treasurys is drying up. And that someone — anyone — needs to step in and buy. But because it can’t be the Fed directly (at least not yet), it has to be the banks. And because the banks won’t do it voluntarily at this scale, the rules need to be bent. The message is clear: This market needs help. But we can’t call it help. So we’ll call it a technical adjustment. This is how belief is managed. Quietly. In the shadows. With just enough plausible deniability to keep the machine humming. Belief Is the Final Gear At a certain point, the last thing holding a system together isn’t logic or math. It’s a belief. Not productivity. Not tax revenue. Not trade flows. Belief. Belief that the dollar will hold value. That U.S. debt is safe. That the people in charge have things under control. When that belief holds, the system works — even if it’s fragile underneath. But when it starts to fray, the game changes. And when belief starts to go, governments don’t double down on discipline. They shift to narrative. They try to control the story. They bend rules, massage data, and do just enough to buy time for the next bond auction. That’s where we are now. A phase of narrative control where the truth is too dangerous to say plainly, so it has to be managed indirectly. And that should concern anyone trying to lead with clarity. Why Leaders Should Pay Attention If you run a business, lead a team, or steer an institution, this isn’t just an economic footnote. It’s a warning light because when the system starts depending more on belief than performance, it means the real constraints are being ignored. And invisible ones are taking their place. When that happens, leaders start making bad bets. Risk gets mispriced. Capital gets misallocated. You think you’re operating in a free market, but you’re not. You’re navigating a fog of unseen rules and shifting incentives. And that’s the danger. Not that we’re on the edge of collapse — though that can’t be ruled out — but that we’re being asked to play a different game without being told the rules have changed. The worst place to be is stuck in old assumptions. Assuming markets are efficient. Assuming prices reflect reality. Assuming your cost of capital means what you think it means. In moments like this, clarity becomes a competitive edge. Not panic. Not cynicism. Just clarity. What Comes Next Isn’t Neutral This move to ease capital requirements won’t be the last one. There will be more: • Repo operations will get larger and quieter. • Liquidity facilities will expand under the banner of “stability.” • The Fed’s balance sheet will start to grow again — maybe slowly, maybe suddenly. • Shadow support will merge into formal policy. • And the public story will remain the same: This is technical. This is temporary. This is responsible stewardship. But none of that is true. What’s happening isn’t neutral. It’s a distortion. It means we no longer have a truly free bond market. And that has consequences. For banks. For businesses. For investors. For you. You Can’t Build Strategy on a Lie Markets depend on signals. Capital goes where it’s treated well. Risk gets priced based on information. But when those signals are manipulated, even with good intentions, the system becomes harder to navigate. You can’t build a strategy on a lie. And right now, the lie is that everything is normal. That we’re just doing some “technical adjustments” to fine-tune the machine. But the machine is broken. It’s overloaded. It’s gasping for air. And instead of overhauling it, we’re repainting the dashboard. That may buy time, but it doesn’t change the direction. Final Thought A healthy market doesn’t need this kind of help. It doesn’t need coercion dressed up as convenience. It doesn’t need the rules bent to keep the illusion alive. And it certainly doesn’t need capital requirements gutted in a whisper so that auctions can keep clearing. So where does that leave us? In a place where belief is the last backstop. Where faith in the system is the glue holding it together. And where any leader worth their salt needs to be looking beyond the headlines and asking harder questions: • Is my business exposed to mispriced risk? • Are the signals I’m using still valid? • What happens if the floor gives way? These aren’t easy questions. But they’re necessary. Because the longer we pretend everything is fine, the more fragile everything becomes. And when the truth finally forces its way in, it won’t be polite about it. NEBRASKA INDEPENDENT BANKER 15
Artificial intelligence isn’t just for big banks anymore. One compelling use case for community financial institutions: reducing the cost, effort, and headache of AML compliance. An AI-powered AML solution can automatically review millions of transactions overnight, surface unusual activity, and even draft a suspicious activity report (SAR) while your analysts sleep. However, greater speed and scale come with a tradeoff: As system complexity increases, transparency can decrease. To manage that risk, AI-powered AML systems still need human oversight. Some aspects of your program should never be entrusted to AI. What Kind of AI Supports AML? Although generative AI has dominated headlines over the past couple of years, AI is more than just chatbots. In AML compliance, key AI technologies include: • Machine Learning (ML): Learns and adapts from transaction history to detect anomalies and adjust risk scores. • Natural Language Processing (NLP): Extracts data from unstructured analyst notes or reports. • Graph Analysis: Maps relationships among accounts, people, devices, and transactions to spot hidden