Stories Driving the Week
Stronger Cyber Safeguards, Smoother LIBOR Switch: What’s in the Omnibus Bill
The House and Senate voted this week to pass the 2022 omnibus spending bill, sending it to the President’s desk to be signed into law. It includes key provisions strongly supported by BPI.
The bill will benefit the economy and strengthen cybersecurity. It addresses “tough legacy” LIBOR contracts, referring to hard-to-amend contracts that base their interest rates on the London Interbank Offered Rate (LIBOR), without applicable fallback language. Failing to enact a federal legislative fix would leave investors, consumers and issuers of securities embroiled in years of uncertainty and litigation. The legislation is timely, as the remaining versions of LIBOR are scheduled to be discontinued in June 2023. It also establishes new requirements for how the private sector and its government partners should share information following a cyber incident to help front-line responders prevent and deter threats.
Greg Baer, BPI President and CEO, issued the following statements in response to the Senate vote:
On LIBOR “Tough Legacy” Contracts…
- “The targeted LIBOR legislation included in the omnibus bill will give needed clarity to tough-to-amend LIBOR contracts that lack adequate fallback language, supporting a smooth transition away from LIBOR and avoiding a disruption in financial markets.”
On Cyber Incident Reporting…
- “This legislation recognizes that front-line defenders can’t drop everything amid a cyber event to try and guess what to report to the government and how to do it. It establishes clear guidelines on what is required to be reported before an event takes place so cyber experts can focus on doing their jobs in a crisis, while still ensuring their government partners have what they need to warn others and coordinate a government response. BPI supports these reforms and calls on the President to sign this bill into law.”
The bill now awaits the President’s signature: The U.S. House of Representatives voted to pass the legislation on Wednesday evening. The bill will now be forwarded to the President, where it is widely expected to be signed into law.
These efforts were made possible by the sponsors’ leadership: The inclusion of these provisions in the omnibus bill is a significant achievement made possible through the sponsors’ leadership and the open and productive engagement between Congress and industry. BPI expresses sincere gratitude to Rep. Yvette Clarke (D-NY), Rep. Andrew Garbarino (R-NY), Rep. John Katko (R-NY), Rep. Bennie Thompson (D-MS), Sen. Gary Peters (D-MI) and Sen. Rob Portman (R-OH) for their efforts to modernize cyber incident reporting requirements. We also thank Sen. Jon Tester (D-MT), Sen. Thom Tillis (R-NC) and Rep. Brad Sherman (D-CA) for their work on LIBOR.
White House Gives Government Crypto Homework
President Biden issued an Executive Order this week directing federal agencies to address the risks of digital assets, study how existing rules and policies apply to them and evaluate whether there’s an appropriate role for a U.S. central bank digital currency.
- BPI’s take: “The Administration’s directive will lead to greater clarity for banks and other financial institutions as they consider how to continue to innovate and meet customer demand for digital assets-related products and services while appropriately managing the relevant risks,” BPI CEO Greg Baer said in a statement. “Over the last several years, Big Tech and FinTech startups have enjoyed the benefit of little to no regulatory oversight while offering an ever-expanding range of digital and crypto products and services, some of which present significant risks to unsuspecting consumers. Meanwhile, regulated financial institutions have been stuck on the sidelines waiting for further regulatory action before expanding their digital offerings.”
- CBDC: The measure tees up research into a potential U.S. CBDC. The Federal Reserve is already seeking input on the topic, with comments due in May. We believe future research will conclude that CBDCs would pose considerable and unavoidable costs to the financial system and economy while producing few, if any, tangible benefits.
- National security: The order will help the U.S. government identify and thwart risks to national security, such as the use of cryptocurrency to evade U.S. sanctions.
Federal Court: FDIC Used Illegal Delay Tactics in Bank M&A Review
A federal court found that the FDIC violated the law by failing to either approve or disapprove a Change in Bank Control Act notice filing in a timely matter; the FDIC had claimed that the written notice was not informationally complete and therefore that the statutory clock was not running. The recent opinion from the U.S. District Court for the District of Columbia in Hurry v. FDIC explains why a basic notice of intent to acquire a bank under the Change in Bank Control Act starts the FDIC’s clock to approve or disapprove the acquisition. The FDIC cannot claim that the statutory period for acting on a filing is triggered only when the FDIC gets all the information it wants. The Court framed the issue in the decision as “whether a federal banking agency may circumvent this process by declining to accept a notice of proposed acquisition in the first place on the ground that it is not ‘substantially complete.’” As the Court said, “If the Court were to adopt the FDIC’s reading of the statute, the statutory deadline would be a dead letter—or near to it.” The Court pointed out that by declining to either approve or disapprove the filing, the FDIC cut short the applicant’s procedural rights, denying the applicant an administrative hearing and judicial review in the event of the FDIC’s disapproval.
