STATE GOVERNMENT RELATIONS
House Bill 1001 – State Budget
Author: Rep. Jeff Thompson, R-Hendricks, Boone and Montgomery counties
Latest action: The Senate Appropriations Committee amended the bill, then passed it April 13 in a 10-2 vote. The bill will now be available for consideration by the full Senate on second reading.
Senate Bill 242 – Floodplain Mapping
Author: Sen. Jean Leising, R-Decatur, Fayette, Ripley, Rush, Franklin, Jennings and Shelby counties
Latest action: The bill was amended on second reading in the House on April 12 to place further restrictions on the DNR's floodway mapping program.
Senate Bill 419 – State Tax Matters
Author: Sen. Travis Holdman, R-Adams, Blackford, Jay, Wells and Allen counties
Latest action: The bill is sitting on second reading in the House.
Senate Bill 452 – Consumer Credit and Financial Institutions
Author: Sen. Eric Bassler, R-Daviess, Greene, Knox, Martin, Owen and Sullivan counties
Latest action: The bill passed the House, 96-1, on third reading. The bill is now eligible for concurrence or dissent by the Senate author.
House Bill 1316 – IFA Approval
Author: Rep. Doug Miller, R-Elkhart County
Latest action: The Senate Tax and Fiscal Policy Committee amended the bill April 11, then unanimously passed it. The bill is now available for consideration by the full Senate on second reading.
Senate Bill 5 – Consumer Data Protection
Author: Sen. Liz Brown, R-Allen County
Latest action: The bill was amended in the House Judiciary Committee on April 6. The bill passed third reading in the House, 98-0, on April 11. The bill is now eligible for concurrence or dissent by the Senate author.
Senate Bill 468 – Uniform Commercial Code Amendments
Author: Sen. Chris Garten, R-Clark and Floyd counties
Latest action: The bill passed third reading in the House, 95-2, on April 4. The bill is now eligible for concurrence or dissent from the Senate author.
Senate Bill 35 – Financial Literacy
Author: Sen. Mike Gaskill, R-Hamilton and Madison counties
Latest action: The bill passed the House, 88-1, on April 6. It is now eligible for concurrence or dissent by the Senate author.
Senate Unveils Budget with No Expansion for School Voucher Program
Senate Republicans on Thursday unveiled their two-year spending plan for the state, calling for record increases in education funding but declining to increase eligibility for Indiana's school voucher program – a priority of House Republicans.
FEDERAL GOVERNMENT RELATIONS
FDIC Vice Chairman: Don't Blame Regulatory Tailoring Bill for Bank Closures
Federal Deposit Insurance Corp. Vice Chairman Travis Hill said legislation that gave bank regulators broad discretion over how they supervised certain banks had nothing to do with the failure of Silicon Valley Bank. The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) was passed with bipartisan support in 2018 to give regulators more leeway in tailoring regulation for financial institutions based on asset size. Some Democrats have argued that changes made due to the bill's passage allowed SVB and Signature Bank to skirt regulatory oversight. However, many left-of-center commentators have cast doubt on that interpretation.
Hill – one of two Republicans on the five-member FDIC board – said S. 2155 wasn't to blame during a speech at the Bipartisan Policy Center in Washington, D.C. "The rule changes did not change the stringency of capital standards for a bank of SVB's size, the stress tests did not test for rapidly rising rates, and the exact thing that got SVB in trouble – investing in government bonds – is exactly what the liquidity coverage ratio is designed to require," he said. "The reasons for SVB's failure are quite straightforward and easy to explain, and those rule changes had nothing to do with them."
Mismanagement of interest rate risk was at the core of SVB's problem, Hill said. In addition, its deposits were almost all uninsured, highly concentrated and remarkably quick to run. "We should closely review the lessons to be learned from the recent failures and be open to targeted changes to our framework, but we should be humble about what our rules and policies can accomplish, and avoid the temptation to overcorrect," he said. "In a competitive, dynamic financial services industry with thousands or millions of independent actors, there will always be vulnerabilities, and in an era of aggressive Fed tightening, there will always be bigger pressures at play."
