Bank Regulatory News and Trends

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Bank Regulatory News and Trends

Bank Regulatory News and Trends

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This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

  • Republicans keen to roll back Dodd-Frank; Dems divided on reform: Senate Majority Leader Mitch McConnell (R-KY) and House Speaker Paul Ryan (R-WI) reportedly cited banking regulatory overhaul as a top legislative priority at the January 31-February 2 Republican Congressional retreat. The Senate Banking Committee's bipartisan de-reg bill (S 2155) is expected to move in the Senate soon, while the House has passed a more sweeping Dodd-Frank repeal (HR 10). But the Senate bill has created a rift between moderate and progressive Democrats, with moderates touting benefits for regional banks and rural economies, and critics on the left warning against easing stricter rules enacted in the wake of the financial crisis.
  • Fed releases 2018 stress test scenarios: The Federal Reserve Board on February 1 released the scenarios banks and supervisors will use for the 2018 Comprehensive Capital Analysis and Review and Dodd-Frank stress tests, and issued instructions to firms participating in CCAR. A total of 38 financial services firms will be subject to the quantitative evaluation of their capital planning capabilities, while 18 of the largest and most complex firms will additionally be subject to qualitative tests, including five foreign firms for the first time. Participating firms must submit their capital plans and stress testing results to the Fed by April 5, and the results of the supervisory stress tests will be announced June 30.
  • CFPB changes afoot: The Consumer Financial Protection Bureau on February 12 released a five-year strategic plan that Acting Director Mick Mulvaney said would "fulfill the Bureau's statutory responsibilities, but go no further." Additionally, CFPB is asking for comments from the public and industry on its enforcement and supervision processes in Requests for Information dated February 7 and 14, the third and fourth in a series of RFIs "seeking information to help assess the overall efficiency and effectiveness." And President Trump's FY 2019 budget proposal, unveiled February 12, would significantly lower the levels, and change the method, of funding for the CFPB, and calls for restrictions on the bureau's enforcement authority "to prevent actions that unduly burden the financial industry and limit consumer choice."
  • OCC seeks CRA improvements: The OCC will seek public input on ways to improve Community Reinvestment Act regulations, Comptroller of the Currency Joseph Otting said in a February 2 interview. Otting called for "a simple benchmark that everyone can measure against" to determine success in "expanding opportunity and adding jobs and growing the local economy," with small-business lending a bigger focus. He said banks should receive feedback on a quarterly basis with clearer metrics. Trade groups such as the ABA have called for CRA reform.
  • Meeting of the minds: Comptroller Otting met with Acting CFPB Director Mulvaney on February 6 to discuss their agencies' coordination to make bank supervision more efficient. Otting expressed a desire to work together to rein in "regulatory overreach" and "unnecessary regulatory burden." And he praised Mulvaney for reducing the burden on the banking system by delaying implementation of the CFPB's Home Mortgage Disclosure Act rule, reconsidering its payday lending rule, and deferring action on additional regulations pending a more thorough review.
  • Fed nominee in danger of Senate rejection: The nomination of Carnegie Mellon University professor Marvin Goodfriend to become a member of the Board of Governors may have hit a snag. Goodfriend's nomination was approved by the Senate Banking Committee on February 8, but only by a 13-12 party-line vote. Republican Senator Rand Paul (R-KY) has said he will oppose Goodfriend and Senator John McCain (R-AZ) is currently absent for health reasons. Assuming no Democrats support the nomination on the floor, and with Republicans holding a slim 51-49 majority, the loss of two votes would sink the nomination.
  • FDIC nominee advances: The nomination of Jelena McWilliams as FDIC chairwoman appears to be on more solid ground. The Banking Committee on February 8 voted to advance her nomination to the full Senate – by a 24-1 vote.
  • SIFI designation revisions coming: Treasury Secretary Steven Mnuchin said the Financial Stability Oversight Council will issue a proposal on new criteria for designating non-bank firms as Systemically Important Financial Institutions before the new process goes into effect. Testifying before the House Financial Services Committee on February 6, Mnuchin said he would consider support for proposed legislation to have the FSOC adopt the same risk indicator score system that the Fed Board uses to assign ratings to SIFIs, rather than the current threshold of $50 billion in assets.
  • House passes mortgage, small bank regulatory relief and loan transfer bills: The House of Representatives on February 8 passed the Mortgage Choice Act (HR 1153) aimed at changing the current CFPB definition for how points and fees are calculated and allowing more loans to meet the Qualified Mortgage standard. The same day, the House passed the Small Bank Holding Company Relief Act (HR 4771), which would make it easier for community banks to raise additional capital by issuing debt, providing regulatory relief to small financial institutions. On February 14, the House passed the Protecting Consumers' Access to Credit Act (HR 3299), which would require that the rate of interest on certain loans remain unchanged regardless of whether a bank has subsequently sold or assigned the loan to a third party. The measures now head to the Senate.
  • Court ruling exempts CLO funds from Dodd-Frank rules: The Court of Appeals for the DC Circuit ruled on February 8 that Collateralized Loan Obligation funds will no longer have to comply with "skin in the game" rules. A three-judge panel ruled in favor of the Loan Syndications and Trading Association in its litigation against the SEC and the Fed over the application of risk retention rules to CLO managers. The Court concluded that open-market CLO managers are not "securitizers," and therefore not subject to the credit risk retention rules mandated under Dodd-Frank Act, which require firms to hold 5 percentof their fund. The Fed and/or the SEC could still appeal, seeking an en banc or Supreme Court review.
  • Agencies seek comment on proposed swap margin rule amendments: The Fed, OCC, FDIC and two other federal agencies on February 5 proposed amending swap margin requirements to conform with recent rule changes imposing restrictions on certain Qualified Financial Contracts of systemically important banks. Under the proposed amendments, legacy swaps entered into before the compliance date would not be subject to the margin requirements if they are only being changed to conform to QFC Rules. The proposed amendments would also harmonize the definition of "Eligible Master Netting Agreement" in the Swap Margin Rule with recent changes to the definition of "Qualifying Master Netting Agreement" in capital and liquidity regulations adopted pursuant to the QFC Rules.
  • Banking culture still has room for improvement: Outgoing New York Fed President William C. Dudley said at a February 9 panel discussion that work remains in the ongoing effort to improve banking culture. Dudley said more progress needs to be made, such as having an industry-wide survey allowing firms to benchmark their results against each another (as in the UK), and going after the "rolling bad apple problem" with a registry of people dismissed for misconduct. He said the regulatory regime and banks' internal culture "are complements, not substitutes." Noting that boards of directors are setting up committees on culture, he said, "have we gotten as far as we need to go? No. Have we made a lot of progress? Yes."