BPInsights: February 7, 2020

BPInsights: February 7, 2020

Top of the Agenda

Federal Reserve Publishes CCAR 2020 Macroeconomic Scenarios

On February 6, the Federal Reserve published the macroeconomic scenarios to be used in CCAR 2020. The Federal Reserve’s stress tests have become an important driver of the capital levels for banks subject to the exercise, and the severity of the severely adverse scenario and of the global market shock play a crucial role in determining the overall stringency of the stress tests.

BPI’s analysis indicates the severely adverse scenario is tougher than last year’s scenario, but less severe than the scenario used in the 2018 stress tests, which was the most stressful scenario to date. It is difficult to pinpoint exactly how much more severe CCAR 2020 will be relative to last year’s test, in part, because the Fed has not yet published the shocks to the risk factors that are included in the Global Market Shock (GMS), which could have a sizable impact on the overall performance of banks with significant trading operations.

Similar to last year’s scenario, the 2020 stress scenario captures a severe global recession (6.5% jump in unemployment and a 50% drop in the stock market) accompanied by vulnerabilities in commercial real estate and corporate debt markets. Learn More >>


5 Stories Driving the Week

1. Treasury Department Calls for Beneficial Ownership Disclosure in Report to Combat Terrorist and Other Illicit Financing 

On February 6, the Treasury Department published its 2020 National Strategy for Combating Terrorist and Other Illicit Financing reportThe report details how the U.S. government is addressing the most pressing illicit finance risks facing the U.S. financial system. Most notably, the report identifies the lack of a requirement to collect beneficial ownership information at the time of company formation, and after changes in ownership, as one of “the most significant vulnerabilities in the United States exploited by illicit actors.” The report goes on to recommend the passage of legislation in 2020 to require the collection of beneficial ownership information and expresses support for proposals currently being considered in Congress. (We concur!) The report also discusses efforts to improve the efficiency and effectiveness of the U.S. AML/CFT regulatory framework, many of which align with recommendations put forward by BPI/TCH and are included in legislation moving through Congress. Learn More >>


2. New Blog Post: The Financial Stability Factor in Bank M&A: Lessons from the BB&T Order

On February 4, BPI published a blog authored by our CEO Greg Baer titled, “The Financial Stability Factor in Bank M&A: Lessons from the BB&T Order.” “In the post, Greg explains how the Dodd-Frank Act instructs the Federal Reserve Board to consider financial stability in reviewing acquisitions under Section 3 of the Bank Holding Company Act. However, post-crisis, there have been relatively few such applications, and none that involved a substantial change to the business of a systemically important financial institution. He uses the post to explain what a more expansive analysis might look like in the context of an acquisition involving greater size or substantial non-banking assets. Learn More >>


3. House Committee on Financial Services Holds Semi-annual Review of CFPB 

On February 6, 2020, the House Committee on Financial Services held a hearing titled “Protecting Consumers or Allowing Consumer Abuse? A Semi-Annual Review of the Consumer Financial Protection Bureau.” CFPB Director Kathy Kraninger was the sole witness. Many Democrats were critical of the CFPB’s new proposed “Abusive” standard, while Republicans offered support for it. Republicans also complimented the Director’s support for the Supreme Court to declare that the CFPB’s current governance structure is unconstitutional. Other recurring themes included an exploration of the CFPB’s work with the Department of Education to supervise large participants in the student loan space, alternative data for consumer underwriting, its work on a proposed rulemaking to reform the Fair Debt Collections Practices Act, the CFPB’s work on financial literacy and the Home Mortgage Disclosure Act. Learn More >>


4. Federal Reserve Governor Brainard Urges Congress to Review Oversight of Retail Payments 

In a speech delivered before the Stanford School of Business on February 5, Federal Reserve Governor Lael Brainard called on Congress to review the evolving landscape of consumer payments and consider how nonbank payments, including virtual currencies and person-to-person networks, are being regulated. Acknowledging the risks associated with these nonbank products, Brainard stated:

Statutory and regulatory protections on bank accounts in the United States mean that consumers can reasonably expect their deposits to be insured up to a limit; their banks to be held to strong data security standards; many fraudulent transactions to be the liability of the bank; transfers to be available within specified periods; and clear, standardized disclosures about account fees and interest payments to be readily available. Consumers may not appreciate that nonbank providers might not provide the same protections.

