BPInsights: November 1, 2019

BPInsights: November 1, 2019

Top of the Agenda

Share of conventional non-jumbo loans to CRA-eligible neighborhoods, by lender category.

Industry, Consumer Groups Discuss the Future of the Community Reinvestment Act

On October 29, the Penn Institute for Urban Research and Wharton Public Policy Initiative hosted a symposium for policymakers to assess “The Future of the Community Reinvestment Act” (CRA). The symposium addressed CRA reform with two-panel discussions – one on the data and empirical analysis informing CRA changes and the other on policy implications and alternatives. BPI economist Paul Calem and SVP and Associate General Counsel Dafina Stewart participated in the event, along with representatives from the Urban Institute, FDIC, National Community Reinvestment Coalition, National Association of Affordable Housing Lenders, New York University and Boston College.

Calem presented research showing that large banks have kept pace with non-banks and community banks in lending to low- and moderate-income neighborhoods, despite shifts in Federal Housing Administration and GSE backed loans to nonbanks. The data also suggest that the share of loans going to low- and moderate-income borrowers has been stable — they are not being crowded out by gentrification. Stewart discussed the changes the banking industry would like to see in a revised regulatory framework for the CRA. These changes include making the CRA regime more transparent and objective, improving the performance evaluation process, and revisiting how assessment areas are determined and evaluated. BPI has previously submitted a comment letter with principles for modernizing CRA.



5 Stories Driving the Week

1. Debate over ILC Loophole Intensifies

The industrial loan company (ILC) debate is once again heating up as some in the technology industry are seeking to take advantage of a regulatory loophole that may lead to the mixing of banking and commerce. Following a congressionally imposed moratorium on ILC charters that ended in 2013 and a general period of limited de novo applications, commercial entities are once again submitting ILC applications, including Japanese e-commerce company Rakuten, Inc. BPI and the American Bankers Association filed a comment letter on the application and noted substantial concerns with mixing banking and non-financial businesses, including the protection of consumer data privacy. “Some tech companies and other nonbanks are looking to exploit the ILC loophole that allows them to evade important regulatory protections for consumers as well as the financial system,” Greg Baer, BPI President and CEO, said in a statement. “It is imperative that policymakers maintain the longstanding separation of banking and commerce as well as ensure consistent regulatory treatment.” This week, Politico reported on technology companies’ recent efforts to move into financial services.


2. Agencies Approve Proposal to Eliminate Initial Margin Requirement for Inter-Affiliate Non-Cleared Swaps

On October 28, the OCC, Fed, FHFA, and Farm Credit Administration joined the FDIC in approving a proposal to change the interagency margin requirements for non-cleared swaps, amending a 2016 rule that required a set amount of collateral for swaps between affiliates of the same firm. Most notably, the proposal would eliminate the initial margin requirements for inter-affiliate non-cleared swaps. The proposed change is consistent with BPI’s recommendations in a May 13 comment letter, submitted jointly with other trades, which outlined the ways in which the elimination of the initial margin requirements would encourage sound risk management.


3. CFPB to Host Symposium on Section 1071, Small Business Lending, of the Dodd-Frank Act 

On November 6, the CFPB will host a symposium on Section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act to require the CFPB to issue a rulemaking regarding the data collection by financial institutions related to credit provided to women- and minority-owned small businesses. The symposium is intended to begin the CFPB’s consideration of such a rulemaking and will feature remarks by CFPB Director Kraninger, as well as two panels focused on the small business lending marketplace and implementation of Section 1071.


4. Mnuchin Open to Updating Rules to Ease Repo Stress, Powell Says Fed Studying Issue

In a Bloomberg interview on October 29, Treasury Secretary Steven Mnuchin said that he’s spoken to banks about how to avoid liquidity problems following recent repo market volatility. “The banks have raised an issue around intra-day liquidity, and that is something that makes sense for regulators to look at,” Mnuchin said in Tel Aviv. In addition, on October 30, at the post FOMC news conference Federal Reserve Chairman Jerome Powell indicated that bank reluctance to tap intraday liquidity may have contributed to repo market volatility and that the Fed was investigating.  More broadly, Powell indicated that the Fed was unlikely to entertain changes to liquidity or capital rules but was considering some “technical things” that could allow liquidity in the financial system to move “more freely.”


5. Baby Shark Attack! 

With a 6-2 victory over the Houston Astros in Game 7 of the World Series on October 30, the Washington Nationals became World Series Champions. The victory gives Washington its first baseball title since the Senators won their only one in 1924. The Nationals won all their home games and they will return home for a parade on November 2 to give Washington a reason for a bipartisan celebration. The BPI team is proud to join the entire DMV community in congratulating the Nationals on their first-ever World Series.


In Case You Missed It

15 Community Banks Join the Clearing House’s Real-Time Payments Network
The Clearing House announced on October 29 that 15 small institutions have joined its RTP network. The Federal Reserve announced plans to build a competing system, which is scheduled to debut in 2024. American Banker reported that the small banks were joining the RTP network to assist workers in receiving their pay and payments faster and for its flat fee structure. Also on October 31, Mike Lee, Senior Vice President of Government Affairs for BPI, participated in a panel discussion hosted by the American Action Forum on “The Federal Reserve and Real-Time Payments.”

Financial Industry Leads the Way on Diversity and Inclusion
Banks and insurance companies are leading the way on overall workplace diversity, according to a ranking by The Wall Street Journal’s research analysts. The Wall Street Journal studied the diversity and inclusiveness in the S&P 500 based on 10 metrics. “The financial sector earned high marks versus other industries in categories such as age diversity among senior management, ethnic diversity in the workforce, and number of diversity and inclusion programs in place,” the Journal reported.

America’s Middle Class Is Getting Hooked On Debt With 100% Rates
On October 29, Bloomberg reported on the increase in online installment loans. In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry. “Non-prime borrowers now collectively owe about $50 billion on installment products, according to credit reporting firm TransUnion. In the process, they’re helping transform the way that a large swathe of the country accesses debt,” according to Bloomberg.

HUD, DOJ Reach Agreement on False Claims Act prosecutions
The Department of Housing and Urban Development and the Justice Department signed a memorandum of understanding on setting guidance on how to evaluate False Claims Act cases. Politico reported on the guidance and noted that “both banks and consumer advocates have pressed the Trump administration for clear guidance from the two departments on how violations of the law would be handled going forward.” Many banks have exited Federal Housing Administration lending programs following a series of enforcement actions.


Upcoming Events

  • 11/05/2019 — Hudson Institute Hosts “Securing America’s Financial Borders” Event with BPI’s Angelena Bradfield as Panelist
  • 11/06/2019 — CFPB Hosts Section 1071, Small Business Lending, Symposium
  • 11/14/2019 — Fed’s Clarida Delivers Keynote Remarks at Cato Monetary Policy Conference 
  • 11/14/2019 — AEI Event Titled “Can the Federal Reserve manage the next economic crisis?”
  • 11/19/2019 — The Clearing House + BPI 2019 Annual Conference: The Clearing House and BPI will host the 2019 Annual Conference from November 19 to 21.  The event provides a forum for the industry’s leaders to examine the changing dynamics of the bank regulatory and payments landscapes with two and half days of high-level keynote speakers, in-depth expert panels, and networking. Registration ends today.


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