STATE GOVERNMENT RELATIONS
Indiana Re-elects Sen. Young, Maintains Supermajorities in House and Senate
Indiana Republicans performed well up and down the ballot on election night. U.S. Sen. Todd Young was re-elected to the Senate for another six-year term. All incumbent members of Congress were re-elected, while Erin Houchin won in the 9th Congressional District to replace outgoing Congressman Trey Hollingsworth. State Auditor Tera Klutz was re-elected to another four-year term. Daniel Elliott was elected to serve his first term as state treasurer, and Diego Morales was elected to serve his first term as secretary of state. Indiana Senate Republicans added one seat to their supermajority, bringing the final total to 40 – 10. Indiana House Republicans maintained their supermajority as well.
FEDERAL GOVERNMENT RELATIONS
SBA Proposes to Lift Moratorium on 7(a) Nondepository Lenders
The Small Business Administration is proposing to lift the moratorium on the number of nondepository institutions – called small business lending companies (SBLCs) – that may make loans under SBA’s Section 7(a) program, and to create a new type of SBLC called mission-based SBLCs. Through the 7(a) program, participating lenders make loans of up to $5 million to for-profit small businesses. The SBA guarantees up to 85% of the loan for loans up to $150,000, and 75% of the loan for loans greater than $150,000. Currently, SBLCs are capped at 14 nondepository institutions.
The SBA proposes limiting mission-based SBLCs to institutions that target lending to an identified “capital market gap” – such as a geographic area, startup businesses, business sector, demographic or other underserved markets – and to make a certain percentage of its loans to that identified market. The agency is not proposing limits on the number of mission-based SBLCs, but instead to accept applications for mission-based SBLCs and for regular SBLCs submitted in response to solicitations the agency will make periodically through Federal Register notices. The SBA anticipates that it has the ability to license and supervise three new additional SBLCs. It is also anticipated that current Community Advantage lenders in good standing may apply and will be immediately approved as mission-based SBLCs.
The SBA also proposes removing the requirement for a loan authorization, stating that this information can be captured through the submission of the terms and conditions into SBA’s E-Tran loan application processing system.
Warren Continues Push for Bank Data on Zelle Fraud
Sen. Elizabeth Warren, D-Mass., this week sent letters to Wells Fargo and Early Warning Services – the parent company of the Zelle peer-to-peer payment platform – criticizing their response to her recent report on P2P fraud. Warren wrote in her letters that Zelle scams are disproportionately high at Wells Fargo and that the bank has not adequately responded to her previous requests for data on how it reimburses users who authorize fraudulent transactions on the platform.
The Reg E debate has grown amid rising incidents of P2P fraud, with the Consumer Financial Protection Bureau expected to require banks to reimburse customers who authorized fraudulent transactions, which would likely raise legal challenges.
TCH White Paper: Banks Have Clear Legal Authority to Issue Stablecoins
Issuing digitized deposits and engaging in stablecoin-related activities fall within the existing legal authority of banks, according to a white paper published Tuesday by the Clearing House. The payments company analyzed the legal authority for banks’ engagement in stablecoins by
focusing largely on two letters issued by the Office of the Comptroller of the Currency in 2020 and 2021
. Those letters concluded banks could engage in cryptocurrency activities if they first demonstrated they had adequate controls in place. Despite that fact, “federal regulators have to date effectively precluded federally regulated banks from offering stablecoins or other digital asset-related services,” according to the white paper.
The authority to issue and exchange stablecoins is based on language in the National Bank Act and consistent with numerous legal decisions and regulatory determinations regarding a bank’s authority to issue payments and deposit instruments, the authors wrote. In addition, national banks have always been permitted to develop innovative deposit and payment mechanisms, as receiving deposits and acting as financial intermediaries are core functions of banks.
“Consumers have made it plain that they find value in the ability to hold and make payments using stablecoins,” the authors wrote. “As such, the prudential federal bank regulators must now choose between one of two options: allow banks to begin issuing stablecoins within the federal regulatory perimeter, or continue to allow only nonbank entities to meet this emerging consumer demand without coordinated federal oversight. From a risk management perspective, regulators should unequivocally pick the former.”
Fed Survey: Business Lending Standards Tightened in Q3 2022
Lending standards for business loans tightened during the third quarter of 2022, with weaker demand for commercial and industrial loans to firms of all sizes, according to the Federal Reserve’s senior loan officer opinion survey released Monday. Lenders also reported that standards for consumer loans tightened or remain unchanged during the survey period.
- C&I. Significant net shares of banks (20-50%) tightened standards on C&I loans to firms of all sizes. Tightening was most widely reported for premiums charged on riskier loans, costs of credit lines and spreads of loan rates over the cost of funds. Also, a significant net share of banks reported having tightened loan covenants to large and middle-market firms, while a moderate net share of banks (10-20%) reported having tightened covenants to small firms.
- CRE. On net, more than 50% of banks reported having tightened standards for construction and land development loans as well as for nonfarm nonresidential loans, while a significant net share reported having tightened standards for loans secured by multifamily properties. Meanwhile, significant net shares of banks reported weaker demand for all CRE loan categories.
- Mortgages. Lending standards tightened or remained unchanged across all residential loan types and for HELOCs. Banks, on net, reported standards remained essentially unchanged for the following types of mortgages: non-qualified mortgage non-jumbo; government; conforming; and QM non-jumbo, non-conforming. However, a moderate net share tightened standards for subprime residential mortgages, while modest net shares (5-10%) tightened standards for non-QM jumbo and QM jumbo residential mortgages, as well as for HELOCs.
- Personal lending. Moderate net shares of banks reported tightening lending standards for credit card loans and other consumer loans, while standards for auto loans remained unchanged. For other consumer loans, modest net shares reported tightening the extent to which loans are granted to borrowers not meeting credit score criteria, widening spreads over the cost of funds and increasing the minimum required credit score.
Fed Proposing to Make Master Accounts Data Public
The Federal Reserve will seek public comment on a proposal to publish a periodic list of depository institutions that have access to Fed accounts – often referred to as "master accounts" – and payment services, the agency announced last Friday.
The long-standing practice of the Fed has been not to disclose account-related information to the general public on the basis that such information is considered confidential business information. However, the agency indicated it has received comments from multiple stakeholders seeking greater public disclosure of account-related information, so the agency will reevaluate that practice. “Today's proposal will enhance transparency to the public by periodically publishing a comprehensive list of financial institutions that have access to Federal Reserve accounts and payment services,” said Vice Chairwoman Lael Brainard.
The Fed is proposing to produce a quarterly report with lists of federally insured depository institutions and non-insured institutions with access to accounts and services. The lists would contain the institution name and the Fed district in which the institution is located. The report also would identify institutions that have received access to accounts and services since the publication of the previous report, and institutions that no longer have access since the previous report.
The agency seeks answers to questions about how to balance public transparency with the need to protect confidential information, the proposed quarterly timing of the reports and whether additional data should be included or withheld. Comments will be accepted for 60 days after the notice is published in the Federal Register.