Brainard proposed that Congress address some of these regulatory gaps and referenced authorities held by foreign central banks to explicitly oversee retail payments, including in some cases issuing licenses or registrations before a provider can commence operations. She mentioned that although the Fed has authority over interbank payment systems and payment systems that are designated as systemically important by the Financial Stability Oversight Council, the Fed does not have general retail payment oversight. She also addressed the Fed’s ongoing efforts to launch a real-time payment system and the growing popularity of digital currencies. Learn More >>


5. Citizens to Fight CFPB Charges Related to Billing Issues Self-Identified and Remediated Nearly 5-Years Ago

Citizens Financial Group is “vigorously” fighting charges brought by the CFPB related to billing errors dating back nearly five years. On January 30, the CFPB announced charges against Citizens Bank, N.A., accusing the bank of violating the Truth in Lending Act, the Fair Credit Billing Act and the Credit Card Accountability Responsibility and Disclosure Act. In responding to the CFBP’s action, the bank noted it self-identified operational errors and remediated them immediately. The errors were limited to only about 2% of its credit card customers, and the bank “voluntarily paid approximately $750,000 in remediation to a far broader set of customers than required by applicable rules.” A WSJ editorial published on February 3 questioned the CFPB’s decision to move forward with charges and raised uncertainty about whether these charges fall within the permissible statute of limitations. Learn More >>


In Case You Missed It

House Financial Services Committee Holds Hearing on Rent-a-bank Schemes 

On February 5, 2020, the House Financial Services Committee held a hearing called “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps.” Members of Congress explored the considerations outlined by the OCC and FDIC’s proposed rules related to the 2nd Circuit decision in the Madden v. Midland Funding case, which challenged the longstanding “valid-when-made” doctrine governing interest rates on loans sold by national banks to nonbanks. Chairwoman Waters and many other Democrats argued that the proposed rules would undermine state enacted usury caps in the event that nonbanks were partnering with some banks to underwrite loans. Republicans generally argued that the Madden decision was poorly decided and supported the proposed rules, defending the legal precept of the valid-when-made doctrine and the role it plays in the promotion of liquidity and the safety and soundness of banks. The hearing also touched on Representative Jesus ‘Chuy’ Garcia’s (D-IL) Veterans and Consumers Fair Credit Act (H.R. 5050), which would establish a 36% federal interest rate cap; however, the legislation has received opposition from Republicans and some Democrats who cite the need to address the cycle of debt using a less blunt instrument. The Committee will hold another hearing on the topic of “rent-a-banks” and interest rate caps on February 26, 2020.

Fed Identifies Benefit to Private Data in Predicting Economic Health 

While big data remains at the forefront of public debate, the Fed is using it as a tool for good by leveraging private data sets to analyze economic health and predict the next recession, reported Christopher Rugaber from the Associated Press. According to the report, “the Fed is increasingly recognizing that some privately produced data is nearly as accurate as — and often timelier than — the government reports that it has long depended upon.” In one example, during the 2018 government shutdown, the Fed leveraged data from a consumer card payment company known as First Data to predict economic indicators while they waited for government economic datasets to be released. In another example from the report, the Fed was able to use data from the payroll market giant ADP to measure employment and wage growth. This greater acceptance of private data sources grants the Fed greater flexibility in their reporting efforts and offers a new opportunity to access granular metrics not previously available in government surveys and datasets.

Visa Announces Changes to Credit Card Interchange Fees 

On February 4, Bloomberg reported that Visa plans to make changes to the fees charged to merchants whenever a customer uses one of their cards to pay, one of the first significant set of changes in almost a decade. According to the report, the changes are intended to incentivize greater acceptance of the company’s cards by merchants and ‘reflect the current value of Visa products.’ These changes will take effect in two phases, beginning in April and finalizing in October, to provide time for processors and merchants to prepare for the new rates.

