Banks already comply with a range of domestic and international privacy and data protection laws. The overlapping and growing patchwork of state laws create complicated, duplicative and often conflicting rules.
BPI Recommends:The U.S. should adopt a national privacy standard that provides a level playing field for all types of businesses and customer accounts. This federal standard would create clear, robust protections for consumer data across the United States, while ensuring consistent state-by-state adoption of these national requirements.
While proper provisioning for loan loss reserves is an important accounting and regulatory policy objective, CECL’s approach would not accurately reflect banks’ credit losses, and CECL’s flaws would have significant negative consequences.
BPI Recommends:Before moving forward, regulators should conduct a thorough analysis of the economic impact of implementation and, under any circumstances, banking agencies should offset the impact of the change in the accounting standards on bank regulatory capital until the behavior of CECL reserves during an economic downturn is better understood.
Stress testing is an important tool to evaluate risk and to serve as validation of the strength of the system. However, the current approach to CCAR inhibits economic growth and lacks appropriate levels of transparency, predictability, and accountability.
The current AML/CFT framework is outdated and ill-suited to
apprehending criminals and countering illicit financial activity.
Countercyclical Capital Buffer
CCyB is an unnecessary and counterproductive policy tool. Stress tests, which simulate how banks would fare under a severe economic downturn, already ensure that the largest banks have sufficient capital to deal with financial imbalances during a crisis.
BPI Recommends:Increasing capital requirements by potentially tens of billions ofdollars on large banks above what is required under the Comprehensive Capital Analysis and Review (CCAR) would impose significant economic costs that would greatly exceed any potential benefits. There is good evidence to suggest that the CCyB would not effectively moderate financial risks or increase
The current advanced measurement approach (AMA) for operational risk
capital requires banks to develop an internal model that looks at both internal
and external historical loss data to estimate operational risk. This approach to
operational risk capital is flawed and unreliable, inherently backward-looking,
and produced widely varying and highly volatile estimates.
BPI Recommends:Operational risk requirements should be based primarily on the risks posed by a banking organization’s current activities and businesses, not simply businesses that created losses in the past. They should recognize and encourage risk mitigation, by adjusting for qualifying actions that insure against loss.
Guidance on Guidance
The examination process for banks should be exclusively focused on practices that are material to their financial condition and based on statutory requirements and regulations. BPI encourages greater legal certainty around the examination process and supports the Interagency Guidance as a clear commitment to the rule of law.
BPI Recommends:To encourage adoption of a formal rule, BPI and the American Bankers Association took the rare step of petitioning the agencies to propose a formal rule making of the guidance to ensure that examiners follow the guidance and to provide necessary clarity to the examination process.
GSIB surcharge framework has numerous weaknesses that should be addressed. Fundamentally, the methodology used to determine its calculation is not appropriately tied to empirical data, and ignores significant progress made by banks and regulators to reduce the impact of failure on the broader financial system.
One of the key issues for regulating the local operations of international banks is making sure there is appropriate tailoring, consistent with sound principles of “national treatment” – that is, ensuring that non-U.S. banks are treated comparably to U.S. banks and that U.S. regulations do not discriminate against them.
BPI Recommends:The Federal Reserve’s enhanced prudential standards (those related to capital, liquidity, stress testing, resolution planning, etc.) should be applied to the U.S. operations of international banks in a manner that is consistent with their U.S. footprint and risk profile, rather than based on the global footprint of their parent company.
S. 2155 Tailoring
The Bank Policy Institute supports S. 2155’s directive to better calibrate the financial regulatory system through tailoring.