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House Financial Services Committee Considers Bank Regulator Concerns and Proposed Legislation

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

The House Financial Services Committee considered (i) testimony from federal banking regulators, including the Federal Reserve Board ("FRB"), FDIC, OCC and the National Credit Union Administration ("NCUA") on a broad range of concerns, as well as (ii) several proposed bills imposing additional requirements on financial institutions.

Testimony

FRB Vice Chair of Supervision Randal Quarles, FDIC Chair Jelena McWilliams, OCC Comptroller Joseph M. Otting and NCUA Chair Rodney E. Hood reflected on recent supervisory and regulatory developments in the banking sector (see here, here, here and here). Key takeaways include:

  • an indication from Chair McWilliams that the FDIC may join the OCC's proposal to modernize the Community Reinvestment Act without the support of the FRB;
  • a reminder from regulators that additional Volcker reforms could be proposed in future rulemakings in addition to the July 2019 joint proposal to modify the Volcker Rule;
  • criticism of the October 2019 swap margin proposal from FRB Governor Lael Brainard, who said that exemptions for inter-affiliates without restrictions pose a prudential risk to banks;
  • concerns from the Committee that regulators are "rubber stamping" merger and acquisition applications;
  • questions from the Committee regarding the effectiveness of the current industrial loan company ("ILC") regulatory framework, given the lack of progress made by applications in recent years;
  • concerns from the Committee that there is insufficient oversight of technology service providers (or "TSPs"), which financial firms are increasingly relying on;
  • calls for policymakers to ensure that banks are not discouraged from providing financial services to certain regions (e.g., the Caribbean) due to Anti-Money Laundering / Bank Secrecy Act requirements;
  • a defense from Chair McWilliams, of a proposal to clarify the validity of interest rates on transferred loans (see prior coverage), that the proposal will not encourage predatory lenders to evade state usury caps;
  • dissent from NCUA Board Member Todd Harper, on the proposed broadening of Payday Alternatives Loans to credit unions, that it could result in triple-digit effective annual percentage rates; and
  • an announced review of brokered deposits and interest rate restrictions by the FDIC.

Bills

The Committee also considered the following bills:

  • H.R. _____, the "Reregulating Megabanks Act," which would codify the April 2014 requirement that U.S. global systematically important banks ("G-SIBs") maintain a six percent enhanced supplementary leverage ratio ("eSLR"), and their holding companies maintain a five percent eSLR.
  • H.R. _____, the "Financial Institution Living Will Improvement Act," which would require banks to submit resolution plans (i.e., living wills) every two years.
  • H.R. _____, the "Proprietary Trading Disclosures Act," which would require the FDIC to annually report on the Volcker Rule's implementation and large bank trading activities.
  • H.R. _____, the "Close the ILC Loophole Act," which would eliminate an exemption to the Bank Holding Company Act that allows ILCs and their corporate owners to operate outside of that law's regulatory framework.
  • H.R. _____, the "Mergers and Acquisition Disclosure of Diversity and Inclusion Act," which would require banks to submit diversity and inclusion data with their merger or acquisition application.
  • H.R. _____, the "Federal Reserve Bank Board Diversity Act," which would require persons selecting regional Federal Reserve Bank boards of directors to consider at least one individual reflective of gender and racial diversity.
  • H.R. _____, the "Promoting Diversity and Inclusion in Banking Act," which would require bank examinations of diversity and inclusion efforts and would require responses to Office of Women and Minority Inclusion (or "OMWI") assessments of diversity policies and practices.

Commentary

While the regulators are considering how the burdens imposed by Dodd-Frank can be modified, the House majority is considering how they should be increased.  

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