McKernan Outlines Vision for CFPB in Senate Confirmation Hearing
Jonathan McKernan, nominee for CFPB Director, outlined his vision for the agency during a Senate Banking Committee nomination hearing this week. He emphasized strong consumer protection focused on bad actors rather than broad mandates that raise costs and limit consumer choice. Here are notable exchanges:
- Regulatory Overreach and Accountability: McKernan criticized the CFPB’s politicization, arguing that the agency has “pushed beyond its statutory authority” and “undermined fairness and due process through regulation by enforcement.” He pledged to “take all steps necessary to implement and enforce the federal consumer financial laws and perform each of its other statutorily assigned functions.”
- Enforcement and Consumer Redress: When questioned about the CFPB’s enforcement record by Senator Mark Warner (D-VA), McKernan pushed back on the idea that success should be measured by the fines collected. “I don’t think we should evaluate the success of the CFPB based on dollar numbers or enforcement count,” he stated. “That’s like evaluating an official based on the number of fouls he calls during the game. We should evaluate the game on whether it’s fair.”
- Cost-Benefit Analysis: In an exchange with Senator Dave McCormick (R-PA), McKernan stressed that the CFPB must weigh costs and benefits in rulemaking. “By statute, the CFPB is required to consider both the cost and benefits with its rules,” he noted, adding that regulations should be “data-driven based on the evidence” and should account for “unintended consequences.”
- Consistent Regulation: When asked about the CFPB’s role in overseeing payment platforms, McKernan affirmed his commitment to ensuring regulatory consistency. “[I]f I’m confirmed to the CFPB, then I will execute on its responsibility to monitor risks under all the consumer financial laws. That’s both in the banking system and outside the banking system.”
Five Key Things
1. Why Discard the Traditional Assessment Area Approach to CRA Regulation?
Advocates of a broader CRA approach say branch-based assessment areas are shrinking due to branch closings – they suggest these areas are less effective for ensuring banks are meeting their communities’ needs. They also point to the effects of online banking expansion, claiming that an increasing share of banks’ retail lending has moved outside their traditional branch footprints. BPI’s latest blog post argues that neither assertion is consistent with the empirical data.
- Assessment areas are not shrinking, and evidence does not support the view that branch closings have made the CRA less effective.
- Nor is there substantial evidence that bank lending has increasingly moved outside of their traditional assessment areas. Any kind of revised rule that pushes banks to focus more on the composition of their lending outside of their traditional assessment areas could prove counterproductive.
2. Cleveland Fed President Hammack Examines Financial Stability and Regulatory Tradeoffs at Columbia SIPA/BPI Conference
Cleveland Fed President Beth Hammack highlighted the resilience of the financial system while also warning about potential risks tied to private credit expansion and hedge fund leverage at the 9th Annual Columbia SIPA/BPI Bank Regulation Conference. She cautioned the need to “consider the broader consequences of regulations that shift lending outside the banking sector,” highlighting how regulations designed to strengthen banks have had the unintended consequence of shifting risk outside the banking system. Hammack also emphasized the need to reassess regulatory frameworks, like the supplementary leverage ratio to ensure they do not constrain market liquidity, particularly in U.S. Treasury markets, where leverage constraints have limited banks’ role in intermediation.
She also stressed the importance of liquidity tools like the standing repo facility in maintaining financial stability. While designed as backstops during times of stress, discount window stigma continues to discourage banks from using it.
Lastly, Hammack indicated that the FOMC could be “patient” as it assesses the policy path forward and so would “likely” keep rates unchanged for “some time.”
3. Brussels Simplifies Corporate Sustainability Rules in New EU Omnibus Directive
In an ongoing bid to boost the European Union’s global competitiveness, the European Commission unveiled the first of two anticipated Omnibus packages on Wednesday aimed at simplifying corporate reporting requirements and reducing regulatory complexity. Among the many changes, the proposal:
- Delays reporting deadlines under the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). CSRD reporting will be delayed two years and CSDDD reporting will be delayed one year.
- Narrows compliance scope, limiting mandatory reporting to companies with over 1,000 employees and eliminating sector-specific disclosures.
- Amends key EU sustainability regulations, including:
- Taxonomy Disclosures and Climate & Environmental Delegated Acts, adjusting reporting obligations for companies and subjecting those changes to public consultation;
- Carbon Border Adjustment Mechanism Regulation, refining how emissions costs are applied to imports;
- InvestEU Regulation, modifying financing criteria for sustainability-related investments; and
- The extraterritorial scope of the rules remains, although with some modifications.
4. Prescribing ‘Off-Label’ CCyB Usage Should Come with a Warning Label
Macroprudential policy is meant to safeguard the financial system as a whole, rather than ensuring the safety of individual financial institutions. It can be static or dynamic. Dynamic macroprudential policy aims to stem financial imbalances as they build up or cushion the blow when they crystallize. It can take the form of tightening or easing prudential requirements. The countercyclical capital buffer, or CCyB, is one example of a dynamic macroprudential policy tool that exposes the broader weaknesses of policies dependent on regulators’ precise foresight into emerging risks. The CCyB, enacted in the U.S. but never used, has a fatal design flaw: its success hinges on the Fed’s ability to flag emerging financial risks in advance. Some have suggested the CCyB should instead simply be raised in expansions and lowered in recessions or be used to create a “usable” capital buffer. A recent BPI note discusses the problems with these new contemplated uses and the failure of dynamic macroprudential policy as a whole.