SBA Lifts 7(a) Lender Moratorium, Loosens Underwriting Requirements
The Small Business Administration issued a final rule Tuesday to lift the moratorium on the number of non-depository lenders in the 7(a) program. Through the 7(a) program, banks and other lenders provide loans to underserved small businesses. The number of non-depository institutions in the program has been capped at 14 institutions for decades, but that cap is eliminated under the rule.
The final rule creates a new type of small-lending company to make 7(a) loans: "Community Advantage Small Business Lending Companies (SBLCs)." SBA stated that it has the resources to license, service and provide oversight to three new SBLCs, and that each new SBLC has the potential to increase 7(a) lending by approximately 425 loans per year over the next four years. The final rule also removes the loan authorization as a required document for 7(a) loans. In a change from the rule, as proposed, SBA will require Community Advantage SBLCs to maintain a loan loss reserve account as determined in the SBA administrator's discretion.
On Monday, SBA issued a separate final rule that removed the nine-factor underwriting standard for 7(a) loans found in existing regulations. The rule replaced that standard with a requirement that lenders use "appropriate and prudent generally acceptable commercial credit analysis processes and procedures consistent with those used for [the lender's] similarly sized, non-SBA guaranteed commercial loans" or use a "business credit scoring model."
In March, the bipartisan leaders of the Senate Small Business Committee expressed similar concerns with SBA's two 7(a) rules as proposed, stating that the proposals "establish broad and sweeping changes that do not reflect congressional input or authorization."
Fed's Goolsbee Urges Caution on Raising Rates
Federal Reserve officials need to be cautious about aggressively raising the federal funds rate given potential "financial headwinds" – such as tighter credit conditions – following the closures of Silicon Valley Bank and Signature Bank, Chicago Fed President Austan Goolsbee said Tuesday. The Federal Open Market Committee raised the rate by 25 basis points during its meeting in March, which came not long after the bank failures. In a speech to the Economic Club of Chicago, Goolsbee said moments of financial stress can mean tighter credit conditions, and there are signs banks were beginning to pull back on lending even before the closures. "These can have a material impact on the real economy in a way that the Fed absolutely needs to take into account when setting policy," he said.
"If they develop, the Fed would need to account for these potential headwinds when setting monetary policy," Goolsbee said. "In some ways, it's almost mechanical; we've been tightening financial conditions to bring inflation down, so if the response to recent banking problems leads to financial tightening, monetary policy has to do less."
Given that uncertainty, "I think we need to be cautious," Goolsbee said. "We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation."
Chopra: Regulators Can Issue Rules on Executive Compensation
Consumer Financial Protection Bureau Director Rohit Chopra said Tuesday that existing law allows regulators "to really kick the tires" on executive compensation at failed banks like Silicon Valley Bank. In an interview with the Washington Post on the recent bank closures, Chopra didn't provide any examples of regulatory actions his agency or others would take in the case of SVB. However, he said regulators should look at their existing legal authorities to see where there were violations and hold individuals accountable. "It's sitting there in the law, and the regulators just have to implement it," he said.
"We can't have a system where executives take huge risks that blow up years down the road but can pocket big sums of money and stock options, and they can fly the coop before the damage wrecks the bank," Chopra said. "There's lots of ways to do this. There can be restrictions on the forms of executive compensation, such as stock options. There can be more requirements on deferring some of that compensation…We've got to really see how we make sure we align the incentives of those executives, and it's going to be really important to implement those provisions in law."
Chopra – a member of the Federal Deposit Insurance Corp. board – also floated the idea of a deposit insurance system where banks can choose to pay higher rates if they wanted to insure business accounts above current deposit insurance limits. "I personally think that there may be a place where we can give higher limits that banks would pay for in insurance premiums for these types of payroll accounts, so that small businesses (and) other businesses can keep their money safely," he said. "It maybe should be tailored to non-interest bearing accounts that are really for these payroll accounts." However, he stressed that the decision would be up to Congress.
Chopra Favors Systemically Important Payment-Firm Status
Consumer Financial Protection Bureau Director Rohit Chopra said the Financial Stability Oversight Council should consider deeming certain payment firms as systemically important. "Many people think of this as a bank account, a place you can store funds. But the reality is, it's not like a traditional bank account, and there are certain circumstances where those balances may not be fully insured," Chopra said.