BPInsights: June 21, 2019


Momentum Building for Legislation to End Anonymous Shell Companies 

Robust and bipartisan support to end anonymous shell companies characterized a June 20th Senate Banking, Housing and Urban Affairs Committee hearing, with BPI President and CEO Greg Baer testifying in support of legislative efforts requiring business owners to provide their name, date of birth, address, and driver’s license or passport number when forming a company. The hearing followed the announcement of bipartisan legislation (“Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings Act” – ILLICIT CASH Act) circulated by Senators Mark Warner (D-VA), Tom Cotton (R-AR), Doug Jones (D-AL), and Mike Rounds (R-SD) to end anonymous shell companies and modernize anti-money laundering laws. The Senators echoed their announcement with an op-ed on CNBC, noting their legislation “would modernize our antiquated money-laundering laws and ensure that public and private sector resources are used where they matter most.” The Senate action came after a June 12th House Financial Services Committee bipartisan vote of 46-16 on legislation to end anonymous shell companies.

According to a BPI sponsored survey, conducted by Morning Consult, reform is broadly supported by small business owners. Of small business owners with an opinion, 75% said that they support providing their personal information when forming a company, and two-thirds believe that a requirement to provide personal information would not be burdensome.

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5 Stories Driving the Week

1. Federal Reserve to Release Stress Test Results 

The Federal Reserve will release the results for the supervisory stress tests conducted as part of the Dodd Frank Act today, and on June 27, it will release the results for the Comprehensive Capital Analysis Review. As a reminder, BPI previously published a blog showing that the Federal Reserve’s stress test scenario is much more severe than the 2007-2009 financial crisis. In advance, BPI Chief Economist Bill Nelson and Head of Research Francisco Covas sat down for a video to discuss what’s changed in the 2019 stress test and what to expect. Early next week, Covas will release analysis of the Dodd Frank Act stress tests (DFAST) and what it could mean for the CCAR results.


2. BPI Submits Comment Letter on OCC Innovation Pilot Program Proposal

On June 14, BPI submitted a comment letter to the Office of the Comptroller’s (OCC) Office of Innovation on its proposed Innovation Pilot Program. The letter urges the OCC to re-examine the proposed Pilot, arguing that the program, while a welcome step toward the OCC’s goal of recalibrating the regulatory approach to innovation, only partially addresses the barriers to innovation facing banks today. The letter offers several recommendations to support the OCC’s objectives, including clarifying that banks are not expected to receive OCC approval prior to developing a new product, process or service; refining the scope of the Pilot Program to multi-bank projects or other cases raising novel interpretive issues; and treating the Pilot Program as a “safe zone,” allowing banks to innovate in good faith without facing supervisory action.


3. Lawmakers Call for Hearings on Facebook Cryptocurrency Plans

The Consumer Financial Protection Bureau announced it will host its first in a series of symposia on June 25 focused on defining what constitutes an “abusive” standard for financial services companies. One panel will discuss policy issues related to the abusive standard and another on how the abusive standard has been used in practice.


4. Fed Releases Proposal for Governing Disclosure of Confidential Supervisory Information

On June 17, the Federal Reserve issued a proposal that would amend its rules governing disclosure of confidential supervisory information (CSI), as well as make certain technical changes to its Freedom of Information Act (FOIA) regulations. The Fed notes that the proposed changes to the CSI rules would “ease certain outdated and inefficient restrictions” and “expand the ability of a supervised financial institution to share CSI with its affiliates, auditors, and outside legal counsel as well as other federal and state banking agencies,” but “would not expand or reduce the information that falls within the definition” of CSI.


5. Basel Committee Agrees to Revisions to Leverage Ratio, Addresses Window Dressing at June Meeting

At the conclusion of its meeting on June 20, the Basel Committee on Banking Supervision announced that it had agreed on a “limited revision of the leverage ratio,” allowing “margin received from a client to offset the exposure amounts of client-cleared derivatives.” Relatedly, the Committee also agreed on revised disclosure requirements, which will require leverage ratio disclosure “based on the quarter-end and average values of securities financing transactions” in an effort to limit leverage ratio window dressing for jurisdictions using quarter-end averages. Both the leverage ratio revision and the disclosure requirements will reportedly be released “next week” and a report on Pillar 2 supervisory practices and approaches, which the Committee also approved, will be released “shortly.”


In Case You Missed It

Foreign Bank Tailoring Proposal Tightens Liquidity Requirements for IHCs

This BPI blog post examines the effects of the pending regulatory proposal that provides tailoring of enhanced prudential standards for the U.S. operations of foreign bank organizations (FBOs). The post identifies two components of the proposal (the CUSO measure and the inclusion of interaffiliate transactions) that artificially inflate the risk characteristics of an FBO’s U.S. operations, which, as the post shows, results in overly stringent liquidity requirements imposed on the FBO’s U.S. intermediate holding company (IHC). Finally, the post asserts that calibrating liquidity requirements appropriately matters because increased bank liquidity requirements can have important costs for the U.S. economy in terms of both reduced credit availability and less liquid capital markets.

The ‘Secret Enforcement Tool’ That Has Bankers Spooked

American Banker’s latest Bankshot podcast examines claims that “regulators have been avoiding using a transparent public process to implement new regulations, opting instead to use informal guidance that has the impact of policy.”

‘The Risk Isn’t In The Banks’: Fed’s Powell On Leveraged Lending

Federal Reserve Chairman Jerome Powell said on June 19 the greatest risks posed by corporate debt is “outside the banking system,” American Banker reported. Speaking at a press conference for the Federal Open Market Committee meeting, Powell said banks understand their regulatory expectations for leveraged loans. “The issue is that the risk isn’t in the banks. It’s out in those market-based vehicles,” Powell said.

Regulatory Nominations Advance in the Senate

On June 20, the Senate confirmed Bimal Patel as Treasury Department assistant secretary for financial institutions and Dino Falaschetti as director of the Office of Financial Research. The Senate also confirmed Allison Lee to be a Democratic commissioner on the Securities and Exchange Commission. On June 18, the Senate Banking, Housing and Urban Affairs Committee approved Federal Reserve Governor Michelle Bowman to a 14-year term and Thomas Feddo to be Treasury Department assistant secretary for investment security.


6/25/2019Agriculture Committee Holds CFTC Reauthorization Hearing

6/25/2019Senate Banking Holds GSE Hearing

6/25/2019House Subcommittee Convenes Hearing on Diversity of Asset Managers

6/25/2019House Task Force Convenes Fintech Hearing

6/26/2019House Task Force Holds AI Hearing

6/27/2019Senate Banking Holds EXIM Hearing

7/16/2019Senate Banking Holds Facebook Digital Currency Hearing

11/19/2019 – 11/21/2019 — The Clearing House + BPI 2019 Annual Conference

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