5. Trades Urge CISA to Rescind and Revise Overly Broad Cyber Reporting Rule
A coalition of financial trade associations this week urged the Cybersecurity and Infrastructure Security Agency to rescind and reissue its proposed cyber incident reporting rule to implement the Cyber Incident Reporting for Critical Infrastructure Act. The groups — including the Bank Policy Institute, American Bankers Association, Institute of International Bankers and the Securities Industry and Financial Markets Association — warn that the proposed rule diverges from congressional intent, imposes unnecessary burdens and shifts critical cybersecurity resources away from defending institutions and their customers.
In Case You Missed It
Judge Grants 30-Day Compliance Pause, Denies FTA Intervention in CFPB Section 1033 Case
A federal judge this week paused litigation and delayed compliance obligations for 30 days in the challenge to the CFPB’s Section 1033 data-sharing rule. The rule, finalized in October 2024, governs how consumers access their financial data and how that data is protected. BPI, the Kentucky Bankers Association and Forcht Bank have argued the rule requires no oversight for third parties, increases the likelihood of fraud and scams and fails to hold third parties accountable when things go wrong. The judge also denied the Financial Technology Association’s Motion to Intervene, though noted that the FTA may refile if the case remains unresolved after March 31, 2025.
Michael Faulkender Nomination Hearing Scheduled for March 6
The U.S. Senate Committee on Finance announced a hearing on March 6, 2025 to consider the nomination of Michael Faulkender for Deputy Secretary of the Treasury. Faulkender formerly served as Assistant Secretary for Economic Policy at the US Department of Treasury, where he was responsible for — among other things — COVID-19 pandemic relief programs, including helping to negotiate the CARES Act and implementing the Paycheck Protection Program.
FDIC Repositions Legal Strategy in Kansas and Colorado Cases
The FDIC withdrew its defense of in-house administrative law judges in an enforcement case against Kansas-based CBW Bank, according to reporting by Law360. CBW argued in the U.S. District Court for the District of Kansas that because in-house judges could not be removed by the President, the use of administrative law judges violates the bank’s constitutional rights. The decision follows a Department of Justice statement on February 20 stating that “multiple layers of removal restrictions shielding administrative law judges are unconstitutional.” While the FDIC will discontinue its defense of this removal issue, the FDIC has not dropped its enforcement action against CBW for alleged AML deficiencies and the litigation will proceed on other grounds.
In a separate move, the FDIC also rescinded its amicus brief in National Association of Industrial Bankers v. Weiser, a Colorado case seeking to limit state banks’ ability to apply their home-state rates across state lines. At issue is the question of where a loan is made for purposes of a federal interest rate exportation law; the amicus brief submitted in April 2024 marked a departure from longstanding FDIC interpretations that had been in place for over four decades. In its recent filing, the FDIC cited the “change in Administrations” as the basis for withdrawing the brief.
Karen Evans Named CISA’s Executive Assistant Director for Cybersecurity
Karen Evans has been appointed as the Executive Assistant Director for Cybersecurity at the Cybersecurity and Infrastructure Security Agency where she will oversee efforts to protect government agencies and critical infrastructure from cyber threats. Evans was appointed as senior adviser to CISA in January and previously served as the first Assistant Secretary for Cybersecurity, Energy Security, and Emergency Response at the Department of Energy and as CIO at the Department of Homeland Security.
Scott Frame Joins BPI as Deputy Head of Research
BPI announced this week the hiring of Scott Frame as Senior Vice President, Deputy Head of Research. Scott currently serves as Chief Economist and Head of Policy at the Structured Finance Association. He will start at BPI on March 3. At the SFA, Scott managed the response to bank regulators about the Basel III Endgame proposal regarding the securitization framework, led a committee advocating for bank synthetic risk transfer transactions, and engaged on other crucial issues affecting the securitization market.
The Crypto Ledger
Here’s the latest in crypto.
- North Korean Hackers Behind Historic $1.5B Bybit Crypto Heist. Lazarus Group and TraderTraitor, two North Korean-affiliated hacking groups, were identified by the FBI this week as the culprits behind a $1.5 billion Ethereum theft from Dubai-based exchange Bybit. In a public alert, authorities revealed that the illicit actors are quickly laundering funds across multiple blockchains and working to convert the stolen assets to fiat currency. Bybit has set up a $140 million bounty to try to recover some of the funds. This event represents one of the largest crypto heists of all time.
- Bitcoin Takes a Plunge. Bitcoin dropped over 5% this week, hitting its lowest level since November.
- SEC Drops Enforcement Action Against Coinbase. The SEC took action to dismiss its enforcement action against crypto exchange Coinbase on Thursday. The enforcement action accused Coinbase Inc. and Coinbase Global Inc. of failing to register several crypto products as securities. The announcement stated: “The Commission’s decision to exercise its discretion and dismiss this pending enforcement action rests on its judgment that the dismissal will facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, not on any assessment of the merits of the claims alleged in the action.”
- Crypto Fraudster Meets Justice. Douglas Jae Woo Kim has been convicted of wire fraud and money laundering after scamming investors out of $7 million in a cryptocurrency scheme. Instead of investing the funds, he used them for gambling.
BPI Job Bank
Upcoming Events
3/4/2025: House Financial Services Committee Hearing: Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity: Examining Monetary Policy and Economic Opportunity
