This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.
- Senate Banking Committee to review implementation of the banking deregulation law. The Senate Banking Committee has announced an oversight hearing for Thursday, September 13, titled "Implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act." The witness list is a who's-who of some of the most important bank regulatory officials, including: Comptroller of the Currency Joseph Otting; the Fed's Vice Chairman for Supervision Randal Quarles; FDIC Chair Jelena McWilliams; and National Credit Union Administration Chair J. Mark McWatters. Three months after enactment of the landmark financial services deregulation bill there are growing indications that some in the banking industry, as well as members of Congress, are dissatisfied with the pace and manner in which the Fed and the other agencies are implementing the rollback of post-crisis Dodd-Frank scrutiny and regulatory burdens, particularly on mid-sized banks. As reported in the August 27 edition of Bank Regulatory News and Trends, a group of seven Senate Republicans has written to Quarles calling for immediate relief for regional banks while better tailoring supervision of larger banks and international banks with substantial U.S. operations. According to a published report in Politico, representatives of the banking industry "are beginning to press regulators to take complete advantage of the new deregulatory measures." Since passage of the law, Quarles and Fed Chairman Jerome Powell have discussed in various public venues, including Congressional testimony, factors they are considering in developing a framework for regulating banks with between $100 billion and $250 billion in assets, rather than completely relieving them of supervision. For his part, the author of the de-reg bill, Senate Banking Committee Chairman Mike Crapo (R-ID), has not been publicly pressuring the agencies on more aggressive deregulation, nor have the moderate Senate Democrats who worked with Crapo on the drafting the legislation.
- Varo Money, a fintech startup, on track to become the first all-mobile national bank. Varo Money, Inc., a San Francisco-based financial technology startup, announced that it has been granted preliminary approval of its application for a national bank charter by the Office of the Comptroller of the Currency. In a September 4 news release touting what it called a history-making development, the newly rebranded Varo Bank said it will become the first all-mobile national bank in the US, pending the OCC's final approval. This step marks a watershed moment in the evolution of the banking industry as it seeks to leverage new technologies to make banking more accessible and innovative. As reported in the August 27 issue of Bank Regulatory News and Trends, the OCC will begin accepting applications for Special Purpose National Bank charters for non-depository financial institutions, especially in the fintech space. It is uncertain how appealing the SPNB charter will be to fintechs though and it is notable that Varo chose to pursue a full national bank charter, not a SPNB charter. Varo bank accounts are provided by The Bancorp Bank, member FDIC, with no monthly maintenance fees. Customers also pay no ATM fees at a network of more than 55,000 Allpoint ATMs worldwide, located in retail stores such as Target, Costco, Walgreens and CVS. Varo, founded in 2015, plans to move its headquarters to Salt Lake City when it opens Varo Bank. The OCC has not issued a public statement on the decision, but Varo CEO and co-founder Colin Walsh said, "This is an historic moment and marks the start of a new era in banking."
- Five major financial firms given extensions to submit living wills. The Fed and the FDIC, in an August 30 joint press release, announced that they are extending the filing deadline for Prudential Financial Inc. and four major foreign banking organizations to submit their resolution plans. Prudential Financial, a designated nonbank SIFI pursuant to Dodd-Frank, will now have until December 31, 2019, to submit its living will, a year later than previously required (and following previous extensions). The four FBOs – Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG and UBS AG – will now have until July 1, 2020, to submit their plans, also a one-year extension (and also following previous deadline extensions). The FDIC also announced that the next filing due date for all insured depository institutions has been pushed back to July 1, 2020. Under the banking regulatory reform bill that became law in May of this year, banks with less than $100 billion in assets will no longer have to go through the living will process. The Fed and the FDIC are currently developing procedures to determine which firms in the $100 billion to $250 billion range will have to file resolution plans.
- SIFI status for Prudential and Zions on FSOC's agenda. The Financial Stability Oversight Council will hold an executive session on Wednesday, September 12, that will include discussion on removing Prudential Financial from continued Fed supervision and a final decision on removing Zions Bancorporation's designation as systemically important to the US financial system. The September 5 announcement from the Treasury Department does not mention either firm by name, but the references to "an update on the annual reevaluation of the designation of a nonbank financial company" and "an application to the Council from a bank holding company or its successor under section 117" of Dodd-Frank would appear to refer to Prudential and Zions, respectively. Prudential is the only nonbank still designated as a SIFI. FSOC on July 18 preliminarily approved Zions's request to be removed from Fed oversight, agreeing that the bank should lose its SIFI designation. Treasury Secretary Steven Mnuchin will preside over the closed hearing, which also will include consideration of FSOC's fiscal year 2019 budget and the Council's 2018 annual report.
