BPInsights: December 05, 2020

Stories Driving the Week

Fair Access Proposal Would Blunt Banks’ Ability to Make Their Own Business Decisions

The Acting Comptroller of the Currency’s fair access proposal would force every large bank to offer services to every industry in every geographic region of the U.S., regardless of the bank’s local knowledge, industry expertise or qualitative factors that it considers. The proposal, which is intended to protect politically disfavored industries, would, if implemented, interfere with banks’ and their boards’ ability to make their own sound business decisions.  The proposal lacks logic and legal basis, ignores basic facts about how banking works in the U.S. and undermines safety and soundness.

BPI filed a FOIA request with the OCC seeking the information and evidence that underpins the proposed rule, which the agency has rushed without allowing banks or the public enough time to thoughtfully evaluate it. BPI requested a 30-day extension of the Jan. 4 comment deadline, but the OCC denied that request.

Opposition to the proposal has garnered media coverage, including in American Banker, Bloomberg, Reuters and POLITICO. Read More >>

AML Provision Nears Finish Line in Must-Pass Defense Bill

Congress will pass the first major Anti-Money Laundering overhaul in more than 30 years with a provision in the must-pass defense spending bill under consideration.

Lawmakers released a final version of the bipartisan legislation on Dec. 3, which awaits a vote in the House and Senate before heading to the White House for a presidential sign-off, Bloomberg reported Dec. 4. The legislation would require businesses to report their true owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) when they are incorporated, making it harder for criminals to form shell companies used to support illicit activity. The legislation would also improve regulatory coordination and AML/CFT information sharing among and between the public and private sectors, modernize BSA reporting and promote AML compliance-related innovation, among other things.

BPI President and CEO Greg Baer praised the measure’s inclusion in the defense bill as “the culmination of years of bipartisan work.”

“This legislation is good news from every perspective: law enforcement, national security, international development and a banking industry desperately wishing to modernize its approach to finding illicit actors,” he said in a statement on Dec. 3.

The legislation would modernize and streamline the Anti-Money Laundering process by gathering straightforward identifying information from business owners when they start their companies. “At the end of the day, we’re talking about submitting four pieces of information — a name, address, date of birth, and Social Security number or passport number,” Cara Camacho, BPI senior vice president for government affairs, told The Hill in a Dec. 3 article. “When you file incorporation papers to start a small business, you’re already submitting that information. It’s really not any information they don’t already share otherwise and it’s all information that could fit on a half a page of paper.” Learn More >>

BPI Blog: GSIB Method 2 Needs to Be Adjusted for Economic Growth

The Fed should adjust the scoring system for Global Systemically Important Banks (GSIBs) to account for economic growth, Francisco Covas and Brett Waxman wrote in a blog post Dec. 4. The change would lower the scores that the central bank uses to calculate the GSIB surcharge, an extra layer of capital required for the biggest, most complex global banks. The Fed scores would then hew more closely to the scores calculated by the Basel Committee on Banking Supervision (BCBS), which scores banks’ systemic footprint differently than the Fed does. The Basel method depends on whether the biggest, most globally engaged banks grow or shrink in tandem with each other. Currently, several domestic bank scores are sinking lower under the Basel method while several are rising under the Fed method in part because of the Fed’s massive actions taken in March to restore liquidity in bond markets. This divergence shows that the Fed should adjust its inputs, which would encourage banks to unlock more capital for businesses and households and recognize that the size of the Fed’s balance sheet will continue to expand at least over the next year.

Adjusting for economic growth would lower GSIB scores about 15 percent, according to BPI’s blog. That adjustment, which the Fed had said in 2015 it would make, would empower the largest banks to lend more and support the post-pandemic economic recovery.

