Although the agencies were relatively quiet last week, regulators from a number of different agencies gave important speeches. The Comptroller spoke on community banking, including but not limited to the strategic risk presented by FinTech. Four governors of the Federal Reserve, including the Chair, delivered remarks touching on health of the economy and the future of interest rates. The CFPB Director spoke on consumer access to banking records.

On the FinTech front, a jurisdictional conflict (or an opportunity for interagency cooperation) between the OCC, SEC, and CFPB may be looming based on events of last week. For much of this year, OCC has taken the lead, which the Comptroller reviewed in a speech last Friday, November 18. Before then, on Monday, Nov. 14, the SEC held its own FinTech forum during which Chair White observed that FinTech issues for the agency included not only securities industry-specific matters such as automated investment advice and crowdfunding, but also distributed ledger technology and – most notably – online marketplace lending. On that last issue, the Chair described SEC jurisdiction extending to loans made in connection with investment advice, including the adequacy of information made available to borrowers and their ability to repay. On Thursday, Nov. 17, the CFPB conducted a field hearing on "screen scraping," an issue that pits FinTech companies, which want access to consumer financial information, against banks, which hold it and are concerned about security and other matters. The CFPB appears clearly to be on the FinTech side and has asked for comments on the issue; the bureau has not developed a proposed rule, however.

Other developments over the past week include:

Community Banking

  • Remarks of Comptroller Curry before the 11th Annual Community Bankers Symposium (Nov. 18).
    • Supervisory priorities for community banks set forth in OCC's Fiscal Year 2017 Bank Supervision Operating Plan (released Sept. 14, 2016).
    • Remarks emphasize management of strategic risk: "the risk to current or anticipated earnings, capital, or franchise value arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes."
    • "One particular issue testing banks’ strategic risk today is the tectonic shift underway regarding innovation and financial technology."
    • Put another way: "you need to have the right plan to meet your business goals in your market."
    • Remarks available at https://occ.gov/news-issuances/news-releases/2016/nr-occ-2016-147.html.

The Economy

  • "The Economic Outlook," testimony of Federal Reserve Chair Yellen before the Joint Economic Committee (Nov. 17).
    • "I expect economic growth to continue at a moderate pace sufficient to generate some further strengthening in labor market conditions and a return of inflation to the [FOMC's] 2 percent objective over the next couple of years."
    • "This judgment reflects my view that monetary policy remains moderately accommodative and that ongoing job gains, along with low oil prices, should continue to support household purchasing power and therefore consumer spending."
    • "Global economic growth should firm, supported by accommodative monetary policies abroad."
    • "As the labor market strengthens further and the transitory influences holding down inflation fade, I expect inflation to rise to 2 percent."
    • "With the unemployment rate remaining steady this year despite above-trend job gains, and with inflation continuing to fun below its target, the [FOMC] judged [at its November meeting] that there was somewhat more room for the labor market to improve on a sustainable basis than the [FOMC] had anticipated at the beginning of the year."
    • "Gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years."
    • Testimony available at https://www.federalreserve.gov/newsevents/testimony/yellen20161117a.htm.
  • "Longer-Term Challenges for the U.S. Economy", remarks of Federal Reserve Vice Chairman Fischer at the Council on Foreign Relations (Nov. 21).
    • "Low interest rates, together with only tepid growth, suggest that the equilibrium interest rate--that is, the rate that neither boosts nor slows the economy--has fallen."
    • "Importantly, low interest rates make the economy more vulnerable to adverse shocks by constraining the ability of monetary policy to combat recessions using conventional interest rate policy--because the effective lower bound on the interest rate means that monetary policy has less room to reduce the interest rate when that becomes necessary."
    • "Also, low equilibrium rates could threaten financial stability by encouraging a reach for yield and compressing net interest margins, although it is important to point out that so far we have not seen evidence that low rates have notably increased financial vulnerabilities in the U.S. financial system."
    • "More fundamentally, low equilibrium real rates could signal that the economy’s long-run growth prospects are dim."
    • "Certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy and help confront some of our longer-term economic challenges. While there is disagreement about what the most effective policies would be, some combination of improved public infrastructure, better education, more encouragement for private investment, and more effective regulation all likely have a role to play in promoting faster growth of productivity and living standards."
    • Remarks available at https://www.federalreserve.gov/newsevents/speech/fischer20161121a.htm.
  • "The 'Gig' Economy: Implications of the Growth of Contingent Work," remarks of Federal Reserve Governor Brainard at "Evolution of Work" (Nov. 17).
  • "Is There a Liquidity Problem Post-Crisis?", remarks of Federal Reserve Vice Chairman Fischer at the "Do We Have a Liquidity Problem Post-Crisis?" conference sponsored by the Initiative on Business and Public Policy (Nov. 15).
  • "The Global Trade Slowdown and Its Implications for Emerging Asia," remarks by Federal Reserve Governor Powell at the "CPBS Pacific Basin Research Conference" (Nov. 18).
    • "Emerging Asian countries may not be able to look to their export sectors as the key source of dynamism for their economies."
    • "Instead of trying to restore growth through enhancing external surpluses, under the circumstances it makes more sense for emerging Asia to focus on domestic demand as an engine of its growth, and to allow their trade and current account surpluses to shrink."
    • Remarks available at https://www.federalreserve.gov/newsevents/speech/powell20161118a.htm.

