Yesterday, as part of its continued push for financial regulatory reform, the Obama Administration delivered to Congress proposed legislation that would create a National Bank Supervisor and create new resolution authority for large, interconnected financial firms. Specifically, the proposed legislation would:

1. Address Regulatory Arbitrage in the Bank Regulatory System

  • Create a new National Bank Supervisor (NBS) through the consolidation of the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The NBC would succeed to all of the OTS’s and OCC’s authority with respect to federal thrifts and national banks, but the FDIC would succeed to the OTS’s authority with respect to state savings associations. As previously proposed, the OTS and OCC consumer protection functions would be transferred to a new Consumer Financial Protection Agency.
  • As proposed, the legislation would eliminate the federal thrift charter. Existing federal thrifts would have a six month window in which they could elect to become a national bank (or a mutual national bank, in the case of existing mutual federal thrifts), a state bank or a state savings association.
  • The Federal Reserve, FDIC and the NBS would be required to adopt joint rules on bank examination fees (which the Administration proposes to reduce incentives for regulatory arbitrage). Banks (regardless of form of charter) over $10 billion in assets would pay examination fees that would be based on their size, complexity, and financial condition. If a federal thrift made no election, it would automatically convert to a national bank one year after enactment of the legislation. Federal and state thrifts would be given a three-year period from enactment to conform their activities to those permissible for banks.Examination fees for community banks would be reduced by requiring that the fees assessed national banks with less than $10 billion assets could not be higher than the average fees charged by states for banks of a similar size, which the Administration believes will eliminate “the basis for the Federal Reserve or the FDIC to impose new fees on community banks.”

2. Provide a Regulatory Regime that Can Adequately Respond to a Financial Crisis

  • Provide the federal government with emergency authority to resolve any large, interconnected bank holding company or Tier 1 financial holding company. This proposed authority is intended to supplement bankruptcy laws and will be modeled on the resolution regime under the Federal Deposit Insurance Act. In addition to Treasury approval, use of this new authority would require a two-thirds vote by the Federal Reserve Board and the Board of the FDIC or the SEC.
  • Treasury would be authorized to appoint the FDIC or, if the the largest subsidiary of the institution to be resolved is a broker or dealer as measured by total assets as of the end of the previous calendar quarter, the SEC as conservator or receiver for failing financial firms posing a threat to financial stability or economic conditions in the U.S.
  • The costs of resolutions would be recovered over a 60-month period through special risk-based assessments on institutions with more than $10 billion of non-FDIC-assessed liabilities.