BPInsights: November 20, 2021

Stories Driving the Week

Omarova Faces Bipartisan Scrutiny

OCC nominee Saule Omarova risks being rejected by the Senate after a contentious confirmation hearing this week, the Financial Times reported. The Cornell law professor’s policy positions faced criticism from Republicans as well as two moderate Democrats, Sens. Jon Tester (D-MT) and Mark Warner (D-VA), the article said. Tester and Warner expressed concern about Omarova’s opposition to a bipartisan 2018 bill that tailored bank regulations. In addition, POLITICO has reported that at least seven Senate Democrats have expressed reservations about her nomination to the White House.

Basel Lays Out Principles for Bank Climate Risk Management

The Basel Committee on Banking Supervision this week issued a consultative document offering principles for banks to manage climate risk. The principles recommend incorporating climate risk oversight into boards of directors’ responsibilities and into banks’ internal controls. The Basel document provides a preview of global supervisors’ approach to climate risks in the banking system. On the home front, Reuters reported this week that several banks expect the Federal Reserve to oversee a formal climate scenario analysis process as soon as 2023.

Banking Agencies Finalize Cyber Incident Notification Rule

This week, the OCC, Federal Reserve and FDIC issued a final rule requiring a bank to notify its primary federal regulator if a data breach or other computer-security incident occurs. Once a bank determines that an incident has occurred, a notification must be made “as soon as possible and no later than 36 hours.” The rule becomes effective on April 1, 2022, and the compliance date is May 1, 2022. In contrast to legislative proposals on incident reporting, the rule is for notification purposes and has far fewer specific requirements. BPI released a statement in support of the rule. 

“BPI recognizes the value of timely notification and supports the final rule, which establishes a clear timeline and flexible process for notifying regulators and affected parties when a significant incident occurs,” Heather Hogsett, BPI Senior Vice President, Technology and Risk Strategy, said in the statement. “The rule also importantly maintains a clear distinction between notification and reporting. Cyber-incident notification encourages early collaboration between regulators and banks so that regulators are made aware of circumstances that may have broader implications across the financial system while banks work to respond to, and investigate the incident. Legislation to address cyber-incident reporting—a more detailed and intensive reporting mechanism—is being considered by the Senate and BPI encourages prompt passage, which would complement this rule and would further strengthen the resilience of the U.S. economy by requiring all critical infrastructure sectors to comply with the same incident-reporting rules and regulations that have applied to banks for over 20 years.”

BPI’s Greg Baer on Data Sharing, Stablecoins at Philly Fed Conference

BPI President and CEO Greg Baer participated in a fireside chat this week at a Federal Reserve Bank of Philadelphia FinTech conference with Wharton School professor Richard Herring. The Q&A covered topics such as the future of stablecoins and the evolution of consumer financial data sharing between banks and third-party providers. Banks are migrating to more secure data-sharing conduits like APIs, Baer said at the event. He also explored the implications of “stable stablecoins” and “unstable stablecoins,” including the risk of investor flights to safety to stable stablecoins.

U.S. Officials Call for Treasury Market Reforms

U.S. financial officials called for reforms to the Treasury market this week. The recommendations come after major upheaval in the Treasury market in March 2020.

  • SEC: At a New York Fed conference this week, SEC Chairman Gary Gensler suggested steps to overhaul the market, such as requiring more firms trading in Treasuries to register as dealers with the agency; broadening oversight of trading platforms; and expanding central clearing of Treasuries. Gensler referred to work by BPI Senior Fellow Pat Parkinson and Nellie Liang, now a senior Treasury official, offering solutions to enhance Treasury market liquidity. He also referred to the recent Group of Thirty report on the subject; Parkinson served as project director of that effort.
  • Treasury: Liang, Treasury undersecretary for domestic finance, said in a POLITICO Q&A this week that “there is urgency” for Treasury market reform. “We should take advantage of a point in time where many of the agencies are collectively working on this,” she said.

