By Richard A. Roth, J.D.
The leaders of the three banking regulatory agencies—the Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation—were consistent in their Senate Banking Committee hearing testimony on progress being made toward implementing the Economic Growth, Regulatory Relief, and Consumer Protection Act. They described their cooperation in moving quickly to put into place the Act’s provisions that are intended to reduce the capital, lending, and Volcker Rule regulatory burdens on banks, while paying less attention to the Act’s consumer protection and mortgage lending provisions.
Predictably, the Banking Committee’s leadership offered contrasting opening statements. Chairman Mike Crapo (R-Idaho) praised the Act and urged the agencies to avoid unnecessary delays and quickly propose required regulation amendments. On the other hand, he also warned the agency heads against relying too much on guidance, rather than rule-making, to make changes. Anything that qualifies as a rule must be submitted to Congress even if it has not gone through a notice-and-comment process, he said.
Committee Ranking Member Sherrod Brown (D-Ohio), who voted against the bipartisan bill, took the opportunity to once again criticize it. According to Brown, Congressional efforts to help banks are misdirected, since the industry is reporting record profits while many middle- and working-class families have not recovered from the financial crisis that began 10 years earlier.
Brown also pointedly reminded the agency chiefs that their agencies had failed to anticipate the causes of the financial crisis. In fact, the OCC actively fought against state efforts to bring about more responsible industry behavior, he charged. “But here we are today, talking about how Washington can do more to help the nation’s banks.”
Interagency statement. All three of the agency leaders referred to the joint Interagency Statement that described how regulators would administer provisions of the Act. According to FDIC Chairman Jelena McWilliams, “Simply put, the statement made clear that we will not enforce existing regulations in a manner inconsistent with the Act.”
(An argument could be made that the interagency statement falls well within the definition of a rule that Crapo cited in his opening statement: “the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency.” If so, he presumably would say it should have been submitted to Congress.)
Fed actions. Testifying for the Fed, Vice Chairman for Supervision Randal K. Quarles emphasized the Fed’s desire to supervise and regulate institutions according to the risk they pose. The Act enhances the Fed’s ability to do that, he said.
Quarles listed several regulatory changes the Fed has made:
- The Small Bank Holding Company Policy Statement eligibility threshold was increased to $3 billion from the prior $1 billion. This will make it easier for small BHCs to acquire small banks.
- The eligibility threshold for the 18-month examination cycle was raised to $3 billion, as opposed to the previous $1 billion, so that more small banks will avoid annual examinations.
- Fed-supervised banks and BHCs with less than $100 billion in assets will no longer be required to perform company-run stress tests required by the Dodd-Frank Act or comply with many living will, liquidity, capital planning, or other financial stability-related requirements.
Quarles also said the Fed is, alone or with the other agencies, working on changes in the leverage ratio requirements that will benefit community banks.
OCC actions. Comptroller of the Currency Joseph M. Otting said the OCC has made “steady and significant progress” in implementing the EGRRCPA since the interagency statement was issued. He noted that, just as the Fed, the OCC will not require banks with less than $100 billion in assets to carry out company-run stress tests while regulation amendments are in progress.
Otting also pointed to recent OCC proposals that would allow some small savings association to operate with national bank powers; reduce the risk weight for some high volatility commercial real estate loans; and allow some municipal bonds to be treated as high quality liquid assets for liquidity coverage ratio purposes.
As with Fed-supervised financial institutions, well-managed and well-capitalized national banks with less than $3 billion in assets now are eligible for an 18-month examination cycle.
FDIC actions. Williams’s testimony took a section-by-section approach to changes required by the Act. In addition to the regulation amendments addressed by Otting and Quarles, and amendments under discussion with the other agencies, she mentioned statutory changes that loosen the Volcker Rule; expand eligibility for the 18-month examination cycle; and change HVCRE and HQLA requirements.
NCUA actions. Unlike the other agency leaders, National Credit Union Administration Chairman J. Mark McWatters discussed EGRRCPA provisions that affect consumer lending. These include Act sections that:
- allow some exemptions for the appraisal requirement for loans of less than $400,000 affecting rural properties;
- exclude all loans secured by one- to four-family residences from being considered member business loans; and
- provide partial data reporting exemptions from the Home Mortgage Disclosure Act.
McWatters also took the opportunity to advocate additional Federal Credit Union Act changes. Perhaps the most important of these would enhance credit unions’ ability to include underserved areas in their fields of membership or that would allow “web-based communities” to be seen as having common bonds.
In addition, the NCUA chairman asked that his agency be given the authority to examine and enforce laws against credit unions’ third-party vendors. Credit unions’ increased reliance on financial technologies makes this authority crucial, he said.
For more information about financial reform initiatives, subscribe to the Banking and Finance Law Daily.
