THE ARIZONA Why It’s Not Too Late for Interest Rate Swaps Ludwig on CRA Revamp, Bank-Fintech Scrutiny, and Crypto’s Future BANKER OFFICIAL PUBLICATION OF THE ARIZONA BANKERS ASSOCIATION PUB. 13 ISSUE 1
ARIZONA & COLORADO BANKER SUMMIT Join 100+ of your bank colleagues from Arizona and Colorado along with associate member sponsors at the Jewel of the Sonoran Desert for 4 days of learning and connecting at the Ritz Carlton at Dove Mountain in Marana, AZ. Marana, Arizona azbankers.org/register email: events@azbankers.org MAY 31 - JUNE 3 2023 2023 2 THE ARIZONA BANKER
GET THE SHIELD CANNABIS BANKING PLAYBOOK: ShieldBanking.com/cannabis-banking-playbook To ensure the processes, procedures, technology, and trained staff are in place to serve this industry, bankers need to start with a plan. Having a clear understanding of what is required to serve cannabis businesses and minimize risk to the financial institution will help bankers prepare for the upfront costs associated with cannabis banking and develop the policies and procedures needed to hit the ground running. With regulations varying from state to state, it’s a complex industry with high costs, requiring a considerable investment of time and energy. Compliant banking operations require continuous enhanced due diligence to help guard against risks such as: A Robust Illegal Market. According to New Frontier Data, the legal cannabis market in the U.S. is expected to reach $41 billion by 2025. Unfortunately, the illicit market, valued at $65 billion by some estimates, is shrinking at a slower pace. Financial institutions must ensure that funds coming through their doors are from legal channels. Bad Actors. To ensure bad actors are not attaching themselves to good businesses, enhanced due diligence conducted around underlining beneficial owners will continue to be at a heightened level for the foreseeable future. Legacy Cash. Because the cannabis market existed as a cash business long before legalization and because the industry continues to operate largely as a cash business, a strong BSA/AML program will help ensure that funds coming into the financial institution are from legal cannabis operations. While the added burden and cost associated with serving this industry may limit the total number of participants in the short term, we expect competition from financial institutions to steadily increase as more states launch legal programs and we get closer to federal recognition. Financial institutions that invest in technology to improve efficiencies and lower costs today will be able to scale as the industry grows and have a competitive advantage when the economics of the industry change over time and new banks and credit unions enter the market. Informed by the experiences of pioneering bankers across a growing number of states with legal medical and adult-use programs, the Shield cannabis banking playbook defines a path forward for financial institutions to serve cannabis-related businesses compliantly while benefiting from the financial rewards of this market. The emerging legal cannabis industry brings significant growth potential, along with challenging operational demands and complex regulations. But cannabis banking does not have to mean high-risk banking. Build a Winning Cannabis Banking Program Cannabis banking, simplified. Shield Compliance transforms how financial institutions manage risk, comply with regulations, and address the operational demands of the legal cannabis industry. Compliance management for financial institution daily operations, including case management and automated reporting. Informed account application process for underwriting and onboarding cannabis business accounts. Compliant mobile payment and payroll solutions to reduce cash transaction dependency. See how Shield Compliance is helping financial institutions earn the benefits of a compliant cannabis banking program. info@shieldbanking.com (425) 276-8235 GET IT TODAY GET THE GUIDE TO COMPLIANT CANNABIS BANKING
IN THIS ISSUE @ 2023 Arizona Banker Association (AZBA) |The newsLINK Group, LLC. All rights reserved. The Arizona Banker is published four times each year by The newsLINK Group, LLC for AZBA and is the official publication for the association. The information contained in this publication is intended to provide general information for review and consideration. 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 specific circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the association, 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 Arizona Banker is a collective work, and as such, some articles are submitted by authors who are independent of AZBA. While AZBA and the newsLINK Group encourages a first-print policy, 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 newsLINK Group at 855-747-4003. 111 West Monroe, Suite 440 Phoenix, Arizona 85003 Phone: (602) 258-1200 2023 AZBA BOARD OF DIRECTORS AND STAFF 6 Rising Interest Rates May Shut Some Community Banks out of FHLB Funding By Jay Kenney, SVP and Southwest Regional Manager, PCBB 8 Ludwig on CRA Revamp, Bank-Fintech Scrutiny, and Crypto’s Future By Rob Blackwell, Chief Content Officer and Head of External Affairs, IntraFi 10 Want Your Content Viewed? Better Pay Attention to Google By Neal Reynolds, President, BankMarketingCenter.com 12 Why It’s Not Too Late for Interest Rate Swaps By Bob Newman, Chatham Financial 14 Slip, Trip and Fall Prevention By Travelers 16 To Compete, or Non-Compete? That is the Question. By Prince Girn, Bankers Alliance 18 Over-Sharing in the Workplace? Why Your Company May Need a TikTok and BeReal Policy By Fisher Phillips 21 UNDER THE COPPER DOME Banks Are Fighting Back: Efforts to Kill Bad Legislation Are Underway By Paul Hickman/Steven Killian, AZ Bankers Association and Jay Kaprosy, Veridus Paul Hickman CEO & President Steven Killian Director of Government Relations Michal Plavecky Executive Administrator Kerensa Williams Chief Operating Officer William Ridenour General Counsel AZBA STAFF Jack Barry Enterprise Bank & Trust Bill Callahan Arizona Bank & Trust Neal Crapo Wells Fargo Bank Frank Coumides KS State Bank Wayne Gale 1st Bank Yuma Peter Hill Goldwater Bank Joel Johnson FirstBank Kyle Kennedy Bell Bank Dave Matthews First Western Trust Christine Nowaczyk BOK Financial Brad Parker PNC Bank Steve Richins Comerica Bank Tyson Rigby JPMorgan Chase Craig Robb City National Bank Dina Ryan Citigroup Patrick Strieck BMO Chris Webster Commerce Bank of Arizona Mark Young National Bank of Arizona DIRECTORS Brian Schwallie Immediate Past Chairman U.S. Bank Scott Vanderpool Chairman Bank of America Don Garner Chairman-Elect Alliance Bank of Arizona Bo Hughes Treasurer Canyon Community Bank Brian Riley Vice Chairman Foothills Bank Brian Ruisinger Secretary Republic Bank of Arizona EXECUTIVE COMMITTEE
