STATE GOVERNMENT RELATIONS
Indiana General Assembly Concludes 2024 Session
Indiana lawmakers concluded their 2024 legislative session late in the evening last Friday, March 8. This marks an earlier end to session than the originally scheduled date of March 14. Lawmakers worked at a hectic pace last week brokering final agreements on a variety of legislative proposals. However, a bill must be signed by the governor before it officially becomes law in Indiana. You can track the list of bills that have been sent to Gov. Eric Holcomb and his recent actions on those bills by clicking the link below.
IBA Priority Bills Signed Into Law
Two IBA priority bills were signed into law by Gov. Eric Holcomb this week. HEA 1284 and SEA 188 were both signed late Tuesday. HEA 1284 restores a bank’s ability to make changes to your deposit account agreements using the long-accepted unilateral “silence as acceptance” method. Also signed into law was SEA 188, which reduces the statute of limitations on transaction accounts down from six years to two years. The IBA applauds the efforts of both the Indiana General Assembly and the governor for enacting these two meaningful laws that will have a notable impact on our industry and the communities we serve.
FEDERAL GOVERNMENT RELATIONS
FDIC’s Hill Criticizes Policy Approach to Digital Assets, FHLB Lending
There are significant downsides to the Federal Deposit Insurance Corp.’s current regulatory approach to digital assets, which has contributed to the public perception that the agency is “closed for business” if banks are interested in anything related to blockchain or distributed ledger technology, FDIC Vice Chairman Travis Hill said Monday. In a speech on tokenization and the future of the U.S. financial system, Hill criticized what he characterized as the agency’s “secretive” approach to crafting digital asset policy, and its unresponsiveness to banks seeking guidance on what activities would be permissible.
“Furthermore, it would be helpful to provide certainty that deposits are deposits, regardless of the technology or recordkeeping deployed, and if there are reasons to distinguish some or all tokenized deposits from traditional deposits for any regulatory, reporting or other purpose, the FDIC should, following an opportunity for public comment, explain how and why,” Hill said. “And finally, the agencies need to distinguish between ‘crypto’ and the use by banks of blockchain and distributed ledger technologies.”
Hill also criticized a Securities and Exchange Commission staff report – Staff Accounting Bulletin 121 – which states that an institution safeguarding cryptoassets should recognize the assets on its balance sheet as both an asset and a liability. “This treatment sharply departs from how custodians account for all other assets held in custody, which are generally held off-balance sheet and treated as the property of the customer, not the custodian,” he said. “On-balance sheet recognition triggers the full panoply of capital, liquidity and other prudential requirements only for bank custodians, which makes it prohibitively challenging for banks to engage in this activity at any scale.”
Unrelated to digital assets, Hill briefly touched on the trend of Federal Home Loan Banks placing more restrictions on lending to banks in stress. He said that while FHLBs are poorly positioned to serve as a lender of last resort, policymakers need “to think holistically” about the implications of cutting off banks from the FHLBs when stress occurs. “The ultimate costs if the institution subsequently fails are likely to be borne by the FDIC rather than the FHLBs, and it is worth remembering that once a bank has reached that stage, its options to meet liquidity needs are likely to be limited, with all the alternatives potentially also costly to the Deposit Insurance Fund,” he said.
Wall Street Journal: White House Playing ‘Whack-a-Bank’ with Late Fee Rule
A new Consumer Financial Protection Bureau rule to cap credit card late fees at $8 is the latest move to turn banks into essentially regulated utilities, hurting consumers in the process, according to a Wall Street Journal editorial published Monday. In the opinion piece, the newspaper’s editorial board accuses the Biden administration of playing “whack-a-bank” by targeting late fees and other potential bank revenue streams with little regard for how consumers would be affected.
“The CFPB’s rule slashes the cap to $8 and eliminates the annual inflation adjustment,” the editorial states. “Yet as even the CFPB acknowledges, the lower penalty may cause more borrowers to pay late, and as a result incur higher ‘interest charges, penalty rates, credit reporting, and the loss of a grace period.’ This would make it harder to qualify for an auto loan or mortgage.”
The editorial further notes that the agency concedes the rule would mean some credit card issuers will likely need to raise interest rates, but because some states cap rates, some consumers could lose access to credit as a result. “Consumers are the biggest losers, as we’ve learned from other such price controls,” the editorial states.
Read the editorial (subscription required)
House Passes Capital Formation Package
The House passed a package of capital markets bills last week that included industry-supported provisions on Securities and Exchange Commission reporting thresholds and 403(b) retirement plans.
The package – H.R. 2799, the Expanding Access to Capital Act – included provisions that would allow 403(b) retirement plans to invest in bank-operated collective investment trusts as well as require the SEC to increase threshold amounts that qualify companies as smaller reporting companies, accelerated filers, and large accelerated filers for purposes of reporting. The package passed by a final vote of 212-205.
OCC’s Hsu: Agencies Considering Changes to Operational Resilience Requirements
Banking regulators are considering what changes to the U.S. operational resilience framework may be appropriate as the risk for a major disruption in critical banking services grows, Acting Comptroller of the Currency Michael Hsu said Tuesday. Speaking at an international banking conference in Washington, D.C., Hsu said that as banking services continue to grow and as technology and third parties play a greater role in providing those services, “the threat surface for disruptions is expanding.”
The threat of disruptions from cyberattacks, natural disasters or other calamities can’t be solved through capital or liquidity, Hsu said. Rather, resilience results from ensuring that critical operations and banking services can withstand or recover from disruption through good planning, prudent investment, well-designed systems and regular testing. He noted that the European Union, U.K. and Japan have proposed operational resilience rules requiring financial institutions to identify important business services, set impact tolerance and test different scenarios, among other things. U.S. banking agencies also are considering changes to operational resilience requirements.
“Our current focus is on exploring baseline operational resilience requirements for large banks with critical operations, including third-party service providers,” Hsu said. “Such baseline requirements could include establishing clear definitions for identifying critical activities and core business lines; defining tolerances for disruption; requiring testing and validation of resilience capabilities; incorporating third-party risk management expectations; stipulating clear communication expectations among stakeholders and counterparties; and addressing expectations for critical service providers, with emphasis on governance and risk management expectations.”