Federal Reserve System Citation Digital Bank Jiko The San Francisco Fed said last week that an October 2023 supervisory examination found “significant deficiencies” in capital planning, cash flow, liquidity, strategic planning and earnings, particularly at the bank’s holding company.
The Fed has asked Zico to submit a plan within 60 days detailing how the bank’s board of directors will effectively manage and oversee its financial affairs, including measures to strengthen risk oversight and improve the “quality, accuracy, comprehensiveness and granularity” of data in financial reports, the central bank said.
According to the order, within 30 days, Zico must prepare a written plan setting out short-term and long-term goals for improving the company’s situation and detailing how the board and senior management intend to achieve them.
Within the same time frame, Jiko will be required to submit a liquidity risk management plan that includes details of measures the bank will take to diversify its funding sources, enhanced liquidity stress testing scenarios, and a commitment to regular independent review and evaluation of each part of its liquidity risk management process.
Jiko must also submit within 30 days a plan on how it will maintain adequate capital, including a detailed explanation of how the bank will evaluate its capital adequacy and a description of any anticipated changes in Jiko’s business plan that could have a material effect on the bank’s capital adequacy or liquidity.
The Fed also ordered banks to submit detailed annual cash flow forecasts within a month and provide quarterly updates to the central bank by January 31 of each year, when the order takes effect.
The Fed also said Zico must develop a new contingency funding plan within 30 days, including an adverse scenario plan.
The Fed prohibited Zico from paying dividends, repurchasing its shares or making capital distributions without regulatory approval. The bank also cannot incur, increase, prepay or guarantee any debt without the Fed’s permission.
Jiko must also notify the Fed if its capital ratios fall below approved minimum requirements and detail the steps it would take to raise its capital ratios if that were to happen.
Since the October inspection, Jiko has raised additional capital and cut expenses to address its deficiencies, the Fed said.
California-based Jiko, co-founded by former Goldman Sachs trader Stefan Lintner, is a subsidiary of Minnesota-based Mid-Central Federal Savings Bank The amount was not disclosed because the bank transitioned to a state charter in 2020.
The fintech company has since pivoted from a consumer-centric model and accelerated its B2B strategy.
Lintner told Banking Dive in 2021 that banking-as-a-service was a vision the startup had.In the early stages of DNA.”
BaaS, especially in relation to third parties, Increased pushback This year it will come in the form of mandatory action by the Federal Reserve and the Federal Deposit Insurance Corporation.
What’s unique about Jiko’s model is that the fintech platform replaces bank deposits with government-guaranteed Treasury securities that customers can spend in real time through debit transactions. The company’s debit card rewards program gives interchange revenue back to customers in the form of 1% cash back on eligible purchases, Lintner said in 2021.
And Jiko has deployed this model at scale, processing $4.7 million in debit card transactions using its 1% cash back rewards program, for example, a tax payment made to the IRS on a Jiko debit card that gave the customer $47,000 in cash back directly into their account..
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