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Rising Interest Rates May Shut Some Community Banks out of FHLB Funding By Jay Kenney, SVP and Southwest Regional Manager, PCBB easuring capital value can sometimes be challenged by the type of scale that is used. Take the tangible capital rule that determines if a bank qualifies for Federal Home Loan Bank (FHLB) advances. Created in 1932, the FHLB system promotes its role as a source of liquidity to banks, particularly during times of economic stress. In order for a bank to qualify for those FHLB funds and liquidity resources that might otherwise be unavailable to community banks, that institution must meet FHLB’s criteria for tangible capital levels. This includes stock assets that may not yield the minimum required amounts under current market rates. That rule is under stress right now as a result of the recent economic conditions, rising interest rates, and low yields that are partly responsible for causing those negative tangible assets. The situation has started to push some community banks below tangible capital requirements, which would then exclude them from FHLB advances. That could have serious consequences for those institutions. Financial Institutions Ask for Rule Modifications While the problem is thought to have an immediate impact on only about 100 community banks, it is serious enough to draw the attention of the entire financial community. In a letter to federal regulators, 77 financial organizations asked for the rule to be modified, substituting Tier 1 Capital (also referred to as regulatory capital) for tangible assets. That should be enough to ease the situation. Among those who signed are the American Bankers Association and the Independent Community Bankers of America. The primary culprit behind the problem is the rapid rise in interest rates, which has hit some community banks hard, undercutting their asset values enough to turn their tangible capital levels negative. When that happens, community banks are cut off from lowcost FHLB advances, which can lead to an immediate liquidity crisis unless they get a waiver from regulators. The continuing rise in interest rates could push more banks over the line. Some in the financial world are warning that the issue could lead to a fast-spreading liquidity crisis. Blame It on the Pandemic and the Rise in Deposits As bankers explained in their letter, banks took in a flood of deposits during the pandemic, and much of that was invested in short-term securities such as treasuries. As interest rates rose, however, the value of those treasuries and other securities dropped. Bigger 6
banks were more diversified, but many community banks have been caught in the squeeze, leading some to have to place a negative value on their tangible assets. The banks may be perfectly sound, but the tangible asset calculation makes them look like they are in trouble. Viewed one way, the tangible capital rule is doing what it is supposed to do: ensure that banks with dodgy financials don’t get access to FHLB financing. But as the current situation makes clear, tangible assets may not be the best way to evaluate banks in the current economic climate. About a decade ago, regulators such as the Fed and the FDIC adopted new rules that used Tier 1 Capital as the primary measure of soundness, but the FHLB continued to use tangible capital. Both methods offer a snapshot of a bank’s condition. But Tier 1 capital casts a wider net and, according to the financial organizations, provides a better reflection of actual conditions. In addition, using Tier 1 would likely alleviate the liquidity crisis for affected banks. How the Federal Housing Finance Agency (FHFA), the FHLB's regulatory agency, will respond remains to be seen. The FHFA could temporarily waive the rule, change it, or leave things the way they are. Meanwhile, a growing cross-section of community banks wait anxiously to see if they will continue to have access to FHLB financing. w Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management, international services, lending solutions, and risk management advisory services. To continue this discussion, or for more information, please contact Jay Kenney at jkenney@pcbb.com. 7 AZBANKERS.ORG
Ludwig on CRA Revamp, Bank-Fintech Scrutiny, and Crypto’s Future By Rob Blackwell, Chief Content Officer and Head of External Affairs, IntraFi Bankers aren’t exactly thrilled with the current proposal to reform the Community Reinvestment Act. They’ve publicly criticized much of it, from the examinations that would likely become more stringent; to online lending changes that could harm low- and moderate-income communities; to the timeline for finalizing and implementing the rule. Trade groups have even warned about filing a lawsuit if the proposal is passed in its current form. To better understand the proposal and how it could be modified to better suit the industry, I sat down with Eugene Ludwig for an episode of Banking with Interest. Gene led the last successful effort to reform the CRA as comptroller of the currency under President Clinton. He explains why the current proposal should be reproposed — and dramatically simplified. He also talks crypto, how to prepare for a possible recession, and more. What follows are highlights of our conversation, edited for length and clarity. What’s your view of the current CRA reform proposal? It’s well-intentioned, but long, complex, and hard to understand. It should be simplified materially and kept broad. This is a complex country, and different geographic areas need different forms of assistance. A one-size-fits-all approach won’t work. Another issue is that CRA is oriented toward good economic times. But institutions face difficult circumstances all the time that aren’t their fault. Additionally, low- and moderate-income communities typically have more problems in bad times than other communities, and they emerge from those bad times more slowly. Bankers should get credit for assisting during these periods (and for anticipating them). Under the current law, they don’t. Some industry players are so angry about the proposal, they’ve threatened to file a lawsuit. It’s tragic. Regulators take pride in what they do — these are good people — but when you bring the OCC, Fed, and FDIC together, each agency has its own proposal. Then they start to negotiate, and before long, each agency needs to accept the other agencies’ proposals if it wants the others to accept theirs. So they end up mashing three proposals together. When I was comptroller, I simply called Larry Lindsey at the Federal Reserve and invited him to my office to write the rule. When we were done, we had a rule that was relatively brief and easy to comprehend. The current proposal seems like an attempt to give everybody what they want, but it’s too long and complex. 8 THE ARIZONA BANKER
