BPInsights: July 25, 2020

BPInsights: July 25, 2020

Top of the Agenda

What Is Next for Capital Regulation? Hard Choices About Dynamism and Procyclicality

On June 25, the Federal Reserve announced the results of its annual stress test, supplemented by an ad hoc sensitivity analysis that was run in parallel. These results were accompanied by a requirement for firms to update their capital plans and the announcement of two new rules for the third quarter 2020 capital distributions – share repurchases are prohibited, and common dividends may not increase from second-quarter levels and are capped at an amount equal to the average of the bank’s past four quarters of earnings.

A new blog post by BPI President & CEO Greg Baer analyzes the policy rationales for the Federal Reserve’s new sensitivity analysis and capital distribution rules, including how they fit within the existing regulatory regime. The post describes an unavoidable tension between dynamism and procyclicality in capital requirements and concludes that the Federal Reserve should commit to implementing the stress capital buffer (SCB) to govern capital distributions for the fourth quarter. If the Fed should decide that a further degradation in economic conditions warrants another sensitivity analysis – whether as an examination tool, a public disclosure tool or as the basis for share repurchases or dividend limits or a retooled SCB – it should be clear about its purpose, and revisit all the assumptions of the analysis to conform to that purpose. Learn More >>

Stories Driving the Week

New Morning Consult Survey Finds Large Banks are Safe and Necessary to the American Economy

Voters believe large banks are safe, necessary to the American economy, and are meeting the needs of their customers who have been challenged by the coronavirus pandemic, according to a Morning Consult survey conducted on behalf of BPI. The survey, conducted between July 10-July 12, 2020 among a national sample of 1,992 registered voters, found:

  • 4 in 5 respondents say large banks are necessary to the American economy (80%).
  • 73% of respondents say national banks are safe and can protect customers’ money and investments.
    • Only 24% of respondents had the same confidence in Fintech companies’ ability to protect customers’ money and investments.
  • 74% of respondents that expressed an opinion say during the coronavirus pandemic banks have been helpful to the stability of the U.S. economy.
  • 79% of respondents say their bank has met their banking needs during the coronavirus pandemic.

Results from the full survey have a margin of error of plus or minus 2 percentage points. Learn More >>

Congress Should Pass Anti-Money Laundering Reform Legislation Now

The U.S. House of Representatives voted this week to reform the U.S. anti-money laundering (AML) framework and end anonymous shell companies by adding an amendment to the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (NDAA). The amendment closely mirrors the Corporate Transparency Act (H.R. 2513) and the COUNTER Act (H.R. 2514), which previously passed the House, and positions these critical reforms to become law.

The amendment, supported by BPI and other financial services trades, was included by the House Armed Services Committee as an en bloc amendment, which is a collection of amendments considered and voted on as one. Now the legislation has been added to the House NDAA bill, the House and Senate are expected to convene a conference committee to resolve the differences between their respective versions of the NDAA.

The inclusion of this amendment marks a major development in efforts to modernize a 50-year-old framework that has been expanded, but not substantially revised, since its inception. In a new blog post published this week titled “Congress Should Pass Anti-Money Laundering Reform Legislation Now,” BPI Senior Vice President of AML/BSA, Sanctions and Privacy Angelena Bradfield offers a comprehensive summary of the effects of these reforms and why they are so critically needed. Learn More >>


BPI Welcomes Senate Passage of Bill to Protect Stimulus Payments from Garnishment

Bank Policy Institute President and CEO Greg Baer released the following statement on Senate passage of a bill to protect CARES Act recovery payments from garnishment.

Stimulus payments were intended to be a lifeline for individuals and families experiencing economic hardship due to the coronavirus, not a windfall for debt collectors. We thank leadership in the Senate for working on a bipartisan basis with the National Consumer Law Center and the banking industry to fix this unintended consequence to ensure that stimulus money ends up in the hands of Americans struggling to get through the coronavirus crisis.

In April, BPI and the National Consumer Law Center, along with a coalition of banking industry organizations and consumer groups, sent a letter advocating for legislative changes to how garnishments were treated under the CARES Act. Learn More >>

BPI Welcomes FDIC Final Rule to Provide Greater Employment Opportunities for Individuals with Certain Minor Criminal Offenses on Their Records

Bank Policy Institute President and CEO Greg Baer released the following statement in response to the FDIC’s final rule that revised and codified its Statement of Policy for Section 19 of the Federal Deposit Insurance Act to allow greater employment opportunities in the banking industry for individuals with certain minor criminal offenses on their records:

We shouldn’t disqualify people from working in the banking industry based on minor infractions. The new rule will make a difference for many individuals who deserve a second chance, but we look forward to Congressional action on this issue to improve the broader framework.

