BPInsights: September 28, 2018

BPInsights: September 28, 2018

Top of the Agenda

Chairman Powell Comments on Bank Regulatory Issues

Federal Reserve Chairman Jerome Powell offered some noteworthy comments on bank regulation during his regular press conference following the Federal Open Market Committee meeting this week. With recent rumblings suggesting that the Fed Board could soon implement the countercyclical capital buffer(CCyB), Powell seemed to close the door on that possibility (we agree) in the near future stating, “[w]e said that we would deploy [the CCyB] when vulnerabilities were meaningfully above normal. …I’m in the camp of seeing vulnerabilities as relatively moderate.” When asked about leverage lending he said that he thought overall vulnerabilities are “moderate” and that banks were not exposed to material risk from leveraged lending because the loans mostly ended up being held by non-bank investors. He then used the question to reiterate the Fed’s recent announcement that confirmed that supervisory guidance is not binding.

Regarding post crisis reforms, Powell said the financial system is better prepared. “We raised capital, liquidity, we have stress tests which force banks to understand … and better manage their risk and have enough capital to survive a really substantial shock that’s at least as bad as the financial crisis. And if all that doesn’t work, we’ve got resolution plans which we’ve made really substantial progress, more than I had thought was likely,” Powell stated. Lastly, he was asked about coordination with the OCC on its Community Reinvestment Act (CRA) reform proposal, and Powell said that its “an appropriate time to revisit the way we think about CRA,” and was hopeful “that over time, there will be a joint proposed rule-making with the OCC, the FDIC and the Fed.”

Of Note

Congressmen Write Fed on Application of SIFI Standards

Today, Congressman Barry Loudermilk, along with 28 of his colleagues, sent a letter to Federal Reserve Board Vice Chairman Randal Quarles encouraging the Federal Reserve to “take quick action to completely remove” banks with between $100 and $250 billion in assets from “all SIFI-associated regulations” following the passage of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. Quarles is scheduled to testify Tuesday before the Senate Banking Committee at a hearing on the bill’s implementation.

Leaders from BPI Member Banks Found Throughout “Most Powerful Women” Rankings

Seventy-two percent of the executives in American Banker’s 25 Most Powerful Women in Finance ranking work at BPI member banks, while 10% of the women in Fortune’s 50 Most Powerful Women list come from BPI members.

The Funniest Thing We Have Ever Heard

This week, Senator Elizabeth Warren introduced a Community Reinvestment Act (CRA) reform bill that would, among many things, subject credit unions to CRA. The response from the credit union lobby was, “CUNA believes this is an effort spearheaded by Wall Street banks as part of a greater effort to ultimately undermine the credit union tax status.”

California Governor Signs Amended California Consumer Privacy Act

On Sunday, California Governor Jerry Brown signed SB 1121, which amended the California Consumer Privacy Act (CCPA). Notably, the bill revises language to the Gramm-Leach-Bliley Act (GLBA) carve-out, and now effectively provides an exemption to institutions that collect, process, sell, or disclose information “pursuant” to the GLBA. Among other things, the amended law: limits the civil penalties the AG can impose to $2,500 per violation or up to $7,500 per each intentional violation, but violating entities may be subject to an injunction; clarifies that a consumer may bring an action under the CCPA only for a business’s alleged failure to “implement and maintain reasonable security procedures and practices” that results in a data breach; and clarifies that the examples of personal information (PI) listed in the CCPA constitute PI only if the data “could be reasonably linked, directly or indirectly, with a particular consumer or household.”

Small Business Loan Reporting Rule Unlikely to Advance at BCFP

Dodd-Frank Section 1071, which requires the Bureau of Consumer Financial Protection (BCFP) to issue guidance for the collection of data from financial institutions that details the terms and conditions of their loans to minority or women-owned small businesses, is unlikely to move forward, according to a Politico article. According to sources familiar with Section 1071’s status, the rule is at the bottom of the BCFP’s priority list. The BCFP, according to the article, says the rule is still being considered.

