STATE GOVERNMENT RELATIONS
House Bill 1001 – State Budget
Author: Rep. Jeffrey Thompson, R-Lizton
Latest action: The bill had its first public hearing on Feb. 9 on the governor’s proposed budget. It's scheduled for a hearing on Feb. 20 on the House Republican proposed budget.
House Bill 1005 – Housing
Author: Rep. Doug Miller, R-Elkhart
Latest action: The bill passed third reading on Feb. 7. The bill now moves to the Senate for further consideration.
House Bill 1008 – Pension Investments
Author: Rep. Ethan Manning, R-Denver
Latest action: The bill passed through the House Financial Institutions Committee on Feb. 2. It was referred to the House Ways and Means Committee and scheduled for a hearing on Feb. 21.
Senate Bill 2 – Taxation of Pass Through Entities
Authors: Sen. Scott Baldwin, R-Noblesville, and Sen. Chris Garten, R-Charlestown
Latest action: The bill was passed out of the House Ways and Means Committee on Feb. 13. It is eligible for third reading on Feb. 20.
Senate Bill 3 – State and Local Tax Review Task Force
Authors: Sen. Travis Holdman, R-Markle, and Sen. Scott Baldwin, R-Noblesville
Latest action: The bill was passed out of the Senate Tax and Fiscal Policy Committee on Feb. 14. It is eligible for second reading on Feb. 20.
Senate Bill 292 – INPRS Investments
Authors: Sen. Travis Holdman, R-Markle; Sen. Linda Rogers, R-Granger; Sen. Eric Koch, R-Bedford
Latest action: The bill was amended on a second reading motion in the Senate. It is eligible for third reading on Feb. 20.
SB 1 Passes Senate Unanimously
Senate Bill 1, which would provide Hoosiers with a mental health helpline, mental health professionals to arrive on the scene of a crisis and facilities to offer aid, passed the senate unanimously on Monday. One of the authors of the bill, State Sen. Michael Crider, R-Greenfield, made the following statement in response: "There is no single solution for the Hoosiers suffering from mental illness, but Senate Bill 1, which passed the Senate unanimously today, will move Indiana toward getting help to those in need when they need it."
Indiana Lawmakers Eye TIF District Expansions to Create Affordable Housing Statewide
In recent years, Tax Increment Financing districts have exploded across the state. There are currently more than 1,100 such districts.
While these special districts are one of the most commonly used economic tools in the country and can drive redevelopment, opponents say that they divert money away from schools and increase the tax burden on Hoosiers.
Perhaps nothing illustrates the disparities in how well the tool is used than this: Multiple bills are moving in the Indiana Statehouse that seek to address the use of TIF districts, but lawmakers can't seem to agree whether TIFs are a boon or a detriment to the communities they're used in.
FEDERAL GOVERNMENT RELATIONS
McHenry, Luetkemeyer Cite Concerns with FinCEN Registry Access Proposal
In a letter to federal regulators, House Financial Services Committee Chairman Patrick McHenry, R-N.C., and Rep. Blaine Luetkemeyer, R-Mo., expressed "serious concerns" about a Financial Crimes Enforcement Network rulemaking regarding access to the registry of beneficial ownership information, saying the proposal deviates from congressional intent.
FinCEN established the registry last year according to the Corporate Transparency Act, part of the Anti-Money Laundering Act of 2020. In their letter, the two lawmakers said the agency's proposal runs counter to what Congress mandated in 2021 when it passed defense spending legislation that included language to strengthen the government's anti-money laundering enforcement capabilities. They also said the agency needs to establish a secure process through which financial institutions can fully access the database to confirm customer information on demand and set up a process through which updates to the database are shared with those institutions.
"It is important to restate this new process was never designed to undermine the requirement that financial institutions identify and verify the beneficial owners of their legal entity customers," the lawmakers wrote. "It was not designed to be used by financial institutions only at account opening. And it was not intended to impose duplicative requirements on financial institutions. To the contrary, the process established in [the defense bill] was intended to fully facilitate a financial institution's responsibility under the [customer due diligence] regulation by requiring covered companies to directly provide their information to the Department of the Treasury."
Bill to Prevent Transaction Reporting to IRS
A Senate bill has been reintroduced to prevent the IRS from requiring financial institutions to turn over transaction information for millions of law-abiding bank customers. The Prohibiting IRS Financial Surveillance Act is sponsored by Senate Banking Committee Ranking Member Tim Scott, R-S.C., Senate Finance Committee Ranking Member Mike Crapo, R-Idaho, and other Senate Republicans.
