February 10, 2022

MBA Shares Concerns Of Federal Reserve Nominee With Blunt, Hawley

In a recent letter to Sens. Roy Blunt and Josh Hawley, MBA expressed its concerns regarding the nomination of Sarah Bloom Raskin to serve as vice chairwoman for supervision at the Federal Reserve. MBA noted Raskin’s views on banks’ funding of oil and gas-related businesses.

“The interests of our nation to secure sound monetary policy and the stability of the financial system, and to ensure that our banks are safe and sound, would be placed in jeopardy by the appointment of an individual who brings an activist agenda to the Federal Reserve System,” said MBA President and CEO Max Cook. “Politization of credit allocation to promote a climate agenda would create systemic financial risks, destabilize the financial system, and undermine the safety and soundness of our banks.”

Congressman Blaine Luetkemeyer, ranking member on the Consumer Protection & Financial Institutions Subcommittee, joined some of his colleagues in expressing their concerns to Federal Reserve Chairman Jerome Powell.

“The primary responsibilities of the Federal Reserve are to promote full employment and stable prices, and to ensure the safety and soundness of the financial system,” the congressmen wrote. “The Federal Reserve’s role is not to advance certain environmental policies, and is certainly not to bias the allocation of capital against entire legal industries.”

During her recent testimony before the Senate Banking Committee, Raskin said she would not seek to use her authority to reallocate capital away from the energy sector. Responding to concerns about her views on banks’ funding of oil and gas-related businesses, Raskin stated emphatically that “it is inappropriate for the Fed to make credit decisions and allocations” and that “banks choose their borrowers, not the Fed.” In addition, supervisory and regulatory actions “must always stay within the bounds of the law,” she said.

Raskin has come under fire from some Republicans on the banking committee for her previous writings and speeches in which she seemed to support using the regulatory apparatus to redirect investment away from industries that, in her view, are contributing to climate change. In 2020, for example, Raskin wrote that the “transformation [toward a net-zero carbon economy] will come, in part, from urging the leaders of our financial regulatory bodies to do all they can — which turns out to be a lot — to bring about the adoption of practices and policies that will allocate capital and align portfolios toward sustainable investments that do not depend on carbon and fossil fuels.”

In her testimony, however, Raskin tempered her comments. “Whether we’re talking about the risks of cyberattacks or climate-related extreme weather events, the job of the bank regulators is to make sure the banking system has appropriately accounted for those risks and can manage them,” she told lawmakers.

Raskin also noted that “regulation is best achieved when it is collaborative” and said she would work “to bring all interested parties and experts to the table and listen carefully” before making important regulatory policy decisions. “Supervision, regulation cannot be done with one voice alone,” she said. “You need the voices of many. And the many include not just experts ... but the people who live it day to day.”

A former Maryland bank commissioner during the 2008 financial crisis, Raskin said that as a supervisor, “the bankers in Maryland were my indispensable partners” during that time and that “it was the bankers that strengthened my sense, not just in the value of collaboration and in the value of working together to achieve good ends, but in the importance of community banks.”

She added that “community banks are one of the finest features we have in our financial sector. They provide safe and sound financial intermediation, they understand the community, the economies that they lend into in a way that keeps them very sensitive and very attuned to what communities need.”

ABA Tells Congress Action Needed To Address Gaps In Stablecoin Regulation

In a statement for the record shared ahead of a House Financial Services subcommittee hearing on stablecoins, the American Bankers Association agreed with a recent report from the President’s Working Group on Financial Markets that action is “urgently needed” to address gaps in regulation of the stablecoin market. The association told the subcommittee that Congress should follow the recommendation from the report to enact legislation to ensure that stablecoin arrangements are subject to a “consistent and comprehensive federal prudential regulatory framework.”

The lack of regulation for nonbanks is particularly concerning, ABA said, adding that many nonbank stablecoins are designed to circumvent established regulatory architecture and “pose a number of unmitigated risks including harm to consumers,” the potential for stablecoin runs, and payment system risks that could spill over into the broader financial system.