BSA/AML

Deposit Insurance

Examiners

  • Federal Reserve announces expansion of post-employment restrictions on senior executives and officers (Nov. 18).
    • Restrictions extended beyond central points of contact (CPCs) to include deputy CPCs, senior supervisory officers (SSOs), deputy SSOs, enterprise risk officers, ad supervisory team leaders.
    • New prohibition on former Federal Reserve Bank officers from representing financial institutions and other third parties before current Federal Reserve employees for one year after leaving position.
      • One-year prohibition on current Reserve Bank employees discussing official business with these former officers.
    • New policies appear to represent a response to an enforcement action earlier this year involving communications between a Goldman Sachs employee and a Federal Reserve Bank of New York employee.
    • SR 16-6/CA 16-7, Special Post-Employment Restriction for Senior Examiners, available at https://www.federalreserve.gov/newsevents/press/bcreg/20161118a.htm.

FCRA

Fair Lending

  • Remarks by OCC Senior Deputy Comptroller Gardineer before the 2016 CRA and Fair Lending Colloquium (Nov. 15).

FinTech

Foreign Corrupt Practices Act

  • Federal Reserve, Department of Justice, and SEC enter into various settlements with JPMorgan Chase involving hiring program for candidates referred by foreign government officials and by existing or future commercial clients to secure business advantages (Nov. 17).

Hedge Funds

  • FSOC hedge fund working group updates FSOC on work, with emphasis on risks presented by leverage (Nov. 16).
    • For more details, see Too Big to Fail below.

Monetary Policy

  • "The Long-Run imperatives of Monetary Policy and Macro-Prudential Supervision," remarks of FDIC Vice Chairman Hoenig to the Cato Institute's 34th Annual Monetary Conference (Nov. 17).
    • "If capital levels of the world's largest banks remain at current levels, these firms will continue to be vulnerable to losses that flow from higher rates and macro-economic adjustments. Such consequences could weaken bank balance sheets significantly and undermine their ability to support the economy through the adjustment period [to higher interest rates]."
    • "Importantly, there should be no backing away from insisting on strong equity capital standards. Capital should be set to levels that ensure the industry can absorb future losses and reduce concerns about its resilience. This requires building tangible equity capital beyond current levels."
    • Remarks available at https://www.fdic.gov/news/news/speeches/spnov1716.html.

SEC

Small Business

  • FDIC and Small Business Administration announce enhancements to Money Smart for Small Business, a resource available on FDIC website (Nov. 16).

Too Big to Fail

  • FSOC meeting (Nov. 16).
    • Executive session covered results of CFTC stress tests of central counterparties, ongoing annual reevaluation of status of a systemically risky nonbank, and potential risks from asset management products and activities.
    • Open session included update from Federal Reserve on Alternative Reference Rates Committee and report from hedge fund working group.
    • Hedge fund working group report:
      • Focus on use of leverage, which could result in fire sales and increased counterparty risk.
      • Group has developed four categories of leverage measures: gross measures, adjusted gross exposures, net exposure measures, and risk-based metrics.
      • Group to continue its work.
      • Remarks of Treasury Deputy Assistant Secretary Crane available at https://www.treasury.gov/press-center/press-releases/Pages/jl0612.aspx.
    • Readout available at https://www.treasury.gov/initiatives/fsoc/council-meetings/Pages/readouts.aspx.

Congressional Hearings – Recent

Upcoming Events

  • Nov. 29
    • FDIC Community Banking Initiative: De Novo Outreach Meeting, Atlanta GA.
    • FDIC Banker Teleconference Series webinar: Interagency Questions and Answers Regarding Community Reinvestment.
    • OCC Directors Workshop, "Risk Governance", Houston TX.
  • Nov. 30
    • OCC Directors Workshop, "Credit Risk", Houston TX.
  • Dec. 1-2
    • Office of Financial Research/Federal Reserve Bank of Cleveland, 2016 Financial Stability Conference, Washington DC.
  • Dec. 6
    • OCC Directors Workshop, "Risk Governance," Philadelphia PA.
  • Dec. 7
    • OCC Directors Workshop, "Compliance Risk," Philadelphia PA.

Regulatory Comment Deadlines

  • Nov. 25 – Federal Reserve: changes to capital planning and stress testing for large, noncomplex banking firms.
  • Dec. 22 – Federal Reserve: limits on physical commodity activities of financial holding companies.
  • Jan. 6, 2017 – Federal Reserve/FDIC/OCC: private flood insurance.
  • 90 days after publication in Federal Register – CFPB: consumers' ability to share financial records with nonbank providers.