FHFA Seeks Input on Issuing Single-Family Social Bonds
The Federal Housing Finance Agency has requested input on Fannie Mae and Freddie Mac's social bond policy. Fannie and Freddie both currently issue labeled multifamily social bonds, but neither issue labeled single-family social bonds. The RFI is intended to help FHFA understand the potential opportunities and risks in issuing single-family social bonds under the framework of environmental, social and governance securities. FHFA also wants input in defining the criteria and appropriate impact measures for single-family social bonds.
"FHFA has closely monitored the continued emergence of ESG securities and the potential for social bonds to bring more liquidity and capital to the market," said FHFA Director Sandra L. Thompson. "As we evaluate responses from this RFI, FHFA will also look at ways that social bonds could increase liquidity and support for underserved borrowers and communities."
In 2021, Fannie and Freddie began issuing single-family affordable bonds comprising loans from each enterprise's affordable loan products. They recently adopted the Social Index, a methodology for measuring the degree to which various types of lending activity are supported in a given pool, and began publishing new single-family mortgage-backed securities disclosures based on this methodology. FHFA indicated that while some investors may interpret these activities as social issuances, they were not developed by the enterprises as labeled designated social bonds.
Input is due by April 17. On March 28, FHFA will also host a public listening session for additional input.
Fed's Bowman Calls for Greater Regulator Scrutiny of Outsourced Banking Services
As banks increasingly rely on third-party service providers, Federal Reserve Governor Michelle Bowman said that bank regulators should "consider the appropriateness of shifting the regulatory burden from community banks to more efficiently focus directly on service providers." Bowman noted that regulators have the authority to do so under the Bank Service Company Act.
"In a world where third parties are providing far more of these services, it seems to me that these providers should bear more responsibility to ensure the outsourced activities are performed in a safe and sound manner," Bowman said.
Bowman also discussed regulatory expectations regarding cyber risk management. "While we expect banks to be in touch with us when an event happens, cyber events should not be the first time a cyber-risk conversation occurs between a bank and its regulator," she noted. "We look forward to working with you to assist in clarifying expectations, applying regulatory guidance, or seeking feedback on cyber-risk management strategies. We encourage bank management teams to engage with regulatory points of contact whenever questions arise on cybersecurity matters just as with any other regulatory matter."
Brainard Resigns as Fed Vice Chairwoman
Lael Brainard submitted her resignation Tuesday as Federal Reserve vice chairwoman, with President Biden nominating her to serve as director of the National Economic Council. She will step down by Feb. 20.
Brainard has been a member of the Fed board since 2014 and vice chairwoman since 2022. She previously was undersecretary of the U.S. Department of the Treasury and counselor to the secretary of the Treasury. Biden also announced his intent to nominate economist Jared Bernstein as chairman of the Council of Economic Advisers.
Read the White House announcement
Wall Street Journal Editorial Pans Biden Administration Campaign Against Bank Fees
A Biden administration proposal to reduce and eliminate so-called "junk fees" charged by financial institutions is likely to harm the people it purports to help, the Wall Street Journal said in an editorial. The editors noted that under Director Rohit Chopra the Consumer Financial Protection Bureau has labeled fees charged for overdraft services as "surprise" fees even though they are disclosed upfront. However, banks use revenue from those fees to offer free checking and other services that otherwise would come at a cost.
"Banning such fees could cause banks to restrict credit to lower-income customers who are more likely to overdraw their accounts," the editorial said. "The same goes for the CFPB's proposal last week that would effectively cap credit card late fees at $8. This might cause card issuers to shun low-income customers and push more to payday lenders that charge higher interest."
The editors warned that the CFPB's proposal could spell the end of free checking accounts and other low-cost banking services on which consumers depend. "[I]ssuing blanket bans on fees and unbundled prices will make markets less competitive, not more," they noted. "It will also result in higher prices or fewer services for lower-income Americans."
Bowman: Fed Not Interested in Dictating Business Strategy for Banks
Fed Governor Michelle Bowman said Monday that the Federal Reserve's role as a banking supervisor is not to replace a bank's management and board of directors in adopting banking strategy and risk appetite. Speaking at the Conference for Community Bankers in Orlando, Bowman touched on a wide variety of topics, from the agency's regulatory approach to bank mergers to her outlook for the federal funds rate. But she wanted to clarify her commitment to what she characterized as the widely held view that the Fed shouldn't make credit allocation decisions for banks.
