BPInsights: March 06, 2020

BPInsights: March 06, 2020

Top of the Agenda

Section 19 Discouraging Opportunities for Highly Qualified, Rehabilitated Candidates

On March 3, BPI submitted recommendations to the Federal Deposit Insurance Corporation (FDIC) in response to a request for public comment pertaining to Section 19 of the Federal Deposit Insurance Act. Section 19 prohibits, without the FDIC’s prior written consent, a financial institution from hiring any individual who was convicted of a crime involving dishonesty, breach of trust or money laundering, or entered a pretrial diversion program as a result of these crimes. The FDIC may grant waivers to individual candidates and has established a category of de minimis offenses for which such a waiver is automatically granted without an application. In practice, due to individuals’ reluctance to submit applications as well as the uncertainty associated with waiting for the FDIC’s decision, qualified candidates who do not meet the de minimis criteria are often unable to take advantage of employment opportunities in the banking sector.

“In setting its policies related to Section 19, the FDIC has rightly recognized that it doesn’t make sense to disqualify people from working in the banking industry if they’ve committed minor crimes in the past; they deserve a second chance,” stated BPI CEO Greg Baer. “Our recommendations would provide more of these individuals the opportunity to pursue a career in the banking industry.”

In the letter, BPI recommends four improvements to the FDIC’s existing policies that would preserve the intent of the statute while expanding banks’ ability to hire. Learn More >>

 

5 Stories Driving the Week

1. Fed Simplifies Capital Framework with Stress Capital Buffer 

On Wednesday, the Federal Reserve approved the Stress Capital Buffer (SCB), which aligns the Fed’s stress test with non-stress capital requirements. “The stress capital buffer materially simplifies the post-crisis capital framework for banks, while maintaining the strong capital requirements that are the hallmark of the framework,” Vice Chair for Supervision Randal K. Quarles said in a press release announcing the new rule. Consistent with BPI’s recommendations, the final rule includes the following changes from the proposal: removal of the stress leverage buffer requirement; permitting firms to increase planned capital distributions in excess of those contained in submitted capital plans without prior approval (if above buffer requirements); revisions to the definition of eligible retained income in non-stressed requirements to make automatic limitations on distributions more gradual as the firm’s capital ratios fall below buffer requirements; and no incorporation of the projected impact of a material business plan change into the SCB calculation. The rule will become effective 60 days after publication in the Federal Register and, therefore, apply in CCAR 2020 with the first SCB requirement effective October 1, 2020. Learn More >> 

 

2. BPI Chief Economist Accurately Predicts Rate Cuts 

BPI Chief Economist Bill Nelson appeared on CNBC’s Squawk Box on March 3 to discuss his prediction that the Fed would make a large inter-meeting interest rate cut in response to the weakening economic outlook and the associated decline in the stock market. The Fed cut rates by 50 basis points a few hours later. Learn More >>

 

3. House Subcommittee Holds Hearing on Exploitation of Financial System by Bad Actors 

On March 4, the House Financial Services Subcommittee on Housing, Community Development and Insurance held a hearing titled “The Traffickers’ Roadmap: How Bad Actors Exploit Financial Systems to Facilitate the Illicit Trade in People, Animals, Drugs, and Weapons.” In statements made during the panel testimonies, experts identified shell companies as a heavily relied upon tool used by criminals to illegally buy and sell weapons and fund other illicit activities. “[T]he best way to combat trafficking efforts is to follow the money,” stated Angel Nguyen Swift, founder and director of Stand Together Against Trafficking.
Dr. Togzhan Kassenova, Senior Fellow at the Project on International Security, Commerce, and Economic Statecraft (PISCES) stated that the “U.S. is among the countries that do not require the disclosure of beneficial ownership information at the time of company formation.” Banks are legally mandated to know their customers by collecting and monitoring account and corporate ownership information. If criminals are permitted to establish anonymous shell companies to hide their identities, it makes it more difficult for banks to identify true owners and contribute to the prevention of these crimes and the protection of national security. To address these problems in the financial system, the House previously passed the Corporate Transparency Act (H.R. 2513) and the Senate is actively considering the ILLICIT Cash Act (S. 2563) to help end anonymous shell companies. Learn More >>