BPI Events

Fintech Policy Series

The FinTech Policy Series explores the changes in technology through the lens of public policy, including the shifting regulatory landscape for fintech, the customer experience, innovation, and the future of data and identity. The event includes panels with technologists, innovators, financial services executives, and policymakers. Register and learn more here.
October 10, 2018
Washington, D.C., The Showroom


Join us for the commercial banking industry’s leading conference in New York. This gathering, jointly-hosted by BPI and The Clearing House, convenes bank executives, regulators, policymakers, and academics for an in-depth discussion focused on the key issues for the country’s commercial banks. The program features over 20 panel discussions and keynote remarks by leading policymakers, regulators, and thought leaders for a thoughtful look at the changing regulatory landscape and the future of payments.

Speaker Announced: Brett King, author of “Bank 4.0,” will deliver his remarks, Designing Banking for the World of 2025, on Wednesday, Nov. 28. Additional speakers will be announced in the coming weeks.
Early Bird Registration ends soon — Register today!
Nov. 26-28, 2018, The Pierre, NYC


The Bank Policy Institute and Columbia University’s School of International and Public Affairs invite the submission of papers for a conference on Bank Regulation, Lending and Growth. The purpose of the conference is to bring together academics, market participants, and policymakers to discuss the latest research on how regulation affects credit formation and economic activity. Paper submission deadline is November 1, 2018.
March 1, 2019, Columbia University, NYC

Industry News

Banking Agencies

BCFP Issues Bulletin on Changes to Types of Supervisory Communications and Heightens Standards for the Issuance of MRAs

On Tuesday, the Bureau of Consumer Financial Protection (BCFP) issued a bulletin describing a change in the way the Bureau articulates its “supervisory expectations” to financial institutions. Most importantly, “effective immediately,” the Bureau will utilize two categories of findings to convey supervisory expectations in examination reports and supervisory letters — Matters Requiring Attention (MRAs) and Supervisory Recommendations (SRs). MRAs will be used to communicate “specific goals to be accomplished” to correct federal consumer-financial law violations, provide remediation for harmed consumers, and address weaknesses in an institution’s compliance management system that examiners have found to be “directly related” to law violations. On the other hand, SRs will be used when the Bureau has not identified a violation of federal consumer-financial law but still has observed weaknesses in an institution’s compliance management system. The Bureau’s past practice was to use MRAs both to address violation(s) of law and weaknesses in an institution’s compliance management system.

In BPI/TCH’s May 2018 comment letter on the BCFP’s Supervision Program, BPI/TCH recommended that the Bureau set clear and heightened standards for the issuance of an MRA to provide a better sense of prioritization to institutions which often allocate significant senior management and staff attention and time to resolving an MRA. Importantly, as recommended, this week’s bulletin clarifies that MRAs should only be issued on the basis of actual violations of law or actual impact on consumers (i.e., not for technical deficiencies or issues have had no actual consumer impact), and establishes an alternative avenue (SRs) for communicating lesser criticisms, deficiencies or observations that can form the basis for a dialogue between examiners and supervised institutions.

Agencies Publish CECL and EGRRCPA Reporting Revisions For Public Comment

Today, the OCC, Federal Reserve, and FDIC published “CECL and EGRRCPA Reporting Revisions” to the Federal Register. Among other changes, the proposal addresses regulatory reporting changes required by Current Expected Credit Loss (CECL) and reporting changes to High Volatility Commercial Real Estate (HVCRE) and brokered deposits required by Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Comments must be submitted on or before Nov. 27, 2018.

International Developments

EDPB Adopts Draft Guidelines on GDPR’s Territorial Scope

On Wednesday, the European Data Protection Board (EDPB) issued a press release stating that during its September 25-26 plenary session it adopted draft guidelines on the territorial scope of the General Data Protection Regulation (GDPR) “which will help provide … further clarification on the application of the GDPR in various situations, in particular where the data controller or processor is established outside of the EU, including on the designation of a representative.” The release goes on to note that the EDPB will seek public feedback on the draft guidelines, but does not provide a timeframe for their public release.

