BPInsights: August 2, 2019

BPInsights: August 2, 2019


RTP Continues To Drive the Agenda

In the American Banker this week, Christopher Richards, the Chief Banking Services Officer at Cape Cod Five Cents Savings Bank, wrote an op-ed on why community banks should embrace the real-time payment platform offered through The Clearing House RTP network. He said RTP is an “important tool for financial institutions of all size to retaining as well as to attract customers and deposits.” On July 26, Federal Reserve Chairman Jerome Powell sent a letter to senators indicating that the central bank is “seriously considering” moving forward with developing a faster payments system.

Also this week, BPI published a blog post that responds to a recent column that criticized our CEO Greg Baer’s comments to Politico about the Fed’s potential entrance into the real-time payments market. Greg notes that it is hardly surprising that the Clearing House would want to hold out the possibility of offering discount pricing for large banks if the Fed enters the market, noting that this is exactly what happened with the ACH network. A big fact that did not make its way into the American Banker: the Federal Reserve currently offers volume discounts on ACH to the largest banks. In fact, it charges small banks about four times what it charges large banks. Baer also ponders whether community banks will come to regret their alliance with retailers, like Amazon and Apple, and against large banks for no strategic reason, but for Seinfeldian spite, if that leads to an open banking system.


5 Stories Driving the Week

1. Crapo, Republicans Urge Fed, FDIC, OCC to Ease Bank Rules

Republicans on the Senate Banking Committee sent a letter to the banking regulatory agencies requesting that they follow the spirit of the Economic Growth, Regulatory Relief, and Consumer Protection Act with additional changes to tailor regulations to further spur economic growth. In the six-page letter, the Senators, including Committee Chairman Mike Crapo (R-ID), outlined a series of other changes for consideration, including eliminating the accounting prong for the Volcker Rule and providing more clarity on the use of guidance. In addition, the letter pressed for simplification of the stress testing regime for banks with assets between $100 billion and $250 billion. The senators request that the regulators tailor regulatory proposals to fit the preexisting home country regulations for foreign headquartered banks operating in the United States.

House Financial Services Chairman Maxine Waters and Senate Banking Ranking Member Sherrod Brown responded with a letter opposing changes to the initial margin requirements for swaps transactions.


2. Is There A Better Way To Fight Money Laundering

An article in American Banker examines the current Bank Secrecy Act regime and whether the millions of reports and compliance costs are effective in assisting criminal prosecutions. “It’s a multitrillion-dollar problem that has plagued the financial industry and government officials for decades: Can we make the system less burdensome on banks, while also providing law enforcement with the information on criminals that it actually wants?”

BPI supports legislative efforts to modernize the Bank Secrecy Act regime and sent a letter to the House Financial Services Committee on May 7 in support of the Committee’s efforts.


3. Regulators Aim To Release CRA Plan In ‘Next Few Months’: FDIC Chief

Federal Deposit Insurance Corporation Chairman Jelena McWilliams said it could be months before regulators issue their proposal to reform the Community Reinvestment Act. McWilliams said the agencies, including the FDIC, Office of Comptroller of the Currency and Federal Reserve Board, have made progress but acknowledged that the process has been slow, according to a report by American Banker.


4. This Is Not What Transparency Looks Like

The Fed is publicizing the transparency of their public review of how they conduct monetary policy, but they have suppressed one of the most critical pieces of information. In a new blog post, BPI’s Chief Economist Bill Nelson writes about how this year’s New York Fed annual report on Open Market Operations did not include projections of the Fed’s balance sheet and income, despite having included the projections for the previous four years. The blog faults the Fed for this reduction in transparency about the consequences of its monetary policy operations.


5. ABA Expresses ‘Serious Concerns’ About E-Commerce ILC Bid

The American Bankers Association raised “serious concerns” about Japanese online merchant Rakuten’s application for an industrial loan company charter. ABA said allowing Rakuten to participate in banking activities would raise important questions about “the free flow of credit, consumer privacy and possible conflicts of interest.”

BPI reiterated these concerns in a tweet: “Wonder if we’ll look back in a few years and realize this was a bigger deal than Libra? Or will Facebook have a Utah ILC by then?”


In Case You Missed It

Senate Banking Committee Examines Digital Currencies and Blockchain 
On July 30, the Senate Banking Committee held a hearing to analyze potential regulations for digital currencies and blockchain. This hearing largely mirrored the committees earlier hearing on Facebook’s Libra digital currency plans with members pressing witnesses on the way in which they should regulate these currencies.

OCC’s Innovation Pilot Gets Little Love From Banks
The OCC’s idea of testing a fintech product while getting direct regulatory feedback received criticism from the financial industry. In comment letters to the OCC, financial institutions said they generally favor opportunities to test new products but warned of unintended consequences from the OCC plan. Industry trade groups requested that the OCC state that regulated banks would not be compelled to use the pilot for every product they introduce.

On June 18, BPI filed a comment letter with the OCC commending the agency for its recognition that technologically driven innovation is reshaping the financial system and offering several recommendations to support the OCC’s objectives.

Three Ways to Draw Private Capital Back Into Mortgages 
Since the financial crisis, the government-sponsored enterprises Fannie Mae and Freddie Mac have remained under taxpayer support. In an op-ed in American Banker, Housing Policy Council President Ed DeMarco offers three ways to promote a return of private capital into the mortgage market and expand access to credit.

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