BPInsights: September 11, 2021

Stories Driving the Week

Equity Should Be Required of the Entire Financial Sector, Not Just Banks 

Banks have an affirmative obligation to ensure that their financial products equitably serve the entire market, including low-income and low-wealth communities. But nonbanks like FinTech firms, which also provide financial services do not currently share this obligation, despite taking advantage of federal programs that reduce the risk to their institutions, such as nonbank mortgage lenders selling loans to GSEs. Both banks and nonbanks should share the duty to serve all families and communities, BPI CEO Greg Baer and National Community Reinvestment Coalition CEO Jesse Van Tol wrote this week in a Morning Consult op-ed. That obligation is particularly important as the financial industry works to close the racial wealth gap and the federal banking agencies work together on new Community Reinvestment Act rules. Congress should ensure that nonbanks have a similar duty to serve all communities.

A Short Prescription for Ensuring Responsible Open Banking in the United States

Global policymakers are pushing for consumers to wield more direct control over their banking information. In the U.S., the CFPB is weighing the contours of consumer data sharing as it prepares to implement section 1033 of the Dodd-Frank Act. Any domestic “open banking” effort should include three key points, a new BPI blog post says. First, the financial industry needs a timeline for moving away from the less secure data access method of screen scraping and toward more secure APIs. Second, firms holding sensitive consumer financial data – whether banks or data aggregators that port financial data between different platforms — should be required to keep that data safe. Third, the CFPB should limit the amount of data shared to only the data necessary to provide a given service.

The FSB’s Climate Roadmap—Are We on the Road to a New International Standard?

The FSB’s recently published Climate Roadmap signals a path toward an international standard, a new BPI blog says. The prospect of a unified international standard for how banks manage climate risk could create frictions for cross-border banking. While the Roadmap does not explicitly lay out the end goal of an agreed-upon international standard, it hews closely to an established process for international financial benchmarks. If an international standard is the final destination, regulators should ensure such a standard is risk-based and does not hinder cross-border banking flows. After all, disruption to global banking could undermine financing of the transition to a low-carbon economy.

SEC Takes Aim at Coinbase Lending Program

The SEC is investigating crypto exchange Coinbase’s planned lending program that would allow USD coinholders to lend out those stablecoins to other traders and earn interest, according to The Wall Street Journal this week. Coinbase CEO Brian Armstrong disclosed the move in a series of critical tweets. The episode marks the latest attempt by government to regulate crypto activities.  Several state regulators, including New Jersey’s, have accused other crypto lending platforms, such as one offered by BlockFi Inc., of violating securities laws.  In addition, the President’s Working Group and the Federal Reserve are expected to issue proposals to mitigate the risks posed by stablecoins and their issuers in the near future, and Sen. Pat Toomey (R-PA) has solicited input from the public on possible legislative solutions to address those and other risks posed by crypto activities. Notwithstanding the SEC’s threatened action disclosed on Wednesday of this week, Coinbase nonetheless proceeded to market another new cryptocurrency “staking” product on Thursday: see here.

OCC Moves to Scrap Standalone CRA Rule

The OCC this week proposed to rescind its 2020 Community Reinvestment Act rule, which the agency had issued separately from other federal banking regulators. The move by Acting Comptroller Michael Hsu marks progress toward a joint CRA rulemaking among the banking agencies, which BPI has applauded as a consistent approach that will enable banks to deepen their presence in underserved communities.

In Case You Missed It

BPI’s Baer Featured on Bankshot Podcast: Can Cryptocurrency Become Mainstream?

BPI CEO Greg Baer participated in a recent American Banker podcast about whether cryptocurrency will become a mainstream asset class. Many banks are concerned about the significant volatility of the cryptocurrency market, Baer said on the podcast. Some bank clients are nonetheless interested in owning cryptocurrency or in using crypto custody services, and banks are prepared – “there are a lot of very volatile assets that bank clients want to hold, and banks will allow you to hold that,” he said.

Federal Judge Signals No Abrupt End for LIBOR

A U.S. district court judge in San Francisco rejected a group of borrowers’ call to end the use of LIBOR immediately. The judge, James Donato, was not convinced that plaintiffs’ request for an injunction halting the benchmark’s use met the legal test of urgency, according to Bloomberg. Banks had argued that slamming the brakes on LIBOR would undermine years of work overhauling the reference rate and ensnare financial markets in chaos. The rate is being phased out by mid-2023.

State Regulators Propose Joint Standards for Payments Firms

The Conference of State Bank Supervisors released the Uniform Money Transmission Modernization Act, a new model law that aims to standardize regulation and requirements applicable to money transmitter firms operating across the country.  The CSBS will work to ensure uniform implementation of the law among the 50 states.

FDIC Enlists Crypto Firm Anchorage to Help Detangle Bank Failures

The FDIC signed a five-year contract with crypto firm Anchorage to help the agency unwind failed lenders that hold cryptocurrencies, according to POLITICO Pro this week. Anchorage, which earlier this year obtained conditional OCC approval to convert its state trust bank charter to a national one, would assist distressed lenders with holding and valuing their digital assets so they can be dealt with while FDIC acts as receiver of the collapsed firm. The U.S. Marshals Service hired Anchorage earlier this year to assist with handling seized crypto assets.

WSJ: Digital Currencies Pave Way for Deeply Negative Interest Rates

Central bank digital currencies could enable global central banks to circumvent the “zero lower bound” of monetary policy by eliminating people’s ability to hoard physical banknotes, James Mackintosh wrote in a Wall Street Journal piece this week. That consequence would only take place in a world without physical cash, but it would have profound implications for investors and monetary policy tactics. BPI Chief Economist Bill Nelson notes that the Fed with a CBDC could only drive interest rates significantly negative if it restricted access to cash, but if the Fed restricts access to cash, it does not need a CBDC to drive interest rates significantly negative; it could do so with its current toolkit. Nelson published a blog post on the topic in April.

GAO Eyes Treasury Cash Balance Uncertainty in Pandemic

The Treasury Department should clarify its policy for managing its operating cash balance – including all factors it uses to determine the appropriate level — and communicate it to the public, the Government Accountability Office recommended in a recent report. The study examined Treasury market functioning amid the pandemic disruption in March 2020. During the pandemic, investors did not understand what factors were driving Treasury’s cash balance level, leading to market uncertainty that can impose costs on taxpayers.

BofA Launches Account-Linking Service for Low Balances

Bank of America launched a new service, Balance Connect, that automatically moves money between customers’ different accounts to avoid overdrafts. The transfers come with a $12 fee and are the latest BofA product aimed at assisting customers with low balances.

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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.