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
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.
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
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.