STATE GOVERNMENT RELATIONS
Former Hobart Councilman Named Melton’s Successor
A longtime Hobart community leader is heading to Indianapolis next week as Northwest Indiana's newest state senator. Former Hobart city councilman David Vinzant, a Democrat, will represent all or parts of Gary, Hobart, Merrillville and Crown Point as he completes the 11 months remaining in the Indiana Senate term of now-Gary Mayor Eddie Melton. Vinzant edged out Gary Councilman Mark Spencer in a tight Senate District 3 caucus.
Eight State Lawmakers Will Not Seek Reelection Ahead of 2024 Legislative Session
This election cycle, there have now been eight state lawmakers who have announced they won't run for reelection, either to retire or seek a different office. Five others have resigned, with their replacements chosen by the local party caucus already this year.
FEDERAL GOVERNMENT RELATIONS
Community Bankers Express Concern About CRA Rule, Regulatory Burden
Minutes of the most recent meeting of the Federal Reserve's Community Depository Institutions Advisory Council show that council members were disappointed with the final rule to modernize how banking agencies assess compliance with the Community Reinvestment Act, finding the rule overly prescriptive and not offering community banks a clear path to meet its expectations.
The Fed's CDIAC is composed of representatives of banks, thrift institutions and credit unions serving on local advisory councils at the 12 Federal Reserve Banks. Recently released minutes from the council's Nov. 16, 2023, meeting noted there was a feeling among council members that agencies did not consider or incorporate all the feedback provided by the banking industry over the years before the release of the final rule, "resulting in a note of resignation expressed by council members."
"The council fears that the path toward implementation of the new CRA rule will be bumpy and have unintended consequences," the minutes said. Council members suggested that banking agencies help to prepare financial institutions for changes by sharing training materials intended for training supervision and examination staff, as well as providing access to the analytical software that examiners will use to determine the scores. At the same time, council members did not believe that the asset size thresholds in the rule would protect smaller community depository institutions. "The cost of software, which would disproportionately impact smaller CDIs, and lack of clarity on the data required were two of the largest barriers to implementation, followed by increased labor costs and a lack of experts in their regions," according to the minutes.
The minutes show that CDIAC members also expressed concern about the cumulative impact of all the regulations issued over the past 10-15 years. "And over the past two years, many CDIs believe that the federal banking agencies have issued new proposals and final regulations that will hurt the economic viability of the CDI business model. Council members said that regulatory efforts are simply helping to speed up the trend toward greater industry consolidation, contradicting the current administration's interest in promoting competition in the banking industry and having a viable CDI business model."
Musalem to Lead St. Louis Fed
The Federal Reserve Bank of St. Louis Thursday announced that Alberto Musalem will be its next president and CEO, effective April 2. Musalem most recently was CEO, co-chief investment officer and co-founder of Evince Asset Management, a quantitative investment technology company. He previously was EVP and senior advisor to the president at the New York Fed. He succeeds Jim Bullard, who resigned in July 2023.
FOMC Minutes Articulate Policymakers' View That Rates May Have Peaked
Federal Open Market Committee members were unanimous in their decision to hold interest rates steady at 5.25 to 5.5% at the December 12-13 meeting and that doing so would promote further progress toward the committee's 2% inflation target, according to minutes released Thursday. According to the minutes, FOMC members "viewed the policy rate as likely at or near its peak for this tightening cycle," citing a decline in inflation and signs that supply and demand are coming into better balance.
Though members "generally perceived a high degree of uncertainty surrounding the economic outlook," they noted that "clear progress had been made in 2023 toward the committee's 2% inflation objective." Members remained concerned, however, that "elevated inflation continued to harm households, especially those with limited means to absorb higher prices."
Looking ahead to 2024, "almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024."
Morgan Stanley Chair: Basel III Endgame May Be Modified
According to Morgan Stanley Chair James Gorman, the Basel III endgame rules proposed in the U.S. are "extremely aggressive" and unlikely to be adopted in their current form. The current proposal "would have very, very negative consequences for corporate lending across this country, which is not what you want," Gorman says. "It's not going to help the economy grow."
Rate Reductions Expected from Central Banks Worldwide
Investors and economists say a series of rate cuts by central banks is likely this year, with the Federal Reserve expected to make as many as six cuts amid widespread belief that inflation is under control. "Policy is now quite restrictive, meaning central banks can loosen without [it] necessarily becoming supportive [of growth]. Think of it as pressing less hard on the brake rather than pushing on the accelerator," says Neil Shearing, group chief economist at Capital Economics.