BPInsights: March 13, 2020

BPInsights: March 13, 2020

Top of the Agenda

“The Banks and the Financial System Are in Sound Shape and We Are Here to Help”

“The banks and the financial system are in sound shape and we are here to help,” emphasized Citigroup CEO Michael Corbat on March 11 as senior executives representing the nation’s largest financial institutions gathered at the White House to meet with President Trump to discuss recent economic turbulence related to fears prompted by the COVID-19 outbreak.

The CEOs drew an important distinction between current market conditions and the 2008 crisis, indicating that banks are extremely well-capitalized, have undergone years of Federal Reserve mandated stress testing and hold adequate liquidity to continue serving their customers.

Banks are taking action to serve consumers and businesses affected by the outbreakWells Fargo, JPMorgan Chase and other participants pledged commitments twaive fees and provide payment flexibilityIn his remarks from the meeting, Wells Fargo CEO Charles Scharf reiterated, “[W]e are all here to help. That is what our institutions do; we’re all in a position to do it. And I think we’re being very, very thoughtful about how we can do that for both consumers, small businesses, as well as the companies that we deal with.” Learn More >>


5 Stories Driving the Week

1. FDIC Announces Plan to Issue Proposal on ILCs

The FDIC announced plans to consider a notice of proposed rulemaking on industrial loan companies (ILCs) on March 17. This announcement by the agency could open the door to BigTech taking advantage of the law to engage in banking activity while avoiding the prudential regulation and supervision required of banks and mandated by federal law.

In remarks by FDIC Chairman Jelena McWilliams at the TCH + BPI 2019 Annual Conference, McWilliams indicated support for regulatory consistency when addressing the issue of ILCs, stating “[i]f a tech company wants to be regulated like a bank, they’re welcome to come on board…we have 6,000 employees and we will hire 6,000 more.”

In a speech at the Stanford School of Business, Federal Reserve Governor Lael Brainard noted that many things consumers have come to expect are lacking in many non-bank providers who face far fewer statutory and regulatory requirements.

BPI has consistently expressed concerns about BigTech’s attempt to take advantage of the law and the systemic risk BigTech could pose if not required to meet the prudential regulation and supervisory requirements. Learn More >> 


2. BPI Supports Cyberspace Solarium Commission’s Recommendations Calling for Better Public-Private Collaboration 

On Wednesday, the Cyberspace Solarium Commission released its official report with recommendations to strengthen public-private collaboration for the security of U.S. cyberspace. The Cyberspace Solarium Commission, created by the National Defense Authorization Act, was charged with developing a strategic approach to defend the U.S. against cyberattacks. Its report included more than 75 recommendations covering areas such as government structure and organization, promoting national resilience and operationalizing collaboration with the private sector.

“The report rightly recognizes that increased public-private collaboration and information sharing is necessary to get our cyber defense capabilities where they need to be,” BPI President and CEO Greg Baer said in a statement. “I’m bullish that with the significant input from multiple sectors into the report’s recommendations, we will see enactment of the legislative and policy recommendations necessary to more effectively protect our critical infrastructure.”

In advance of the release of the Commission’s report, BPI published a blog post that details the need for increased collaboration between the public and private sectors. It also specifically highlights several important steps the government should take to strengthen our cybersecurity and protect our critical infrastructure. Learn More >>


3. Wells Fargo Testifies Before House Financial Services Committee 

The House Financial Services Committee held two hearing this week at which Wells Fargo President and CEO Charlie Scharf testified on Tuesday about the bank’s operations, followed by testimony on Wednesday by the former board of directors chair Elizabeth Duke and former member James Quigley

Scharf acknowledged challenges facing the bank, stating, “we have not yet done what is necessary to address our shortcomings,” but also expressed confidence that “[Wells Fargo] can do what is needed to move this company in a significantly improved direction.” He emphasized efforts the bank is undertaking to resolve regulatory hurdles, such as a change in leadership, business structure and significant investments in risk, compliance, legal, remediation and compliant response times. “Ultimately, our regulators and other stakeholders will decide when our work is done to their satisfaction,” stated Scharf in his submitted testimony. “As I have said before, my experience is that our regulators are clear and direct, tough but fair. The work is on us at this point. Our future success depends on us getting it done right.” Learn More >>


4. CFPB Director Kathy Kraninger Appears Before Senate Banking Committee 

On Tuesday, CFPB Director Kathy Kraninger appeared before the Senate Banking Committee to present the Bureau’s Semi-Annual Report and fielded questions on a variety of regulatory and supervisory matters.

