Noting that MSRs are shifting away from banks because of the Basel III capital rules, Curry worried about the effects on MSRs of the federal government’s limited oversight of nonbanks. Curry told the state commissioners:
The system will not work well without the kind of on-the-ground supervision and regulation that your departments can bring to bear on these nonbank entities. We can’t tolerate a situation where banking activities migrate to nonbank financial institutions in order to escape prudential supervision. Much of the burden for regulating the shadow system will fall upon the states, and I would encourage you to make this a high priority.
Curry’s remarks followed the FSOC’s report last week warning about the risks of MSRs flowing out of the prudentially regulated banking sector. On Monday, ABA Chairman Jeff Plagge wrote to financial regulators to express agreement with the FSOC finding and to propose specific Basel III revisions that would help to stem that outflow. ABA will continue to advocate with regulators for modifying the capital treatment of MSRs.
Read Curry’s speech.
Read Plagge’s letter.