Bank Regulatory News and Trends
This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.
- The Powell Era at the Fed begins. With a resoundingly bipartisan 84-13 vote, the Senate on January 23 confirmed Jerome Powell as the next chairman of the Federal Reserve. Powell, a member of the Fed's Board of Governors since 2012, worked closely with his predecessor Janet Yellen and won praise from Senate Democrats for his role in implementing reforms under Dodd-Frank and his work on stress tests, capital standards and resolution planning. At his confirmation hearing, Powell expressed support for continuity in terms of gradual interest rate increases. He called for "tailoring" regulations to relieve the burdens on smaller banks and said the Volcker Rule should be tougher for bigger banks but less so for institutions falling below a threshold of $10 billion in assets.
- Mulvaney: CFPB to end "regulation by enforcement." In a January 23 mission statement to all CFPB staff, acting director Mick Mulvaney signaled his intention to make a sharp break from the practices and policies under previous director Richard Cordray. Mulvaney characterized his predecessor's approach as "pushing the envelope" with the attitude "that we were the 'good guys' and the 'new sheriff in town,' out to fight the 'bad guys.'" He pledged a comprehensive review of the bureau's investigatory and litigation practices, an enforcement approach based on "quantifiable and unavoidable harm to the consumer" and a regulatory regime with "more formal rulemaking on which financial institutions can rely, and less regulation by enforcement." And he said the CFPB would prioritize areas where consumer complaints are more common, shifting focus to areas like debt collection and away from payday lending.
- Appeals court upholds CFPB director's independence. The full panel of the US Court of Appeals for the DC Circuit ruled on January 31 that language in Dodd-Frank that established the CFPB's single-director leadership structure and restrictions on removal from office is constitutional and does not violate the President's authority to appoint and remove executive branch officers. The 7-3 decision – overturning a 2016 ruling by three of the court's judges – means that the President can only fire a CFPB director for cause, and not at will, as per the earlier ruling.
- Bipartisan banking regulatory reform legislation gets a boost from Steve Mnuchin. The Treasury Secretary testified before the Senate Banking Committee on January 30 in support of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which he said "better aligns our financial system to support economic growth in our communities," while reflecting many of Treasury's own recommendations. As noted in our previous edition, the legislation is among items competing for the Senate's attention in an election year with a crowded legislative agenda. Mnuchin urged the Senate and the House – which has passed a more sweeping measure repealing major provisions of Dodd-Frank, without bipartisan support – to work together to get financial regulatory reform passed soon.
- Living will legislation advances. The House of Representatives on January 30 unanimously approved the Financial Institution Living Will Improvement Act (HR 4292). The bill amends Dodd-Frank to require bank holding companies to submit to the Federal Reserve Board and the FDIC resolution plans every two years, instead of annually. It also requires the Fed and FDIC to provide feedback within six months and to publicly disclose the assessment framework used to review the adequacy of resolution plans.
- OCC IDs key risks for federal banking system. The Office of the Comptroller of the Currency cited credit, operational and compliance risks as key concerns for the federal banking system in its Semiannual Risk Perspective for Fall 2017, issued January 18. The report warns of consequences to the economy and the credit environment from aggressive competition, tighter spreads, and slowing loan growth. Banks face operational challenges from cybersecurity and other emerging threats, while elevated and increasingly complex compliance obligations will test banks' ability to manage money laundering and other risks, the report found.
- OCC for easing Volcker Rule? According to a recent published report, the OCC is circulating among financial regulatory agencies a draft blueprint to revise the Volcker Rule. Said to be the work of Keith Noreika, acting chair of the OCC for about seven months last year, the draft plan seeks to accommodate the Treasury Department's call for exempting small banks completely and giving all lenders more flexibility to buy and sell assets without violating the rule's ban on proprietary trading. Outright repeal of the rule, a Dodd-Frank requirement, would require Congressional action.
- FDIC nominee open to issuing more ILC charters. Jelena McWilliams, President Donald Trump's nominee for chairperson of the Federal Deposit Insurance Corp., told members of the Senate Banking Committee during her January 23 confirmation hearing that she will work to end the FDIC's unofficial moratorium on Industrial Loan Company licenses. Issuance of ILC licenses was restricted by Dodd-Frank, and though that restriction expired in 2013 the FDIC has not yet issued one. Fintech, retail and other non-banking sector firms are pursuing these licenses as an opportunity to move into deposit-taking, while community banks have long warned of the risks of mixing banking and commerce. McWilliams said she believed such licenses did not pose a threat to the safety of the banking system and added that "If it meets the ILC standards as currently set up by the FDIC, I believe there should be no obstacles in the application program."
- Fed Board revises FR Y-7, provides guidance on enhanced prudential standards for foreign banks. The Federal Reserve Board of Governors on January 18 announced the approval of proposed revisions to the Annual Report of Foreign Banking Organizations, FR Y-7. The revisions are intended to enable FBOs to comply with certification requirements under Regulation YY, which imposes enhanced prudential standards on FBOs that meet certain asset thresholds. In addition, the announcement of the revised FR Y-7 provides guidance on how an FBO may be permitted to comply with Regulation YY. The revisions are effective March 1.
- Senators call on President to clarify that FSB rules are advisory. Six Republican Senate Banking Committee members, including Chairman Michael Crapo (R-ID), have written to President Trump urging him to "formally clarify" that standards developed by the Switzerland-based Financial Stability Board are "advisory in nature, and not binding on the United States or U.S. businesses." The senators, in a January 18 letter, wrote that "FSB has morphed into a global regulatory body that operates with minimal oversight and without due process under U.S. law" and expressed concern that the Board "has been driving a significant amount of U.S. policymaking regarding financial regulation."