BPI in American Banker: Climate Risk Test Asks Banks to Look Too Far Down the Road

BPI President and CEO Greg Baer published an opinion piece in American Banker on Nov. 30 highlighting efforts of the banking sector and broader financial industry to address and disclose climate change risks. Banks are joining forces on several global climate initiatives, such as the Partnership for Carbon Accounting Financials. However, despite the collective effort of the banking industry to track, combat and disclose climate risks, one tool that raises serious questions is climate change stress testing, he states in the op-ed. Climate stress tests rely on long time horizons that limit their ability to make accurate predictions, and they don’t account for the ways that banks hedge their portfolios. Learn More >>

American Banker: Figure Novel Bank Charter Application Draws Ire

Figure, a San Francisco-based FinTech seeking an OCC banking charter, would take deposits but do so without FDIC insurance, according to an American Banker piece published Dec. 2. The attempted workaround would give Figure the privileges of banking while amping up the risk and avoiding the regulatory oversight of a bank. “The OCC has never before chartered a deposit-taking, uninsured national bank, and they have not clearly shared under what legal authority they are planning to do so now,” BPI General Counsel John Court told American Banker. “If the agency grants this application, it effectively creates a new uninsured bank charter particularly susceptible to bank runs, and it opens the door for Big Tech and large retail companies to gain all the benefits of a national bank charter without being subject to consolidated supervision like other banks.”

Biden Transition Team Announces Slate of Economic Nominees

President-elect Joe Biden tapped several officials for key economic positions this week, according to the transition team website. Biden nominated Wally Adeyemo, a former Obama administration official, as deputy treasury secretary under  Janet Yellen who was previously nominated to be Treasury Secretary. Other top economic nominees include Cecilia Rouse as chair of the Council of Economic Advisers and Brian Deese as director of the National Economic Council.

In Case You Missed It

BPI Blog: ‘Deregulatory Wave’ Rhetoric Defies Reality of Strong Banks, Strict Rules

The upcoming presidential transition has revived calls to roll back so-called bank deregulation since the 2008 financial crisis. This idea doesn’t reflect the facts, BPI explains in a recent blog.

Banks have strengthened their balance sheets since the last global crisis, and it’s never been clearer than in the current crisis. They’ve seamlessly supported small businesses and households struggling to confront the pandemic’s economic fallout. They’ve weathered massive price swings in the markets this spring and served as a source of stability in the global financial system. The rules banks follow are not only stringent — they may even prevent banks from stepping in as a stabilizing force in the markets, or constrain economic growth when it’s needed most.

Banks make sure their own capital levels are well in excess of the strict buffer requirements set by the Federal Reserve. They make sure they have plenty of easy-to-sell assets if they need cash fast in a crisis. And they aren’t permitted to use their own funds to make risky bets in the markets. These standards form a sharp contrast to what some call reckless deregulation.

The blog concludes that instead of fighting the last war, policymakers should focus their attention on many of the unaddressed risks facing the banking system and economy as a whole.

Mnuchin, Powell Testify on Pandemic Relief at Capitol Hill Hearings

Federal Reserve Chair Jay Powell and outgoing Treasury Secretary Steve Mnuchin both testified in front of the Senate Banking and House Financial Services Committees as part of oversight required by the CARES Act, following a decision by Mnuchin on Nov. 19 to terminate a number of Federal Reserve lending facilities, including the Main Street Lending Program, by the end of the year and have any unused funds returned to Treasury.

Republicans including Chairman Crapo and Sen. Toomey (R-PA), who will likely lead the panel next year if the GOP retains control of the Senate, expressed their support for terminating the facilities, arguing that is what the CARES Act mandates.  Democrats on the other hand mostly criticized the decision as taking away possible assistance and limiting tools that the government has in dealing with the pandemic.  Federal Reserve Chair Jay Powell stated while the Fed would have preferred to leave the program’s in place, that Treasury is the proper custodian of the CARES Act funds, and they would go along with terminating the facilities and returning any unused funds.

Both economic officials called for more fiscal stimulus from Congress to bolster the economy, although Mnuchin called for narrower fiscal support through new legislation that uses the $455 billion being returned from the CARES Act. Lawmakers are currently parsing the details of a potential stimulus package, including efforts led by a bipartisan group of lawmakers to find a compromise deal, before the end of the year.

