FEDERAL GOVERNMENT RELATIONS
Bowman: Capital Requirements ‘No Substitute’ for Strong Supervision
Policymakers should carefully consider whether a proposed increase in capital standards is efficient and appropriately targeted, as regulatory reform in the banking sector can pose potential financial stability risks if the reforms in question fail to account for the potential consequences, Federal Reserve Governor Michelle Bowman said Wednesday during an economic conference in Morocco.
“Regulatory capital requirements, no matter how conservatively calibrated they may be, are simply no substitute for sound risk management and strong, effective, efficient and transparent supervision,” she said. “The vast majority of improvements to supervisory functions could be accomplished without broad changes to the regulatory framework.”
Federal regulators have proposed higher capital standards for banks with more than $100 billion in assets as part of the U.S. implementation of the “Basel III endgame.” In her speech, Bowman said policymakers need to ensure that changes to the regulatory framework do not harm the long-term viability of banks, especially midsize and smaller banks. “In my view, regulatory reform can pose significant financial stability risks, particularly if those changes to regulation fail to take sufficient account of the incentive effects and potential consequences,” she said.
FOMC Minutes: Most Committee Members Project Future Rate Hike
A majority of Federal Open Market Committee members believe at least one more increase in the federal funds rate will be necessary to return inflation to the Federal Reserve’s 2% target, according to minutes from the FOMC’s September meeting, released Wednesday. The minutes also showed several committee members worried that a looming government shutdown could slow the release of data they use to assess economic conditions.
The committee decided to leave the rate’s target range at 5.25 – 5.5% at their last meeting. According to the minutes, participants noted that while consumer spending has shown continued strength, the finances of some households were being strained by high inflation and declining savings, with the recent resumption of student loan payments further tightening some budgets. They also viewed higher interest rates and constrained access to bank credit as likely to dampen business activity in the coming months. At the same time, participants saw the labor market as coming into “better balance” with declines in both job openings and quit rates, and the average number of weekly hours worked returning to pre-pandemic levels.
As for the future, FOMC members saw a high degree of uncertainty surrounding the economic outlook. Several participants said a government shutdown might result in the delayed release of some economic data “and that this outcome would make it more difficult to assess economic conditions." Congress approved a continuing resolution in early October to fund the federal government at current levels through Nov. 17. The FOMC next meets Oct. 31-Nov. 1.
CFPB Eyes Account Access, Statement Fees in New Guidance
As part of a broader Biden administration announcement on consumer fees, the CFPB said it will issue guidance interpreting a statutory requirement for large financial institutions to provide information when requested by consumers.
Section 1034(c) of the Dodd-Frank Act requires, with certain exceptions, institutions supervised by the CFPB to “in a timely manner comply with a consumer request for information in the control or possession of such covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including supporting written documentation, concerning the account of the consumer.”
While the statutory text says nothing about fees, the bureau said it would interpret the statute to limit “unreasonable obstacles on customers, such as charging excessive fees, for basic information about their own accounts.” According to a White House fact sheet, the CFPB’s guidance would “[mean] no more fees for basic services like checking bank account balances, obtaining a payoff amount for a loan, or getting account information needed for applications.”
The bureau added it will not pursue monetary relief for violations of its interpretation of Section 1034(c) prior to Feb. 1, 2024. The American Bankers Association will closely review the advisory opinion once the text is available to discern whether it aligns with appropriate administrative procedures and the relevant statutes.
Chopra: CFPB Data Privacy Rule Coming Later This Month
The CFPB plans later this month to release its long-awaited rulemaking to implement Section 1033 of the Dodd-Frank Act, concerning financial data privacy, Director Rohit Chopra said last Friday. During a speech in Washington, D.C., on possible future actions by the bureau, Chopra didn’t provide any specifics about the rule other than it will “seek to accelerate America’s shift to open, competitive and decentralized banking while also safeguarding against abuse of our personal data.”
Chopra also said that payment systems in the U.S. may be driven by the private sector, but public payments infrastructure and regulation are important and suggested concerns about the cost, speed and competitiveness of the ecosystem. He said the CFPB will soon take several steps to ensure private currencies and payment systems “do no harm to consumers,” including subjecting nonbanks to supervisory examinations by the bureau.
Later, responding to a question, Chopra questioned whether credit card rewards miles are funds, noting that large retailers benefit from rewards programs and drive purchases. Chopra stated that there are questions about the transparency of newer rewards programs, like online game rewards, and that CFPB may provide further guidance on related issues.