ABA said it is encouraging regulatory agencies to use their existing authorities to identify and address the risks of nonbank stablecoin arrangements. The association added that it believes that customers who choose to access digital asset markets, including stablecoins, will be best served when they can do so through fully regulated banks where they are afforded robust consumer protection.

Meanwhile, Kristalina Georgieva, the managing director of the International Monetary Fund said there’s no universal case for central bank digital currencies and urged policymakers to carefully weigh tradeoffs as innovation in financial technology evolves. Georgieva said that around 100 countries are exploring CBDCs with “some researching, some testing and a few already distributing CBDC to the public.” There is no universal case, she added, because each economy is different.

While “no one size fits all” was Georgieva’s main message, the two other key lessons she noted were that financial stability and privacy considerations are “paramount” to the design of CBDCs, and that introducing a CBDC is about “finding the delicate balance between developments on the design front and on the policy front.” The IMF also released a report on emerging trends, insights and policy lessons on CBDCs. 

ABA recently weighed in on the risks associated with issuing a CBDC in the United States, warning that doing so could compete with bank deposits and limit banks’ ability to power economic growth.

House Advances SAFE Banking Act Through China Competitiveness Bill

The U.S. House passed the America Competes Act, a bill aimed at boosting American economic competitiveness against China. The bill includes as an amendment the SAFE Banking Act, which would enable banks to serve legitimate cannabis businesses in states where it is legal. Championed by Rep. Ed Perlmutter, D-Colo., the SAFE Banking Act has been passed in some form by the House six times but has failed to be successfully taken up by the Senate.

Republicans Urge DOL To Engage with Industry Before Overtime Rulemaking

As the U.S. Department of Labor contemplates a new overtime rulemaking, four senior Republican members of Congress urged DOL to “conduct robust public engagement,” including meetings with industry stakeholders, before any proposed rule relating to overtime pay requirements. The request comes after the American Bankers Association and 109 other trade groups sent a letter urging the DOL to meet with industry groups before proposing a new rule.

The fall 2021 regulatory agenda of President Biden’s administration projected that DOL would issue a proposed rule in April 2022 that would revisit the salary level at which an employee could be exempted from federal overtime and minimum wage requirements, as well as revisit other aspects of the overtime regulatory regime. In 2019, with ABA’s support, DOL under President Trump’s administration issued a final rule that set the salary level at $684 per week, or $35,568 per year.

“It is clear that the regulated community is interested in engaging with DOL regarding its plan to develop new overtimes regulations,” said the congressional members. “We respectfully ask that you grant the request as doing so is both fair and prudent.”

FDIC’s Gruenberg Flags Shift In Agency’s 2022 To-Do List

Following the departure of Jelena McWilliams from the Federal Deposit Insurance Corporation, Acting Chairman Martin Gruenberg outlined his agency’s shift in priorities for the year ahead. Gruenberg identified five primary focus areas for the FDIC in 2022.

• “strengthening and enhancing” the Community Reinvestment Act through an interagency process
• addressing the financial risks posed by climate change
• reviewing the bank merger process, which according to Gruenberg hasn’t been addressed in 25 years
• evaluating crypto-asset risk to determine the extent to which banking organizations can safely engage in crypto-asset-related activities
• implementing the capital framework commonly known as “Basel IV,” which was delayed because of the pandemic

“While there are many pressing issues the FDIC will have to address this year,” he said, these priorities “will require close collaboration among the federal banking agencies.”

With respect to climate change, Gruenberg said the agency will seek “public comment on guidance designed to help banks prudently manage these risks, [establish] an FDIC interdivisional, interdisciplinary working group on climate-related financial risks, and [join] the international Network of Central Banks and Supervisors for Greening the Financial System.”