connections. Opportunities for AI in AML When these techniques are paired with quality data and strong governance, community banks can see powerful benefits: • False Positive Reduction: The system learns normal patterns and suppresses benign alerts, so analysts spend more time on genuine risks. • Faster Investigations: The system auto-collects KYC data, negative news, and transaction history, so SARs are completed and filed faster. • Pattern Recognition: The system spots indirect or layered transactions that rules miss, increasing the detection of complex laundering typologies. • Continual Learning: The model evolves alongside criminals’ tactics. Compliance keeps pace without constantly rewriting rules. BALANCING AI-DRIVEN AML WITH HUMAN CONTROL By JESSICA TIRADO, CSI Risks and Downsides of AI Opacity Rules-based systems are easy to explain: “If X, then Y.” AI models rely on thousands of parameters, making it hard to trace decisions. Without strong explainability tools, this can become a governance risk. Hybrid models, which include AI layered on rules, help balance scalability with transparency. Bias and Blind Spots AI reflects the biases in its training data: • Under-represented groups may be missed or unfairly targeted. • Media sources or sanctions lists can encode geopolitical bias. • Analyst behavior, like clearing alerts faster for familiar customer types, can reinforce skewed patterns. These issues are harder to spot in opaque models, making governance reviews essential. Missed Red Flags AI models only know what they’ve seen before. Emerging typologies like crypto off-ramps can evade detection. Human oversight is essential for recognizing novelty and interpreting real-world context. Amplified Errors Faulty inputs or logic scale quickly in AI systems. A single mis-weighted variable could freeze hundreds of accounts or overlook major fraud before anyone notices. Regulatory Responsibility The OCC and FinCEN have made it clear: You own your AI’s outcomes. Institutions must validate, document, and explain model behavior. “The algorithm did it” won’t satisfy an examiner. 16 NEBRASKA INDEPENDENT BANKER
AML Tasks to Keep in Human Hands Automation is a force multiplier for your compliance team, not a replacement plan. These critical functions should remain human-led: 1. Setting Risk Appetite: Only the board and senior leadership can define acceptable levels of residual AML risk. AI can enforce thresholds, but deciding what those thresholds should be belongs in boardroom minutes, not model settings. 2. Designing Customer Risk Scores: AI can crunch data but can’t make value judgments. For example, should cash volume or political exposure carry more weight? That’s a question of ethics, strategy, and regulatory expectations. 3. Clearing Alerts: Models can cluster alerts or assign “likely benign” scores, but a human must make the final call. Auto-closing alerts removes your ability to defend decisions in hindsight. 4. Finalizing SARs: AI can draft SARs by linking accounts and summarizing activity. But only a trained analyst can verify accuracy, add context, and craft a clear, defensible narrative. 5. Model Governance and Tuning: Vendors may build the models, but you’re on the hook. That means validating data inputs, sanity-checking the math, and signing off on all changes. 6. High-Impact Customer Actions: Freezing accounts or filing 314(b) requests affects real lives. AI can recommend, but humans must confirm and justify each step. 7. Explaining to Regulators and the Board: No algorithm can sit across from an examiner and defend itself. Your team must translate model logic into plain English, from feature weights to tuning rationales. Best Practices for Community FIs To use AI safely and effectively in AML, community institutions should: • Use Explainable Models: Choose vendors that provide reason codes or variable weights so analysts can explain every decision. • Customize for Your Risk Profile: Tune models to reflect your institution’s size, market, and product mix. • Keep Humans in the Loop: Let AI prioritize alerts, but reserve final decisions for trained analysts. • Validate Regularly: Conduct independent validation pre-launch, test after any material change, and audit frequently. • Invest in Analyst Training: Run workshops on model interpretation and encourage staff to challenge or override model outputs when their gut says, “Dig deeper.” Bringing It All Together AI is fast becoming a standard part of AML programs, even for smaller institutions. When deployed thoughtfully, it can cut through noise, surface risk patterns and save staff hours of clerical work. But it must remain a co-pilot, not the one flying the plane. Community banks that strike the right balance will: • Adopt explainable, customizable hybrid systems. • Embed human review at all high-risk decision points. • Validate and document continuously. • Cultivate staff who understand both compliance and AI. Follow these steps, and you can get the best of both worlds: the speed of automation and the assurance of human oversight. NEBRASKA INDEPENDENT BANKER 17