Fed Nominee Christopher Waller Confirmed by Senate

The Senate voted 48-47 to confirm Christopher Waller to the Federal Reserve Board of Governors on Dec. 3. Waller is director of research at the Federal Reserve Bank of St. Louis. The confirmation vote on Trump’s other nominee, Judy Shelton, stalled earlier in November.


BPI provided recommendations to the Consumer Financial Protection Bureau in its comment letter on the CFPB’s Request for Information on the Equal Credit Opportunity Act (ECOA) and Regulation B.  In the letter, BPI recommended that the CFPB undertake efforts to (i) clarify how institutions best serve consumers with limited English proficiency; (ii) streamline any eventual small business data collection rule under Section 1071 of the Dodd-Frank Act; (iii) provide increased clarity for special purpose credit programs, as well as affirmative marketing efforts; and (iv) support the use of AI and machine learning in credit underwriting. 

Roll Call: Biden Administration Seen Aiding Digital Identities, Closing FinTech Loopholes

FinTech firms that exploit regulatory loopholes, such as payment apps providing banking services without being regulated like banks, could face tougher rules under the Biden administration, financial policy analysts predicted in a Roll Call piece on Dec. 1. The incoming administration could also prioritize using technologies such as artificial intelligence to make credit decisions, the article said.

American Banker: Banks, Borrowers Bristle at SBA Questionnaire on Large PPP Loans

Banks and borrowers warn that a nine-page questionnaire might lead to the Small Business Administration denying forgiveness for numerous Paycheck Protection Program loans, American Banker reported Nov. 30. The loan forgiveness process could punish pandemic-stricken businesses that performed better than expected after receiving a PPP loan. The questionnaire requirement applies to small businesses that borrowed $2 million or more.

BPI joined dozens of trades representing PPP lenders and borrowers in a joint letter in November urging Congress to work with SBA and the Treasury Department to refine the questionnaires.

CFPB Clarifies Wage-Access, Student Loan Product Stance as It Launches Advisory Opinion Policy

The Consumer Financial Protection Bureau finalized its advisory opinion policy, which allows financial companies to seek clarity and receive additional guidance on its regulations, the agency said in a Nov. 30 pressrelease. In conjunction, the CFPB released two advisory opinions – one that clarified that CFPB does not consider products allowing workers to access earnings before payday to be loans if there are no attached fees and the other that confirmed that certain student loan refinancing products meet the definition of “private education loan” under the Truth in Lending Act.

Financial Times: Banks set to be granted reprieve on US LIBOR cut-off deadline  

Banks and their customers that use U.S. dollar LIBOR will have longer to adjust to the end of the reference rate, which underpins $200 trillion of contracts as a risk-free rate baseline, according to a Financial Times piece on Nov. 30. IBA, LIBOR’s administrator, said it would cease publication of one-week and two-month LIBOR at the end of 2021. It plans to extend the publication of the other more widely used U.S. dollar LIBOR benchmarks until June 30, 2023. However, U.S. federal banking regulators urged banks not to enter new LIBOR contracts after the end of 2021 in order to smooth the transition away from the reference rate.

BPI praised the decision to extend the rate for existing contracts until 2023 as a “prudent step that will help facilitate an orderly transition away from LIBOR.”

BPI’s Fabrice Coles Joins CDFI Panel Discussion  

BPI Vice President of Government Affairs Fabrice Coles participated in a virtual event on Dec. 3 hosted by the Community Development Bankers Association. The panel discussion, part of the 2020 Virtual Peer Forum event, focused on Community Development Financial Institutions (CDFIs) and their future plans to address the needs of the low-income and minority communities they serve amid the pandemic and economic distress.

Bloomberg: Jane Fraser Q&A

Jane Fraser will take the helm as chief executive of Citigroup in February, becoming the first female CEO of a major bank. The Scottish banker discussed her priorities, digital banking, the COVID-19 economic recovery and being a woman in banking in a Nov. 30 Bloomberg interview.

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.