Director Kraninger reported that the Bureau is “carefully” considering the comments on its proposal to rescind the mandatory underwriting provisions of its 2017 Payday Lending Rule and predicted that the Bureau will release a “rulemaking or some kind of decision with respect to that rulemaking in April.” 

Observing that “there is continued demand for small-dollar, short-term products in the marketplace,” she said “there are steps that the prudential regulators can take to make sure that institutions understand that they can offer . . . responsible products to consumers who need them.” She added that the Bureau is “very much looking at a holistic approach” to small-dollar lending and examining “research into disclosures” and said it is a “priority” to ensure that “consumers understand the products they are engaging with in the marketplace.” 

She also defended the FDIC’s proposed rule addressing the 2nd Circuit Court of Appeals’ decision in Madden v. Midland Funding LLC, stressing that the proposal affirms that, “when a loan is made, it is valid” and that “if that loan is then sold or otherwise transitioned, then the terms of that loan would carry forward.” Learn More >>


5. European Central Bank Announces “Significant Capital Relief” for E.U. Banks 

The European Central Bank (ECB) announced yesterday “significant capital relief” for E.U. banks, allowing them to “fully use” capital and liquidity buffers. In the announcement, Chair of the ECB Supervisory Board Andrea Enria stated, “Banks need to be in a position to continue financing households and corporates experiencing temporary difficulties.”

As part of the measures, the ECB will temporarily allow banks to let their capital fall short of Pillar 2 guidance — add-ons to base capital requirements — as well as capital conservation buffers and liquidity targets. The ECB also encouraged national regulators to lower countercyclical capital buffers where they exist.

To read a comprehensive summary of the announcement, please click here.


In Case You Missed It

CFPB Hosts Event Exploring “Evolutions in Consumer Debt Relief”

On March 11, the CFPB hosted an event titled, Evolutions in Consumer Debt Relief. The panels consisted of agency staff and industry experts, and explored the recent history of debt relief practices, along with potential future innovation in the marketplace. In particular, participants focused on the ways in which to reform and shift public perception of responsible debt relief practices, while also considering the potential benefits for consumers who receive these services. While the CFPB did not advocate for or suggest any specific direction that it might take with respect to debt relief services, the event could foreshadow some form of agency activity in this space. To see a replay of the event, please click here.

Fifth Third Bank Contests Allegations in CFPB Lawsuit and Pledges a Vigorous Defense

Fifth Third Bank is contesting allegations filed by Consumer Financial Protection Bureau following thassertion by the CFPB that the bank permitted unauthorized account openings. The bank has agreed to cooperate with the investigation, but stated in a filing to the SEC that the allegations and civil lawsuit are “unsubstantiated, based on limited, non-systemic, and remediated events, and reflect misunderstandings of our products, services and work culture.” Data provided by the bank shows that the allegations stem from a remediated incident that affected just 0.01% of accounts from 2010 to 2016, involving less than $30,000 in improper customer charges that were later waived or reimbursed.

In response to the filing, BPI President and CEO Greg Baer stated:

Fifth Third is demonstrating fortitude in standing up for its rights.  Its filing indicates – and the CFPB has not disputed — that this matter involves a total of $30,000 in fees charged five to ten years ago and fully refunded; obviously, this was not a systemic problem or a revenue source for the bank.  It is difficult to understand how such a matter, which has been remediated, could be an enforcement priority for an agency with so many other important duties.

Akin Gump Analyzes Effect of Kisor v. Wilkie on Federal Agency Deference 

In a March 10 analysis of the effect of the Supreme Court’s June ruling in Kisor v. Wilkie, which narrowed the so-called Auer deference shown by courts to a federal agency’s interpretation of its own regulations, Akin Gump attorneys writing for Bloomberg highlight the frequency with which, since Kisor, “litigants have been finding success in challenging agency decisions and other administrative actions that are based on regulatory interpretations.” Suggesting Kisor’s effect on federal agency deference, the article notes that in the eight months since the decision was issued, fewer federal courts upheld agency interpretations than rejected them. Shortly after June’s Kisor ruling, Gregg Rozansky, BPI’s Senior Vice President and Senior Associate General Counsel, anticipated this impact in a blog post titled “SCOTUS Ruling on the Dept. of Veterans Affairs Regulation Has Implications for the Banking Industry and Supervisors,” which can be found here.

