Top of the Agenda
Agencies Release Proposal to Revise Volcker Rule’s ‘Covered Funds’ Restrictions
5 Stories Driving the Week
1. Federal Reserve Votes to Finalize New Control Framework
2. Comptroller of the Currency Otting Urges Consensus on the Hill for CRA Proposal
This week, the House Financial Services Committee held a hearing titled “The Community Reinvestment Act: Is the OCC Undermining the Law’s Purpose and Intent?” Comptroller of the Currency Joseph Otting was the sole witness and defended the recently proposed revisions to the Community Reinvestment Act (CRA) regulatory framework, while encouraging critics to submit concerns and suggest improvements through the comment process. The proposal, published by the FDIC and the OCC, would change several aspects of the regulation in hopes of modernizing the framework, which has not been updated since the 1990s. Democratic and Republican Committee members agreed that modernization of the framework was important given changes in the banking industry and consumer preferences but disagreed about whether the proposed revisions were an appropriate approach. Most Republicans expressed the view that the proposal would be beneficial to communities, including rural communities; many Democrats expressed strong concerns about potential negative unintended consequences and continued to press the Comptroller to extend the comment deadline so that community stakeholders would have additional time for review. The Comptroller rejected calls for an extended comment deadline, citing the delayed publication of the proposal in the Federal Register, which effectively extended the comment period to 88 days, as well as the extensive dialogue over the past decade regarding needed reforms. He also challenged what he referred to as “misperceptions” about the proposal, specifically that it would reduce overall CRA activity. The hearing echoed discussions in the subcommittee hearing on this topic on January 14, 2020. The comment deadline is March 9, 2020.
3. BPI Offers Recommendations to NY Financial Services Regulator on Proposed Regulation on Disclosure of Confidential Supervisory Information
On January 27, BPI submitted comments to the New York Department of Financial Services (NYDFS) on its proposal to amend restrictions on the use and disclosure of confidential supervisory information (CSI) under Section 36.10 of the New York Banking Law. BPI’s letter generally supported the proposed revision to the NYDFS CSI framework to allow NYDFS-supervised institutions to disclose NYDFS CSI, such as examination reports, to outside legal counsel and auditors without the need to first obtain the NYDFS’ written approval noting that the current approach inhibits the flow of CSI between financial institutions and their trusted external advisors. In addition, BPI offered the NYDFS several recommended revisions to the NYDFS’ CSI framework designed to facilitate effective and efficient compliance by regulated entities (e.g., by removing unnecessary barriers to sharing CSI with affiliates), further clarify the scope and definition of CSI (e.g., business records in the possession of a regulated entity should not normally be considered CSI), and promote safety and soundness (e.g., through greater ability to share CSI between parties to merger and acquisition transactions).
4. CFPB Announces Policy Statement Clarifying Approach to ‘Abusiveness’ Standard
As predicted in BPInsights last Friday, the CFPB announced a Statement of Policy Regarding Prohibition on Abusive Acts or Practices, providing a “common-sense framework” for how it will use its supervisory and enforcement authority with respect to the “abusiveness” prong of the Dodd-Frank Act prohibition on “unfair, deceptive, or abusive acts or practices.” In the policy, the CFPB clarifies that it will focus on practices where the harm outweighs the benefits to consumers, avoid citing conduct as abusive where the facts or circumstances overlap or align with being “unfair” or “deceptive,” and plead standalone “abusiveness” violations in a way that shows the nexus between the cited facts and the CFPB’s legal analysis of the claim. The policy also states that where a company has demonstrated a good-faith effort to comply with the law, the CFPB will not seek certain forms of monetary relief. The CFPB notes that it may still engage in a future rulemaking to further define the standard.
5. Banks Assess Climate-Related Risks, But Don’t Hold All the Answers
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European Regulator Calls for Bank Mergers
In remarks this week, Andrea Enria, Chair of the European Central Bank’s Supervisory Board, echoed recent calls by other ECB officials for more mergers in the EU banking system, the Wall Street Journal reported. The ECB has said it will not stand in the way of EU bank mergers by requiring higher capital requirements upon merger. It has been suggested in the past that the ECB has been too stringent in its requirements when banks have sought merger approvals. The tone has changed; however, as many in the EU see consolidation as one of the means by which the European banking system can compete with other global competitors.
ECB Releases 2019 Supervisory Review and Evaluation Process, Overall CET1 Requirements Remained Stable at 10.6%
On January 28, the ECB published outcomes from its 2019 Supervisory Review and Evaluation Process (SREP), an annual evaluation that helps to establish capital requirements and guidance for European banks based on the risk assessment of an individual institution. The SREP assesses four criteria: the viability and sustainability of business models, the adequacy of internal governance and risk management, the risks to capital and the risks to liquidity and funding. Notably, for the first time, the ECB also published banks’ Pillar 2 requirements in an effort to provide greater transparency. The overall Common Equity Tier 1 (CET1) requirements of the 109 banks evaluated remained stable at 10.6% compared to the 2018 cycle; however, six banks fell below the additional CET1 levels required under Pillar 2 guidance. According to the ECB, “[f]or those banks which have not taken satisfactory measures in the last quarter of 2019, remedial actions have been requested within a precise timeline.”
BPI Files Comment Letter Responding to FDIC RFI on Cost-Benefit Analysis
On January 28, BPI filed a comment letter responding to the FDIC’s request for information on how to improve its regulatory rulemaking process. The comment focuses on how the FDIC can better account for, and conduct, cost-benefit analysis. Specifically, BPI recommends that the FDIC adopt through notice-and-comment a policy statement governing how it will subject its regulatory actions to cost-benefit analysis. The policy statement should (1) commit the FDIC to voluntarily comply with a Clinton-era Executive Order (and related OMB guidance) setting forth a well-regarded framework for cost-benefit analysis, as if the FDIC were an executive agency; and (2) establish a dedicated unit within the FDIC with sufficient expertise, experience, stature and resources to conduct cost-benefit analysis properly, as well as voluntarily seek input from or review by the OMB’s specialists on cost-benefit analysis. BPI asserts that these steps will enhance the efficiency, transparency and public accountability of the FDIC’s regulatory actions, while also reinforcing the FDIC’s reputation for independence. The letter makes the same recommendations for the Federal Reserve and OCC.
- 01/31/2020 – The House Committee on Financial Services will hold a hearing entitled “Is Cash Still King? Reviewing the Rise of Mobile Payments”
- 02/04/2020 – The Bipartisan Policy Center will hold an event titled “A Conversation with Janet Yellen and David Malpass”
- 02/05/2020 – 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.”
- 02/06/2020 – The House Committee on Financial Services will hold a hearing titled “Protecting Consumers or Allowing Consumer Abuse? A Semi-Annual Review of the Consumer Financial Protection Bureau.”
- 02/11/2020 – The House Committee on Financial Services will hold a hearing titled “Monetary Policy and the State of the Economy.”
- 02/12/2020 – The House Financial Services Subcommittee on Diversity and Inclusion will hold a hearing titled “A Review of Diversity and Inclusion at America’s Large Banks.”
- 02/12/2020 – The House Financial Services Task Force on Artificial Intelligence will hold a hearing titled “Equitable Algorithms: Examining Ways to Reduce AI Bias in Financial Services.”
- 02/14/2020 – Columbia University/Bank Policy Institute 2020 Bank Regulation Research Conference
- 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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