 

4. European Commission Evaluating Fix to E.U. Resolution Framework 

In his remarks at an International Swaps and Derivatives Association conference on March 3, John Berrigan, Director-General of Financial Services for the European Commission (COM), announced that COM is considering how to fix elements of the E.U. resolution framework for failing banks, reported Politico E.U. This announcement comes after several failing banks, such as German bank NORD/LB and Italian bank Popolare di Bari, were not resolved through the bank resolution framework — instead receiving cash injections from regional or national governments. While the transactions may have been permitted under E.U. law, it has been noted that these instances undermine the credibility of the E.U. resolution regime. Some of the improvement options on the table include harmonization of member state insolvency regimes and potentially revisiting the scope of the bank resolution framework. Timing on any possible proposal remains uncertain. Learn More >>

 

5. New Blog: Actions the Fed Could Take in Response to COVID-19

The COVID-19 epidemic is projected to reduce economic activity, may reduce market liquidity and could generate an increase in federally insured deposits at banks as investors look to get rid of riskier assets. This could make it harder for businesses to access critically important lines of credit necessary to run day-to-day operations, leading to increased economic stress. On March 3, BPI published a blog post suggesting steps that the Fed could take to mitigate these risks and enable banks to continue providing credit to meet the needs of businesses and households. To learn more, please click on the link below. Learn More >>

 

In Case You Missed It

Banks Test Disaster Recovery Sites on Coronavirus Fears 

Banks are wasting no time in implementing proactive preparedness plans as coronavirus fears spread. As reported in the Financial Times on March 4, banks have sent hundreds of workers home to work remotely and are implementing organization-wide travel bans, testing out disaster recovery sites and investing in individual equipment installation in employee homes to ward off the possibility of disruptions to daily operations.

European Commission Announces Acting-Director John Berrigan Will Assume Permanent Role as Director-General for Financial Services

As reported in Politico E.U. on March 5, the European Commission announced that Acting-Director John Berrigan will assume the permanent role of Director-General for Financial Services (DG FISMA), effective immediately. DG FISMA is responsible for developing financial services regulatory policy for the E.U. Berrigan was selected for the interim role on January 1 following a distinguished career in the Commission that began in the 1980s.


Jury Acquits Former Barclays Executives
On February 28, BBC reported that a jury acquitted three former Barclays executives charged with conspiring to commit fraud by the U.K. Serious Fraud Office related to actions taken by the executives during the 2008 financial crisis. Although the case took more than seven years to play out, the jury required only six hours to make their decision.

 

Events

  • 03/10/2020 – “Evolutions in Consumer Debt Relief” hosted by the CFPB
  • 03/10/2020 – House Financial Services Committee hearing titled “Holding Wells Fargo Accountable: CEO Perspectives on Next Steps for the Bank that Broke America’s Trust”
  • 03/10/2020 – Senate Banking Committee hearing titled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress”
  • 03/10/2020 – Axios Politics & White House Editor Margaret Talev host “News Shapers” event on the topic of cybersecurity and the future of tech policy
  • 03/11/2020 – House Financial Services Committee hearing titled “Holding Wells Fargo Accountable: Examining the Role of the Board of Directors in the Bank’s Egregious Pattern of Consumer Abuses”
  • 03/11/2020 – Women in Housing & Finance hosts the general counsels of the federal banking agencies
  • 03/24/2020 – House Financial Services Committee hearing titled “A Review of Domestic and International Approaches to Digital Currencies”
  • 03/24/2020 – Senate Banking Committee hearing titled “Oversight of the Office of the Comptroller of the Currency”
  • 03/25/2020 – House Financial Services Committee hearing titled “The End of LIBOR: Transitioning to an Alternative Interest Rate Calculation for Mortgages, Student Loans, Derivatives, and Other Financial Products”
  • 03/25/2020 – House Financial Services Committee hearing titled “Holding Wells Fargo Accountable: Examining the Impact of the Bank’s Toxic Culture on Its Employees”
  • 06/18/2020 – BPI and SIFMA 2020 Prudential Regulation Conference

 

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