June 25, 2020

MBA Podcast Episode Explores Missouri Hospital Response To COVID-19

The latest episode of "Our Two Cents with MBA" podcast features Herb Kuhn, president and CEO of the Missouri Hospital Association. MHA has been at the center of the COVID-19 response for Missouri. Early on, MHA developed a COVID-19 dashboard for state leadership that was updated daily with data on COVID-19 spread, PPE availability and ICU/hospital bed availability, among others. These reports are now migrating to a weekly dashboard with regional information on these same topics. 

In this interview, Kuhn discusses how the COVID-19 crisis grew in Missouri, how MHA and hospitals across the state responded and what the next six months may hold. Kuhn also discuss the ongoing trend of closure of rural hospitals and the impacts that may have on the communities in which banks operate. 

"Our Two Cents with MBA" podcast  is available on iTunes, Apple Podcasts, Google Podcasts and Spotify.  

ABA, Industry Groups Call For Five-Member, Bipartisan CFPB Commission

The American Bankers Association joined a broad coalition of financial and housing industry groups in a letter of support for a recent bill, S. 3990, that would replace the Consumer Financial Protection Bureau’s sole director with a bipartisan, five-member commission. In a letter to Sen. Deb Fischer, R-Neb., the bill’s sponsor, the groups noted that this structure “will provide a balanced and deliberative approach to supervision, regulation and enforcement by encouraging input from all stakeholders.”
 
They added that there has long been bipartisan support in Congress for a CFPB five-member commission, with several bills passed by the House with both Democratic and Republican support in recent years. In addition, the House version of the Dodd-Frank Act that passed in 2009 also envisioned a commission governance structure for the bureau, the groups said.

The letter came as the Supreme Court prepares to render a verdict in Seila Law v. the Consumer Financial Protection Bureau, where the question of the bureau’s governance structure is under review. 

ABA: House Bill Would Undermine Usefulness Of Credit Reports

In a letter to House leadership, the American Bankers Association expressed its opposition to H.R. 5332, the Protecting Your Credit Score Act of 2020. Although well-intentioned, ABA noted, the current text of the bill would “make credit reports less predictive and useful by promoting the elimination of negative but accurate information that will weaken the underwriting process and thus increase borrowers’ costs and reduce people’s ability to get loans.”
 
ABA added that the bill would allow courts to award injunctive relief, which could lead to questionable lawsuits and inconsistent interpretations. The association noted that the Fair Credit Reporting Act already provides consumers with strong dispute rights and a framework for promptly resolving such disputes.
 
“H.R. 5332 will make it even easier than it is today for individuals to flood consumer reporting agencies and furnishers of information with false claims of inaccuracies that must be resolved in a timely fashion or deleted,” the association wrote. “The resulting degradation of the reports will reduce the ability of lenders to evaluate an applicant’s creditworthiness and ability to repay, which in turn will increase what consumers pay for credit and make it harder for many consumers, especially the underserved, to get credit.”

Fed: Most Banks Remain ‘Sufficiently Capitalized’ In COVID Stress Scenarios

All 33 banks participating in the Federal Reserve’s 2020 supervisory stress tests would remain above minimum regulatory capital levels under three COVID-related downside scenarios, and “the large majority of banks remain sufficiently capitalized over the entirety of the projection horizon in all scenarios,” the Fed said today.

“The banking system has been a source of strength during this crisis,” commented Fed Vice Chairman for Supervision Randal Quarles. “The results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.”

With the economic situation triggered by the coronavirus pandemic and public health response substantially more adverse than the 2020 stress tests’ “severely adverse” scenario on several dimensions, the Fed added a sensitivity analysis to this year’s tests examining bank performance in three potential COVID-19 scenarios. In the aggregate, minimum common equity Tier 1 capital ratios would be 9.5% (for a so-called V-shaped recovery), 8.1% (U-shaped) and 7.7% (W-shaped, with a second COVID surge in late 2020). The sensitivity analysis did not incorporate the effects of government supports, such as economic impact payments, expanded unemployment coverage or the Paycheck Protection Program.

“The Federal Reserve’s latest stress test results affirm that the nation’s largest banks continue to be a source of strength for the economy and remain well prepared to handle a range of potential economic shocks,” said ABA President and CEO Rob Nichols. “As the results make clear, even under the most adverse hypothetical scenarios banks will continue to help the nation overcome the economic challenges posed by the pandemic.”

Given the uncertainty of the paths of both the economy and the pandemic, the Fed board required large banks to preserve capital in the third quarter by suspending share repurchases (an action voluntarily taken by the eight U.S. global systemically important banks in March), capping dividends and basing future dividends on an income-based formula.

All participating banks will be required to resubmit their capital plans later this year, the Fed said, adding that the Fed will evaluate bank performance on a quarterly basis. The Fed added that the results of its pre-coronavirus stress test scenarios, which showed banks remaining strongly capitalized, would be used to set the stress capital buffer for covered firms.

FDIC Finalizes Rule Codifying ‘Valid When Made’ Principle

The Federal Deposit Insurance Corporation finalized a rule codifying that permissible interest on loans made by state-chartered banks and insured branches of foreign banks remains valid when a loan is transferred or sold. The Office of the Comptroller of the Currency finalized a similar rule earlier this year ensuring that the “valid when made” principle is codified for both national and state-chartered banks.

