STATE GOVERNMENT RELATIONS
Senate Bill 5 – Consumer Data Protection
Author: Sen. Liz Brown, R-Allen County
Latest action: The bill passed the Senate and was referred to the House for further consideration. The bill was heard in the House Judiciary Committee on March 15.
Senate Bill 35 – Financial Literacy
Author: Sen. Mike Gaskill, R-Hamilton and Madison counties
House Bill 1281 – Financial Literacy
Author: Rep. David Hall, R-Brown, Jackson and Monroe counties
Latest action: Both bills have passed their chambers of origin and have been referred to the other chamber for further consideration.
Senate Bill 156 – Tax Sales
Author: Sen. Rick Niemeyer, R-Benton, Newton, Jasper and Lake counties
Latest action: The bill was referred to the House Judiciary Committee upon passing the Senate. It was passed out of the House Judiciary Committee on March 15.
Senate Bill 287 – Various Probate and Trust Matters
Author: Sen. Aaron Freeman, R-Marion and Johnson counties
Latest action: The bill was referred to the House Judiciary Committee upon passing the Senate. It was passed out of the House Judiciary Committee on March 15.
Senate Bill 468 – Uniform Commercial Code Amendments
Author: Sen. Chris Garten, R-Clark and Floyd counties
Latest action: The bill was referred to the House Financial Institutions Committee upon passing the Senate.
Senate Bill 477 – Threats To Critical Infrastructure
Author: Sen. Justin Busch, R-Allen and Whitley counties
Latest action: The bill was passed out of the House Committee on Veteran Affairs and Public Safety on March 13.
FEDERAL GOVERNMENT RELATIONS
Yellen: Americans Can Feel Confident in Banking System
Treasury Security Janet Yellen told lawmakers Thursday that the U.S. banking system is sound and Americans can feel confident that their deposits will be there when they need them. Testifying before the Senate Finance Committee, Yellen fielded several questions from senators about the state of the banking system following the recent failures of Silicon Valley Bank and Signature Bank, as well as the government's response to both. "This week's actions demonstrate our commitment to ensure that our financial system is strong and depositors' savings remain safe," she said.
Committee Republicans were critical of the Biden administration, which they said had failed to curb inflation, resulting in the Federal Reserve rate hikes that helped bring down both banks. They also said regulators failed to use existing tools to properly supervise both institutions. "Instead of taking accountability for this plain failure, regulators are now forecasting that they plan to increase regulations of the rest of the banking industry," said Sen. Tim Scott, R-S.C. Yellen also faced questions from some committee members about the protection offered to uninsured depositors at the two failed banks and the broader implications of that action.
Some committee Democrats questioned whether regulators dropped the ball, although many blamed what they said was the easing of Dodd-Frank banking regulations under the previous administration. Sen. Elizabeth Warren, D-Mass., asked about supervisory stress testing for banking institutions, but Yellen said those tests focus on capital, not liquidity. "And in these bank failures, liquidity played an important role," Yellen said.
The role of social media came under fire from Sen. Sheldon Whitehouse, D-R.I., who accused "some bad actors" in the venture capital community of using online platforms to spread panic and cause a bank run. "I'm not sure what regulatory system anywhere – no matter how much capital, no matter how many stress tests – would have protected any institution from a $42 billion bank run in a single day," he said. Yellen responded that SVB had a very high ratio of uninsured deposits and that bank runs do not typically happen among insured depositors.
Sen. Brown Asks Regulators for 'Comprehensive Review' of Bank Failures
Senate Banking Committee Chairman Sherrod Brown, D-Ohio, sent a letter Thursday to the Treasury Department, Federal Deposit Insurance Corp. and Federal Reserve requesting a "comprehensive review" of the failures of Silicon Valley Bank and Signature Bank. As regulators conduct their reviews, Brown said they should look for "broader vulnerabilities" in the banking system and take steps to mitigate them.
The Federal Reserve and FDIC will perform analyses of the banks' failures as required by law. In the course of those investigations, however, Brown urged the agencies to "consider the magnitude" of the banks' uninsured deposits and the role that social media may have played in causing or accelerating the failures. He said agencies should identify and close regulatory gaps, shortfalls, or failures by state or federal regulators contributing to the outcome, including capital, liquidity, stress testing, concentration risk and risk management.
Brown asked the agencies to "strengthen the guardrails for banks to prevent failures and mitigate contagion and panic risks to protect consumers and small businesses and to preserve small banks."
Consumer Trust in Banks Remains High After SVB Failure
Following the closure of Silicon Valley Bank, a majority of Americans (70%) said they trust banks to do what is right, according to a new survey by Morning Consult. The poll also found that most bank customers believe their money is secure, and only one in five respondents with primary bank accounts said they have moved their money somewhere else.
