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Thursday, August 25, 2016

Nichols Provides Thorough Response to Flawed White House Report

In a letter to Jason Furman, chairman of the President’s Council of Economic Advisers, ABA President and CEO Rob Nichols provided a more detailed response to claims in a CEA report that that the Dodd-Frank Act and other regulations have had little to no effect on community bank consolidation.

Nichols wrote:
Having thoroughly reviewed the report, I must admit to being baffled by your findings. A conversation with any community banker would dispel this forced conclusion. The thousands of new regulations that have been imposed on community banks is an enormous driver of decisions to sell to a larger bank.

Nichols noted that the industry has consolidated substantially since Dodd-Frank was enacted, with 22% fewer banking charters since 2010. Dodd-Frank rules that affect all banks – such as the TILA-RESPA integrated disclosures – as well as rules intended for larger banks that get interpreted as “best practices” for community institutions have contributed to an expensive and excessive regulatory burden that can drive decisions to sell, Nichols explained.

He quoted a banker in the Northeast whose bank recently sold:
The effects of Dodd-Frank…resulted in financial projections showing substantial declines in revenues and increases in compliance costs, reaching the point that in a few short years an otherwise healthy community bank with strong capital and satisfactory earnings could no longer meet a number of financial benchmarks set by the regulators. These conclusions forced the bank to sell now when our shareholders and some of our employees would be less adversely affected.

Nichols also challenged the CEA’s interpretation of the de novo drought. He said:
Sadly, the forces that have acted to stop new bank charters are the same ones that have led to the dramatic consolidation of the banking industry -- excessive, and complex regulations that are not tailored to the risks of specific institutions.

Nichols challenged Furman to ask “how prudent regulatory relief will contribute to economic growth,” adding that “each day another community bank leaves the field, it makes that community -- and our economy – poorer.”

Read Nichols' letter.

Banker Op-Ed: Resurrecting Glass-Steagall is Pointless

In an American Banker op-ed, ABA board member Frank Sorrentino, chairman and CEO of ConnectOne Bank in Englewood Cliffs, N.J., pushed back against the idea that reinstating the Glass-Steagall Act would benefit the U.S. financial system and economy. The op-ed comes after recent calls from policymakers on both sides of the aisle to bring back certain provisions of the Depression-era law.

Sorrentino said that Glass-Steagall “has no merit in our current financial environment,” and that reinstating the law could put the U.S. at a competitive disadvantage, forcing the largest American companies to seek financial services from larger, foreign banks that would be better positioned to meet their needs. He added that lawmakers should instead reshape the current regulatory environment to be workable for banks of all sizes.

He wrote:
At this time, our focus should not be on resurrecting another bill from the annals of history, but on analyzing the costs and benefits of our current regulations and figuring out what kind of modern financial system we want to have relative to other global institutions.

Sorrentino further pointed out that banks today are holding more capital and liquidity than ever before, and that many of the largest banks have already scaled down to meet regulatory requirements under Dodd-Frank and Basel III. With this in mind, Congress should be looking ahead to enact measures to support economic growth, not back to antiquated legislation, he concluded. “At the end of the day, banks are here to support the U.S. economy, not to serve as its punching bag. People often want to divorce banking from the economic progress that’s going on, when in reality, they are very much related. Banks provide enormous tailwinds to the economy when they are able to do what they do best.”

Read the op-ed.
Read ABA's Glass-Steagall backgrounder.

Wednesday, August 24, 2016

CFPB Highlights Role of Banks in Helping Prevent Elder Fraud

Hundreds of communities across the country have developed coordinated local efforts to prevent, detect and respond to elder financial abuse, according to a CFPB report. The report emphasizes the importance of collaboration among financial institutions, local law enforcement and adult protective services agencies to stem the multi-billion-dollar elder fraud problem.

The report and an associated resource guide for communities emphasized the value of including banks in these partnerships. The bureau said:
[M]embers of networks in states that include financial institution representatives said that law enforcement, APS and prosecutors were able to act quickly to protect victims from further losses as a result of relationships they developed with network members from banks and credit unions.
The report highlighted positive examples of state association partnerships in Oklahoma and Oregon, both of which are also champions of ABA’s Safe Banking for Seniors campaign.

