As law and regulatory changes for the coming year are considered, the path to regulatory right-sizing (supervising an institution in a manner appropriate for its size, complexity, and risk profile) is a joint effort by federal and state policy makers, according to the Conference of State Bank Supervisors.
“By supporting flexible, appropriate, and tailored supervision,” new CSBS Chairman David J. Cotney says, “states are designing creative supervisory processes to ensure safety and soundness, consumer protection, and industry diversity.” In his speech to state and federal financial regulators at the 2015 CSBS State-Federal Supervisory Forum, Cotney previewed his priorities for bank and non-bank supervision and professional standards in the year ahead. Using research and data to create a right-sized regulatory system, in his view, would allow “financial institutions to promote economic growth and contribute to job development in the communities in which they operate.”
Outgoing CSBS Chairman Candace A. Franks told attendees at the Supervisory Forum that to successfully implement a right-sized regulatory framework, a consensus definition of a “community bank” needs to be adopted. She said that “a definitional approach to identifying community banks that looks beyond assets size would facilitate a broad range of regulatory right-sizing initiatives.”
Earlier in May, in welcoming a draft of the “Financial Regulatory Improvement Act of 2015,” (subsequently introduced in the Senate on June 2nd as S. 1484), CSBS President and CEO John W. Ryan said: “right-sized regulation and supervision of community banks will require Congress, federal regulators, and state banking agencies to rethink how we approach regulating and supervising community banks.” Provisions in the draft bill supported by the CSBS include:
- granting qualified mortgage, or “QM,” liability safe harbor to mortgages held in portfolio by a community bank;
- establishing a process for institutions to petition the CFPB for rural designation for the purpose of issuing balloon loans;
- clarifying the SAFE Act to support state regulators’ expanded use of the Nationwide Multi-state Licensing System and Registry without the loss of privilege or confidentiality protections provided by state and federal laws; and
- establishing an 18-month exam cycle for well-capitalized banks with assets under $1 billion.
