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Monday, June 26, 2017

Fed Gov. Powell Advocates for Central Counterparty Stress Testing

In a speech at the Federal Reserve Bank of Chicago, Federal Reserve Governor Jerome Powell said that regulators should increase their efforts to monitor for liquidity risk among central counterparties by conducting stress tests on those entities.

“Conducting supervisory stress tests on CCPs that take liquidity risks into account would help authorities better assess the resilience of the financial system,” he explained, adding that these efforts are already underway at the CFTC, which last year tested five major CCPs’ ability to withstand credit risk if one or more clearing members were to default. “This was innovative and necessary work. It would be useful to build on it by adding tests that focus on liquidity risks across CCPs and their largest common clearing members,” Powell said.

He also noted the interdependent relationship between banks and CCPs, and said that “global authorities… have a responsibility to ensure that bank capital standards and other policies do not unnecessarily discourage central clearing.” To that end, Powell said that the Basel Committee on Banking Supervision is considering changes to the supplementary leverage ratio for global systemically important banks, and that the Federal Reserve is considering additional changes to ease capital requirements for banks.

Read the speech

Friday, June 23, 2017

This Week Ahead: June 26-July 1

  • Comments Due CDFI Fund: CDFI Program and NMTC Program Annual Report including CIIS (PRA)
    Read more.
  • Comments Due DOE: Loan Discharge Applications (DL/FFEL/Perkins)  (PRA)
    Read more.
  • Comments Due FHFA:  Proposed Changes to the Methodology Used for Estimating Fair Market Rents
    Read more.
  • Comments Due IRS: Proposed Collection; Comment Request for Mortgage Interest Statement (PRA)
    Read more.
  • Comments Due IRS: Proposed Collection; Comment Request for Regulation Project CO-11-91, Consolidated Groups and Controlled Groups–Intercompany Transactions and Related Rules, and CO-24-95, Consolidated Groups–Intercompany Transactions and Related Rules (PRA)
    Read more.
  • Comments Due SBA: Reporting and Recordkeeping Requirements Under OMB Review (PRA)
    Read more.
  • Comments Due CFTC: Adoption of Revised Registration Form 8-R and Cancellation of Form 3-R (PRA)
    Read more.
  • Comments Due CFTC: Procedural Requirements for Requests for Interpretative, No-Action and Exemptive Letters (OMB Control No. 3038-0049) (PRA)
    Read more
  • Effective Date SEC: Technical Amendments to Form ADV and Form ADV-W
    Read more
All times in Eastern Standard Time. See future events on the  Dodd-Frank Calendar.

Fed: Large Banks Would Remain Well-Capitalized Under Severe Stress

The largest U.S. banks collectively showed that they can withstand a severe economic downturn and continued to improve their capital positions, according to the results of Dodd-Frank Act-mandated stress tests the Federal Reserve.

“This year's results show that, even during a severe recession, our large banks would remain well capitalized,” said Fed Governor Jerome Powell. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”

Aggregate Tier 1 capital ratios at the 34 firms subjected to the Fed’s stress-test program would fall from an actual 12.5% in the fourth quarter of 2016 to a minimum of 9.2% under the test’s most extreme hypothetical scenario 
 which includes, among other things, 10% unemployment, falling treasury rates, a 25% decline in home prices and a 35% drop in commercial real estate prices.

“Today’s results reaffirm that U.S. banks are strong and remain well positioned to continue playing their important role in accelerating economic growth,” said ABA President and CEO Rob Nichols. “From this solid foundation, the focus should now turn to what can be done to help U.S. banks promote economic growth even further.”

Even with the hypothetical declines, capital levels at the banks would still be much higher than they were following the 2008 financial crisis, when Tier 1 capital ratios for the firms fell to about 5.5% at the end of that year. 