Capitol Hill

Apple, Twitter, Google and Amazon Testify During Senate Hearing on Consumer Data Privacy

The Senate Commerce, Science and Transportation Committee held a hearing on Wednesday entitled “Examining Safeguards for Consumer Data Privacy.” The hearing covered issues relating to consumer data privacy along with technology companies’ activities in authoritarian states. The recently enacted California Consumer Privacy Act (CCPA) and the European Union’s General Data Protection Regulation (GDPR) came up frequently as backdrops. The witnesses represented Twitter, Amazon, Google, and Apple along with a representative from Charter Communications. There is momentum in Congress for a federal privacy law covering all industries; however, it is unclear how both parties will be able to agree on specifics. Many members on the committee called for additional hearings on this issue, also requesting one to focus on consumer privacy advocates.

Next Week in Washington

Senate Hearing: Implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act

On Tuesday, the Senate Banking Committee will hold a hearing entitled, “Implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act.” Witnesses: The Honorable Randal Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System; The Honorable Jelena McWilliams, Chairman, FDIC; The Honorable J. Mark McWatters, Chairman, National Credit Union Administration; and The Honorable Joseph Otting, Comptroller, OCC.

Senate Hearing: Big Bank Bankruptcy: 10 Years After Lehman Brothers

The Senate Judiciary Committee will hold a hearing on Wednesday entitled, “Big Bank Bankruptcy: 10 Years After Lehman Brothers.”

Senate Hearing: Combating Money Laundering and Other Forms of Illicit Finance – Regulator and Law Enforcement Perspectives on Reform

On Thursday, the Senate Banking Committee will hold a hearing on, “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” Witnesses: Mr. Kenneth A. Blanco, Director, FinCEN; Mr. Steven D’Antuono, Section Chief, Financial Crimes Section, FBI; and Ms. Grovetta Gardineer, Senior Deputy Comptroller For Compliance And Community Affairs, OCC.

Industry Events

Conference on Fintech and the New Financial Landscape

Fintech has been playing an increasing role in shaping financial and banking landscapes. The conference, hosted by the Federal Reserve Bank of Philadelphia, intends to provide a platform for industry practitioners, regulators, policymakers, business leaders, and researchers to share their thoughts on the new financial landscape.
November 13-14, Renaissance Philadelphia Downtown, Philadelphia

Research Rundown

Global Liquidity: Changing Instrument and Currency Patterns

A paper from the Bank for International Settlements Quarterly Review finds that international credit has expanded to 38% of global GDP since 2010, driven by the issuance of international debt securities while bank loans have remained flat. As a result, bond markets are now more important than banks in the transmission of global liquidity.

Perception of House Price Risk and Homeownership

A National Bureau of Economic Research working paper finds that decisions about whether to buy or rent housing are strongly correlated with perceptions of house price risk. Current renters are more likely to perceive housing as a risky investment, though the majority of US households still believe that housing is safe. This paper also finds that, while all households update their beliefs in response to local house price changes, renters update their beliefs more slowly. Combined with renters’ sensitivity to house price risk, this may prolong the housing cycle.

Global Trends in Interest Rates

This Federal Reserve Bank of New York Staff Report examines the current low-interest-rate-environment in a historical and global context. To do so, the authors analyze changes in short- and long-term interest rates, inflation, and consumption since 1870 using a vector autoregression with common trends. They find that the trend in the world real interest rate remained near 2 percent until 1980: since then, the rate has steadily declined, reaching 0.5 percent in 2016. The trend is driven by increasing convenience yields and a declining global growth rate of per-capital consumption.

The Resilience of EU Member States to the Global Crisis

This CEPR Policy Portal column investigates which European Union members were most resilient to the economic shocks of the Global Crisis and points to some characteristics that correlate with resilience of different types. The authors measure resilience by investigating the dynamic response of 34 variables to the crisis at different time horizons. The variables can be broadly categorized as assets, production technology, and outcomes. The authors find that there are substantial differences between the most and least resilient countries on each time horizon, that measured resilience is highly dependent on the choice of horizon, and that performing well relative to other countries does not imply resilience.