Do you think they need to repropose it? I do. What are some nonobvious things banks should be doing to prepare for a recession? First, determine which borrowers to work with. Community bankers have a lot of authority. People listen to them. If they tell a borrower to dial things back and ensure they have enough cash to pay their loans on time, the borrower will listen in most cases. Bankers know better than anyone how to manage through these periods. Second, avoid any undue conflict with regulators. When regulators ask questions, banks should think hard about their answers. They should be honest, of course, but thoughtful. Regulators too often aren’t clear in written communications, and that lack of clarity can lead bankers to interpret things in an overly rosy manner. But when regulators write things, they don’t intend to be rosy. Any time there’s ambiguity, banks should clarify what the regulator wants. Third, clean up any outstanding MRAs and MRIAs. Letting them drag on won’t make them go away, and as the pile gets bigger, it becomes harder to deal with — especially during down cycles, when bankers have more to do. It could also make the regulators come out with public orders and ceaseand-desist and all the things that make life more difficult. Crypto markets are in turmoil. Democrats say the instability supports why U.S. regulators have been skeptical of the relationship between banking and crypto. Republicans say that if regulators were less skeptical and offered guidance on relationships between banks and crypto firms, the crypto markets would have more oversight and be safer. What’s your take? Crypto isn’t going away. The two big questions are: 1) how big is it going to be? and 2) what are the functionalities that will genuinely be beneficial to end-use consumers and financial institutions? Crypto may be faster for certain types of transfers, but maybe traditional money-transfer mechanisms used by the Fed and others can adapt to compete. Regulators should begin crafting rules for crypto firms, but keeping banks out of crypto altogether is a bad idea. Banks should be able to experiment with it. Otherwise, nonbank players will end up dominating the market. We ought to watch the space closely and be flexible, and we need sensible standards that apply to banks and nonbanks alike. w Scan the QR code to listen to the full conversation. www.intrafi.com/press-insights/podcasts/. Are you ready for growth? Advertise in this magazine and watch your revenue soar. A place where your company gets wings! Space is limited. Contact us today to get your spot. 801.676.9722 | 855.747.4003 sales@thenewslinkgroup.com Another issue is that CRA is oriented toward good economic times. But institutions face difficult circumstances all the time that aren’t their fault. 9 AZBANKERS.ORG
Better Pay Attention to Google By Neal Reynolds, President, BankMarketingCenter.com SEO, as you know, now plays a more critical role than ever in the marketing content that you create to engage your customer. And Google, as you also know, plays a critical role in determining how and when that customer engages with it. It’s important, then, to keep an eye on Google and keep abreast of the changes they may be making to how they rank content in user searches. If you’re a content marketer — and you better be — those changes involve algorithms, which have a profound impact on the type of content you distribute and how it is viewed. Today, we’re going to talk briefly about the content trends driven by the late-last-year algorithm changes at Google: the “Helpful Content Update” and the “Spam Update.” For years, and Google would be the first to admit it, their content ranking algorithm was less than perfect and, as a result, fairly forgiving. As a result, when it came to optimizing content such as websites and web-based articles, blogs, white papers, infographics, ebooks, etc., marketing content developers could get away with things. They’ve been able, for instance, to get away with optimization tactics such as keyword stuffing and link farming (a set of web pages created with the sole aim of linking to a target page in an attempt to improve that page's search engine ranking). In short, writing to the search engines instead of the human being. As of this year, however, the ability to get Want Your Content Viewed? 10 THE ARIZONA BANKER
away with “faking” SEO is no longer an option. This is good news for bank marketers who adapt and bad news for those who don’t. Not surprisingly, Google continues to get smarter over time; artificial intelligence can do that. It’s time for banks to become smarter about creating search engine optimized content that can truly leverage what Google is prioritizing when it comes to the SERP (Search Engine Results Page) and the recent algorithm updates. Why bother with algorithm updates, you ask? Well, Google is a business, too, and the path to growing their business is to serve their users the best possible content as quickly as possible. The Helpful Content Update (HCU) and the Spam Update will both enable Google to enhance the search engine’s ability to offer users the best content quickly and, in the end, increase their revenue. Here is what Google’s HCU is intended to do: validate and rank content with a greater emphasis on author authority … and trust. And they’re doing this not only by validating the trustworthiness of sources/authors. So, moving forward as a content marketer developing content for the web, Google suggests that, in order for that content (site page, ebook, whatever) to be recognized as valued content, you should position your author as a subject matter expert, ideally linking the blog to their LinkedIn page where the reader can learn more about the author’s experience and industry credentials. Google is also concerned about the growing popularity of AI-generated content, via providers such as ChatGPT and Longshot. Industry experts theorize that it won’t be long (potentially) before the internet is flooded with AI content, i.e. websites and blogs crafted by writing “bots.” Google’s updates are the company’s way of protecting what it views as legitimate content, making sure that the content it ranks high in SERPs is developed by individuals who are truly qualified to do so — subject matter experts in their field and not “AI writing assistants.” This is where the Spam Update comes into play. The update is designed to determine whether the content was, in fact, created by a trusted, expert source. If not, the algorithm will identify the content as spam. So, tempting as it may be to use an AI platform such as ChatGPT or Longshot to generate your blogs instead of a trained writer with industry expertise and credibility, you may want to resist that temptation … or face the wrath of Google’s algorithm updates. In addition to the steps that Google is taking to validate content, the company is also taking a less favorable view of “all-text content.” In Google’s opinion, there’s much more to content than text … and it’s true. The manner in which people consume information has been changing for quite some time, and Google has been watching very closely. Specifically, they’re watching YouTube Shorts, Instagram Reels, and TikTok. And, the fact is all-text content engagement is on the slide while short-format video engagement is on the rise and the numbers prove it. Fun fact: there are roughly 250 million hours of video viewed on YouTube every day and last year; young people globally spent 56 minutes a day on YouTube. According to Forbes, “YouTube Shorts now claims 1.5 billion monthly viewers — more than TikTok has at 1 billion viewers a month — and gets 30 billion views a day.” Instagram Reels has proven to be a powerhouse player as well. “In an October earnings call, Meta reported that Reels gets 140 billion plays a day across Instagram and Facebook.”1 As you look to create engaging content that Google will crawl and rank highly on its SERPs, consider short videos, either standalone or embedded in your text content. So, as you move forward with content creation — keeping in mind that Search Engine Optimization plays a critical role in the effectiveness of that content — it will pay to also keep in mind that Google has an ever-watchful eye on the web. Remember: how, when, and even IF your content will be viewed online is in Google’s hands, not yours. w Here at BankMarketingCenter.com, our goal is to help you with that topical, compelling communication with customers; the messaging — developed by banking industry marketing professionals, well trained in the thinking behind effective marketing communication — will help you build trust, relationships, and revenue. In short, build your brand. To view our marketing creative, both print and digital — ranging from product and brand ads to social media and in-branch signage — visit bankmarketingcenter.com. You can also contact me directly by phone at 678-528-6688 or via email at nreynolds@bankmarketingcenter.com. As always, I welcome your thoughts on the subject. 1 Forbes. “In the age of TikTok, YouTube Shorts is a Platform in Limbo.” December 22, 2022. https://www.forbes.com/sites/ richardnieva/2022/12/20/youtube-shorts-monetizationmultiformat/?sh=6ffc04116f41 11 AZBANKERS.ORG
Why It’s Not Too Late for Interest Rate Swaps By Bob Newman, Chatham Financial “Has the train left the station? Are we trying to bolt the door after the horse has left the stable?” These are the types of questions community bank Directors are asking in the aftermath of the largest single-year interest rate increase since 1980. Playing catch-up in its fight to control inflation, the Federal Reserve’s rate hikes in 2022 were both unexpected and larger than in any previous decades. One year later, some industry observers have begun to argue that an overly aggressive Fed may soon need to reverse course to prevent a recession. If the worst is truly behind us, this line of argument goes, “Why should a bank executive invest time in 2023 to install interest rate hedging capabilities?” Because, we argue, there will always be uncertainty regarding the direction and speed of change in interest rates. Swaps give institutions enormous power because they have the ability to exchange that uncertainty (floating rate) for certainty (fixed rate). Here are three strategies we think banks with direct access to interest rate derivatives will deploy in 2023. These ideas are timeless but are particularly relevant based on where we are today in the economic cycle: 1. Individual Loans A borrower hedging program enables a bank to retain a floatingrate asset while the borrower secures fixed-rate financing via a swap. With on-balance sheet loan rates jumping from the mid-3% range to as high as 6% to 7%, booking the fixed-rate loan seems like the best thing to do. But weak or negotiable prepayment language often means that a fixedrate loan really behaves like a oneway floater. For example, a loan booked at 6.5% today will never move higher — but if the market corrects lower, you can expect a call from the borrower looking for a downward rate adjustment. Some banks without access to hedging tools have placed their borrowers into loan-level interest rate swaps by involving an outside party in the loan agreement. These indirect swaps are designed as a convenience product for small banks to get their toe in the water and accommodate larger borrowers with a long-term fixed rate. By keeping the community bank swap-free, indirect programs also prevent the bank from considering the following two balance sheet strategies that protect and enhance net interest margin. 2. Securities Portfolio Perhaps the greatest pain point related to interest rates that banks experience in 2022 was marking the securities portfolio to market prices and booking the resulting unrealized losses in the accumulated other comprehensive income, or AOCI, account. Banks without swaps installed were forced to choose between two bad options during the excess liquidity surge of 2020: hold onto cash that earned virtually nothing or purchase low-yielding long-term Today, more than 40 years since their creation, one thing is certain: it’s not too late for any bank to start using interest rate derivatives. 12 THE ARIZONA BANKER
