June 3, 2021 

Treasury Releases Details On Tax Proposals To Fund Proposed Budget

The Treasury Department released its “Green Book,” which contains details on the tax changes that President Biden’s administration is proposing to help fund the budget for the coming fiscal year. High-level descriptions of most of the tax proposals have been included in the administration’s previously released legislative agendas. The Green Book provides explanations of the proposals and suggested legislative and technical changes required should they be adopted.

The 114-page document includes increases in the corporate tax rate to 28% and an increase in the individual tax rate to 39.6%, effective starting after the 2021 tax year. It also includes a book earnings minimum tax, significant changes to international taxation rules and elimination of the capital gains rate preference and step-up in basis at death (excluding $1 million in gains).

The Green Book provides a few details on Biden’s proposed expansion in information reporting for financial institutions, which would apply to all business and personal accounts at financial institutions, including deposit accounts, loans and investment accounts. A $600 de minimis gross inflow threshold would apply to reporting, and Treasury would have broad authority to issue regulations for the proposed requirements, which if enacted would take effect starting after the 2022 tax year. 

Kennedy, Cramer Introduce Bill Aimed At Ensuring ‘Fair Access’ To Financial Services

Sens. John Kennedy, R-La., and Kevin Cramer, R-N.D., have introduced the No Red and Blue Banks Act, which would prohibit the General Services Administration from “awarding contracts to certain insured depository institutions that avoid doing business with certain companies that are engaged in lawful commerce based solely on social policy considerations.” This restriction would only apply to contracts awarded after the bill takes effect. 

Schatz, Casten Introduce Climate Risk Stress Testing Bill

Sen. Brian Schatz, D-Hawaii, and Rep. Sean Casten, D-Ill., introduced legislation that would direct the Federal Reserve to subject large banks to stress tests to measure their resilience to climate-related financial risks. Schatz previously introduced the bill in the last Congress.

Among other things, the bill would direct the Fed to establish and work with an advisory group of climate scientists and economists to develop climate change scenarios, including a 1.5 degree Celsius warming scenario, a 2 degree warming scenario and a “business as usual” scenario, which assumes a higher level of warming if there are no climate policies in place.

Stress tests would be conducted every two years for large financial institutions that are currently subject to the Fed’s Comprehensive Capital Analysis and Review stress tests. Banks would be required to create a “qualitative remediation plan” that would address how they plan to evolve capital planning, balance sheet and off-balance sheet exposures and other business operations to respond to the most recent stress test results. Although Fed objections to an institution’s remediation plan would limit its ability to proceed with capital distributions, it would not require the firm to increase its current capital.

In addition, the bill directs the Fed to work with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to issue a “nonbinding exploratory survey” that will assess the ability of banks with more than $10 billion in assets to withstand climate risks. The survey would be issued every two years, with results reported in aggregate only. Survey participants would remain anonymous and would not face adverse consequences on the basis of their responses. 

Moynihan: Time To Revisit SLR In Light Of Pandemic

Bank of America Chairman and CEO Brian Moynihan recently told lawmakers that “it’s important to look at [the Supplemental Leverage Ratio] again and make sure it’s calibrated correctly,” in light of lessons learned from the COVID-19 pandemic.

Responding to a question from the House Financial Services Committee’s Trey Hollingsworth, R-Ind., Moynihan noted that when banks began to receive an influx of deposits and “we went out and bought Treasurys, it left overnight cash in the Fed. So we probably went from $100 billion to $300 or $400 billion overnight in the Fed, and you were still holding capital against that. That doesn’t quite make sense and can work against the idea of injecting monetary support into the economy.” Moynihan added that “the industry has made many suggestions over the years that completely riskless assets may not have a place” in leverage ratios. 

The American Bankers Association has long advocated for regulators to extend their pandemic response measures, including SLR and community bank leverage ratio flexibility, that avoid unnecessary balance sheets rigidity during times of stress. In a data-driven blog post earlier this year, ABA advocated for the exclusion of these safe assets that have grown on bank balance sheets because banks are serving their traditional role as a haven during the pandemic. 

ABA Joins Coalition Amicus Brief In Support Of Rehearing FDCPA Case

The American Bankers Association and a coalition of financial trade groups filed an amicus brief urging the 11th U.S. Circuit Court of Appeals to rehear Hunstein v. Preferred Collection. The Hunstein case ruled that using a vendor to generate a letter to a debtor violated the Fair Debt Collection Practices Act’s prohibition on disclosing a consumer's debt to a third party.

