STATE GOVERNMENT RELATIONS
Register for Fort Wayne Regional Meeting
Join the IBA, banking peers and local legislators in northeast Indiana for the Fort Wayne regional meeting on Oct. 25. The IBA has implemented these meetings in an effort to facilitate grassroots communication between the bankers we serve and the legislators who serve our state. The meetings include an hour-long update on the IBA, including legislative information and advocacy opportunities. Following the update, local legislators from the Indiana General Assembly will meet for lunch with bankers from the community.
FEDERAL GOVERNMENT RELATIONS
Action Alert: Urge Lawmakers to Oppose New IRS Reporting Rules
The Biden Administration is proposing a sweeping expansion of tax information reporting aimed at raising revenue to help offset the cost of additional spending programs in the American Families Plan. While the initial draft of the Biden administration’s $3.5 trillion spending plan currently does not include the IRS reporting proposal, the language could be added over the coming weeks as the current package is debated. We must continue our grassroots efforts to ensure that this provision stays out of future drafts of the bill.
Contact your lawmakers today to express your opposition to any new IRS reporting that leads to increased compliance costs, damages your customer relationships and threatens customer privacy. In addition to the current action alert seeking bank employee participation, we have created an action alert with messaging specifically designed for bank customer engagement. Please consider sharing this unique action alert link so they may urge Congress protect their financial privacy!
Indiana’s Sen. Braun, Rep. Walorski Express Concern Regarding IRS Proposal: This week U.S. Sen. Mike Braun spoke out in opposition to the IRS reporting proposal during a speech on the Senate floor. Click to view Sen. Braun’s speech. Additionally, U.S. Rep. Jackie Walorski released a video in a tweet expressing outrage over the IRS reporting proposal that would raise serious concerns about privacy and security. Click to view Rep. Walorski’s tweet.
Indiana Senators Co-Sponsor Legislation Prohibiting IRS Reporting Proposal
Both Sen. Mike Braun and Sen. Todd Young were among 11 senators that co-sponsored the Tax Gap Reform and Internal Revenue Service (IRS) Enforcement Act, a bill introduced by Sen. Crapo (R-Idaho). Of the provisions in the legislation, the bill most notably prohibits the establishment of new bank reporting requirements proposed by the IRS. The IRS reporting proposal would require depositories to report to the IRS customer account information summarizing total inflows and outflows above a certain dollar threshold.
Read more about the legislation
Central Banks Highlight Set of Conditions Required for Workable CBDCs
Central bank digital currencies will meet the goals envisioned by their proponents only if they include private-sector participation, interoperability with the existing payments system and careful, deliberate design and implementation, a group of central banks that includes the Federal Reserve indicated last week. In a series of reports published by the Bank for International Settlements, the seven central banks representing major developed economies examined CBDC system design, user adoption and implications for financial stability.
The central banks “envisage CBDC ecosystems based on a broad public-private collaboration, i.e. a ‘tiered’ system where some roles would be carried out by the public sector and others by private entities,” they reported. “A natural split in any tiered CBDC system would be for the central bank to be responsible for the core of the system to the extent that they could steer the system to deliver policy goals and a safe and efficient payment system.” A CBDC directly operated by the central bank would be “likely unsuitable” for those contributing to the reports, they added.
The banks added that a CBDC would need to be gradually and carefully introduced to avoid abrupt financial stability risks. “CBDC and certain new forms of digital money could also increase the latent risk of systemic bank runs,” the report said, noting that “this risk is reduced in the existing system through effective banking regulation, deposit insurance, and resolution frameworks.” CBDC could also be expected to erode insured banks’ deposit base, driving up their cost of funding and thus affecting lending; meanwhile, outflows of deposits from banks could require a CBDC-issuing central bank to boost its reserves through more lending or through asset purchases – further extending the economic reach of the central bank.
Fed Seeks Comment on Adoption of New Messaging Standard for Fedwire
The Federal Reserve is seeking public feedback on its adoption of the International Organization for Standardization’s 20022 message format for its Fedwire Funds Service, which will replace its current proprietary format. The Fed is seeking comment about a revised plan to implement the new message format on a single day rather than in three separate phases, as originally proposed.
It was previously announced in 2018 that the FedNow Service – which will enable immediate payments and is scheduled to launch in 2023 – would use ISO 20022. The change will allow for enhanced efficiency of both domestic and cross-border payments, the Fed indicated, adding that the change may also help banks and other entities comply with sanctions and anti-money laundering requirements. ISO 20022 is a widely used standard that has already been adopted by a number of foreign wire transfer systems.
Quarles: Lenders Need to ‘Pick up the Pace’ on Libor Transition
Lenders need to “pick up the pace” to be ready for the year-end change away from Libor to alternative reference rates, Federal Reserve Vice Chairman for Supervision Randal Quarles, who also chairs the Financial Stability Board, said in a speech Tuesday. One-week and two-month U.S. dollar Libor tenors will end as of Dec. 30, 2021, and remaining tenors will cease publication after June 30, 2023. Quarles noted that “Libor quotes available from January 2022 until June 2023 will only be appropriate for legacy contracts,” and that “we will supervise firms accordingly.”
One of the highest priorities of the Fed's bank supervisors in the coming months will be reviewing banks’ cessation of Libor use, Quarles said. Based on data from the second quarter of this year, the Fed estimates that large firms used alternative rates for less than 1% of floating-rate corporate loans and 8% of derivatives.
The Alternative Reference Rates Committee has been publishing tools to facilitate the use of SOFR for almost four years, Quarles said, adding that the ARRC also recently recommended SOFR term rates, which will facilitate the transition from Libor to SOFR for market participants who wish to use a forward-looking rate.
“Given the availability of SOFR, including term SOFR, there will be no reason for a bank to use Libor after 2021 while trying to find a rate it likes better,” said Quarles. There is no more time, Quarles emphasized, adding that “banks will not find Libor available to use after year-end no matter how unhappy they may be with their options to replace it.”
ARRC Issues Libor Recommendations Summary
The Alternative Reference Rates Committee released a summary of its recommendations to date regarding spread-adjusted fallbacks for contracts referencing U.S. dollar Libor. The document is designed to provide a single reference point for market participants to understand the ARRC’s recommendations on LIBOR fallback language. Federal Reserve Vice Chair for Supervision Randal Quarles this week said the Dec. 31 end of Libor is “definitive and immovable” and will not be extended.
FDIC Updates Brokered Deposit Q&A
The Federal Deposit Insurance Corp. updated its question-and-answer document on brokered deposits. The Q&As – which are available on the agency’s brokered deposit webpage – provide comprehensive information about regulatory changes that took effect April 1.
USPS Quietly Launches Postal Banking Pilot
The U.S. Postal Service quietly launched a financial services pilot program last month to test postal banking. According to NBC News and The American Prospect, the pilot offers check cashing, bill paying, ATM access, and expanded money orders and wire transfers. Customers may reportedly cash payroll or business checks to buy single-use gift cards worth up to $500 for a flat fee of $5.95. The pilot launched Sept. 13 in Washington, D.C.; Falls Church, Va.; Baltimore; and the Bronx, New York.