This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

  • Senate passes landmark banking regulatory bill rolling back many post-crisis rules: The US Senate on March 14 voted 67-31 to significantly roll back parts of Dodd-Frank – though leaving the basic structure of the 2010 law largely in place. All Republican senators voted for the measure, along with 16 Democrats and an Independent, giving the bill a degree of bipartisanship. The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) would ease the regulatory burden on small community banks and with the goal of giving consumers easier access to credit, provide relief for some larger regional banks from enhanced prudential standards, and provide protections against class-action suits for credit-reporting agencies. See the bill.
  • Some of the key provisions of the bill include:
    • SIFIs: The legislation raises the threshold for automatic application of enhanced prudential standards from $50 billion in assets to $250 billion. Banks with between $50 and $100 billion in assets would be immediately released from the stricter standards, including stress tests. However, The Federal Reserve would retain the option to apply enhanced prudential standards to banks between $100 billion and $250 billion if it deems that necessary for financial stability or safety and soundness purposes and those banks would remain subject to "periodic" stress tests.
    • Foreign banks: Enhanced prudential standards would continue to apply to the US operations of foreign banks with over $100 billion in global assets.
    • Volcker rule: It exempts banks with less than $10 billion in assets from the prohibition on depository institutions engaging in proprietary trading and other riskier investments.
    • Simplified capital calculations for smaller community banks: Rules on the types of real estate loans community banks can make and how much capital they need on hand would be modified. Longer exam cycles would be instituted for community banks.
    • Mortgage changes: The bill provides "Qualified Mortgage" designation for mortgages held in portfolio by banks with less than $10 billion in assets, and relief from appraisal requirements for smaller mortgages. Banks that extend 500 or fewer mortgages a year would be exempt from reporting some home loan data to federal regulators.
    • Thrifts: It provides charter flexibility for federal thrifts with less than $20 billion in assets.
    • CFPB: The Senate bill does not address the Consumer Financial Protection Bureau – in contrast to legislation passed by the House last year which stripped the CFPB of much of its power.
  • Far from a done deal – outlook in the House: Since the House has already passed its more sweeping Dodd-Frank rollback, the two chambers will have to hold a conference committee to resolve their significant differences and agree to a final version to send to the president. Senate Banking Committee Chair Mark Crapo (R-ID) released some late adjustments to align more closely with House's deregulatory approach, seeking to offer the House a measure it could accept without the need for a lengthy conference process while maintaining bipartisanship. But House Financial Services Committee Chairman Jeb Hensarling (R-TX) made it clear that House negotiators will drive a much harder bargain and he is seeking to include as many as 30 free-standing provisions, with varying levels of bipartisan support, in the final version. Importantly, many of the Senate Democrats whose support made it possible for the bill to pass in the Senate have indicated that they have no appetite for any material changes to the version passed by the Senate.
  • House continues regulatory reform push: As the Senate debated its broader bill, the House has been passing a series of stand-alone deregulatory measures that could figure in a final legislative package. On March 14, the House passed the Taking Account of Institutions with Low Operation Risk (TAILOR) Act of 2017 (HR 1116) that its supporters say "would ease some of the one-size-fits-all regulations that are crippling community financial institutions" and instead consider factors such as an institution's risk profile and unintended impacts of regulations. The next day, the House passed the Financial Institutions Examination Fairness Act (HR 4545), which would establish the Office of Independent Examination Review within the Federal Financial Institutions Examination Council to investigate complaints from financial institutions about examinations and adjudicate appeals by banks of supervisory determinations made by regulators like the FDIC, OCC, NCUA, CFPB and the Federal Reserve. Other recent House-passed measures, including qualified mortgages and community bank reporting relief, echo provisions in the Senate bill.
  • Quarles moving with "dispatch" to simplify Volcker rule: Federal Reserve Vice Chairman for Supervision Randal Quarles said on March 5 that the five regulatory agencies that oversee implementation of the Volcker rule are onboard with making "material changes" to the regulatory regime. In a speech to the Institute of International Bankers, Quarles said regulators are looking to reduce the burden, "particularly for firms that do not have large trading operations and do not engage in the sorts of activities that may give rise to proprietary trading." Staying within the boundaries of Dodd-Frank as now written, Quarles is seeking improvements to the regulatory framework to reduce burdens from both a compliance and supervisory perspective. He called for clearer definitions for the rule's underlying terms, like "proprietary trading" and "covered fund," and a "clearer test for RENT'D," the reasonably expected near-term demands of clients, customers, and counterparties. Quarles also said he supports Congress providing an exemption to Volcker for community banks.
  • Quarles II – enhanced prudential standards: In the same speech, Quarles also discussed EPS for international banks with a large US presence. Quarles expressed satisfaction with how the Fed has met its goals to date, with foreign banks now operating on the same footing as US banks. He noted that the Fed has been flexible about the establishment of the US Risk Committee and said the Fed would be willing to tailor the level of supervision of a foreign bank based on the risk it presents to the US.
  • Quarles to FSB?: The Financial Times is reporting that the Trump Administration is considering Quarles as a candidate to be the next chairman of the Financial Stability Board. A bid for chairmanship of the FSB, an international body based in Switzerland, would require support from its 24 member countries and other constituent international and regional organizations. A 2011 Brookings Institution report noted there are no set rules for how the FSB chair is selected, reflecting the fact that the FSB has only been in existence since 2009, as well as the "central banking culture of discretion and informality that permeates the institution." Mark Carney, Governor of the Bank of England, has been FSB chair since 2011.
  • FSOC adopts hearing procedures for banks seeking to lose SIFI designation: The Financial Stability Oversight Council on March 13 issued a draft Federal Register notice regarding hearings for bank holding companies seeking to end their designation as systemically important financial institutions. FSOC indicated that other changes to the SIFI designation and de-designation process may also be in the offing. The new process is effective immediately, but FSOC is still seeking input "and may make further amendments to reflect any comments received."
  • The Clearing House and the Financial Services Roundtable to merge: The two banking trade groups jointly announced on March 12 that they will merge under a new name. Clearing House President Greg Baer will lead the new group following a planned 60-day transition period, and Clearing House CEO Jim Aramanda said the two organizations share the same "goals to create a premier financial services trade association." The new trade group will be separate from The Clearing House Payments Company, which will continue to operate its payment systems and focus on its new real-time payments system and other payments innovations.
  • CFPB developments: The Consumer Financial Protection Bureau issued a final rule on March 8 to give mortgage servicers more latitude in providing periodic statements to consumers entering or exiting bankruptcy. The bureau also continued its ongoing process of canvassing stakeholders on improving the agency's procedures. On March 7, the CFPB issued a request for information about its rulemaking processes, followed by a March 14 RFI on the Bureau's adopted regulations and new rulemaking authorities.
  • Fed proposes improved and expedited Supervisory Appeals Process and Ombudsman policy: The Federal Reserve on February 27 published a proposed rule to modify its guidelines and processes that institutions may rely on to appeal an adverse material supervisory determination. The proposal also seeks to modify the Federal Reserve's policy for its Ombudsman. Comments regarding the proposals will be accepted through April 30, 2018.