STATE GOVERNMENT RELATIONS
Indiana House, Senate Announce Committee Changes
Both the Indiana House of Representatives and Senate recently announced leadership changes to several committees. Notably, Sen. Scott Baldwin, R-Noblesville, replaces Sen. Andy Zay, R-Huntington, as chairman of the Senate Insurance and Financial Institutions Committee.
In the House, Rep. Jeff Thompson, R-Lizton, replaces former Rep. Tim Brown, R-Crawfordsville, as chair of the Ways and Means Committee. In addition, the House has returned the combined Insurance and Financial Institutions committees into two separate committees. Rep. Martin Carbaugh, R-Fort Wayne, will retain his position as chair of the Insurance Committee. Rep. Mike Speedy, R-Indianapolis, will now be the chair of the newly formed Financial Institutions Committee.
View the Senate committee list
FEDERAL GOVERNMENT RELATIONS
Regulators Say Climate Stress Tests Not About Capital
Representatives from the Office of the Comptroller of the Currency and Federal Housing Finance Agency said Tuesday during a webinar on climate regulation in the financial sector that federal efforts to gauge how well large banks are prepared to handle climate change risks will differ from traditional stress tests in that climate change-related stress tests are not about capital.
Under the Biden administration, financial industry regulators have pushed to measure climate risks facing the sector. The Federal Reserve announced in September that six of the largest banks would participate in pilot climate scenario analysis exercises starting in 2023. Industry groups have repeatedly urged regulators not to tie any climate-related regulation or scenario analysis to capital standards. They have also stressed that any guidance or principles should remain high level to allow for significant changes and should not be applied to community or midsized banks.
Nina Chen, chief climate risk officer for the OCC, said her agency isn’t currently considering any such analysis, instead focusing on developing supervisory expectations for banks with more than $100 billion in assets. However, she noted that under OCC’s draft climate risk principles, such an exercise would be different from a traditional stress test. “It’s not about capital. It's an exercise to understand capacity, to understand where potential exposures are, to understand the data gap or where your institution might need to develop their staff capability,” she said.
Dan Coates, deputy director at FHFA, said his agency is working on having the entities it regulates conduct some sort of scenario analysis and stress tests, but added there remains much work to be done in figuring out what those scenarios will be. “We’re working with [the Network of Central Banks and Supervisors for Greening the Financial System] and trying to learn about what they’re doing and how [to] downscale those, or regionalize those, for areas of the U.S., and trying to make sure we have the data to run these scenarios and also stress tests.” He added that such tests would not be capital stress tests but “just to understand how vulnerable or not regulated entities are.”
Watch a recording of the webinar
CFPB Report Finds Servicemembers Underutilizing SCRA Interest Rate Reduction
In a new report released Wednesday, the Consumer Financial Protection Bureau raised concerns that servicemembers are paying extra in interest each year as a result of not taking advantage of interest rate reductions to which they are entitled under the Servicemembers Civil Relief Act. Under the law, servicemembers have the right to request interest rate reductions on outstanding loans during their time on active duty, plus an additional year in the case of mortgages.
In its analysis of historical data, the bureau found that in the years between 2007 and 2018, fewer than 10% of eligible auto loans and 6% of personal loans received reduced interest rates – resulting in foregone savings of $77.3 million and $23.9, respectively.
To help ensure that servicemembers receive the benefits of the interest rate reduction, the bureau recommended that creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their right for a single account, that they consider automatically applying SCRA rights and consider developing comprehensive and periodic indicators of SCRA interest rate utilization.
Das: FinCEN Priorities Include Rulemaking on AML, Beneficial Ownership
The Financial Crimes Enforcement Network is working on proposed regulatory amendments to ensure anti-money laundering and combating the financing of terrorism programs that incorporate the agency’s national priorities are effective, reasonably designed and consider the agency’s risk assessment program, Acting Director Himamauli Das said Tuesday during the ABA/ABA Financial Crimes Enforcement Conference. A top priority for FinCEN is the full implementation of the AML Act of 2020, and Das noted that the agency is currently working on a rulemaking based on initial AML/CFT priorities outlined in June.
