BPInsights: February 06, 2021

Stories Driving the Week

Op-Ed: Get the Transition to Green Financing Right

It is estimated that the move to a low carbon economy will require in excess of $100 trillion in investment over the next several decades.  If this is to be achieved, overly simplistic labelling of activities as “green” or “not green” or the use of blunt regulatory tools to put punitive charges on fossil fuel activities must be avoided, BPI’s Lauren Anderson wrote in an American Banker op-ed on Feb. 5.  Rather it will be critical that taxonomies and policy are designed to support companies through the multi-year transition that will need to take place and ensure investment is channeled to those most in need of infrastructure investment to become greener.  There is huge demand for green assets and banks are actively deploying capital to these investments and policy must ensure that regulation does not unintentionally dampen this trend.

BPI Banks Play Leading Role Providing PPP Loans in Latest Round of Program

BPI member banks played a leading role in providing PPP loans for small businesses hit by the pandemic during 2021 so far. Eleven of the 15 most prolific PPP lenders were BPI members, according to SBA data covering the month of January 2021. Bank of America Corp. was the top lender in terms of dollar amount, followed by JPMorgan Chase & Co., with each processing more than $1 billion in loans along with M&T Bank, Zions Bank and Citizens Bank. BPI members also processed a high volume of loans in the program, with Wells Fargo & Co., Bank of America, JPMorgan, Citizens Bank and Regions Bank each processing more than 10,000 PPP loans this year through Jan. 31. In total, the SBA approved loans worth $72.7 billion this year through the end of January.

BPI Calls for Flexibility, Consumer Safeguards in CFPB Proposal on Data Sharing Provision of Dodd-Frank

BPI on Feb. 4 filed a comment letter responding to the Consumer Financial Protection Bureau’s Advance Notice of Proposed Rulemaking seeking input on implementation of Section 1033 of the Dodd-Frank Act, which relates to consumer access to financial records.

“The CFPB has the opportunity here to enhance consumer protections, including making sure consumers have transparency about how their data is being accessed, shared and used,” said Naeha Prakash, Associate General Counsel and Senior Vice President for Consumer Regulatory Affairs at BPI.  

Data aggregators link to customers’ bank accounts and shuttle their financial data between different platforms, such as payment apps, tax preparation tools or mortgage applications.  These services allow for more seamless interactions between different financial apps, but can introduce potential risks where consumers’ sensitive financial information is shared with data aggregators and other fourth parties.  BPI is supportive of the industry’s move towards more secure data sharing through an Application Programming Interface, which allows customers to be securely authenticated at their own financial institution rather than gaining access through re-entering usernames and passwords.

BPI made several recommendations to the CFPB in its comment letter, including:

  • The CFPB’s efforts to set standards for consumer authorized data sharing should ensure sufficient flexibility and continued innovation in the marketplace, and any approach taken by the CFPB should be coordinated with the prudential regulators and the FTC.
  • The CFPB should ensure a comprehensive approach to consumer privacy and transparency to increase consumer understanding of data use.
  • The CFPB should ensure that data aggregators appropriately safeguard consumer data in a manner commensurate with the legal obligations placed on banks.
  • The CFPB should clarify the rights of consumers and liability in cases of unauthorized transactions or fraudulent activity.

BPI also joined a joint letter with the American Bankers Association, American Financial Services Association and several other trades.

Key EU Official Calls for Closer Scrutiny of Tech Firms’ Financial Business

Tech firms offering financial services could soon get more scrutiny in Europe as the industry attempts to carve out a niche in finance worldwide. The European Commission’s financial services chief, Mairead McGuinness, called on the continent’s supervisory authorities for banking, securities markets and insurance to examine whether they have the tools they need to monitor tech firms in the financial marketplace, and whether the existing rules cover changing risks posed by tech businesses. “Companies entering the payments sector, banking or other financial services … need to be subject to the same level of regulation and supervision,” McGuinness said in a Feb. 2 speech at an Afore Consulting conference. She also said she was ready to make changes to EU legislation if needed.

BPI, Joint Trades Urge OCC to Join Fed, FDIC in Joint Rulemaking on CRA

BPI joined the American Bankers Association, the U.S. Chamber of Commerce and several financial and business trades in a joint letter on Feb. 2 calling on the Office of the Comptroller of the Currency to pursue a joint Community Reinvestment Act rule with the FDIC and Federal Reserve and stop its work on establishing performance benchmarks related to its June rule. The OCC should withdraw its June 2020 CRA rule, or delay the compliance date for at least two years, and immediately move toward a joint effort with the FDIC and Fed, the trades wrote. The OCC’s benchmarks NPR would call for historical data that banks may not have, and would use a flawed benchmarking methodology to measure banks’ performance in meeting CRA goals. A unified approach among the OCC, Fed and FDIC on the rule would benefit customers and communities where the CRA aims to promote greater credit access.