- OCC seeks public input on CRA modernization. The OCC on August 28 released an Advance Notice of Proposed Rulemaking seeking comment on how to modernize the regulatory framework implementing the Community Reinvestment Act. Stating that, "It is time for a national discussion on how we can make the CRA work better," Comptroller Joseph Otting said his agency was soliciting input on how to more effectively achieve the 1977 law's original intent of increased lending and investment in low- and moderate-income neighborhoods, clarify and expand the types of activities eligible for CRA consideration, revisit how targeted communities are assessed and defined, establish metrics-based ratings, make bank CRA performance more transparent, improve the timeliness of regulatory decisions and reduce the cost and burden of evaluating performance under the CRA. But two other national banking regulators that also have jurisdiction over CRA-related issues, the Fed and the FDIC, did not join in issuing the rulemaking notice, as the three agencies often do, and have reportedly expressed reservations about some aspects of Otting's approach. Otting indicated in a call with journalists that the OCC – which supervises approximately 20 percent of the banks but 70 percent of the assets involved in CRA-related activities – could act unilaterally, though he said the three agencies may still come together and pursue a more unified approach. One of the more controversial concepts floated in the OCC notice would be to reduce the emphasis on loans and investments made locally and instead create a ratio to measure total spending in lower-income communities based on banks' size. That idea has won praise from banks seeking more flexible rules that bring regulations in line with 21st century banking practices. But consumer groups worry that the proposed formula would give banks CRA credit for investments that benefit a larger geographic area rather than targeting the less affluent borrowers the law was meant to help. The notice, which has a 75-day comment period, poses 31 questions regarding the current regulatory regime but does not make any specific proposals to change the way the CRA is enforced.
- More time for input on Volcker 2.0. The five federal agencies responsible for a proposal to simplify and relax some of the regulatory burdens of the Volcker Rule will extend by another month – until October 17 – the public and stakeholder comment period on the proposed new rule. The financial regulatory agencies announced the update to the Dodd-Frank-mandated restrictions on proprietary trading by financial institutions on May 30, but the Federal Register notice was not published until July 17. The 60-day comment period was due to expire on September 17. The 30-day extension was announced on September 4. The National Association of Federally-Insured Credit Unions and the advocacy organizations Better Markets, Americans for Financial Reform, Public Citizen and the Center for American Progress had petitioned for a 90-day extension to allow more time to formulate responses to more than 300 questions posed in the agencies' notice. According to a report in the Wall Street Journal, representatives of ten major banks met in early August with the Federal Reserve, one of the agencies involved in the Volcker overhaul, to express opposition to the redrafted rule in its current form. The banks maintain that the new rule could have the unintended consequence of complicating compliance, and argue that proposed trading restrictions on the types of assets held by banks would have an adverse effect on markets, the newspaper reported. From the other side, the agencies have heard from the Systemic Risk Council, a group of former financial regulators that includes Paul Volcker, a former Fed chair, and former FDIC Chair Sheila Bair, who argue in an August 8 letter that "the current proposals would make the US banking system materially less resilient and so expose the American economy and people to unnecessary risks" while offering a series of suggested revisions. In addition to the Fed and the FDIC, the other agencies behind the proposed Volcker changes are the OCC, the SEC and CFTC.
- Clarida confirmed as Fed vice chair; Board still short 3 members. The Senate on August 28 voted 69-26 to confirm Richard Clarida to a four-year term as vice chairman of the Federal Reserve Board of Governors, succeeding former vice chair Stanley Fischer, who had resigned last October. Clarida was also confirmed by the Senate in a voice vote to fill the remainder of the unexpired term of former board member Daniel Tarullo ending January 31, 2022. With Clarida's confirmation – in time for the Fed's upcoming September 25-26 policy meeting – there are now four members serving on what is supposed to be a seven-member board. The Fed board has not had its full complement since 2013. Two other Fed board nominees – Michelle Bowman and Marvin Goodfriend – are still awaiting Senate approval. Fed watchers have noted that the Fed's leadership now more clearly bears the stamp of the Trump Administration, with Vice Chair Clarida and Randal Quarles, vice chair for supervision, having been appointed by the current president. Fed Chairman Jerome Powell was initially named to the Board by President Barack Obama, but President Trump nominated him to the chairmanship. A PIMCO managing director and Columbia University economics professor, Clarida served in the administrations of President George W. Bush and President Ronald Reagan.
- FDIC leadership team announced. FDIC Chair Jelena McWilliams announced the appointment of two veteran staffers at the agency to serve in key leadership positions. According to a September 4 press release from the FDIC, Arleas Upton Kea will serve as the Deputy to the Chairman and Chief Operating Officer and Arthur J. Murton will serve as the Deputy to the Chairman for Policy. Kea, who joined the FDIC in 1985 as a staff attorney and has served as the FDIC's ombudsman and director of the Division of Administration, replaces Barbara Ryan. Murton joined the FDIC in 1986 as a financial economist and has served as director of the Division of Insurance and Research and director of the Office of Complex Financial Institutions. In his new post, Murton will advise the chairman on matters related to resolution and deposit insurance activities. The FDIC has made several other key personnel announcements recently. In June, Chad R. Davis was appointed Deputy to the Chairman for External Affairs. And in July, Brandon Milhorn was appointed McWilliams's chief of staff, and Travis Hill was named as senior advisor to the chairman.