CREDIT STRESS CONTINGENCIES Why Wait Until It Comes? By DAVID RUFFIN Principal, IntelliCredit® a Division of QwickRate Credit cycle shifts tend to be abrupt; thus, banks should assess credit risk degradation now to avoid trouble later. Over the past five years, persistent uncertainty has dominated industry surveys on the outlook for credit quality and loan growth. This is hardly surprising given the aftermath of a global pandemic, the sharp rise in interest rates from historic lows to decade highs, and ongoing shifts in political and policy landscapes — all of which have contributed to a widespread sense that, at best, the credit environment remains challenging. While the trailing quarter-to-quarter public call report data remains generally benign, unmistakable signs of stress are emerging. Delinquencies and non-performing loans are on the rise, while reserve coverage ratios are declining, particularly among community financial institutions. At the same time, banks with assets under $10 billion continue to hold a disproportionate slice of commercial real estate (CRE) loans — a segment facing significant challenges related to property use and obsolescence. Since the high-profile, liquidity-induced bank failures of 2023, bank finance chieftains have been under constant investor and regulatory scrutiny regarding contingency funding plans. However, the credit function itself, beyond reliance on the allowance for credit losses (ACL), has not yet faced the same level of inquiry. It has now been nearly a generation since the Great Recession, with its massive loan losses and bank failures. While the industry has subsequently adopted more robust risk management practices, many current bankers have only known periods of benign credit performance. Credit cycle shifts tend to be abrupt and contagious, so why wait until credit stress becomes palpable? Now is the time for banks to take inventory of their credit stress contingency plans. Assuming a bank’s underwriting standards are delivering sound loans on the front-end, best practice credit stress contingencies should focus on several critical areas, including: • Updating Loan Policies: Regulators frequently use banks’ loan policies as tripwires for criticism, whether due to exception levels or relevance to current lending environments. For example, a bank touting a three-year, interest-only inducement for CRE loans would be out of step with today’s CRE risk environment. • Assessing Industry Risk: Technology shifts and changing public policy have elevated industry risk to a level of importance comparable to traditional borrower or entity underwriting. Modern credit assessments must give industry risk equal weight alongside traditional repayment capacity analyses. • Quantifying CRE Market Supply and Demand: A common thread in recent regulatory orders has been criticism of inadequate supply and demand assessments in markets where CRE products are financed. Because real estate characteristics are inherently local, it’s essential to understand marketplace absorption potential — specifically for the CRE subset being financed (e.g., hospitality, multifamily, or industrial) — regardless of borrower or project risk profile. • Planning for Workout Capacity: The long period since the last major credit downturn has resulted in a shortage of experienced credit workout specialists. Now is the time to identify where the bank can obtain this expertise — by developing talent internally or by partnering with external specialists. • Ensuring Board Awareness: In a regulatory environment where “if it didn’t appear in board minutes, it didn’t happen,” ensure that boards are kept abreast of both credit risk strategies and contingencies. Specifically, this should be linked to adjustments in risk appetite statements and even potential capital contingency plans. • Discerning Loan Growth Strategies: As many banks over the past few quarters have assuaged fears over robust loan growth, it’s important to ensure that, even in a heightened credit stress environment, the bank remains in the lending business. Fine-tuning the underwriting risk lens will help avoid the damaging perception that loans are not being made. Enhancing the Three Pillars of Post-Booking Credit Risk Management The time-proven axiom that early detection stems losses still holds true. • Loan-Level Stress Testing: Ensure that whatever the theoretical stress levels calculated, the process renders a practical list of loans/borrowers most at risk under greater stress. Conventions like monitoring covenant 18 NEBRASKA INDEPENDENT BANKER
compliance and ensuring timely annual and independent review strategies should be prioritized to give adequate attention to these heightened suspects. • Quality Loan Review: A bank’s credit team must always see loan review as a risk assessment partner. Under greater stress, the scope of the review must be expanded and performed by reviewers with real credit experience. • Portfolio Analysis: Banks should mine their non-public loan data vigorously to detect emerging trouble spots early. Waiting for public call report data to determine the bank’s credit risk profile will prove even more costly in a credit downturn. There is no clear direction on short- to interim-term credit quality trends, but the bank’s vigilance toward any future credit risk degradation is essential. David Ruffin’s extensive experience in the financial industry includes an emphasis on credit risk in a variety of roles that range from bank lender and senior credit officer to the co-founder of IntelliCredit and its technology that is revolutionizing a decadesold loan review process. David was also a co-founder of the successful Credit Risk Management LLC consultancy and a professor at several banking schools. A prolific publisher of credit-focused articles, he is a frequent speaker at national and state trade association forums, where he shares insights gained by helping lending institutions evaluate credit risk — in both its transactional form as well as the risk associated with portfolios based on a more emergent macro strategy. Over the course of decades, David has led teams providing thousands of loan reviews and performed hundreds of due diligence engagements focused on M&A and capital raising. 800.228.2581 MHM.INC Now more than ever people want self-service options. With our core integrated ITMs we can make this a reality both in the lobby and in the drive-up of your branch. SELF-SERVICE BANKING NEBRASKA INDEPENDENT BANKER 19