“We encourage all of your institutions to assess your risk exposure to those priorities while we work on implementing regulations,” Das said. “We know that you’re anxious to see our proposal and we’re working hard to finalize it.”
Another priority for FinCEN is implementation of the Corporate Transparency Act’s beneficial ownership reporting provisions, Das said. The agency issued its first proposed rulemaking, which concerned reporting requirements, in September. A second rulemaking concerning access protocols to the beneficial ownership database by law enforcement and financial institutions may be released before the end of the year, and work is currently underway on a third rulemaking concerning revisions to the customer due diligence rule, he said.
FinCEN is also working on a series of products to raise awareness of the new reporting requirements and educate businesses about their obligations, Das said, which will be available on the beneficial ownership page of FinCEN’s website. “We would encourage feedback on our guidance and FAQs and on the types of information that we need to get out,” he said.
Read an overview of FinCEN's AML/CFT priorities
Visit FinCEN's beneficial ownership reporting resource page
CFPB: Enforcing New Closed-End Mortgage HMDA Rules Not Currently High-Priority
In September, a U.S. District Court vacated the 2020 Home Mortgage Disclosure Act final rule establishing loan volume reporting thresholds for closed-end mortgage loans. The effect of the decision is to revert the threshold for data reporting on closed-end mortgages to 25 loans in each of the two preceding calendar years, rather than the 100-loan threshold set by the 2020 final rule.
In response to the court's remand of this matter back to the agency, the Consumer Financial Protection Bureau issued a blog post recognizing that financial institutions may need time to implement or adjust policies, procedures, systems and operations to come into compliance with their reporting obligations and that the agency does not view action regarding institutions’ HMDA data as a current priority.
“CFPB does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021 or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years,” according to the blog post. The blog post does not, however, set forth any expectations for prospective loans starting in January 2023.
Hsu: Banks Must Document CECL Methodologies, Assumptions
With many banks expected to implement the current expected credit loss accounting standard in 2023, Acting Comptroller of the Currency Michael Hsu on Thursday discussed the Office of the Comptroller of the Currency’s expectations for banks moving to CECL. In particular, Hsu cautioned that “the flexibility CECL provides must be exercised in a disciplined manner to ensure safety and soundness. There needs to be appropriate support and documentation of management’s judgments.”
He added that “we expect thoughtful documentation of the methodology selected, as well as management’s assumptions, decisions, expectations, and qualitative adjustments,” and that examiners would be “closely monitoring” any changes firms make to their credit loss methodology and assumptions. “We understand and expect that credit loss estimates will change with the economic outlook and as new information surfaces,” Hsu noted. “However, any changes to credit loss estimates need to be appropriately supported and documented.”
Hsu also touched on the issue of diversity and inclusion in the banking industry, calling for more action from banks to achieve diversity at every organizational level, including bank boards. Among other provisions, Hsu said the OCC will expect “more transparency from the financial services industry – particularly large banks – about the diversity of their boards and executive leadership.” In addition, the OCC is “exploring and considering other steps,” such as requirements for banks to diversify their board or explain why they have not done so.
Fed Makes Changes to Payments System Risk Policy
The Federal Reserve last Friday adopted changes to its payments system risk policy that would expand access to collateralized intraday credit from the Federal Reserve Banks. The changes – which are being adopted largely as proposed – are aimed at improving intraday liquidity management and payment flows while assisting the reserve banks in managing intraday credit risk.
Among other provisions, the Fed clarified the terms for accessing uncollateralized intraday credit and the circumstances under which an institution may remain eligible for uncollateralized capacity if its holding company or affiliate is assigned a low supervisory rating. The changes also better align the Fed’s payments system risk and overnight overdraft policies with the deployment of FedNow, the Fed’s real-time payments network.
The changes related to the FedNow service will become effective when FRBs begin processing live transactions for FedNow, which is expected to occur in 2023. All other changes announced will be effective 60 days after publication in the Federal Register.