The decision effectively prohibits third-party debt collectors and the entire financial services industry, including banks, credit unions and finance and mortgage companies, from using third-party service providers that are vital to servicing of loans, according to the trade groups. “The decision also threatens to limit the ability to share information necessary for buying, selling, and securitizing loans, which is critical to the financial services market. None of this was intended by the drafters of a statute meant to curb abusive debt collection practices,” the groups wrote in the brief. If allowed to stand, the court decision would effectively require FDCPA-covered institutions and servicers to bring in-house many clerical or technical functions currently performed by vendors or third parties. The trade groups noted that “this is simply not possible in some cases, and would be extremely expensive in nearly all cases.”

FSB Issues Roadmap, Additional Resources For Libor Transition 

As banks prepare for the cessation of Libor — certain tenors of which are set to begin phasing out at the end of 2021 — the Financial Stability Board published an updated global transition roadmap identifying steps firms should take to ensure an orderly transition before the end of the year.

Although the roadmap does not constitute regulatory advice, it recommends that by mid-2021, firms should have determined which of their legacy contracts can be amended ahead of year-end and established formalized plans to do so where counterparties agree. Where Libor-linked exposures extend beyond year-end, firms should contact other parties to discuss how existing contracts may be affected, FSB said.

Firms also should have systems and processes in place to support the transition and aim to use robust alternative reference rates — such as the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred Libor alternative — in new contracts wherever possible. By year-end, FSB recommended that all new business contracts be conducted in alternative rates, “or be capable of switching at limited notice” as additional Libor tenors stop being published.

In addition to the roadmap, FSB also published a paper reviewing overnight risk-free rates and term rates, a statement on the use of the International Swaps and Derivatives Association spread adjustments in cash products and a statement encouraging authorities to set globally consistent expectations regarding the cessation of Libor. 

Fed Proposes Changes To Reg J To Accommodate FedNow

The Federal Reserve proposed to create a new subpart of Regulation J that would provide a “comprehensive set of rules” to govern funds transfers made through FedNow, the real-time payments network the Fed is developing.

The new subpart, Subpart C, would specify terms and conditions under which reserve banks will process funds transfers and grants the reserve banks authority to issue an operating circular for the FedNow service. Also included in Subpart C would be a requirement for a FedNow participant that is the beneficiary’s bank to make funds available to the beneficiary immediately after it has accepted the payment order over the service.

The proposal also includes changes and clarifications to Subpart B of Reg J, which governs the Fedwire Funds Service, to reflect that the reserve banks will be operating a second funds transfer service in addition to Fedwire, along with technical changes to Subpart A, which governs check service. Comments on the proposal are due 60 days after publication in the Federal Register

Fed Issues Proposal Aimed At Improving Intraday Liquidity Management

The Federal Reserve asked for comments on proposed changes to its payments system risk policy that would expand access to collateralized intraday credit from the Federal Reserve Banks. The proposal is aimed at improving intraday liquidity management and payment flows while assisting the reserve banks in managing intraday credit risk.

The proposed changes also seek to clarify the terms for accessing uncollateralized intraday credit and the circumstances under which an institution may remain eligible for uncollateralized capacity if its holding company or affiliate is assigned a low supervisory rating.

The changes also will align the Fed’s payments system risk and overnight overdraft policies with the deployment of FedNow, the real-time payments network the Fed is developing. Comments are due 60 days after publication in the Federal Register.

Fed Issues Final Rule Amending Regulation D

The Federal Reserve issued a final rule amending Regulation D, which addresses reserve requirements of depository institutions. The rule eliminates references to an “interest on required reserves” rate and to an “interest on excess reserves rate,” replacing them with a reference to a single “interest on reserve balances” rate.

In the final rule, the Fed also simplified the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks. The final rule takes effect July 29.

EEOC Updates Vaccination Guidance

The Equal Employment Opportunity Commission updated its technical assistance question-and-answer document to confirm that a bank or other employer may offer an incentive to employees to receive a COVID-19 vaccination. If the employer is administering the vaccine, the incentive may not be “so substantial as to be coercive.”

The EEOC also confirmed that, under the Americans with Disabilities Act, an employer may inquire about or request documentation or other confirmation that an employee obtained a COVID-19 vaccine. In addition, the EEOC stated that an immunocompromised employee who is fully vaccinated for COVID-19 may be eligible for a reasonable accommodation because of a continuing concern that he or she faces a heightened risk of severe illness from a COVID-19 infection, despite being vaccinated.

The EEOC also stated that if an employee chooses not to receive a COVID-19 vaccination because of pregnancy, the employer must ensure that the employee is not discriminated against compared to other employees similar in their ability (or inability) to work.

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