"Instead, it is to apply appropriate, targeted regulation and supervision, in order to be able to assess that when a bank engages in an activity, it does so in compliance with applicable laws and in a safe and sound manner," Bowman said. "This can be a difficult balance to strike, but it is something I believe we must always bear in mind whenever the Fed uses or proposes using its regulatory or supervisory tools. Banking regulation and supervision should not be the place to implement new policies that are not mandated by Congress."
In terms of bank mergers, Bowman noted there has been a recent increase in the average process time of merger applications and said she is concerned that longer wait times could become the new normal. She also reiterated her objections to how that process could be abused. "I continue to believe the applications process should not be used as a substitute for rulemaking if the rules applicable to a firm or group of firms needs to be updated."
Bowman also spoke about Fed rules for tailoring regulation to more closely match banks' risk profiles, saying that approach will feature prominently in the upcoming proposed revisions to the capital framework. "While I expect the board will propose new capital requirements for the largest institutions, including the Basel III 'endgame' reforms, I do not expect every tier of firms to be subject to the same changes. And my understanding is that there are no plans to propose changes to the community bank capital framework as part of this capital review," she said.
OCC Sees Need for Regulatory Reform in Bank Merger Process
At an agency symposium last Friday, Office of the Comptroller of the Currency Chief Counsel Ben McDonough said that federal regulators must build a better mousetrap to ensure that "healthy" bank mergers are approved and "unhealthy" mergers are rejected. McDonough – delivering prepared remarks on behalf of Acting Comptroller Michael Hsu, who wasn't able to attend – reiterated the agency leadership's belief that the framework for analyzing bank mergers needs updating. Multiple bank industry and policy experts spent the day sharing their research and thoughts on mergers.
"There is a robust ongoing debate about the effects of bank mergers on competition, on U.S. communities, and on financial stability," McDonough said. "At the same time, many experts have raised questions about the ongoing suitability of the current bank merger standards at a time of intense technological and societal change."
McDonough added that without regulatory reform, "there is an increased risk of approving mergers that diminish competition, hurt communities, or present systemic risks. By the same token, a moratorium on mergers would lock in the status quo and inhibit growth and improvements that could help communities and increase competition." He did not provide any examples of regulatory reforms the OCC would pursue, saying the symposium was instead meant to advance discussion. "In our experience, sometimes it takes in-person exchanges of ideas to spur us to action," he said.
Waller Urges Caution if Banks Engage with Cryptocurrency
Banks and other financial institutions must engage in a safe and sound manner in any activity they do, including dealing in cryptocurrency, Federal Reserve Governor Christopher Waller said last Friday at a California conference on digital assets. Waller said cryptocurrency is risky, so crypto holders shouldn't expect taxpayers to bail them out if those investments go bad. Still, he expressed concern about banks "engaging in activities that present a heightened risk of fraud and scams, legal uncertainties, and the prevalence of inaccurate and misleading financial disclosures."
"As with any customer in any industry, a bank engaging with crypto customers would have to be very clear about the customers' business models, risk-management systems and corporate governance structures to ensure that the bank is not left holding the bag if there is a crypto meltdown," Waller said. "And banks considering engaging in crypto-asset-related activities face a critical task to meet the 'know your customer' and 'anti-money laundering' requirements, which they in no way are allowed to ignore."
Waller noted that spillovers to other parts of the financial system from the stress in the crypto industry have been minimal so far. "The lack of spillovers to date may be attributable in part to the relatively limited number of interconnections between the crypto ecosystem and the banking system," he said. "While it is critical that we ensure that the financial stability risks associated with crypto assets are mitigated, it is important that we keep the various parts of the crypto ecosystem distinct in our minds as the debate about if and how to regulate crypto rolls on."
Fitch Warns on How Debt Ceiling Dispute May Affect Banks
A failure to resolve an impasse on the federal debt limit could lead to a downward revision of Fitch Ratings' operating environment score for U.S. banks from the current "aa" rating. "U.S. banking institutions have material exposure to the U.S. sovereign obligations, and a default on government obligations could impair bank performance, which could also carry rating implications," Fitch indicated.