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Tuesday, April 25, 2017

ABA Recommends Changes to Large, Midsize Bank Stress Tests

As part of the banking industry’s continuing response to President Trump’s executive order outlining “core principles” for financial regulation, ABA in a white paper urged federal regulators to make changes to the current stress testing framework for large and midsize banks.

While acknowledging that stress testing can be a powerful regulatory tool when properly designed and administered, ABA noted a lack of transparency within the current stress testing framework. To improve the process, ABA urged regulators to publish the CCAR supervisory model and scenarios prior to each testing cycle; remove the qualitative assessment component of stress testing for all banks; and ensure that the countercyclical GSIB surcharge does not become a procyclical requirement. Additionally, regulators should be more tailored with their assumptions, and recognize the economic and business realities banks would face under stress conditions, the association said.

ABA further recommended that regulators end the Dodd-Frank Act Stress Test requirements for midsize banks, and expressed support for a legislative change that would do so. Given that many midsize and regional banks have smaller geographic footprints than largest banks subjected to the test, ABA questioned the relevance of DFAST for these institutions, noting that the test pulls supervisory and management resources away from other forward-looking stress testing activities.

The white paper is the fourth of several that ABA will submit to Treasury in response to the executive order. It reflects feedback and input from numerous banks participating in ABA’s working groups over recent years.

Read the white paper.

ABA, Trades Support Bills Targeting PACE Loans

In a joint letter with more than two dozen financial and housing trade associations, ABA expressed support for legislation to require more consumer disclosures for Property Assessed Clean Energy loans, a controversial financial product that allows homeowners to pay for energy-efficient retrofitting – such as solar panels and high-efficiency air conditioners – through their property tax assessments.

More than 30 states currently allow PACE loans, which may take first-lien position over the primary mortgage on a residence but are not currently subject to federal consumer protection requirements. The bills – S. 838 and H.R. 1958 – would subject PACE loan originators and sales personnel to Truth in Lending Act requirements, enhancing pre-origination disclosures of total loan amounts and loan terms and bringing the loans explicitly under the oversight of the CFPB.

The trades said:
PACE loans are – in substance – consumer loans secured by real property and should be subject to federal consumer protection requirements, not dependent on a patchwork of limited or non-existent state/municipal laws that do not adequately protect homeowners.

Read the letter.

Regulators Issue Determination on Wells Fargo’s Revised Resolution Plan

The Federal Reserve Board and the FDIC have announced that Wells Fargo has adequately remediated deficiencies in its 2015 resolution plan after a second round of revisions. The agencies determined in December 2016 that Wells Fargo had not remedied deficiencies that had previously been identified in the bank’s plan to facilitate orderly resolution under the U.S. Bankruptcy Code in the event of a failure.

Read more.

CFPB Community Bank Advisory Council Meets Today

The CFPB’s Community Bank Advisory Council meets today in Washington, D.C. The committee will discuss alternative data and consumer access to financial records.

Monday, April 24, 2017

ABA Provides Treasury with Recommendations to Promote Economic Growth

In a detailed letter to Treasury Secretary Steven Mnuchin, ABA provided a number of recommendations to improve banks’ regulation and promote economic growth. ABA’s letter follows up on an April 5 industry meeting at Treasury and President Trump’s executive order that initiated a core principles review of bank regulation and oversight.

Among other things, ABA urged that rules and regulations – and regulatory enforcement – recognize the unique strengths of community banks, including minority-owned institutions, and the community bank business model. ABA also called for a review of mortgage lending rules and highlighted the challenges posed by the oncoming CECL accounting standard, Basel III’s particular impact on Subchapter S banks, fair lending enforcement that relies on the disparate impact model, and the overall need to reduce regulatory overlap and duplication.

ABA said:
Community banks’ competitive advantage rests on their detailed knowledge of their local markets, local market participants, the local business environment, and the ability to customize services in accordance with that knowledge. The regulatory trend of recent years to impose standardization of loans and financial services products undermines community banks’ chief competitive advantage, instead rewarding firms that make their profit from the volume of loans and services provided.

ABA also pointed out how the artificial $10 billion threshold – whether by statute or by regulation – acts as a ceiling on community banks, forcing them to restrict their growth or otherwise face a major change in their business model. “There should be little business difference between a bank with $9 billion in assets and one with $11 billion in assets, but there is a very significant – and disruptive – regulatory difference,” ABA said.

Read the letter.

Trump Orders Reviews of Dodd-Frank Liquidation Authority, SIFI Designation

President Trump has ordered the Treasury Department to conduct reviews of the Dodd-Frank Act’s Orderly Liquidation Authority and its process for designating nonbanks as systemically important financial institutions.

The OLA memorandum calls for a review of whether OLA is consistent with the president’s “core principles” for regulating the financial system, whether employing OLA could cause losses to taxpayers, whether it leads to excessive risk-taking and whether a new chapter in the Bankruptcy Code would be a superior method of resolving a failing financial firm, among other topics.

The second memo calls for Treasury to review the Financial Stability Oversight Council’s processes for designating nonbank SIFIs and to pause any further designations of nonbanks pending completion of the review. Both reviews are to be completed within 180 days.

ABA EVP Wayne Abernathy said:
ABA has welcomed and embraced the administration’s thorough review of financial regulations. We appreciate the administration’s efforts to understand how financial regulations are working in practice and how to refine them to make them more supportive of economic growth. ABA and our member banks are actively participating in the process.

Read the OLA memo.
Read the SIFI designation memo.