“The FDIC’s Federal Interest Rate Authority rule will restore the efficiency and effectiveness of primary and secondary loan markets, protecting the ability of state banks and loan purchasers to diversify their holdings while facilitating loan origination,” said American Bankers Association President and CEO Rob Nichols.

The so-called “Madden fix” addresses a Second Circuit Court of Appeals ruling in Madden v. Midland Funding, which held that a nonbank buyer of a loan issued by a national bank could not export the originated interest rate into another state. The U.S. Supreme Court declined to take up an appeal of Madden, resulting in conflicting precedent around the country and increasing the urgency of regulatory or legislative action.

Agencies Adopt Volcker Reforms On Covered Funds, Affiliate Transactions

Agencies Finalize Rule To Amend Initial Margin Requirements For Inter-Affiliate Swaps

ABA Urges FHFA To Revisit FHLB Ban On Captive Insurers

As the Federal Housing Finance Agency weighs a rulemaking process on Federal Home Loan Bank membership eligibility, the American Bankers Association provided the banking industry’s perspective on potential changes and how they might affect the FHLB system. The association emphasized that FHFA should continue to defer to Congress on eligible members — for example, not making entities deemed eligible by statute ineligible in regulation, as was done in 2016 for captive insurers.
 
ABA urged FHFA to revisit its rule on captive insurers. 

“Instead, FHFA should be guided by congressional intent to allow these insurance companies membership in the system, but FHFA should limit each individual captive insurer’s ability to access the system based upon its potential to impact the safety and soundness of the system,” considering for example whether a captive insurer’s parent is prudentially regulated. “Similarly, we recommend that FHFA establish clear, consistent, and risk-based member access standards that account for differences in prudential regulation such as for less stringently regulated credit unions and for non-depository CDFIs.”
 
ABA also recommended that FHFA guard against “back door” access to the FHLB system by urging FHFA not to prohibit membership to classes of otherwise eligible members based on these concerns but instead make case-by-case determinations. “If an otherwise ineligible member lacking regulation, oversight and capital attempts to use an eligible member as a conduit, safety and soundness considerations must dictate that the FHLB and the FHFA restrict access by the eligible member to protect the system,” the association said. 

OCC’s Brooks Plans To Unveil ‘Payments Charter 1.0’ This Fall

The Office of the Comptroller of the Currency is planning to unveil what Acting Comptroller Brian Brooks called “payments charter 1.0” as soon as this fall, Brooks said on the latest episode of the ABA Banking Journal Podcast. Version 1.0 would be a “national version of a state money transmission license” offering nonbank payment providers a “national platform with preemption,” but not access to the Federal Reserve's payments system. After about 18 months of operating under version 1.0, Brooks said, the agency would roll out version 2.0, which he anticipates would include direct Fed access. In recent interviews, Brooks has touted the idea of using the OCC’s authority to grant special-purpose national bank charters to charter payments companies. He provided more details about the financial inclusion requirements these charters would entail to provide consistency across depository and nondepository institutions.

Brooks also noted that banks have faced challenges adopting artificial intelligence and machine learning technologies in part because “regulators have been slow to provide guidance.” He said the OCC is working to evaluate advanced technologies that can improve financial inclusion such as AI-based underwriting.

As part of the agency’s financial inclusion efforts, the OCC’s Office of Innovation is “in the process of standing up an evaluation unit, where for the first time the OCC will analyze specific technologies, look at risk frameworks, engage in model validation and give banks guidance about what we think is good and what we think is risky. We’ve never done that before.”

In addition to the payments charter and innovation in underwriting, Brooks addressed:

• changing credit bid rules for real estate owned to incentivize homeownership and renovation in distressed neighborhoods 
• the need to update vendor risk management rules to support innovation
• the role of core processors in supporting bank innovation in a time of technological unbundling in the fintech marketplace

CFPB Updates Small Entity Compliance Guide On Remittance Rule

Fed Publishes New Standardized Framework For Understanding Payments Fraud

The Federal Reserve published a new framework that banks and other payment providers can use to classify and understand payments fraud. The FraudClassifer model, which was developed by the Fed’s Fraud Definitions Working Group, gives institutions the ability to classify fraud independently of payment type, payment channel or other payment characteristics.

The model presents a series of questions, beginning with who initiated the payment, to differentiate payments initiated by authorized or unauthorized parties. Each of the classifications is supported by definitions that allow for consistent application of the FraudClassifier model across the industry. By adopting this framework, the Fed said payments providers will be able to facilitate consistent fraud information and tracking, improve customer education, understand fraud across payment types and fraud methods and develop a common language to help fight payments fraud.

ABA Core Platforms Committee To Host Webinar On Emerging Providers

Members of ABA’s Core Platforms Committee will discuss new core players entering the market in a free webinar at 1 p.m. Wednesday, July 8. Speakers will review who the new core players are, how they stack up to existing core providers, their plans for the future and how banks can evaluate a new core provider.

Newly Redesigned FDIC Website Includes Banker Resource Page

Agencies Release 2019 HMDA Data