BPInsights: January 23, 2021

Stories Driving the Week

FDIC, OCC, CFPB Finalize Rules Codifying Role of Supervisory Guidance

The FDIC, OCC and CFPB each finalized rules on Jan. 19 that codify the 2018 Interagency Statement Clarifying the Role of Supervisory Guidance and provide that supervisory guidance does not create binding legal obligations. The final rule marks the culmination of BPI’s 2018 petition for rulemaking under the Administrative Procedure Act, which requested that the regulators provide more clarity on the use of such guidance.  
The regulators said they finalized rules separately in order to better explain issues specific to their agencies. The proposal preceding the final rule was a joint measure by the three regulators in addition to the Federal Reserve and the National Credit Union Administration. The NCUA also finalized its rule on Jan. 19 and the Federal Reserve is expected to follow with its own final rule. 
The final rule does not address the standards for supervisory criticisms, such as MRAs, a type of supervisory action that can bar banks from expanding by acquisition, investment or branching. The FDIC clarified in its final rule that it does not issue supervisory criticism solely based on reputational risk. The OCC and CFPB did not include a similar statement in their rules. The agencies agreed with commenters that interpretive rules alone do not have the force and effect of law, but did not add procedures for challenges to those rules. 

Yellen Treasury Nomination Moves to Full Senate

Former Federal Reserve Chair Janet Yellen’s nomination as Treasury Secretary was unanimously approved by the Senate Finance Committee on Jan. 22, advancing to the full Senate. Yellen, at her confirmation hearing Jan. 19, called for the government to “act big” to support the pandemic-battered economy. Yellen noted that large banks were well-capitalized amid the pandemic crisis and continued to lend and support the needs of households and businesses. She also said she will ask Deputy Secretary-designate Wally Adeyemo to review sanctions policy, signaled that implementing AML reform legislation is a top priority for Treasury, indicated that the Financial Stability Oversight Council may examine liquidity issues in the markets and said she will aim to appoint a senior Treasury official to oversee climate change issues and create a climate hub at the agency.

Biden Takes the Helm as President, Pauses Midnight Rules

President Joseph Biden was inaugurated as the 46th president on Jan. 20. In his inaugural address, Biden called for the nation to demonstrate unity in the wake of the violent Capitol riots. The new presidential administration issued a memo that pauses new regulations, withdraws rules that were released but not formally publishedin the Federal Register, and asks agencies to consider a 60-day effective date delay on rules recently published in the Federal Register. It is unclear at this time what impact the memo will have on the federal banking agencies, which are typically afforded a degree of independence that insulates them from this kind of missive from the White House.We suspect the OCC and CFPB (which have recently lost their Trump-appointed leaders) may seek to comply with the memo while the Fed and FDIC, still under leadership of Trump appointees, will seek to assert their independence and choose not to comply.         

Biden to Name Michael Barr as OCC Pick

President Biden is expected to nominate Michael Barr, a University of Michigan law professor and Obama-era Treasury official who helped draft the Dodd-Frank law, to lead the Office of the Comptroller of the Currency, according to a Jan. 20 Wall Street Journal article. The agency is currently led on an acting basis by Blake Paulson, who succeeded Acting Comptroller Brian Brooks after he stepped down earlier this month. Barr previously served on the advisory board of cryptocurrency firm Ripple.

Fed Finalizes Capital Planning Rule Aligned With Tailoring Approach

The Federal Reserve on Jan. 19 finalized a rule aligning large bank capital requirements with a framework that tailors those standards to the risk profiles of different groups of banks. Under the rule, banks in the lowest risk group (Category IV firms) are subject to a two-year stress test cycle and not subject to company-run stress test requirements. The final rule applies capital planning and stress buffer requirements to large savings and loan holding companies that are not primarily engaged in insurance or commercial activities — a difference from the initial proposal.  The Federal Reserve also recently updated its capital planning guidance (SR 15-18 and SR 15-19) to align it with the tailoring framework such that that SR 15-18 is applicable to firms subject to Category I standards, and SR 15-19 is applicable to firms subject to Category II or III standards.

Biden’s Treasury Department Staffs Up With Early Senior Hires

The Treasury Department under the new administration announced a slate of new senior officials, according to a Jan. 20 press release. The batch of new hires includes Chief of Staff Didem Nisanci, a former Bloomberg executive; Deputy Chief of Staff Julie Brinn Siegel, a former Elizabeth Warren aide; Deputy Chief of Staff Alfred I. Johnson, an Obama alumnus and former BlackRock vice president; and Assistant Secretary for Public Affairs Calvin Mitchell, a former communications officer at the New York Fed and Credit Suisse. 