The resource guide highlighted ABA and the state associations as a primary resource for community networks looking to partner with banks. The guide recommended that community networks engage with branch managers, compliance officers, community outreach staff and marketers at banks.

Read the report.
Read the resource guide.
Learn more about Safe Banking for Seniors.

ABA Highlights Concerns on Basel Credit Risk Proposal

In a comment letter to the Basel Committee on Banking Supervision, ABA expressed concerns about the committee’s proposals to revise its methodology for the standardized approach to credit risk and to impose constraints on risk-weighted asset calculations in the internal ratings-based approaches to credit risk based on the risk weights of the standardized approach. The Basel credit risk framework is expected to apply in the U.S. only to the largest, internationally active financial institutions.

ABA said:
The committee’s subsequent introduction of the constraints proposal has created a new and serious concern for our members… [T]he combined effect of the constraints proposal and the standardized approach would significantly reduce the risk-sensitivity of the committee’s overall credit risk framework.

Read the letter.

Tuesday, August 23, 2016

ABA: Proposed Arbitration Rule Not in Public Interest

ABA and other trade groups have urged the CFPB not to move forward with its proposed rule on arbitration, arguing that the rule is not in the public interest, does not protect consumers and is inconsistent with the bureau’s own study of arbitration of consumer financial products and services.

By prohibiting customers from waiving their ability to participate in class action suits, the proposed rule would permanently increase the number of class action lawsuits by the thousands and raise legal costs by up to $5.2 billion over five years, according to the bureau’s own estimates. Many banks include mandatory arbitration clauses in their credit card and deposit account agreements in order to manage the unpredictable costs of class action lawsuits.

ABA and the other trade groups said:
It is consumers who will truly suffer if the proposed rule becomes final. As taxpayers, they will pay for the increased costs to the court systems required to handle the...additional class actions. As litigants, they will suffer increased court backlogs that long delay resolution of their cases. As customers of the providers, they will be saddled with higher prices and/or reduced services, because the billions of dollars in additional class action litigation costs will be passed through to them in whole or in part.

With arbitration likely to disappear under the rule, ABA said, the CFPB would also impose burdens on customers whose claims cannot be resolved through class actions, instead requiring them to go to court for minor, non-systemic disputes. As ABA has noted on multiple occasions, the bureau’s own study found that arbitration is fair, as well as “faster, more economical and more beneficial to consumers than class action litigation.”

In a separate letter, the American Bankers Insurance Association emphasized that the CFPB lacks authority to impose rules on “policy loans,” which are part of the business of insurance and regulated at the state level.

Read the joint comment letter.

FDIC ‘Matters Requiring Board Attention’ on the Wane

FDIC examinations are seeing far fewer write-ups of Matters Requiring Board Attention, the agency said in the summer issue of its Supervisory Insights publication, although corporate governance-related MRBAs are on the rise. The share of FDIC exam reports at satisfactorily rated banks that include MRBAs has fallen from 55% in 2011 to 36% in 2015.

MRBAs are down substantially for lending-related issues, although MRBAs related to concentration risk are more prevalent than before within the loan category. The FDIC said:
Bank management is generally responsive to addressing weaknesses identified in the MRBAs. In about 70% of the MRBAs reported in 2014 and 2015 examinations, bank management sufficiently addressed problem areas in the first response.

However, MRBAs have increased substantially over the past five years for board and management issues; more than half of satisfactory exam reports in 2014 and 2015 included a governance-related MRBA. Nearly half of the board or management MRBAs addressed policies, with other large shares focusing on audit and strategic planning. MRBAs have also risen for liquidity and Bank Secrecy Act issues.

This issue of Supervisory Insights also included a look at the lack of de novo activity in the banking industry and a defense of how the FDIC has handled de novo charter applications in recent years, as well as a regulatory and supervisory roundup.

Read Supervisory Insights.