bonds to pick up maybe 100 basis points. Institutions with access to swaps had a third choice: keep the first two years of the higheryielding asset and then swap the final eight years to a floating rate. Swaps used to fine-tune the duration of a bond provide the double benefit of converting to a higher floating yield today (handy when the fed funds are around 4.33%) and creating a gain in the AOCI account to offset the losses booked on the bond. While a swap today cannot erase past unrealized losses, it is a game changer for the CFO and treasurer to have the ability to take control of portfolio duration. 3. Wholesale Funding Higher interest rates have also led depositors to move their funds, leading banks to grow their wholesale funding from sources. Banks without access to swaps will often ladder out term fixed-rate advances to longer maturity dates, using a product that includes both a yield curve premium and a liquidity premium. A bank with hedging capabilities can accomplish the same objective by keeping the actual funding position short and floating. From there, the funding manager can conserve the liquidity premium and achieve a more efficient all-in borrowing cost by using payfixed swaps to create the ladder. Additionally, the swap always provides a two-way make-whole, where a traditional fixed-advance includes a down-rate penalty but no benefit when rates rise. While some bankers still view interest rate derivatives as risky, the rapidly changing conditions experienced in 2022 suggest that the greater risk may be attempting to manage the balance sheet without access to these powerful tools. Today, more than 40 years since their creation, one thing is certain: it’s not too late for any bank to start using interest rate derivatives. w Learn more about Bob Newman at www.chathamfinancial.com/team/ bob-newman. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13 AZBANKERS.ORG
Slip, Trip and Fall Prevention By Travelers ccording to the National Safety Council, slips, trips and falls are the third leading cause of injury in the workplace. Some of these incidents occur at banks with employees or customers. While these mishaps might be commonplace, there is a proactive approach banks can take to help reduce the risk of their employees and customers being injured in a slip, trip and fall. A smart place to start: analyze both the physical conditions of the premises and usage and traffic flow patterns, which can often identify potential hazards that should be addressed. Some of the accident causes are well known: wet spots on floors, uneven walking surfaces, and dirty doormats. Other factors, such as poor lighting, might not be as noticeable but can be equally dangerous. “Banks should be aware of the potential for people falling and getting injured, and should take steps to ensure the premises are as safe as possible,” said Laura Lundin, Vice President of Financial Institutions P&C at Travelers. “There are many ways to do this — maintain clean floor surfaces, ensure the space is well lit, schedule regular maintenance during low traffic times and conduct periodic walkthroughs to confirm everything looks safe. A little attention can go a long way.” Working with an insurance carrier is also recommended. Insurance providers can work with banks to: • Help identify and assess exposures; • Develop loss control strategies and improvements to minimize the frequency and severity of slip, trip and fall incidents; and • Provide training to help with slip, trip and fall prevention efforts. If an accident does take place, be sure that it is documented and reported. This information can help prevent future incidents and may be essential if a claim is filed against the bank. A standard, printed incident report is helpful in ensuring that all details are recorded. Documenting the details of the incident, collecting the names and a brief statement from the injured party and any witnesses, even taking photographs of the incident site, can help. Slips, trips and falls rarely “just happen.” Implementing effective slip, trip and fall improvements requires the right tools, people and communications. The right insurance carrier can help your slip, trip and fall prevention team define and document the policies, procedures, roles and responsibilities needed to effectively reduce these incidents. They also can help your team develop the tools and communication materials needed to implement this process. w Travelers is committed to managing and mitigating risks and exposures and does so backed by financial stability and a dedicated team — from underwriters to claim professionals — whose mission is to insure and protect a company’s assets. For more information, visit www.travelers.com. While these mishaps might be commonplace, there is a proactive approach banks can take to help reduce the risk of their employees and customers being injured in a slip, trip and fall. 14 THE ARIZONA BANKER
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To Compete, or Non-Compete? That is the Question. By Prince Girn, Bankers Alliance n Jan. 5, 2023, the Federal Trade Commission (FTC) released a Notice of Proposed Rulemaking (“the proposed rule”) to essentially implement an all-out federal ban on non-compete clauses in employment contracts. Noncompete clauses generally restrict a person’s ability to work for a competing employer, whether by name or in general. Many times, these clauses will carve out a radius in which a person is prohibited from working with competing employers and will have limits on the duration of the ban. However, this potential ban goes further than just your average noncompete clauses that you may be used to seeing or hearing of. There are other clauses in employment contracts that the proposed rule seeks to ban, clauses that are sometimes so broad in scope that they can be considered “de facto” non-compete clauses: • Non-disclosure agreements (NDAs) — also known as “confidentiality agreements” — which prohibit the worker from disclosing or using certain information; • Client or customer nonsolicitation agreements, which prohibit the worker from soliciting former clients or customers of the employer (referred to in this NPRM as “non-solicitation agreements”); • No-business agreements, which prohibit the worker from doing business with former clients or customers of the employer, whether or not solicited by the worker; • No-recruit agreements, which prohibit the worker from recruiting or hiring the employer’s workers; • Liquidated damages provisions, which require the worker to pay the employer a sum of money if the worker engages in certain conduct; and • Training-repayment agreements (TRAs), a type of liquidated damages provision in which the worker agrees to pay the employer for the employer’s training expenses if the worker