Fed to address conflicts of interest for reserve bank officials; Credit unions have an AI risk gap—and more in Bankers’ Hours

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The Federal Reserve system will reform its processes for identifying and hiring key officials at its 12 reserve banks.

An investigation by the central bank’s inspector general identified several issues in the way reserve banks hire presidents and directors. These include a lack of screening for prohibited investments, the role bankers sometimes play in recruiting members for regional Fed bank boards of directors and conflicts of interest during presidential searches.

The report, released on Wednesday, examined practices throughout the Fed system between 2021 and 2024. It included five key findings and called for 10 policy changes, most aimed at creating more standardized hiring processes across the system. More here.

As financial institutions increase their use of artificial intelligence, the risk that results when AI models go astray will also increase. New American Banker research suggests credit unions do not give this risk the same weight as other financial firms. 

Only 18% of credit union respondents say AI model risk is a critical or high threat, compared to 62% at national banks, 54% of midsize banks and 50% of community banks.

“AI is no longer a future issue. The decisions credit unions make today about AI, governance, and risk will shape their competitiveness and their members’ trust for years to come.” —Teachers Federal Credit Union CEO Brad Calhoun. More here.

Banking agencies on Wednesday issued a joint statement clarifying their stance that banks may communicate with customers whose accounts are involved in suspicious activity, as long as they do not inform the customer of the existence of a suspicious activity report.

The joint statement, issued collectively by the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of the Comptroller of the Currency, responds to concerns that firms may want to contact a customer whose account is involved in fraud, even while SARs, under the Bank Secrecy Act, remain confidential. More here.

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Block’s long-awaited Neighborhoods initiative is officially off the ground with the addition of 30,000 new Square sellers onto the platform. 

“Neighborhoods” is a proprietary distribution network and a key initiative Block CEO Jack Dorsey first hinted at in 2024 and discussed at length in February 2025 as a way to connect the company’s then-separate business lines, including its peer-to-peer payment network Cash App, its buy now/pay later business Afterpay, and Square, to achieve network effects. Afterpay was integrated into Cash App in March 2025.

The idea is to connect Square sellers with Cash App users to drive incremental sales, so that each feeds the other. More here.

Jack Henry recently suffered a data breach and refused to pay the criminal group that stole personal information belonging to customers of the banks and credit unions it serves.

ShinyHunters, the threat actor Jack Henry named in its statement, had listed the company on its data leak site days earlier. The group’s post gave the company until Tuesday to make contact “before we leak along with several annoying (digital) problems that’ll come your way.”

That deadline passed, and as of Wednesday, ShinyHunters still had not published files. More here.

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