What’s Happening in Russia Sanctions
Here’s the latest news on Russia sanctions as the country’s war in Ukraine continues to rage.
- Russian oil and gas ban: President Biden this week issued an Executive Order banning U.S. imports of Russian oil, liquefied natural gas and coal. The U.K. imposed a similar ban on Russian oil.
- House panel to consider Ukraine bills: At its markup next week, the House Financial Services Committee will consider several bills related to Russia’s war in Ukraine. They include bills that would broaden the U.S. government’s ability to target Russian oligarchs’ assets or shell companies and further restrict Russian access to U.S. financial markets.
- Senate targets gold: A bipartisan group of senators – Sens. Angus King (I-ME), John Cornyn (R-TX), Bill Hagerty (R-TN) and Maggie Hassan (D-NH) — introduced a bill this week to prevent Russia from liquidating its gold stockpile to weather sanctions.
- Russian lawmakers: The White House is considering new sanctions against lawmakers in the upper chamber of the Russian parliament, according to The Washington Post this week. Several members of the country’s Federation Council already face sanctions from the European Union.
- Europe’s list grows: Europe also added 14 more Russian oligarchs and business leaders to its sanctions roster. The people include the CEO of Russian airline Aeroflot and owners of large coal and fertilizer producers.
OCC’s Hsu: Climate Risk Isn’t Political
Acting Comptroller Michael Hsu in a speech this week disputed the notion that climate risk in banking supervision is a political consideration. “[T]he OCC does not view climate risk through a political lens or as a political priority,” Hsu said. “We do so through the lens of safety and soundness.” He compared climate risk management to managing the geopolitical risk of the war in Ukraine.
- What-if analysis: “Doing a ‘what if?’ scenario analysis is bread-and-butter risk management for banks and can and should be applied to climate risks in the same, objective, dispassionate way that banks approach geopolitical risk,” Hsu said. “The good news is that banks are not waiting for regulatory guidance and have begun to explore these issues on their own.”
- Next steps: The OCC is preparing to finalize climate risk management principles by the end of this year. After that, Hsu noted, the agency plans to issue more detailed guidance and then start to assess large banks’ climate risk management abilities.
CRA Revamp Could Come as Soon as This Month
An interagency overhaul of Community Reinvestment Act rules could be proposed before the end of March, according to Mark Pearce, director of the FDIC’s division of depositor and consumer protection. “That’s the goal line that we’ve been working toward,” Pearce said in an American Banker article this week. The revised CRA regulations will include a focus on income and wealth inequality. They are also expected to address climate change, disaster recovery and banks’ partnerships with nonbank lenders. BPI supports a joint-agency CRA revamp and looks forward to reviewing and commenting on the forthcoming proposal.
Treasury’s Liang: Stablecoins Are Far from Risk-Free
Stablecoins are billed as a safer form of crypto, but they present risks to consumers and the financial system, senior Treasury official Nellie Liang said in a recent Washington Post op-ed. “[S]tablecoins are not yet subject to consistent regulatory safeguards — meaning they pose an elevated risk to consumers and might even threaten the stability of the financial system,” Liang wrote. If consumers rush to redeem stablecoins in times of stress, financial market stability could be threatened. Liang recently testified before Congress about the potential risks of the digital assets.
In Case You Missed It
Financial Times: How Facebook’s Crypto Dream Died
A Financial Times article this week lays out the inside story of how Facebook’s stablecoin project – Libra, later known as Diem – died. The project alarmed policymakers and regulators who feared the implications of a global cryptocurrency embedded in the payments system tied to Big Tech.
- Key quote: “Diem spent years trying to reverse engineer their project to fix all of its faults,” an unnamed government official said in the article. “But they could never fix being linked to Facebook. It was their original sin.”
Crypto, Stablecoins, Legislation: POLITICO Q&A with Rep. Patrick McHenry
Rep. Patrick McHenry (R-NC), ranking member on the House Financial Services Committee, discussed prospects for crypto legislation in a POLITICO Q&A this week. McHenry recently called for crypto legislation in a statement after the Biden Administration issued its digital assets Executive Order.
Robin Vince to Take Helm as New BNY Mellon CEO
BNY Mellon this week announced Vice Chair Robin Vince as its next CEO. Vince will succeed Todd Gibbons, who is retiring in August.
U.S. Bank Announces WNBA Partnership
U.S. Bank agreed to a multiyear relationship with the WNBA as one of its “Changemakers,” the league announced this week. U.S. Bank will become the official bank of the WNBA and its major events and offer financial wellness resources and education to players and alumni. The program supports the WNBA’s business transformation efforts in marketing, branding and player and fan experience.