BIS’ Financial Stability Institute Lays Out Roadmap for ‘Entities-Based’ Big Tech Oversight

The Bank for International Settlements’ Financial Stability Institute explored options for a comprehensive regulatory approach to Big Tech in financial services in an “occasional paper,” shortly after BIS head Agustin Carstens called for an “entity-based” approach in a recent speech. Entity-based rules target a type of firm rather than a type of activity (“activities-based”).  An existing example of an entity-based approach is the Bank Holding Company Act for U.S. banking organizations; thus, one could envision a BHC Act-style framework for Big Tech.  Activities-based regulation could address risks in areas like AML compliance or consumer protection, the paper says. But as large, complex Big Tech firms increasingly offer bank-like services, regulators may need to combine that approach with entity-based regulation to reduce risks, such as operational resilience risks, that affect financial stability. The paper examines the idea of a “level playing field” for banks and FinTechs, and also notes a potential pitfall of policing nonbanks less stringently than banks: “Unwarranted discrepancies between regulatory requirements for different types of market player could also disrupt banks’ activities as intermediaries, thus posing risks to systemic stability.”

In Case You Missed It

FT: China’s Ant Reaches Deal With Regulators on Becoming Financial Holding Company

Ant Group, the company that controls the Chinese payments app AliPay, has reached an agreement with Chinese regulators to restructure its business, according to a Feb. 3 Financial Times article. Ant proposed to put all of its major business lines, including its tech units, inside a financial holding company, which will make it subject to stricter capital requirements and supervision by the Chinese central bank.

Senate Banking Committee Adds New Names

The Senate Banking Committee announced its new members this week. Newly elected Georgia Democrats Jon Ossoff and Raphael Warnock will join the Senate Banking Committee, with Sen. Brian Schatz (D-HI) leaving the panel. On the GOP side, Sens. Bill Hagerty (R-TN), Cynthia Lummis (R-WY) and Steve Daines (R-MT) joined the panel, with Sens. Tom Cotton (R-AR) and Ben Sasse (R-NE) departing. The reshuffled roster will help shape a shifting agenda under new Chair Sherrod Brown (D-OH).

Treasury Adds Former IMF Official Lipton, Other Senior Staff

The Treasury Department hired David Lipton, the former second-in-command at the International Monetary Fund, as Counselor to the Secretary, according to a department announcement. Lipton, an Obama and Clinton Administration alumnus, is known for his China experience. The Treasury Department also announced several other new hires, including Laurie Schaffer, a former leading Federal Reserve Board attorney, as Principal Deputy General Counsel; Clement Abonyi Jr., a former staffer for Rep. Maxine Waters (D-CA), as Special Assistant for Legislative Affairs; and Kimberly Clausing, a former UCLA School of Law professor, as Deputy Assistant Secretary for Tax Analysis in the Office of Tax Policy.

Waters Announces Slate of Financial Services Panel Hearings

House Financial Services Committee Chair Maxine Waters (D-CA) announced several upcoming panel hearings, according to a committee press release. They include a Feb. 24 hearing on Monetary Policy and the State of the Economy and an Oversight Subcommittee hearing the same day on lending discrimination.

BPI/Columbia Conference Kicks off With Small Business Lending in COVID Panel

The fifth annual BPI/Columbia University conference on bank regulation began Feb. 5. Because we are holding the event virtually, the four sessions will take place on the four Fridays in February from 9:00 a.m. to 11:00 a.m. The conference is designed to bring together academics, banking agency economists and market participants to discuss the latest research on banking and bank regulation.

The first panel of the conference, “Small Business Lending in COVID,” featured two papers related to government support for small businesses.

The first paper presented was “Small Business Survival Capabilities and Policy Effectiveness:  Evidence from Oakland,” in which the authors use survey data about revenue losses, labor costs, survival expectations, and other characteristics of small businesses combined with data on foot traffic in Oakland, CA to investigate resilience of small firms and effectiveness of support programs like the PPP. The paper finds differences in outcomes, survival strategies and implications of the CARES Act for three distinct types: small businesses with no employees (non-employers), those with a small number of employees (microbusinesses) and the largest businesses included in the study (enterprises).  The authors conclude that small business survival capabilities differ by size and, because of this, a one-size-fits-all policy like PPP is less than optimal. In particular, because microbusinesses have less flexibility to cut employees, PPP was most effective for these businesses.

The second paper presented was “Public Guarantees for Small Businesses in Italy during COVID-19.” This paper investigated banks’ roles in allocating public funds during the crisis by studying the extension of Italy’s preexistent public guarantee program for small businesses. The authors found that firms receiving the earliest loans (April through May) were more likely to be located in the areas most affected by COVID, non-essential businesses that were forced to close during the March lockdown, and small firms with low cash reserves and higher leverage.  Over time, the loans eventually reached all types of firms. The paper also examined difference across banks and found, for example, that banks were more likely to lend to small businesses in their branch markets than elsewhere. The study provided an interesting contrast to the PPP.  In particular, Italy’s use of an existing loan guarantee program with inclusion of new incentives to originate smaller loans enabled funds to flow more quickly to smaller firms in hard-hit regions than was the case in the U.S., where scaling up the new PPP program required two or three weeks to accomplish.  

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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.