PPP Borrowers May Request Review Of Partially Forgiven Loans

The Small Business Administration announced that it will allow Paycheck Protection Program borrowers to request a loan review by SBA when the lender determines that the borrower is entitled to only partial forgiveness of the PPP loan. Under a procedural notice issued by SBA, when a lender receives a forgiveness remittance from SBA on a loan where only a portion of the PPP loan was forgiven, the lender must inform the borrower that it has 30 calendar days to seek, through the lender, an SBA loan review of the lender’s partial approval decision. SBA retains discretion to accept or deny the borrower’s request to review the loan. If SBA selects the loan for review, the loan is not deferred, and the borrower must continue to make payments on the remaining balance of the loan.

SBA also advised that by Feb. 26, lenders must notify all of their borrowers of loans that previously received a partial forgiveness decision that the borrower has 30 calendar days to seek, through the lender, an SBA loan review of the lender’s partial forgiveness decision.

SBA advised that it will be providing lenders with additional guidance through the platform, including step-by-step instructions. For more information, contact ppp@aba.com.

FASB Rejects Further Deferral Of CECL

The Financial Accounting Standards Board considered and rejected further deferral of the current expected credit loss accounting standard for those banks that have yet to adopt it. CECL will become effective for these entities, which include smaller SEC registrants and private companies, on Jan. 1, 2023.

The FASB board members all expressed full support for simplified methodologies put forth, including of the Federal Reserve Board’s “SCALE” methodology. SCALE, which largely relies on peer allowance coverage ratios, was introduced by the Fed to make CECL scalable for community banks.

ARRC Chairman: Legislations Needed To Address Libor Legacy Contracts

In a Barron’s op-ed, the Alternative Reference Rates Committee Chairman Tom Wipf emphasized the need for legislation to address legacy contracts that have no effective means to replace Libor. Many existing contracts do not include provisions that deal with Libor’s end or have provisions “that would cause significant economic impacts that the parties may not have anticipated,” he said.

Wipf, who also is vice chairman of institutional securities at Morgan Stanley, highlighted that legislation to address legacy contracts “will significantly reduce operations and legal risks for many market participants and help them seamlessly transition to [Secured Overnight Financing Rate],” the ARRC’s preferred alternative to Libor.

Wipf said New York and Alabama have passed legislative solutions based on the ARRC's proposals, adding that ARRC also will advocate for passage of similar legislation in Congress and advocate for legislative solutions in other states as needed if federal legislation does not pass in time. The American Bankers Association continues to advocate for the Adjustable Interest Rate (Libor) Act, a bill that would address tough legacy contracts. The House advanced the bill by an overwhelming bipartisan vote in December.

FinCEN Extends Comment Period On Proposed Real Estate Reporting Requirements

The Financial Crimes Enforcement Network is extending the comment period to Feb. 21 on a potential rule on real estate reporting requirements. According to an advance notice of proposed rulemaking issued in December, the rule would address real estate purchased without involving loans or other financing by regulated financial institutions.

FinCEN is asking for comment on the approach it should take with respect to the residential and commercial real estate sectors to address the vulnerability of the U.S. real estate market to money laundering and other illicit activity.

Federal Court Upholds OCC, FDIC’s ‘Valid-When-Made’ Rules

In separate rulings, a federal district court upheld “valid-when-made” rules from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The agencies’ rules had affirmed that permissible interest on a loan made by a national or state-chartered bank or federal thrift remains valid when the loan is transferred or sold. After the OCC and FDIC issued separate rules in 2020, several state attorneys general challenged both rules in court.

The agencies’ so-called “Madden fix” rules, which the American Bankers Association had long urged, responded to a 2nd U.S. 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.

OCC Acting Comptroller Michael Hsu welcomed the district court’s ruling on the OCC’s rule but cautioned that the “legal certainty” provided by the valid-when-made rule “should be used to the benefit of consumers and not be abused.” Hsu also reiterated that “predatory lending has no place in the federal banking system” and that the OCC is committed to ensuring “banks are not used as a vehicle for ‘rent-a-charter’ arrangements.”