STATE GOVERNMENT RELATIONS
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: SB 35 passed out of the House Education Committee on March 29. HB 1281 is currently awaiting committee action in the Senate.
Senate Bill 468 – Uniform Commercial Code Amendments
Author: Sen. Chris Garten, R-Clark and Floyd counties
Latest action: The bill was amended and passed out of House Financial Institutions Committee on March 30.
House Bill 1005 – Housing
Author: Rep. Doug Miller, R-Elkhart County
Latest action: The bill was amended and voted out of the Senate Appropriations Committee on March 30.
Senate Bill 183 – Unclaimed Property Matters
Author: Sen. Eric Koch, R-Lawrence, Jackson, Orange and Brown counties
Latest action: The bill has passed both chambers and has been returned to the Senate with amendments.
House Bill 1316 – IFA Approval
Author: Rep. Doug Miller, R-Elkhart County
Latest action: The bill was heard in the Senate Tax and Fiscal Policy Committee and held for further consideration.
FEDERAL GOVERNMENT RELATIONS
White Testifies on Behalf of ICBA to Congress: CFPB Should Delay 1071 Rule
Lucas White, president of The Fountain Trust Company, Covington, was one of two bankers representing the Independent Community Bankers of America who testified before Congress this week on ICBA’s push for the Consumer Financial Protection Bureau to delay issuing its Section 1071 final rule until the Supreme Court rules on the constitutionality of the bureau’s funding structure.
Testifying at a House Subcommittee on Economic Growth, Tax, and Capital Access hearing, ICBA Chairman-elect Lucas White said the delay would preserve the status quo until the ruling provides more certainty to community banks and small businesses, as ICBA said in a letter to the bureau last week.
White urged policymakers to:
- Replace the loan-volume exemption and instead exempt banks with $1 billion or less in assets.
- More accurately define “small business” by using a threshold of $1 million or less in gross annual revenue.
- Exempt mission-based banks, such as minority depository institutions and community development financial institutions.
- Implement a staggered implementation date.
- Pass several bills to mitigate the rule’s adverse impact on small businesses.
Troy Peters, an ICBA community banker who serves as president and CEO of the Jonestown Bank & Trust Co. in Jonestown, Pa., also testified at the hearing on behalf of the ICBA-affiliated state partner Pennsylvania Association of Community Bankers. Peters told the subcommittee that the CFPB’s rule would have a disproportionate impact on community banks, would promote further consolidation in the banking industry, and would raise privacy concerns among small-business borrowers.
The CFPB has indicated it plans to issue a 1071 final rule by March 31. The CFPB agreed to the deadline as part of a lawsuit designed to compel the bureau to finalize the rulemaking.
Gruenberg: Deposit Fund Assessment Proposal Coming in May
The Federal Deposit Insurance Corp. estimates that the cost of resolving Silicon Valley Bank will likely be $20 billion, which will be recovered by a special assessment on banks, FDIC Chairman Martin Gruenberg said Monday. In prepared testimony released ahead of two congressional hearings this week on the failures, Gruenberg did not say what form the assessment would take or which institutions would be required to pay. The agency will put forward a proposal for comment in May, he said, along with a report following a “comprehensive review of the deposit insurance system.”
The cost for resolving Signature Bank is estimated at $2.5 billion, Gruenberg said. Both cost estimates are subject to change depending on the ultimate recoveries for each receivership.
Gruenberg also emphasized that the U.S. banking system remains sound despite recent events. “The FDIC has been closely monitoring liquidity, including deposit trends, across the banking industry,” he said. “Since the action taken by the government to support the banking system, there has been a moderation of deposit outflows at the banks that were experiencing large outflows the week of March 6. In general, banks have been prudently working preemptively to increase liquidity and build liquidity buffers.”
Regulators Consider Stronger Rules for Larger Banks
The Federal Reserve is reviewing its capital and liquidity standards for all large banks following the closures of Silicon Valley Bank and Signature Bank, including those with more than $100 billion in assets, Fed Vice Chairman Michael Barr said Wednesday. Testifying before the House Financial Services Committee for the second of two days of congressional hearings on the closures, Barr was asked whether Category III and IV banks should be held to the same rule as those of larger banks.
“I still think a tiering approach makes some sense,” Barr said. “It doesn't have to be the same rules for all banks, but we do need stronger rules for firms of this size. Stronger rules on capital and liquidity, I think, are going to be really important.” He later added that the Fed's ongoing capital review does not include community banks. "We're not intending to increase capital requirements on community banks," he said.
Lawmakers on both sides of the aisle questioned whether regulators missed warning signs in the leadup to bank closures. Barr and Federal Deposit Insurance Corp. Chairman Martin Gruenberg noted their agencies are currently conducting reviews of their supervision of the banks. Also during the hearing, some members pointed to the speed at which SVB failed and the role social media likely played in spreading panic about it and other banks. Asked what regulators could do to mitigate similar technological risks in the future, Gruenberg said consumer education is likely key.
