After the failures of Silicon Valley Bank and Signature Bank in early March, a representative of the Federal Deposit Insurance Corp. sought out Susan Horton and asked her to share thoughts and advice for industry reform.

“When they called, I was quite surprised and very honored and excited to participate,” says Horton, the president and CEO of Spokane-based Wheatland Bank.

Horton became one of 19 members of FDIC’s advisory committee on community banking on June 1, when the panel met for the first time in Washington, D.C.

The FDIC insures deposits, analyzes the safety and soundness of U.S. banks, and supervises consumer protections. The federal agency is seeking input from a cross section of community bank executives to inform policies and regulations for community banks in the U.S.

Horton says she is prepared to represent Inland Northwest community banking at the national level. Her 25-year career at Wheatland Bank has afforded her the experience of working with, and respect for, financial regulators, she says.

“There’s probably not a more interesting time to be on this committee,” says Horton. “I could go and have a voice and represent what’s important to us community bankers as they’re deciding on all these important new rules and regulations.”

One highly anticipated agenda item for the meeting was deposit insurance fund reform, which is a hot topic for community bankers due to a potential higher financial burden to replenish the fund that experienced losses of about $22.5 billion when it covered the failures of Silicon Valley Bank and Signature Bank.

After the failures were reported in early March, Horton told the Journal that some industry professionals were lobbying regulators to consider excluding community banks from the burden of replenishing the insurance fund. Horton says it would be unfair for community banking institutions to pick up the tab for those higher-risk banks.

The FDIC’s definition of a community bank was updated in 2020 to describe banking organizations with less than $1.65 billion in total assets. The definition also includes organizations with assets greater than or equal to $1.65 billion under certain conditions.

Committee members were presented with three options for reform.

The first option was to continue with the current limited coverage of $250,000 or adjust the limit to a higher amount. The second option was to have 100% unlimited FDIC insurance coverage.

Horton says, “The third option was to have targeted coverage higher than $250,000 for business operating activity accounts … so that businesses would know that no matter what they put in those accounts, they are 100% covered.”

Those business accounts would include accounts for payroll, accounts payable, and for other operating activities.

She says the second option offers too much of an opportunity for risk and that the FDIC prefers the third option of targeted coverage for businesses.

For her part, Horton suggested the consideration of a hybrid approach combining the first and third options that could raise the standard coverage on all accounts in addition to providing unlimited, targeted coverage for business operations.

While the committee can provide advice and recommendations, it has no authority to take action on any of the issues or solutions. Congress must vote to approve any changes in FDIC insurance coverage.

The meeting ran from 9 a.m. to 3 p.m. at the FDIC headquarters in Washington, D.C., where Horton says she was seated next to Chairman Martin Gruenberg.

“There’s a lot of important issues on the agenda right now,” she says.

Members discussed current banking conditions, received updates from the Minority Depository Institutions subcommittee, and other updates.

The committee also heard policy updates under consideration by the FDIC, including the overdraft protection practice dubbed APSN—an acronym for authorize positive, settle negative.

The overdraft protection practice involves financial institutions charging overdraft fees on transactions initially authorized when accounts have positive balances, but processed when they have negative balances. Horton says the practice is somewhat controversial in community banking circles.

Some community bankers have pushed back to say that consumers should be accountable for keeping accurate spending records. Advocates also challenge that overdraft protection is a valued service that customers at most banks have to opt into in order to participate.

“I was not vocal on that because Wheatland Bank has honored the way the FDIC wants to do it since 2019 when the best practices came out,” she says. “We would not charge an overdraft fee if the transaction was authorized positive, but when it settled, the account was negative.”

Horton says committee members were asked to answer questions for a roundtable discussion of current banking conditions regarding risk trends of most concern, demand for different loan products, and recent adjustments in lending standards.

She says the first committee meeting had a sense of collaboration.

“There was no competition or anything, so you didn’t have to worry about sharing ideas with your competitor sitting next to you,” explains Horton.

She says learning about trends and best practices in different market conditions around the country has helped her become a better banker.

For example, she says committee members shared a mix of loan demand conditions at their banks over the last year. Wheatland saw loan growth of nearly 22% at the end of May, compared to a year earlier. As of May 31, Wheatland’s total loans were $452.9 million, an increase of $80.3 million year-over-year. 

She says that Wheatland’s credit and asset quality exceeds conditions some other banks are facing. Wheatland has reported excellent asset quality and zero loans that are 90 days delinquent.

The gathering exposed commonalities as well, Horton notes.

Wheatland Bank and other institutions came to a consensus on many topics: Credit is tightening due to liquidity issues caused by the current interest rate environment and mortgage volumes are on the decline.

Some members further anticipate a decline in home values by year-end, “anywhere from 1.6% to 10%, depending on the market,” she recalls.

To counter some current market conditions, Horton shared with members how Wheatland makes sure to have a primary deposit relationship for business and real estate loan customers and has raised some lending standards for higher-risk loans, such as hospitality and nonowner-occupied real estate lending.

“They all felt that they had good management and oversight over liquidity and good risk-management practices, almost without exception,” Horton says. “Everyone also commented how their investment portfolios were yielding a very low rate.”

Committee members serve two-year terms, and the panel is expected to meet in Washington, D.C., at least twice a year, she says.

“The FDIC picks up all the costs associated with the travel,” Horton explains, “They even pick us up, and private drivers make sure we get back and forth.”

She says Chairman Gruenberg’s executive assistant made the call inviting Horton to join the committee.

Her appointment may have involved input from FDIC regional directors who sought involvement and participation at the local, state, and national levels of banking associations, she adds.

“I’m involved in all of those organizations such as the Washington Bankers Association, the American Bankers Association, and the Independent Bankers Association,” says Horton.

Outside of contributing to regulation and policy updates, Horton says the meeting has connected her with a group of peers who she expects to learn a lot from.

The night before the committee’s first meeting, Horton dined with three female bank presidents from Indiana, Kentucky, and Mississippi. She says that dinner set the tone for what she was to expect in the room of bank industry leaders the next day.

“The four of us had dinner after the reception, and it was helpful to have people in a peer group to share best practices and ideas with, especially if you’re not competing with them,” says Horton.

She says Wheatland, an independent community bank that was founded in Davenport, Washington, 44 years ago, has come a long way to be on the leading edge of hearing what the FDIC is considering as the agency seeks perspective from bankers across the country.

“I just know from my history and from being part of this committee that community banks are very important to the FDIC, which I think is great,” she says.