leaves their job before a certain date. The latest move by the FTC may be traced or influenced by the recent attitudes towards these types of clauses and their overall chilling effects on the labor market and economy. The attitudes that the FTC may be particularly focused on may come from the current Biden Administration and recent enforcement actions by the U.S. Department of Justice Antitrust Division (Antitrust Division). On July 9, 2021, President Biden signed the Executive Order on promoting competition in the American economy as part of a “whole-of-government effort to promote competition,” in which the order explicitly encourages the FTC to “exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Recently, the Antitrust Division has criminally prosecuted employers for executing wage-fixing and nopoach agreements against companies and individuals. Those attitudes may have paved the way for not only the FTC to bring forward this proposed rule but also bring its own enforcement against companies and their executives for imposing non-compete clauses just one day before the proposed rule. Further, to support the move, the FTC cites data that bolsters the central arguments of these types of clauses. The data the FTC presents supports the notion that non-compete clauses significantly reduce earnings for workers and cause exploitation, stifle entrepreneurship and new ideas, 16 THE ARIZONA BANKER
and reduce overall economic and marketplace freedom. Additionally, the FTC cites that there are other methods to protect competition without imposing undue risks to workers and burdens on the economy. Putting the ban in a nutshell, it would bar employers from imposing non-compete clauses in employment contracts. It would also require employers with non-compete clauses in effect before this rule to rescind all non-compete clauses that were to exist at the time the law was to go into effect. With respect to the abovementioned rescission of prior-existing clauses, the rule would require the existing clauses to be rescinded within 180 days of the publication of the final rule and that employers provide notice to all currently employed and former employees, informing them that the non-compete clause is no longer effective and that they are no longer subject to it. There could be some potential limitations to the proposed ban, however. In the proposed rule itself, it suggests alternatives to the proposed rule for which the FTC seeks public comment on. For example, the proposed rule would not cover non-compete between franchisors and franchisees. The FTC seeks comment on whether such clauses should be covered between franchisors and franchisees and, if covered, whether there should be a categorical ban on such clauses or a rebuttable presumption of unlawfulness, or whether different types of clauses should be subject to different standards or exemptions. The FTC seeks similar comments on similar considerations regarding senior executives and treating low/high-wage workers differently. Although the proposed rule has no immediate effect, employers may consider taking proactive measures to demonstrate good faith compliance should the rule go into effect or lean towards the attitudes/trends of the FTC and other agencies regarding these clauses, even if the rule were to not go into effect. These proactive measures may include prohibiting the use of non-compete clauses in contracts, using non-compete clauses in the meantime but making sure they are specific in scope and not overburdensome, and auditing current contracts. If the bank chooses to audit current contracts, it should be doing a careful review looking for non-compete clauses and de facto non-compete clauses as described previously, and get a head start on determining what action to take with the identified clauses should the rule go into effect. w Prince Girn serves C/A as an Associate General Counsel. Prince’s focus is as a member of the expert Hotline team at Compliance Alliance, where his knowledge in areas of lending, real estate, and credit procedures makes him an asset for our member banks. He is also a writer for the Bankers Alliance monthly magazine and other state banker publications. Our Mission Is to Help You Succeed Partner with us for: • Loan participation purchases and sales* • Bank stock financing • Bank executive and employee financing www.bell.bank | Member FDIC Tracy Peterson Call me at 480.259.8280 Based in Phoenix Ariz. Serving Arizona, Colorado and Kansas 38544 *We do not reparticipate loans. The data the FTC presents supports the notion that noncompete clauses significantly reduce earnings for workers and cause exploitation, stifle entrepreneurship and new ideas, and reduce overall economic and marketplace freedom. 17 AZBANKERS.ORG
Over-Sharing in the Workplace? Why Your Company May Need a TikTok and BeReal Policy By Fisher Phillips y now, many of us have seen a TikTok video filmed at someone’s workplace — a “day in the life” video, someone complaining about their coworkers, supervisors, or customers, or someone talking about an unrelated subject while at the office. And a relatively new platform, BeReal, goes a step further by encouraging users to provide an unfiltered view into their “real” everyday life at random moments throughout the day. Of course, such organic social media clips can be a valuable tool that helps market your brand and build stronger employee relationships — but where do you draw the line? These posts might include employees performing their duties during a meeting with co-workers or at a workstation, which raises privacy and confidentiality concerns. Moreover, employees flocking to social media to discuss their bosses and general work experiences — positive or negative — could lead to other troubles. When these videos go viral, employees may become unofficial spokespersons for your organizations, influencing the conversation about work norms and creating trends that impact employers globally. With these changing dynamics, you may want to set new guidelines for social media use while ensuring your policies don’t run afoul of employment and labor laws. Here are four tips for updating your social media policies to reflect this modern era and stay on top of the latest developments: 1. Ensure Policies Reflect Recent Trends In the early days of widespread social media use, your policies may have simply prohibited employees from using company equipment to post non-work-related content online and required work posts to be business appropriate. But social media use is rapidly evolving