“In regard to deposit insurance, we should do more and perhaps a better job of explaining to the public how deposit insurance works, what is covered, what is not covered [and] what are the options available to people when they open a bank account,” Gruenberg said. The FDIC recently announced it was conducting a review of the deposit insurance system, and a public education element could be part of that review, he added.
Watch a recording of the hearing
GSEs Update Deferral Policies to Allow for Six-Month Payment Deferrals
Fannie Mae and Freddie Mac will allow borrowers facing hardships to defer up to six months of mortgage payments under newly enhanced payment deferral policies, the Federal Housing Finance Agency announced Wednesday. The agency is taking this step following success with COVID-19-related payment deferrals that enabled borrowers to remain in their homes during the pandemic. The new policies will have a voluntary adoption date of July 1 and a mandatory adoption date of Oct. 1.
Payment deferral allows borrowers who are able to resolve a financial hardship to keep the same monthly mortgage payment by moving past-due amounts to the end of the loan as a non-interest bearing balance, due and payable at maturity, sale, refinance or payoff. The agency advised borrowers facing financial hardship to contact their servicer to discuss whether this is an appropriate solution for their unique circumstances. Servicers may offer borrowers one of several solutions to resolve a delinquency, including the enhanced payment deferral, reinstatement, repayment plan or loan modification, depending on their individual situations, FHFA indicated.
Senators Question Regulators’ Role in SVB Collapse
During a Senate Banking Committee hearing Tuesday, regulators agreed that rules governing financial institutions should be strengthened to better protect the overall financial system. Several lawmakers questioned, however, whether those same regulators failed to use their existing tools to rein in Silicon Valley Bank.
Representatives from the Federal Deposit Insurance Corp., Federal Reserve and the Treasury Department appeared before the committee for the first of two congressional hearings this week on the failures of SVB and Signature Bank, as well as the subsequent federal response. A major focus was a 2018 bill – S. 2155 – that gave the Fed broad discretion over how it supervised banks ranging in size from $100 billion to $250 billion in assets. Fed Vice Chairman for Supervision Michael Barr said the agency is examining the 2019 rulemaking implementing the legislation as part of a broader review of how his agency handled SVB.
“We are looking at the range of tailoring approaches that the Federal Reserve took,” Barr said. “The decision to set those lines by asset size and other risk factors was made back in 2019. I joined the board in July 2020 and began looking at that approach…I believe we have substantial discretion to alter that framework.” Barr also said that his agency plans to propose a long-term debt rule for large banks that are not global systemically important banks (G-SIBs), which will require the institutions to maintain a cushion of loss-absorbing resources to support stabilization and allow for resolution in a manner that does not pose a systemic risk to the overall financial system. At the same time, he reiterated his message that the nation's banking system is sound and resilient. "Most banks are highly effective in managing interest rate risk and liquidity risk. It is the bread-and-butter kind of work of bank management," Barr said.
All three witnesses – Barr, FDIC Chairman Martin Gruenberg and Treasury Undersecretary for Domestic Finance Nellie Liang – said that they would support stronger rules to protect the financial system. But several committee members said that it appears that regulators already had the tools to address the problems at SVB but failed to do their jobs. “As you do your lookback into what transpired, it better be fixed,” said Sen. Jon Tester, D-Mont. “If it’s the regulators’ fault, it better be fixed. If it’s the regulations’ fault, it better be fixed…But it looks to me like regulators knew the problem, but nobody dropped the hammer.”
Watch a recording of the hearing
Senate Republicans Press FDIC on SVB Sale
During a Senate Banking Committee hearing Tuesday, members of the Senate Banking Committee pressed Federal Deposit Insurance Corp. Chairman Martin Gruenberg on whether the agency did enough to quickly find a buyer for the failed Silicon Valley Bank and stave off a potential special assessment to replenish the Deposit Insurance Fund.
Gruenberg said two bidders approached the FDIC on the weekend following SVB’s collapse on March 10, but one bank put forward an offer that was not approved by its board – which is required – and the other’s offer would have been more expensive than the liquidation of the institution. The FDIC announced on Sunday that First Citizens Bank has agreed to assume SVB’s deposits and purchase many of its assets, with the cost of resolving the failed bank estimated to be roughly $20 billion. Earlier this month, FDIC announced that New York Community Bancorp had agreed to assume deposits and purchase loans from Signature Bank, which failed two days after SVB’s collapse.
“We have a strong set of regional banks in the United States,” Gruenberg said. “As a general manner, their liquidity has remained stable through this episode. And I think it was a good indication that in the two failed institutions, the strongest bids we received to acquire those were from two other regional banks.”
Committee Republicans questioned whether the FDIC could have moved faster in finding buyers, which they said could have avoided declaring a systemic risk exemption to cover uninsured depositors at both failed banks. “If we had a better private sector engagement with quicker action from the feds, I think we could have avoided the concept that rushed us to a decision, which was a concern of contagion,” Ranking Member Sen. Tim Scott, R-S.C., said.