Politico Reviews E.U. Commission Executive Ursula von der Leyen’s First 100 Days 

As reported in PoliticoMarch 9, 2020, marked the 100 days since the new E.U. Commission executive, Ursula von der Leyen, took office. Key issues on which the Commission was looking to make progress within its first 100 days included: the European Green Deal; the Conference on the Future of Europe; Sustainable Europe Investment Plan; a fair minimum wage; the Stability and Growth Pact; EU enlargement; AI; an EU Data Strategy; an EU Climate Law; battling cancer; a biodiversity strategy; gender equality; an industrial strategy; the circular economy; an SME strategy; and an Africa strategy.

The most prominent of those pledges was the Green Deal—a vision to make Europe the first continent to become climate neutral by 2050. While incredibly ambitious the proposal faces challenges internally between the western half of the continent and the coal-dependent East. The Sustainable Europe Investment Plan delivered €7.5 billion for a Just Transition Fund, far short of the €1 trillion needed over the next decade to help transition EU member states as part of the Green Deal.  The Stability and Growth Pact is due to be debated in the spring with a key item being relaxing budget constraints on certain “green” investments. The Commission’s biodiversity proposals were hotly debated between the environment and agricultural departments with the most sensitive issue centered around cutting the use of pesticides and fertilizers by 30 percent.

The Gender Equality Strategy largely solidified existing legislative plans relating to women on boards and gender-based violence. Most notable though was the exclusion of binding measures on pay transparency.

The Conference on the Future of Europe received lukewarm response as has the fair minimum wage consultation, the industrial strategy and the SME strategy. The revamping of the accession process for countries seeking to become E.U. members has progressed and is expected to be adopted by the Council in the near future, but it’s difficult to say at this point what it will actually deliver. Little progress was made on AI with no legislation launched and instead the Commission releasing a white paper setting out options for how AI could be regulated. Little progress was also made in terms of delivering an EU-wide data strategy.

CFPB Announces Actions to Further Consumer Harm Prevention Efforts 
In a March 6 release, the CFPB announced three actions to further its mission to prevent harm to consumers, including revising its 2013 bulletin on “responsible conduct” to clarify its approach and reiterate the importance of responsible conduct. The CFPB outlined actions an entity could take that would mitigate the potential for a supervisory or enforcement action, if “meaningfully” undertaken by entities found to be in violation of consumer financial law. Further, the CFPB published proposed legislation, which it noted has been sent to Congress, for a program to reward whistleblowers whose information results in a successful enforcement action. The CFPB also announced the implementation of a program enabling entities to request advisory opinions for consideration and public responses from the agency.

BoE’s Gov. Carney Expresses Reservations Regarding Possible Brown-Penalizing Capital Charge 
In a letter to the U.K. Parliament released Monday, Bank of England Gov. Mark Carney signaled reservations about a “brown-penalizing” capital charge, which the Bank of England is reviewing. Carney’s letter notes potential issues with quantifying the “risk” associated with “brown” assets or investments and translating those risks to capital surcharges. In particular, Carney notes missing data, the lack of a clear taxonomy to distinguish brown from green investments, and no clear view as to how to define and treat transition-related activities (what Carney calls the “50 shades of green”). Carney’s letter is notable in part as it comes in the midst of the Network for Greening the Financial System’s work to develop brown-risk qualifications that may lead to broad recommendations on a brown-penalizing factor as early as next year.

BPI Submits Comment Letter to CFTC on Proposal to Prohibit ‘Post-Trade Name Give-Ups’ for Anonymous Swaps 
On March 10, BPI submitted a comment letter to the Commodity Futures Trading Commission (CFTC) on its recent proposal to ban post-trade name give-up (PTNGU) for swaps executed anonymously in a swap execution facility that are intended to be cleared. BPI’s letter opposes the CFTC’s proposal, noting that PTNGU plays an integral role in a well-functioning swap market. The letter also outlines a number of potential consequences of the proposed ban, including not only a disruption to the swap market but also dealers reassessing the extent of their involvement in the swaps market, which could result in wider spreads and less liquidity. Finally, the letter encourages the CFTC to conduct a more comprehensive cost-benefit analysis of PTNGU before finalizing the rule and to consider a more incremental approach to addressing PTNGU.



  • 03/17/2020 – FDIC Board Meeting
  • 03/24/2020 – Oversight of the Office of the Comptroller of the Currency
  • 06/18/2020 – BPI and SIFMA 2020 Prudential Regulation Conference


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