in new ways that you may not have anticipated when your policies were first drafted. What should you know about current trends as you consider policy changes? For one thing, TikTok has quickly grown in popularity over the past two years with more than a billion monthly active users — which means your employees are likely using the platform and are probably doing so during work hours. The app allows users to upload videos from five seconds to 10 minutes. TikTok then filters videos through their feed using an algorithm and shares them with other users. These videos may receive millions of views, comments, likes, and shares. While TikTok is popular, it’s obviously not the only platform featuring employees on the job. Unlike TikTok — where users are hoping to go viral — the BeReal app takes a less sensational approach. BeReal doesn’t have filters, hashtags, or even followers. To view someone’s BeReal, you have to request to be their friend. The app encourages users to provide an unfiltered view into their “real” everyday life. Each day at a 18 THE ARIZONA BANKER
different time, the app simultaneously notifies all users to “BeReal” and share a photo within two minutes, regardless of their location. The camera on the app will then take a photo of the user with the front-facing camera while also taking a photo on the back camera, creating a BeReal snapshot to share with friends. This app can be potentially problematic for employers. Many times, BeReal alerts occur during work hours, so users end up taking pictures of their workplace or work area. Because BeReal is shared among friends, the app may create a sense of safety, and users might forget to censor confidential information. Moreover, while BeReal doesn’t have the same “viral” nature as TikTok, that doesn’t stop users from sharing their posts beyond the app on other platforms. This trend illustrates that the new generation of workers values the transparency these apps provide, with many not considering that their candid photos may also reveal company information. 2. Strike a Balance Before you decide to curb all TikTok and BeReal posts from the workplace, you should recognize that such posts can pay dividends. Employees who are active on social media may be more equipped to understand the social pulse of the company’s customer base. Additionally, allowing employees to contribute to company-sponsored social media posts shows that the company trusts them, which can increase confidence and make employees feel valued. Furthermore, social media networking may help employees collaborate, share ideas, and solve problems. This can lead to better employee engagement and retention. Moreover, utilizing social media in the workplace can make the company more desirable to potential applicants, particularly Gen Z and millennial job seekers. Social media is here to stay, and employers should recognize that policies barring all forms of social media use in the workplace may be unrealistic. In fact, about 72% of respondents to a 2021 Pew Research Center survey said they use some form of social media and 77% of respondents to an earlier survey reported using social media regardless of whether their employer had a policy in place. While not every company can allow on-the-job posts, those with flexibility might want to dedicate resources to creating a mutually beneficial, collaborative policy around social media use in the workplace. For example, allowing employees to share their experiences with your company through social media may promote transparency and provide job seekers with credible information on what it’s really like to work for your business. 3. Address the Potential Pitfalls While employers may benefit from employees’ on-the-job social media posts, you should address potential dangers, including legal and business concerns. Of the many legal concerns, the most glaring are privacy protections and confidentiality. As employees capture authentic moments during the workday for BeReal or post TikTok “day in the life” videos, they frequently walk around the workplace, recording offices, conference rooms, common spaces, the cafeteria, and more. The videos may inadvertently capture confidential information, such as audio of an internal meeting, the image of a client’s name, or a trade secret. Confidentiality issues also arise with employees who work remotely. For example, employees may take a video of their innovative at-home workspace while a Zoom meeting is in progress or while their computer screen displays proprietary information. You should also be cognizant of how allowing employees to post on the job can potentially harm your organization’s reputation. TikTok and BeReal attract users who want to be authentic rather than staged, heavily filtered, or otherwise unauthentic. Thus, employees who choose to post on these platforms do not shy away from capturing the “realness” of their job. This, in turn, can lead to your 19 AZBANKERS.ORG
employees sharing information that negatively affects the company, such as human resources concerns (including allegations of unprofessional comments made by colleagues), complaints about working conditions, and products liability issues. All of these discussions raise reputational and legal concerns that you should consider. 4. Set Realistic Parameters With these benefits, risks, and (pop) cultural considerations in mind, what should your modern social media policy include? If you already have a solid employee handbook, a good place to start is by reminding employees that your existing policies still apply when using social media platforms. For example, an equal employment and harassmentprevention policy would cover discriminatory or bullying behavior towards colleagues whether online or in person. You should remind employees whom they should contact when they have a workplace concern. Additionally, let employees know that confidentiality policies apply when sharing content, so their computer screens and documents should not be visible in the background. However, depending on the nature of your business and your employees’ roles, you may want to create a more targeted policy on social media use. For instance, you may have different risks to manage if you encourage employees to engage with your brand, employ a younger workforce, or otherwise have a strong social media presence. As you likely know, your policy should be in writing and followed consistently. Where to go from there is more complicated. The explosion in social media use has only highlighted how regulating employee speech is difficult, nuanced, and occasionally backfires. But, of course, there are still some best practices: • Develop policies in collaboration with legal counsel, HR, technology, communications, and diversity, equity, and inclusion (DEI) teams. Be sure the policy matches the company’s voice and recognize that this is not a onetemplate-fits-all exercise. • Use plain language and examples. “Do not share client information, even if their name is covered” is more helpful than “Posting client information will subject employees to discipline up to and including termination.”