BPInsights: January 09, 2021

Stories Driving the Week

BPI Urges OCC to Scrap ‘Fair Access’ Proposal

BPI on Jan. 4 urged the Office of the Comptroller of the Currency in a comment letter to withdraw its unworkable “fair access” proposal, which would upend the way banking functions in the U.S.

“The OCC’s proposed rulemaking on fair access to financial services would create a unique, far-reaching precedent in instructing national banks, under threat of enforcement action, to make or not make certain loans and provide other financial services,” BPI President and CEO Greg Baer said in the letter.

The proposed rule reportedly targets political bias against certain businesses, but it would really just micromanage banks’ decision-making processes. It would effectively force banks to provide financial services to many customers outside of their core areas of risk tolerance or expertise.

BPI’s comment letter was covered by Bloomberg and Bloomberg Law.

Anti-Money Laundering Reform Becomes Law

Anti-money laundering reform legislation, the culmination of years of effort by many including BPI, achieved final passage Jan. 1 after the House and Senate voted to override a presidential veto of the defense spending bill, which included the AML provisions. BPI applauded the overhaul as a benefit to the global law enforcement and national security community that will prevent criminals from hiding illicit cash with anonymous shell companies and enable banks to use innovative methods to catch them.

Georgia Dem Senate Wins Will Reshape Capitol Hill Banking Agenda

On Jan. 5, both Democratic Senate candidates Raphael Warnock and Jon Ossoff won the Georgia runoff elections, bringing the total Senate breakdown to 50 Democrats and 50 Republicans.  When President-elect Biden is sworn in later this month, that will provide the tiebreaker vote in the Senate to Vice President-elect Kamala Harris and give Democrats control of the Senate.  With Sherrod Brown (D-OH) expected to become the chairman of the Senate Banking Committee, a more aggressive oversight agenda is expected, though much will depend on the power-sharing arrangement between Leaders McConnell (R-KY) and Schumer (D-NY), which has yet to be negotiated.

WSJ: Bank CEOs Denounce Capitol Riots

Bank chiefs condemned the violent riots led by Trump supporters that overtook the U.S. Capitol on Jan. 6, according to a Wall Street Journal article published that day. JPMorgan Chase & Co. CEO Jamie Dimon said elected leaders “have a responsibility to call for an end to the violence, accept the results, and, as our democracy has for hundreds of years, support the peaceful transition of power.” Bank of America Corp. CEO Brian Moynihan also denounced the riots, as did Citigroup chief Michael Corbat, according to American Banker.

CFPB Unveils Taskforce Report

The Consumer Financial Protection Bureau released a report from its Taskforce on Federal Consumer Financial Law on Jan. 5. The report included several recommendations aligned with BPI’s comment letter, including encouraging the use of alternative data and AI in credit underwriting, improving coordination among regulators and modernizing disclosures to consumers. Among other recommendations, the report also suggested that Congress authorize the CFPB to grant charters to non-depository FinTechs that offer lending, money transmission and payments, which could allow for expanded access to the payment system for underbanked customers and may allow for preemption for state money transmitters.  
This recommendation prompted Acting Comptroller Brian Brooks to push back, saying the OCC should continue to have the authority to grant FinTech charters, rather than placing this authority with the CFPB. “Under the law, the agency that grants national charters to companies engaged in lending, payments, or deposit-taking is the Office of the Comptroller of the Currency, which has the responsibility for prudential supervision to ensure these chartered institutions operate in a safe, sound, and fair manner,” Brooks said in a statement, according to an American Banker article.

BPI has argued that Brooks’ charter frameworks would grant FinTech companies an inside track into the federal banking system, even if they only provide limited banking services, while subjecting them to less rigorous oversight than banks.

OCC Allows National Banks to Use Blockchain, Process Payments With Stablecoins

The OCC gave the green light for national banks to process payments using “stablecoins” or distributed ledger technology, according to an interpretive letter on Jan. 4. Those banks can participate in the underlying blockchain that records transactions. However, Jonathan V. Gould, the agency’s senior deputy comptroller and chief counsel, warned against “significant liquidity risks for banks” that process payments using cryptocurrency. Stablecoins are a form of digital currency designed to have stable value and are sometimes pegged to a government-issued currency such as the U.S. dollar.

In Case You Missed It

BPI Post: Stock Buyback ABCs

BPI released an explainer recently outlining how stock buybacks work. Buybacks are an efficient way for banks to return capital to shareholders, and they tend to shift investment dollars to where they can maximize economic growth. Buybacks are a good option for large-bank shareholder payouts because those banks tend to be mature companies that generate a lot of cash that may not have productive investment options. Their shareholders are also seeking a steady stream of income, so these banks tend to pay dividends as well as buying back shares.

BPI’s John Court Discusses OCC Fair Access Proposal on Ballard Spahr Podcast

BPI Executive Vice President and General Counsel John Court discussed the OCC’s fair access proposal on Ballard Spahr LLP’s Jan. 7 podcast. He laid out how the proposal is inconsistent with how the business of banking works, among other issues. The conversation was hosted by attorney Alan S. Kaplinsky of the firm’s Consumer Financial Services group.  

Ana Botin in the FT: Banking Regulation Needs a Reset

Banks should be allowed to deploy their capital effectively during the COVID-19 recovery to jumpstart the economy, and they should also have a level regulatory playing field with tech upstarts, Santander Executive Chairman Ana Botin wrote in a Jan. 4 Financial Times op-ed. Botin called for a revamp of banking regulatory strategy since the financial crisis, given that the global economy faces significantly different problems today than in 2008.

Reuters: White House Bans Transactions With 8 Chinese Apps Over Security Concern

President Donald Trump released an executive order banning transactions with eight Chinese apps, Reuters reported Jan. 5. The ban covers Ant Group’s Alipay mobile app as well as CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay and WPS Office. The administration expressed concern that the apps could give China access to sensitive American customer information. The Commerce Department is charged with implementing the ban in 45 days, but is anticipated to release regulations before the Jan. 20 inauguration. Commerce regulations related to last year’s WeChat and TikTok bans have been tied up in the courts since their release. The transaction ban marks a new flashpoint in U.S.-China tensions ahead of President-elect Joe Biden taking office later this month.  

WSJ: Fed Officials Showed Broad Support for Bond-Buying Program’s Current Pace, Minutes Show

Federal Reserve officials largely supported the central bank’s bond-buying program in its current form, without seeing a catalyst to boost the composition or amount of purchases, minutes from the central bank’s Dec. 15-16 policy meeting show. The minutes, released on Jan. 6, also showed that several Fed officials were concerned about stalled growth amid a winter coronavirus surge, but that many expressed optimism about newly approved vaccines boosting the economic recovery, according to a Jan. 6 Wall Street Journal article.

Judy Shelton Renominated to Fed Amid Uncertain Prospects

Judy Shelton was renominated to the Federal Reserve Jan. 3 after failing to garner enough support to be confirmed last year, according to a Jan. 4 article from The Hill. Unconfirmed presidential nominations automatically expire at the end of a congressional session. After two Democrats won Senate elections in Georgia, giving Democrats control over the upper chamber, Shelton may not have enough support to be confirmed before President-elect Joe Biden takes office on Jan. 20. The slate of nominees submitted Jan. 3 also included Brian Brooks, acting head of the OCC, who was nominated to lead the agency on a permanent basis and also faces uncertain confirmation chances.

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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.