FEDERAL GOVERNMENT RELATIONS
House Committee Advances 403(b) Bill
With a bipartisan vote of 35 to 12, the House Financial Services Committee this week advanced H.R. 3063, the Retirement Fairness for Charities and Education Institutions Act of 2023. This bill would amend the Exchange Act to allow 403(b) retirement plans – which are offered by public schools, hospitals and certain charities – to invest in unregistered insurance contracts and collective investment trusts that currently may be invested in by comparable retirement plans, such as 401(k) plans.
FOMC Minutes: Members Uncertain About Further Rate Hikes
Federal Open Market Committee members all agreed to raise the federal funds rate by 25 basis points at their meeting earlier this month, but were divided on whether further monetary policy tightening would be needed, according to FOMC minutes released Wednesday. The FOMC announced it raised the target range for the rate to 5-5.25% at its May 2-3 meeting. The minutes show that participants were concerned that inflation remained too high, and some were skeptical that tighter credit conditions caused by recent banking sector stress would be enough to tame it. But while agreeing to raise the rate, “the extent to which additional increases in the target range may be appropriate after this meeting had become less certain.”
“Many participants focused on the need to retain optionality after this meeting,” according to the minutes. “Some participants commented that, based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings. Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.”
As for the banking sector, FOMC noted that conditions had broadly improved since the Silicon Valley Bank and Signature Bank failures in March, with the initial deposit outflows experienced by some regional and smaller banks moderating substantially. “A number of participants noted that the banking sector was well capitalized overall, and that the most significant issues in the banking system appeared to be limited to a small number of banks with poor risk-management practices or substantial exposure to specific vulnerabilities,” according to the minutes. The committee will next meet June 13-14.
Poll: Despite Controversy Most People Know Little About ESG
Most Americans have little to no familiarity with environmental, social and governance (ESG) investing, and that hasn’t changed for at least two years, according to a new survey by Gallup. Thirty-seven percent of survey respondents currently report being “very” or “somewhat familiar” with ESG, unchanged from 36% in 2021. Another 22% today are “not too familiar” with the concept, while 40% are “not familiar at all.” At the same time, nearly six in 10 said they had no opinion on the topic.
The survey found that adults familiar with ESG were more likely to have an opinion about it. Views on the practice were evenly split, with 36% seeing it as a positive and 35% seeing it as a negative. Republicans were far more likely than Democrats to have a negative view of ESG, although there was no real partisan divide when it came to whether respondents knew about the topic. Forty-eight percent of respondents said retirement fund managers should only take financial factors into account when making investment decisions, compared to 41% who said managers should also consider ESG factors. Stock owners’ views were nearly identical to the national averages.
Read more about Gallup's survey
Senators Criticize Fed for Engaging in ‘Climate Activism’
Nine Republican senators last week urged the Federal Reserve to stop engaging in “climate activism,” saying that the institution’s “credibility hangs in the balance.” In a letter, the senators pointed to a pilot climate change scenario analysis exercise the agency is conducting with some of the largest banks to gather information on climate risk management. They also singled out climate risk events and conferences hosted by Fed banks.
“All of this work is being done and man hours are being spent on climate change by an institution that has no statutory authority to do so, and without any scientific expertise,” the senators said. "There is no shortage of work to be done on issues directly within your statutory authority as evidenced by the Fed’s recent whiff on inflationary policy and inept oversight leading to the [Silicon Valley Bank] crisis.”
The senators accused the Fed of signaling to banks that investment in traditional energy development was “inherently risky and disfavored” by having large banks model for a net zero emission economy. “The independence of the central bank is a hallmark of our financial system and is crucial to protecting it from partisans with short-term interests, however, this independence has been greatly undermined by the Fed’s persistence on entering into the political arena – especially on the issue of climate change,” they said.
Bowman Again Urges Targeted Regulatory Response to Bank Failures
In a speech last Friday, Federal Reserve Governor Michelle Bowman once again called for a “targeted” regulatory response to the recent bank failures, pushing back against broader reforms that “appear to advocate a shift away from tailoring and risk-based supervision.” Bowman’s remarks at the Texas Bankers Association Annual Convention in San Antonio mirrored her comments from more than a week before, when she cautioned that broad regulatory changes could do more harm than good.
“Radical reform of the bank regulatory framework – as opposed to targeted changes to address identified root causes of banking system stress – is incompatible with the fundamental strength of the banking system,” Bowman said at the convention. “I am extremely concerned about calls for casting aside tiering expectations for less complex institutions, given the clear statutory direction to provide for appropriately calibrated requirements for these banks.”
Bowman said a targeted solution would instead focus on actual risks, on the improvement of supervision and risk management, and on prompt remediation of supervisory issues. She also said that in times of stress, regulators need to be forward focused on bank preparedness so that banks are positioned to address issues of concern. “These include being prepared to address contingency funding needs, with a plan in place that has been tested and is ready to be executed. Regulators need to be supportive of this kind of planning,” she said. “One of the preliminary lessons learned from the recent bank failures is that bank management, and their boards of directors, should be prepared to test the banks' ability to manage liquidity needs during times of stress.
“This is one area where I think bankers can make an important, immediate contribution,” Bowman added. “I strongly encourage bankers to consider creating a plan to handle liquidity needs during times of unexpected stress – and then test the ability to execute the plans.”