STATE GOVERNMENT RELATIONS
Record Number of Women Serving as Indiana Legislators
The number of women holding elected legislative offices at the Indiana Statehouse hit a record high of 40 following the outcome of the recent general election. Should the results hold, 31 women will serve in the House, and nine in the Senate.
FEDERAL GOVERNMENT RELATIONS
Cryptocurrency Concerns Dominate Financial Regulator Hearing
The collapse of cryptocurrency exchange FTX and the concerns about the unregulated nature of crypto markets dominated a Senate Banking Committee hearing Tuesday on financial industry regulation. Top officials from the Federal Deposit Insurance Corp., Federal Reserve, Office of the Comptroller of the Currency and the National Credit Union Administration fielded multiple questions from committee members about cryptocurrency risks and whether there should be more regulation of the sector. However, little was proposed in policy specifics.
"This year we've seen cryptocurrency values collapse by $2 trillion, markets crash, crypto exchanges implode and file for bankruptcy, investors losing their money or worse, losing their jobs," said committee chairman Sen. Sherrod Brown, D-Ohio. He compared the current cryptocurrency boom to risky speculation that led to past financial crises, such as the housing market crash that caused the 2008 recession. He added that, unlike bank or credit union deposits, cryptocurrencies are not insured by the government, "and they shouldn't be."
Ranking Member Sen. Pat Toomey, R-Penn., took issue with what he said was the insinuation that the technology itself was inherently risky. "This is fundamentally not about the kind of assets that were held by FTX. It's about what individuals did with those assets," he said. The senator pressed Acting Comptroller of the Currency Michael Hsu on whether the OCC discouraged banks from providing custody services for cryptoassets. "It seems to me if people had access to custody services provided by a wide range of institutions, including regulated financial institutions, they might be able to sleep more comfortably knowing that those assets are unlikely to be used for some completely inappropriate purpose," Toomey said.
Hsu said the OCC discourages banks from doing things that are not "safe, sound, and fair." He added that banks have been providing custody of traditional assets for a long time, but the custody of crypto is different. "There are some underlying fundamental issues and questions...which have not been fully worked out.
Rep. Hill Presses FDIC on Recent Statements on Re-Presented Transactions
Rep. French Hill, R-Ark., Thursday wrote to the Federal Deposit Insurance Corp. expressing concern over its supervisory practices related to re-presented transactions. The FDIC recently indicated that the practice of charging multiple nonsufficient funds fees for transactions presented multiple times against insufficient funds may be deceptive or unfair under the Federal Trade Commission Act Section 5's prohibition on unfair or deceptive acts or practices.
The FDIC noted in a recent financial institution letter that "if a financial institution assesses multiple NSF fees arising from the same transaction, but disclosures do not adequately advise customers of this practice" – i.e., unclear definitions of "per item" or "per transaction" – then the "omission of this information is considered to be deceptive" under Section 5 of the FTC Act. The FDIC also stated that an institution may be cited for "unfairness" under Section 5 "if multiple NSF fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for customers to bring their account to a positive balance in order to avoid the assessment of additional NSF fees."
In his letter, Hill raised concern that "the FDIC is establishing new disclosure standards for NSF fees without warning and without rulemaking." He asked the agency to provide additional clarity by Nov. 30 on its recent statements and to confirm whether it intends to initiate rulemaking to establish new disclosure standards for NSF fees.
Hsu Praises 'Quiet Trustworthiness' of Banks Amid Crypto Chaos
Amid significant volatility in the cryptocurrency markets, as well as an uptick in crypto-related frauds and scams, Acting Comptroller of the Currency Michael Hsu Thursday praised the "quiet trustworthiness of banks." It highlighted the Office of the Comptroller of the Currency’s "careful and cautious" approach to crypto activities by national banks.
This approach, Hsu said, "helped mitigate the risk of contagion from crypto to the banking system." He added that since the 2008 financial crisis, various reforms have "strengthened the banking system, making it more resilient, more fair and more trustworthy...[T]his has proven valuable with the rapid rise and fall of crypto this past year."