THE EVOLVING DEPOSIT LANDSCAPE What You Need to Know By PCBB The rise of digital banking and fintech platforms has transformed depositor behavior, making it increasingly important for community banks to adapt their strategies to manage the cost of funds and remain competitive. This challenge has been a top concern for community banks in recent years, as rising rate sensitivity, digital banking adoption, and evolving depositor expectations continue to reshape the industry. To stay ahead, community banks must understand these structural shifts and develop sustainable funding strategies. The Growing Cost of Funds and Deposit Competition Nearly 90% of community banks identified the cost of funds as a very or extremely important issue, according to the Conference of State Bank Supervisors’ (CSBS) 2024 community bank survey. This proportion has nearly doubled since the 2022 survey, reflecting both rising funding costs and heightened deposit competition. The cost of funds has more than tripled since 2020, increasing from 0.74% in December 2020 to 2.85% by March 2024. As rates increased, depositors became more rate-sensitive, leading to greater money movement between banks and non-bank financial institutions. 20 NEBRASKA INDEPENDENT BANKER
Shifting Depositor Behavior: A Structural Change Historically, deposit rates followed a slow, predictable cycle, with customer movements largely driven by bank-led pricing decisions. However, since 2022, digital tools and fintech’s have accelerated deposit flows, making customer behavior more dynamic and unpredictable. • A growing proportion of deposit outflow events involved instant transfer apps like Zelle or Venmo, enabling same-day transfers. • Deposit beta surged from 0.25 before the 2022 federal funds rate hikes to 0.5-0.6 in 2023, meaning rate hikes are passed to depositors much faster. This represents a fundamental shift in how depositors behave — community banks must adapt by offering competitive products and leveraging customer relationships for retention. Three Critical Questions Before Raising Deposit Rates While higher rates may seem like the easiest way to compete for deposits, community banks should consider three strategic questions before making pricing decisions: 1. Does your bank need additional deposits? There’s only one fundamental reason to spend money on attracting deposits: because your bank has profitable ways to deploy them. Assess your overall funding strategy, including: • How much funding is needed for loans and other profitable uses? • How much of your current deposit base is at risk of outflow? • What alternative funding sources exist, such as correspondent banking services, liquidity lines, or structured funding solutions that may provide flexibility while maintaining deposit pricing discipline? 2. Are you reacting to market data or individual complaints? Some institutions feel pressured to raise rates when a competitor does or when a single high-value customer demands higher returns. However, with today’s digital landscape, high-rate depositors are the most likely to move their money elsewhere at the next opportunity. Instead of chasing rates: • Use data to determine competitive but sustainable pricing. • Explore diversified funding options that align with long-term profitability and risk management strategies. 3. How can you optimize your deposit strategy? Attracting large-balance customers with premium rates is tempting, but these customers are more likely to move their funds quickly when rates shift. A more sustainable strategy is to: • Reward customers who use multiple products, such as treasury management services, commercial loans, or wealth planning. • Incentivize relationship-based deposits over rate-driven accounts. • Consider requiring a depository account with every lending relationship. Breaking down silos between different departments can help identify your best customers and create a strategy that looks at the entire customer relationship. • Ensure deposit gatherers are being appropriately incentivized through product pricing and funds transfer pricing. Strategic Takeaways for Community Banks 1. Cost of funds has risen significantly, and depositors are more rate-sensitive than ever. Community banks need a clear funding strategy before aggressively pursuing new deposits. 2. Digital banking and fintech platforms have made deposit flows highly dynamic. Offering niche digital banking solutions and real-time payments may help retain customers. 3. Rather than chasing rate-sensitive funds, community banks should focus on relationship-based deposits. Encouraging client engagement and establishing primacy with them as their main financial institution can increase the client’s net value. By adapting to this new deposit environment, community banks can optimize their balance sheets while maintaining a competitive edge in an increasingly volatile financial landscape. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow Service, international services, lending solutions, and risk management advisory services. PCBB was recognized by American Banker as one of the “Best Banks to Work For” in 2024. Learn more at pcbb.com. NEBRASKA INDEPENDENT BANKER 21
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy MTg3NDExNQ==