According to the survey, trust was highest among regional bank customers at 81%. Credit union customers had a slightly lower level of trust in their institutions than bank customers, at 69%. Most bank customers said they're at least somewhat confident that their money is secure following recent bank failures. About one in three said they're "very confident" in their banks' ability to provide them with all the money in their accounts if they requested it, compared with just 5% who said they're "not confident at all."
Only 28% of respondents said they expected recent events to have any effect on them in the coming weeks, although 73% expected at least some effect on the U.S. economy.
Fed Officials: 'No Stigma' for Using Bank Term Funding Program
There will be "no stigma" for financial institutions that use the newly created Bank Term Funding Program, and regulators will view the use of the BTFP as "prudent planning" in the context of sound liquidity management, Federal Reserve officials said Wednesday during a webcast on the program. They also confirmed that participating institutions will not be publicly identified until 2025.
Eligible borrowers for BTFP include all U.S. federally insured depository institutions as well as U.S. branches or agencies of foreign banks. Advances can be requested until March 11, 2024, when the program is scheduled to end. Information on the names of the borrowers, amounts borrowed, interest rates paid and collateral pledged will not be disclosed to the public until March 15, 2025. While the Fed will report on aggregate balances related to the BTFP weekly through its H.4.1 data release, no individual borrowers will be named, Fed officials confirmed.
Many questions posed by webcast participants concerned collateral for BTFP loans. Fed officials said any collateral eligible for purchase by the Federal Reserve Banks in open market operations and owned by the borrower as of March 12, 2023, qualifies. Eligible depository institutions may borrow up to the value of eligible collateral they pledge. Also, borrowers may prepay advances – including for purposes of refinancing – at any time without penalty. There is no limit to the number or size of advances in the aggregate.
FedNow to Launch in July
The Federal Reserve announced this week that the FedNow instant payments service will begin operating in July. The Fed will start formally certifying participants for the launch in the first week of April. As part of that process, early adopters will complete a robust testing program to ensure operational readiness and network experience ahead of the go-live date.
FedNow "will launch with a robust set of core clearing and settlement functionality and value-added features," according to the agency. "More features and enhancements will be added in future releases to continue supporting safety, resiliency and innovation in the industry as the FedNow network expands in the coming years."
Several Democrats Push Back on S. 2155 Repeal Effort
In the wake of Silicon Valley Bank's and Signature Bank's failures, several Democratic senators who voted for the S. 2155 regulatory reform legislation in 2018 have argued against a newly introduced bill to repeal Title IV of S. 2155. The bill – introduced by Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif. – would repeal the bipartisan regulatory tailoring provisions of S. 2155.
Sen. Angus King, I-Maine, said he would vote again for S. 2155 "because of the important help to smaller banks and community banks; that was my mission." Likewise, Sens. Michael Bennet, D-Colo., and Tim Kaine, D-Va., said they did not regret their votes in favor. Sen. Jeanne Shaheen, D-N.H., added, "The reality is, it was very bad management at SVB. And you can't fix that with any regulation."
While Warren and Porter claimed that S. 2155 "created conditions" for the failure of SVB, many left-of-center commentators have cast doubt on that interpretation. Former Treasury official Jonah Crane noted that "S. 2155 did not require eliminating the modified liquidity coverage ratio requirements that had previously applied to banks between $100-$250 [billion in assets]," while Better Markets CEO Dennis Kelleher told CNN he believed S. 2155 had only a "modest impact" on SVB.
Former Federal Reserve Governor Dan Tarullo rejected efforts to tie the regulatory reform bill and regulatory tailoring to SVB. "I don't think there's that direct of a connection between those specific changes and Silicon Valley [Bank]," he told the public radio show Marketplace. The Warren-Porter bill is not expected to advance in the divided Congress.
In Speech, Biden Emphasizes Safety of Banking System
In a speech following the failures of Silicon Valley Bank and Signature Bank last weekend, President Biden said that Americans can have confidence that the banking system is safe and highlighted the decision of the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. to guarantee the uninsured depositors at these banks.
"Your deposits will be there when you need them," Biden said. "Small businesses across the country that deposit accounts at these banks can breathe easier knowing that they will be able to pay their workers and pay their bills. And their hard-working employees can breathe easier as well."
In related news, the Federal Reserve announced that Vice Chairman for Supervision Michael Barr would lead a review of the agency's supervision and regulation of SVB in light of its failure. Fed Chairman Jerome Powell said the events surrounding SVB's failure demand "a thorough, transparent and swift review" of the agency's regulatory actions regarding the bank. The review will be publicly released by May 1, according to the agency.