US Treasury: Fintech Needs More Oversight to Prevent Abuses, Protect Consumers
The U.S. Department of the Treasury, working with the White House Competition Council, released a report Wednesday that cited fintech firms for "creating new risks to consumer protection and market integrity." The report said that while concentration among federally insured banks is growing, new entrant nonbank firms – fintech firms in particular – are "significantly" adding to the number of organizations and business models competing in core consumer finance markets and may be contributing to competitive pressures.
According to the report, while fintech firms enable new capabilities, they also create new risks related to data privacy and regulatory arbitrage. The report called for enhanced oversight of the consumer financial activities of nonbank firms. It is a product of an executive order issued by the Biden administration last July and is the final in a series of reports assessing competition in various areas of the economy.
The report includes a number of recommendations, including that regulators should provide a "clear and consistently applied" supervisory framework for bank-fintech relationships. According to the report, a bank-fintech relationship that delivers consumer financial services provided by an insured depository institution (IDI) "must operate in compliance with the laws, regulations and risk management standards applicable to the IDI." The report said that by unbundling core consumer financial products into more limited offerings, new entrant nonbank firms have largely yet to be subject to the kind of comprehensive regulation and supervision to which IDIs are subject.
The report also recommended that regulators should "robustly" supervise bank-fintech lending relationships for compliance with consumer protection laws and their impact on consumers' financial well-being. To encourage consumer-beneficial innovation, the report suggested that regulators support innovations in consumer credit underwriting designed to increase credit visibility, reduce bias and "prudently" expand credit to underserved consumers.
Financial Regulators Pressed on Climate Change Focus
Acknowledging that the Federal Deposit Insurance Corp. does not currently incorporate the financial risk of climate change into its supervisory program, Acting Chairman Martin Gruenberg said Wednesday the agency needs to "clearly communicate" its intentions as it begins to explore those risks. Gruenberg and other top financial regulatory officials appeared before the House Financial Services Committee for the second of two days of congressional oversight hearings, where they were asked questions on a wide range of issues. Republican lawmakers – who will hold the House majority starting in 2023 – were skeptical of climate change initiatives started by the agencies under the Biden administration and pressed the panelists on how those initiatives would be carried out.
"We're just beginning this process, but from my standpoint, there needs to be active engagement, explain what we're doing, listen to the industry, and proceed thoughtfully and carefully," Gruenberg said, adding that "there will be clear distinction in how we approach the larger institutions as opposed to the smaller ones" with regard to climate risk supervision.
Acting Comptroller of the Currency Michael Hsu acknowledged that community banks had expressed concerns to him about the climate push. However, he also said they were affected by extreme weather events that were growing in frequency and intensity because of climate change. "What we are encouraging when we talk to community banks is that they learn from each other [and] they learn from us...I think it's fair to say that there's a lot of learning in general, whether it's for community banks or for the larger banks, as to how to best approach this."
Brainard Suggests Fed Could Slow Pace of Rate Increases
In an interview with Bloomberg News on Monday, Federal Reserve Vice Chair Lael Brainard said it soon may be appropriate to slow the pace of increases in the federal funds rate. The Fed has raised the rate six times this year as it seeks to tame inflation, with the last four increases each raising the rate by 75 basis points. The most recent Consumer Price Index showed that inflation eased slightly in October, but at 7.7% year over year, it was still well above the Fed's long-term goal of 2%. The Federal Open Market Committee will meet again in December.
The FOMC has already cautioned that it will pursue a more restrictive policy stance until it sees signs inflation is easing, and Brainard reiterated that position in her remarks. Still, she called the October slowdown in inflation encouraging. "I think by moving at a more deliberate pace, we'll actually be able to see how that cumulative tightening is playing out...As we get into restrictive territory – or further into restricted territory – the risks become more two-sided. And in that environment, it's really valuable to be able to take into account the data as we go," she said.
Gruenberg to be Nominated as Permanent FDIC Chair
The White House has announced it plans to nominate Martin Gruenberg as chairman of the Federal Deposit Insurance Corp. Gruenberg previously held the post from 2012 to 2018 and has acted as interim chair for the past several months.
CFPB Takes Unconstitutionality Case to Supreme Court
The Consumer Financial Protection Bureau has taken the widely expected step of asking the Supreme Court to overturn an appeals court ruling that it is unconstitutionally funded. The CFPB argues the ruling "calls into question virtually every action” taken since its inception and "threatens to inflict immense legal and practical harms" on consumers and the finance industry.