STATE GOVERNMENT RELATIONS
Indiana Revenue Forecast Exceeds Projections as Recession Fears Wane
State lawmakers will have $1.5 billion more to work with than expected in the state’s 2023-2025 budget, according to revenue figures released on Wednesday. It's unclear whether that money will be used for public health, expanding Indiana's school voucher program, or some other priority of the Republican supermajority.
Holcomb Signs 79 Bills Into Law Thursday
Gov. Eric Holcomb signed 79 bills on Thursday, bringing this legislative session’s total to 93 bills signed into law.
Wetlands Protections Remain Intact After Pushback From Environmental Groups
Indiana lawmakers removed controversial language from a bill that would have effectively stripped protections for certain wetlands by raising the bar for what can be considered an environmentally sensitive area. However, Republican leadership in both the House and Senate expressed support for reviving the language and attaching it to another bill.
FEDERAL GOVERNMENT RELATIONS
Lawmakers Remain Divided on Stablecoin Regulation
House Republicans and Democrats remained split on a proposed federal regulatory framework for stablecoins during a hearing on the subject Wednesday. The House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion took up a draft bill that started life last year as a bipartisan attempt to develop a framework. However, subcommittee Chairman French Hill, R-Ark., said time ran out on those negotiations due to the fall elections, and the ultimate result "is not necessarily a beautiful baby, but it is our baby." Committee Democrats questioned why the bill was being brought forward at this time, saying the legislation largely reflected Republican priorities.
"It does not represent a final product of any kind, so I think we are starting from scratch," said Ranking Member Maxine Waters, D-Calif.
In response, Hill said House Republicans welcomed any legislative efforts from Democrats. "We have been making our own changes and doing our own due diligence, and that's what this hearing is all about," he said.
FHFA Seeks to Codify Fair Lending Practices
The Federal Housing Finance Agency Wednesday announced a proposed rule to codify many of the agency's existing practices and programs regarding fair housing and fair lending oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
According to FHFA, the rule would codify in regulation its fair lending oversight requirements for both GSEs and FHLBs; its requirements for the GSEs to maintain equitable housing finance plans; and its requirements for the GSEs to collect and report homeownership education, housing counseling and language preference information from the supplemental consumer information form.
According to the agency, the rule would also expand requirements for both GSEs in fair lending compliance and provide greater oversight and transparency regarding equitable housing finance plans. Comments on the proposal are due 60 days after publication in the Federal Register.
FDIC: Deposit Insurance Fund on Track for Recovery
The Deposit Insurance Fund could be replenished as early as 2024 under a restoration plan adopted by the Federal Deposit Insurance Corp. last year. However, according to an agency report released Tuesday, a special assessment is required to recover losses from recent bank closures. Last year, the FDIC raised the deposit insurance assessment rate by two basis points as part of a plan to restore the DIF to its statutory minimum of 1.35% of total insured deposits by 2028. The DIF was at 1.27% in the fourth quarter of 2022. It could reach the statutory minimum as early as next year under favorable conditions – such as stable interest rates – but even if those conditions fail to materialize, the fund is on track to reach the minimum by the 2028 deadline.
During an FDIC board meeting on the report, Chairman Martin Gruenberg said the recent failures of SVB and Signature Bank cost the DIF a combined $22.5 billion, with approximately $19.2 billion of that figure attributable to covering uninsured deposits through a systemic risk declaration. The bank closures do not change the FDIC's projection that the fund will be restored to its statutory minimum by 2028, but only because regulators are required by law to make up the $19.2 billion in uninsured deposit losses through a special assessment, he said.
FDIC will propose a special assessment in May. That assessment could be tailored to apply to institutions the agency believes benefited the most from the systemic risk determination.
Bowman Sees Risks in Central Bank Digital Currency
The adoption of a central bank digital currency (CBDC) would pose many risks and challenges, including the risk that it would cannibalize rather than complement services provided by the U.S. banking system, Federal Reserve Governor Michelle Bowman said Tuesday. In a speech on CBDC policy considerations, Bowman didn't rule out the adoption of the technology, saying there is perhaps promise for wholesale CBDCs to settle certain financial market transactions and process international payments. Still, given concerns about consumer privacy and the potential effects on the banking system, "it is difficult to imagine a world where the tradeoffs between benefits and unintended consequences could justify a direct-access CBDC for uses beyond interbank and wholesale transactions," she said.
In terms of privacy, any CBDC adoption must ensure data privacy protections embedded in today's payment systems continue and are extended into future systems, Bowman said. "We must also consider the central role that money plays in our daily lives and the risk that a CBDC would provide not only a window into but potentially an impediment to the freedom Americans enjoy in choosing how money and resources are used and invested."
Bowman said that CBDC adoption could have "unintended effects" on the nation's banking system. "Consider the consequences of a CBDC that pays interest at comparable or better rates than commercial bank deposits and other low-risk assets," she said. "It seems likely that such a CBDC would reduce the funds available to lend and increase the cost of capital across the economy. Likewise, we need to consider the effect on bank stability and the potential of even more rapid bank runs in a world where there are fewer constraints on the volume and velocity of payments."
It would be irresponsible for policymakers "to undermine the traditional banking system by introducing a CBDC without appropriate guardrails to mitigate these potential impacts on the banking sector and the financial system," Bowman added.
Fed's Bowman: U.S. Economy Has 'Unmet Demand' for De Novo Banks
The banking industry is not meeting the demand for new bank formation, Federal Reserve Governor Michelle Bowman said last Friday. Speaking at the Wharton Financial Regulation Conference in Philadelphia, she argued that the ongoing interest in charter acquisition, the shift of core banking functions to nonbanks and the rise in banking as a service partnerships are evidence of demand for new banks.
Describing what she called a "charter strip" acquisition in which a new ownership group purchases a bank to acquire its charter but shifts business model and markets, she argued that these signal "dysfunction" in de novo chartering. "A start-up with a new business model should be agnostic between a charter strip and de novo and may actually prefer the 'clean slate' of a new bank," she said. "The ongoing demand for charter strip formations, however, reveals a disparity in treatment between de novo formations and charter strips, a disparity attributable to the difference in expectations and regulatory burden between these two paths."
Bowman also asked whether the demand for BaaS from existing banks could be "driven – at least in part – by the difficulty of de novo chartering," noting that "if a technology company has a new technology interface and product design that may better serve customer needs, it can be substantially faster to partner with an existing bank than to seek a standalone charter."
Bowman outlined several policy solutions that U.S. regulators could take, including removing barriers, making supervision more efficient and increasing transparency in the process. She cited a British example of the New Bank Start-up Unit run by the U.K. Prudential Regulation Authority, the Financial Conduct Authority. "In my view, the approach adopted by the New Bank Start-up Unit includes a number of features that could help inform process improvements in the United States," she said.
Lawmaker Seeks Info on CFPB Personal Data Breach
House Financial Services investigations subcommittee Chair Bill Huizenga, R-Mich., has set an April 25 deadline for a briefing from the Consumer Financial Protection Bureau regarding the extent of a personal data breach as well as mitigation, remediation, and notification efforts in response. An employee who now no longer works at the CFPB forwarded about 256,000 consumers' data to a personal email account, the CFPB said, describing the breach as a "major" incident.
House Republicans Lay Out Debt Ceiling Plan
House Republicans are proposing eliminating green energy tax subsidies and limiting federal spending growth as part of a plan to increase the debt ceiling. Speaker Kevin McCarthy, R-Calif., indicated that a vote could come next week, but President Joe Biden spoke out against the plan and again called for lifting the debt ceiling without conditions.