In March, BPI filed a comment letter in support of the FDIC’s notice of proposed rulemaking and offered a set of recommendations aimed at preserving the statue’s intent to promote banks’ safety and soundness but ensure it is appropriately calibrated so as not to act as an overly-restrictive bar that would preclude highly-qualified candidates from employment. Learn More >>

Senate Banking Committee Advances Judy Shelton and Christopher Waller Fed Nominations, Nominations Await Consideration by Full Senate

The Senate Committee on Banking, Housing and Urban Affairs voted to advance the nominations of Judy Shelton and Christopher Waller to the Federal Reserve Board of Governors on July 21. The nominations now await floor consideration by the full Senate. Judy Shelton formerly served as executive director at the European Bank for Reconstruction and Development and Christopher Waller is executive vice president and director of research at the Federal Reserve Bank of St. Louis. Learn More >>

In Case You Missed It

OCC Issues NPR to Clarify ‘True Lender’ Legal Ambiguity

The Office of the Comptroller (OCC) issued a notice of proposed rulemaking (NPR) on July 20 seeking to further clarify the “true lender” legal framework. According to the NPR, a bank is considered a true lender if one of two criteria are met:

  • A bank is named in the loan agreement, where the OCC would view that “as conclusive evidence that the bank is exercising its authority to make loans;” or
  • A bank funds the loan as of the date of origination, but may not be named as the lender in the origination agreement, where the OCC would view the bank as having “a predominant economic interest in the loan, and therefore has made the loan.”

The OCC stated in its NPR that it was addressing the uncertainty behind the true lender legal ambiguity because such ambiguity, “may discourage banks and third parties from entering into relationships, limit competition, and chill the innovation that results from these partnerships—all of which may restrict access to affordable credit.”

FDIC Seeks Comments on Public-Private Standard-Setting Partnership and Voluntary Certification for Technology Adoption and Third-Party Risk

The Federal Deposit Insurance Corporation (FDIC) issued a request for information (RFI) on July 20 to seek comments on the merits of establishing a public-private standard-setting partnership that would identify best practices for due diligence of certain models, model risk and third-party relationships. The RFI also seeks comments on establishing a voluntary certification program for FDIC-supervised banks or savings associations, which assesses compliance with these standards as institutions adopt new technology solutions or establish technology partnerships. Significant third-party relationships at FDIC-supervised institutions are subject to review by the FDIC to determine whether the relationship poses a risk to safety and soundness. The proposed certification program — established under the FDIC’s FDiTech, an initiative developed to engage bank, fintech and technology stakeholders and promote the adoption of new technology — would be aimed at helping to “reduce the regulatory and operational uncertainty,” according to the RFI.

OCC Interpretative Letter ‘Okays’ Custody Services for Cryptocurrency

The OCC offered clarity to national banks and federal savings associations interested in offering custody bank services for cryptocurrencies in an interpretative letter published on July 22. The letter indicates that institutions offering these services will take possession of the cryptographic access keys needed to access the cryptocurrency, rather than taking physical possession of the digital currency. The agency determined that the “authority to provide safekeeping services extends to digital activities and…national banks may escrow encryption key used in connection with digital certificates because a key escrow service is a functional equivalent to physical safekeeping.”

The letter reiterates that national banks or federal savings associations would still need to provide such custody services in a safe and sound manner, consistent with OCC regulations and guidance and that “risks associated with an individual account should be addressed prior to acceptance,” through appropriate due diligence and risk management processes.

Wells Fargo Appoints Mike Santomassimo as CFO

Mike Santomassimo will leave his role as chief financial officer at BNY Mellon to assume the CFO role at Wells Fargo according to a July 21 press release. Santomassimo will take over for John Shrewsberry, who announced plans to retire after more than two decades with the company.

Emily Portney to Replace Mike Santomassino as BNY Chief Financial Officer

BNY Mellon appointed Emily Portney to assume the role of chief financial officer at BNY Mellon following news that Mike Santomassimo would be stepping down to join the executive team of Wells Fargo. Portney previously led client management, sales and service teams for BNY Mellon, and before joining BNY Mellon, served as chief financial officer at Barclays.

Stephen Shapiro to Succeed Bob Hoyt as Barclays General Counsel

Barclays announced on July 22 Stephen Shapiro would assume the role of group general counsel, succeeding Bob Hoyt who will step down on August 1, 2020. Shapiro has served as group company secretary since 2017, before which he served as the group company secretary and deputy general counsel at SABMiller plc.

HSBC’s Christine Lowthian Announced as New Chief Compliance Officer of U.S. Operations

Christine Lowthian will assume the permanent role of leading HSBC’s 600-member U.S. compliance team following her promotion to the role of chief compliance officer, reported the American Banker. Lowthian was appointed in an interim capacity in April and has worked for the company since 1994.

Upcoming Events

  • 07/29/2020 – Brookings Institution hosts “Fixing America’s Payment System: The Role of Banks and Fintech” featuring a panel discussion with BPI President & CEO Greg Baer
  • 07/29/2020 – FOMC Meeting
  • 07/29/2020 – Senate Banking Committee hosts a hearing titled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress”
  • 07/30/2020 – House Financial Services Committee hosts a hearing titled “Protecting Consumers During the Pandemic? An Examination of the Consumer Financial Protection Bureau”
  • 08/06/2020 – ACFCS hosts “Innovation Nation – Perspectives on Harnessing Tech and Fostering Innovative Compliance Programs” panel discussion including BPI SVP Angelena Bradfield
  • 08/27/2020 – 08/28/2020 – Kansas City Fed 2020 Economic Policy Symposium “Navigating the Decade Ahead: Implications for Monetary Policy”
  • 10/16/2020 – 10th Annual FDIC Consumer Research Symposium


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