What’s New in Stablecoins, Crypto

Stablecoins and cryptocurrency continue to attract notice from federal policymakers. Here’s what’s new this week:

  • FSOC: The Financial Stability Oversight Council discussed a recent stablecoin report from the President’s Working Group on Financial Markets, according to Bloomberg. The report generally recommended that stablecoins be issued only by insured depository institutions, that custodial “wallet” providers be subject to federal oversight and that stablecoin issuers be restricted from affiliating with commercial entities. 
  • Crypto sprint: The Federal Reserve, OCC and FDIC will soon release the results of a months-long “crypto sprint,” an effort to coordinate on cryptocurrency definitions, risk oversight and activities regulation, according to POLITICO. The agencies’ upcoming statement will focus on stablecoins, crypto-collateralized lending, buying and selling virtual currencies for clients, holding crypto on clients’ behalf and activities that could lead to banks putting digital assets on their books, the article said.
  • Proceed with caution: Acting Comptroller Michael Hsu said in remarks this week that the OCC will soon release interpretive letters on crypto along with the interagency crypto-sprint statement, and that the releases should not be interpreted as a “solid red light” or green light. “The message from both is that the agencies are approaching crypto activities very carefully and with a high degree of caution,” he said. “We expect banks to do the same.” Hsu also warned that no crypto firms are currently subject to robust consolidated supervision, as banks and their parent companies are, and called for the bank regulators to define “where the line for comprehensive, consolidated supervision should lie.”
  • Republicans’ red lines on CBDC: House Republicans released a set of principles that they said should guide any U.S. central bank digital currency. A CBDC should aim to maintain the U.S. dollar’s reserve currency status and the U.S. payment system’s “global preeminence.” Congress should also not impede the development of stablecoins if it considers a CBDC, they said. The principles call for activities-based regulation of digital currency and said lawmakers must ensure privacy is protected if they authorize a CBDC.
  • Waller’s view: Federal Reserve Governor Christopher Waller signaled dissent from the PWG’s approach to stablecoins in a speech this week, disagreeing with the idea that stablecoins should only be issued by banks and noting that other approaches may support innovation while addressing risks.  He noted that “the regulatory and supervisory framework for payment stablecoins should address the specific risks that these arrangements pose – directly, fully and narrowly.” He also said there is no need to restrict commercial firms from owning or controlling “wallets” or other intermediaries that do not engage in lending activities.

In Case You Missed It

Steele Confirmed for Treasury Position

Graham Steele, a former Democratic Senate Banking Committee staffer and director of the Corporations and Society Initiative at Stanford University’s business school, was confirmed by the Senate as assistant secretary for financial institutions at the Treasury Department. Steele also served previously as a staffer at the Federal Reserve Bank of San Francisco.

U.S., U.K., Australia Identify Iran as Ransomware Threat to Critical Infrastructure

The FBI and CISA, along with British and Australian cyber authorities, identified Iranian government-backed hackers as threats to critical infrastructure, particularly through ransomware. The Iranian actors targeted a U.S. municipal government and a children’s hospital, the cybersecurity advisory noted. The U.S. government is cracking down on ransomware attacks, including by sanctioning firms like crypto exchanges for “facilitating financial transactions for ransomware actors.” It is also joining with allies in cybersecurity efforts. The Treasury Department recently announced a partnership with Israel to combat ransomware.

Yellen Sounds Alarm on Debt Ceiling Deadline

Treasury Secretary Janet Yellen warned Congress this week that the U.S. could default after Dec. 15 if lawmakers do not take quick action to raise the debt ceiling. Congress voted last month to raise the borrowing limit, but it was only a short-term stopgap measure. Along with the debt ceiling deadline, Congress must also figure out how to resolve government funding, which is set to expire on Dec. 3.

Wells Fargo Announces $20M Donation to Charlotte Small Businesses

Wells Fargo is donating $20 million to help small businesses in Charlotte own more of their businesses’ assets, the bank announced this week. The donation takes the form of grants distributed through Foundation for the Carolinas.

Q&A: JPMorgan’s Jeremy Balkin

Jeremy Balkin, global head of innovation and corporate development at JPMorgan Payments, sat down recently for a Q&A with American Banker on how payments are the bedrock of every business.

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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.