* • Keep up with guidance from the National Labor Relations Board (NLRB) — which is subject to change. Note that blanket bans on discussing wages or complaining about supervisors or working conditions are not permissible under federal labor law. The Trump administration issued an employer-friendly rule to evaluate whether a policy interferes with employees’ rights to organize and engage in protected concerted activity. However, that ruling is potentially on the chopping block in a pending NLRB case. If the NLRB reverts to the prior, more restrictive evaluation, policies currently compliant could suddenly run afoul of the National Labor Relations Act (even in non-unionized work settings). This includes seemingly benign provisions about “respectful” content and limits on who is authorized to speak to the media. • Confirm applicable state laws. There is a legislative trend to prohibit employers from requiring employees to engage with social media as a condition of employment or even to ask for their social media usernames as part of a job application. • Develop a plan for consistently responding to policy violations. Two employees violating the same rule, in the same way, should not be treated differently based on whether they tripped the algorithm and went viral. Relatedly, consider the reputational risk of a too-harsh response — someone fired for social media content may likely use the same platforms to discuss their termination. Conclusion If you have questions regarding your social media policy, contact your Fisher Phillips attorney, the authors of this Insight, or any attorney on our Data Security and Workplace Privacy Team. We will continue to monitor developments in this area, so ensure you are subscribed to Fisher Phillips’ Insight System to get the most up-to-date information. w The authors wish to thank Law Clerks Taric Mansour and Jazmin Luna for their work co-authoring this Insight. * This section has been edited to reflect the automotive industry. To see the original post, please visit: https://www.fisherphillips.com/ news-insights/over-sharing-iworkplacecompany-may-need-tiktok-bereal- policy.html 20 THE ARIZONA BANKER
BANKS ARE FIGHTING BACK EFFORTS TO KILL BAD LEGISLATION ARE UNDERWAY - - - UNDER THE COPPER DOME - - - By Paul Hickman/Steven Killian, AZ Bankers Association and Jay Kaprosy, Veridus rizona’s 2023 56th Legislature, First Regular Session kicked off on Jan. 9, 2023, with nearly half of the Legislators holding their offices for the first time. With a Democrat Executive and Republican Majority Legislature, it became clear in the early hours of Session that this was going to be a very challenging session. It started with several Majority Members walking out and two simply standing up and turning their backs to Governor Hobbs during her State of the State address. In the wake of the Governor releasing her budget proposal, the Republican Majority, in protest, drafted and passed a “continuation” budget that would carry forward FY23 ongoing appropriations but did not include any of the Governor’s budget priorities. The budget package was promptly vetoed by the Governor. Only recently have budget meetings between the Minority and Majority begun. Legislative activity got off to a slow start and was further delayed by the premature budget process. Both Houses were slow to get bills moved to the opposite Chamber. Bills are now being heard in the opposite chamber, but committee deadlines were extended. The AZ Bankers Association remains hopeful that the Legislature and the Executive can work out their differences and bring forward legislation and a budget that helps strengthen Arizona’s economic landscape. If they are unable to do so before the July 1 start of the fiscal year, the result will be a state government shutdown. Nobody wants to be still at work at the Arizona Capitol this summer. As we had anticipated, opponents of the ESG policies held by both public and private businesses have introduced a number of legislative mandates telling banks who they can and cannot do business with. This is unacceptable to the banking industry. Advocacy and education on this topic continued in full force in daily meetings with legislators, educating them on the harm to the industry, the taxpayers, and the state as a whole. During Bankers Day at the Capitol in early March, top representatives within the Association ascended on the Capitol and met with more than a dozen legislators, educating them on the negative impacts that similar anti-ESG legislation are having on states like Texas and Florida. They delivered a clear message that it is not the place of government to tell corporations and their investors that they cannot invest in sustainable technologies and practices or improve their governance processes. Furthermore, we do not believe state governments should be intervening in the free market. While the Arizona Bankers Association’s message was firmly delivered, those that would have stepped up to defeat these bills in the past are not willing to take the political hit. Instead, they are banking on the Governor to veto these bills. Roughly 88% of public companies and 67% of private companies have ESG initiatives in place, according to a December 2020 survey from NAVEX Global, a compliance software company. While we may not agree with our opponents on certain public perceptions or priorities, we cannot ignore their economic effects on purchasing decisions, the direction of new R&D, and the resulting effect on potential investments. It is now more important than ever that the Arizona Bankers Association members and our business community partners ramp up efforts of education and advocacy, emphasizing the negative economic impacts these policies will have. The Arizona Bankers Association will continue to build on our long history of serving as the chief advocate for Arizona’s banking industry and will continue to fight. w 21 AZBANKERS.ORG
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