Review the methodology and results.  
Read Nichols' statement

State Associations Call on Senate to Advance Reg Relief Legislation

As the debate over financial regulatory reform now shifts to the Senate, 52 state bankers associations called on Senate leadership to support a bipartisan reg relief bill that would help create economic growth and improve the availability of credit to consumers.

The associations encouraged lawmakers to support several measures included in ABA’s Blueprint for Growth, including a Qualified Mortgage safe harbor for mortgage loans held in portfolio, more tailored supervision based on an institution’s risk profile and business model, greater flexibility for savings associations, relief from various reporting requirements and repeal of the Volcker Rule. They also called for a review of arbitrary asset thresholds, and for regulators to consider changes to capital and liquidity requirements.

With the Treasury Department, regulators and individual lawmakers all expressing support recently for various reg reform initiatives, the associations expressed optimism for a bipartisan bill to move through the Senate. 

It is encouraging to see lawmakers of both parties, the House of Representatives, and the Treasury Department lay the foundation for changes  regulatory calibrations that can kick-start our economy while maintaining a financial system that is safe, sound, and resilient. We urge the Senate not to allow partisanship to stand in the way of promptly passing much-needed reforms, and we stand ready to work with you in support of the financial needs of America’s communities.
Read the letter

ABA, Trade Groups Support Proposed CFPB Structural Change

In a joint financial and business trade association letter to House and Senate Appropriations Committee leadership, ABA supported the inclusion of language in the fiscal year 2018 spending bill that would transition the CFPB to a bipartisan, five-member commission.

The groups noted that by a three-to-one margin, registered voters support such a structure for the regulatory watchdog agency, according to data from Morning Consult. 

A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders. The current single director structure leads to regulatory uncertainty and instability for consumers, industry, and the economy, leaving vital consumer financial protection subject to dramatic political shifts with each changing presidential administration.
ABA has long supported this approach to reforming the CFPB in order to bring much-needed accountability and diversity of viewpoints. CFPB reform is a key element of the association’s Blueprint for Growth.  

Read the letter

Thursday, June 22, 2017

Regulators to Support Certain Reg Relief Measures in Hearing

The heads of the regulatory agencies are expected to endorse various proposals for regulatory relief in a hearing in the Senate Banking Committee.

In written testimony submitted in advance of the hearing, representatives from the Federal Reserve, FDIC and the OCC expressed support for various actions to simplify the stress testing process, more closely tailor regulation and encourage the formation of new banks. Several measures addressed by the regulators echoed recommendations from the recent Treasury report on regulatory reform that was released earlier this month.

Notably, Federal Reserve Governor Jerome Powell expressed his agency’s support for extending the timeline for living will submissions from annually to every two years. FDIC Chairman Martin Gruenberg agreed, calling the change “worthwhile” and adding that “there may be opportunities to greatly reduce the submission requirements for a large number of firms due to their relatively small, simple and domestically-focused banking activities.” Regulators also supported revisiting various asset-size thresholds, including the $10 billion threshold for company-run stress tests and the $50 billion threshold for enhanced prudential standards.

As part of efforts to remove outdated, unnecessary or overly burdensome regulation, Acting Comptroller of the Currency Keith Noreika proposed that Treasury conduct a periodic review of all Bank Secrecy Act Regulations, similar the EGRPRA process. This “would give financial institutions an opportunity to express their concerns directly to the agency with the authority issue, repeal and modify BSA rules,” Noreika said in his written statement.

In addition, Noreika proposed that Congress streamline the de novo application process by giving new banks the ability to obtain FDIC deposit insurance upon receiving a charter from the OCC. Currently, banks are required to submit an application to both the FDIC and the chartering authority (either the OCC or state regulatory agency, depending on charter type). Noreika recommended that Congress consider designating a time period that the FDIC could object to the granting of deposit insurance following the charter approval by OCC or state regulator.

Regulators also said they would be receptive to, among other things, an exemption for small banks from the Volcker Rule, additional enhancements to the capital planning and stress-testing process and additional exam relief, particularly for community banks. 

Read the regulators' testimonies