FDIC Office of Inspector General Identifies Inconsistencies in Agency’s Due Diligence of Cost-Benefit Analyses 
On February 5, 2020, the American Banker reported that the FDIC’s Office of Inspector General released findings that the FDIC has been inconsistent in its due diligence of cost-benefit analyses of agency rulemakings. The report proposed a set of process changes the agency should adoptaligning with some of the recommendations included in a comment letter filed by BPI on January 28. The report stated, “[t]he FDIC had not established and documented a process to determine when and how to perform cost benefit analyses,” and acknowledged that, “[w]ithout thorough cost benefit analyses, the FDIC could implement or continue to enforce poorly conceived or overly burdensome rules.”

BPI Submits Recommendations to the Basel Committee on Banking Supervision’s Recent Consultative Document on Efforts to Enhance Anti-Money Laundering Effectiveness 
On February 6, 2020, BPI submitted a comment letter to the Basel Committee on Banking Supervision (BCBS) in response to the Committee’s consultative document titled, Introduction of guidelines on interaction and cooperation between prudential and AML/CFT supervision. In its letter, BPI recommends that the consultative document be modified to affirmatively state that AML supervisory expectations should solely reflect the legal and regulatory framework of a jurisdiction, and should be structured to provide highly useful information to law enforcement with increased law enforcement engagement in the supervisory and rulemaking process. BPI also encouraged the BCBS to include provisions to provide appropriate notice to financial institutions when information is being shared between supervisors, in an effort to mitigate the risk of a regulator unfamiliar with a given institution misinterpreting the information being shared.

BPI Along with SFA File Comment Letter in Support of FDIC Proposed Rulemaking on “Madden Fix”

On February 4, 2020, BPI, along with the Structured Finance Association (SFA), offered comments to the FDIC in support of the agency’s proposed rulemaking on federal interest rate authority. The proposal mirrors that of the OCC, as both agencies seek to address the ruling by the Second Circuit in Madden v. Midland Funding, which called into question the enforceability of interest rate provisions of bank credit agreements following assignment of the loan to a nonbank. BPI and SFA expressed support for the FDIC’s proposed clarifications, which would codify the permissibility of the interest rate on a loan made pursuant to Section 27, as not being affected by any subsequent events or sales, assignments, or transfers of the loan. Further, the letter encouraged the FDIC to finalize the proposed rule as soon as possible to address uncertainty in the market and to harmonize the final rule with the parallel proposal from the OCC.



  • 02/11/2020 – The House Committee on Financial Services will convene for a hearing titled “Monetary Policy and the State of the Economy.”
  • 02/12/2020 – The Subcommittee on Diversity and Inclusion will convene for a hearing titled, “A Review of Diversity and Inclusion at America’s Large Banks.” 
  • 02/12/2020 – The Task Force on Artificial Intelligence will convene for a hearing titled “Equitable Algorithms: Examining Ways to Reduce AI Bias in Financial Services” 
  • 02/13/2020 – The Senate Committee on Banking, Housing, and Urban Affairs will conduct a nomination hearing on the following nominations: Ms. Jessie K. Liu, of Virginia, to be the Under Secretary for Terrorism and Financial Crimes at the Department of the Treasury; The Honorable Judy Shelton, of California, to be a Member of the Board of Governors of the Federal Reserve System; and Dr. Christopher Waller, of Minnesota, to be a Member of the Board of Governors of the Federal Reserve System
  • 02/14/2020 – Columbia University/Bank Policy Institute 2020 Bank Regulation Research Conference
  • 02/14/2020 – Office of the Director of National Intelligence to announce counterintelligence strategy to protect against cyber threats
  • 02/26/2020 – The House Committee on Financial Services will hold a hearing titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps (Part 2)”


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