Additionally, former Federal Reserve official Nellie Liang, now a Brookings Institution senior fellow, will be offered a position as the Treasury Department’s Undersecretary for Domestic Finance, according to a Bloomberg article on Jan. 21. If confirmed to the position, Liang would oversee management of the $21 trillion Treasury market amid heavy government spending on coronavirus relief.

In Case You Missed It

Rakuten Mounts Third Attempt at ILC Charter

Japanese e-commerce conglomerate Rakuten has submitted a new application for an Industrial Loan Company charter, according to a Jan. 19 American Banker article. BPI has previously opposed Rakuten’s pursuit of the charter, a regulatory workaround that avoids the consolidated supervision to which banks and their holding companies are subject and could allow tech firms to access the benefits of banking without the responsibilities. Rakuten’s application could also cause a mixing of banking and commerce, which have historically been separated. BPI has argued that Congress should close the statutory loophole that makes ILCs a viable backdoor for commercial firms to access the banking system without sufficient oversight. 

BPI Files Joint Amici Brief With Other Trades in California v. OCC Case on the OCC’s ‘Madden Fix’ Regulation 

BPI on Jan. 21 filed a joint amici curiae brief with other finance and business trade groups calling for the U.S. District Court in the Northern District of California to affirm the OCC’s endorsement of a rule that all relevant parties to a loan sale – national bank loan originators, borrowers and secondary market loan buyers and sellers — can rely on the validity of a loan when it is originally made. In the rule at the center of the case, the OCC correctly reaffirmed that a loan free from usury, or illegally high interest rates, at the time it is made cannot become usurious in the future when sold to another lender. BPI argues in the brief that the OCC’s recent rule is consistent with longstanding precedent and resolves credit-market disruptions stemming from a 2015 Second Circuit decision in Madden v. Midland Funding, LLC that ignored the centuries-old “valid-when-made” doctrine. 
In a separate amici curiae brief, a group of 47 leading economic and finance professors discussed research finding large economic advantages to secondary market trading of loans.  The academics conclude that deviating from the OCC’s interpretation of the law by allowing out-of-state usury caps to impede loan sales would hurt income and wealth distribution in the economy.  

Kraninger Resigns CFPB Spot, Paving Way for Biden Nominee

CFPB Director Kathy Kraninger resigned her position leading the agency, she announced in a Jan. 21 tweet. Kraninger said her resignation came at the request of the Biden administration. The departure paves the way for Biden’s expected nominee for CFPB Director, FTC Commissioner Rohit Chopra, to move toward Senate confirmation.  Dave Uejio will lead the Bureau on an acting basis until a permanent Director is confirmed, the White House announced Jan. 20.

Cybersecurity Commission Lays Out Priorities for New Administration

The Cyberspace Solarium Commission released a transition guide on Jan. 21 recommending top cybersecurity priorities for the Biden administration’s first 100 days. The recent SolarWinds cyberattack brings a new sense of urgency to the recommendations. 
According to the report, the top three priorities for the first 100 days should be to establish the Office of the National Cyber Director; develop a National Cyber Strategy to include a framework for deterring and disrupting cyberattacks against the U.S.; and improve federal cybersecurity efforts such as strengthening partnerships with the private sector. BPI has advocated for strengthening information sharing and collaboration between banks and the intelligence community in order to combat national security threats against financial firms.

Fed Reappoints All Reserve Bank Chiefs

The Federal Reserve reappointed all 12 of its Reserve Bank Presidents, the central bank announced Jan. 21. Reserve Bank heads serve five-year terms that expire at the end of February in years ending in 1 or 6. The central bank also reappointed 11 First Vice Presidents.

Democrat Sweep Could Boost Pot Banking’s Cause, But Challenges Remain

Democratic control of Congress and the White House could ease the path for banks to serve legal cannabis businesses while the drug remains illegal under federal law, the American Banker reported in a Jan. 18 article. However, banks aiming to service the cannabis industry still face policy uncertainty. Legislative overhauls could range from narrow measures aimed at providing financial institutions greater comfort when banking cannabis businesses, such as the STATES and SAFE Acts, to decriminalizing the drug altogether.

Citizens Open to Bank M&A

Citizens Financial CEO Bruce Van Saun said the $183 billion asset bank is open to buying another bank, according to a Jan. 20 American Banker article. Van Saun said there’s a “race for scale” in the banking industry, and some banks may need to consider M&A to remain competitive.

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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.