FEDERAL GOVERNMENT RELATIONS
FDIC Board to Review Pending Bank Merger Applications After Nine Months
The Federal Deposit Insurance Corp. board Wednesday unanimously adopted a resolution to require that agency staff update the board on pending bank merger and deposit insurance applications that have been outstanding for 270 days, or roughly nine months. The resolution was brought by Travis Hill, who noted that the number of merger applications still under review after 270 days has steadily grown in recent years.
“A long application review process is costly for a variety of reasons,” Hill said. “In the case of mergers, it adds uncertainties for employees and customers, it makes post-merger integration more challenging and it can be dangerous if one of the merging entities is in a vulnerable condition.”
Under the resolution, once an application becomes pending for more than 270 days after receipt, it is automatically placed on the agenda of the next FDIC board meeting. Also, staff briefings on the application would be automatically placed on the agenda at subsequent board meetings every three months until a final decision is made.
ICBA, ABA and Other Trade Associations Support Bill to Pause Debit Card Fee Proposal
The Independent Community Bankers of America, American Bankers Association and three other banking and credit union associations on Tuesday voiced their support for legislation that would pause a Federal Reserve proposal to lower the cap on debit card interchange fees. The Secure Payments Act (S.4570), sponsored by Sen. Ted Budd, R-N.C., and four other senators, would prevent the Fed from moving forward with the policy until it completes a full quantitative impact study of its effects on consumer costs and the wider economy. A House version of the bill was introduced by Rep. Blaine Luetkemeyer, R-Mo.
The Fed last year proposed revising Regulation II to lower the cap from its current rate of 21 cents and .05% of the transaction, plus a one-cent fraud adjustment, to 14.4 cents and .04% per transaction and a 1.3 cents fraud-prevention adjustment, effective June 30, 2025. It also proposed to update the cap every other year going forward by linking it to data from the board’s biennial survey of large debit card issuers.
In a letter to Budd, ICBA, ABA and the other associations called the Fed proposal misguided, noting that interchange fees fund the technology upgrades, fraud prevention tools and zero liability that retail customers expect. They also noted that fees help fund low-cost Bank On accounts, which have brought millions of Americans into the banking system. More than a dozen groups have written to the Fed to express concern that the proposal could harm Bank On offerings.
“Nothing compels the Fed to revisit the interchange cap, and Congress directed the Fed to consider the negative effects the proposal would have on financial institutions and their customers, particularly low-and-moderate income consumers,” the associations said. “The overwhelming opposition to the rule from small financial institutions, community groups, think tanks and academics focused on financial inclusion validates the directive from Congress and makes the need for further consideration clear.”
Learn more about the Secure Payments Act
FDIC Revises Resolution Planning Requirements for Larger Banks
The Federal Deposit Insurance Corp. board voted 3-2 Thursday to adopt a final rule creating new resolution plan requirements for banks with more than $100 billion in assets, as well as new information filing requirements for banks over $50 billion. Among other provisions, the rule will require banks over $100 billion to submit a strategy that describes their resolution from the point of failure through the sale or disposition of the franchise. However, strategies that rely on a closing weekend sale of the institution are not permitted – filers would be required to outline a strategy using a “bridge bank.” The rule takes effect Oct. 1.
The final rule contains changes from the original proposal last year, which FDIC staff said came as a result of public feedback. For example, most banks covered by the rule must submit resolution plans or information filings to the FDIC every three years instead of two, although they must submit regular updates on those plans. Globally systemically important banks must submit resolution plans every two years. Another change is a “tiered” approach to regulatory feedback about weaknesses in submitted plans, including the creation of a “significant finding” as a step between informal observations and a “finding of material weakness” that requires corrective action. However, the final rule would require demonstration of capabilities to value and expeditiously market assets and parts of the institution’s franchise.
The information filing requirements for banks between $50 billion and $100 billion would not be as detailed as the plans submitted by those over $100 billion. Banks under $100 billion would not be required to submit resolution strategies based upon a failure scenario, according to FDIC staff.
Read an FDIC financial institution letter on the rule
Read an agency fact sheet on the rule
FDIC Board Split on Changes to Resolution Planning Requirements
The Federal Deposit Insurance Corp. board was divided about the necessity of the new resolution planning requirements, with the three Democratic members viewing the final rule as a much-needed adjustment following last year’s regional bank failures, and the two Republican members seeing it as overreach.
“The development of such a strategy, together with the supporting information and analysis, will materially improve the ability of the FDIC to prepare for and execute resolutions of the largest banks in a manner that preserves stability in the banking system and reduces costs to the Deposit Insurance Fund and other stakeholders,” FDIC Chairman Martin Gruenberg said. “In light of our experience in the spring of last year, the need for strengthened resolution plans for institutions in this category is compelling.”
In voting against the final rule, FDIC Vice Chairman Travis Hill questioned whether the expected benefits from making banks submit written plans justified the costs to institutions for preparing them. Board member Jonathan McKernan questioned whether the agency had the authority to implement some of the requirements. “If we have the authority to enforce this rule, we also have the authority to compel very significant changes in bank’s business models,” McKernan said. “I think Congress would have been clear if we were supposed to have that authority as it relates to resolution.”
Watch a recording of the FDIC board meeting
Revised HMDA Reporting Guide Available
The Federal Financial Institutions Examination Council’s revised “A Guide to HMDA Reporting: Getting it Right!” is now available. The document provides resources to help banks comply with the Home Mortgage Disclosure Act and Regulation C, its implementing regulation. The 2024 guide reflects changes to the asset-size exemption threshold effective Jan. 1 for reporting HMDA data on closed-end mortgage loans.
Fed’s Bowman: Regulators Must Be More Open to Banking Innovation
Financial innovation must be a core regulatory priority, with regulatory and supervisory resources and attention focused on building a policy framework that permits responsible innovation to flourish, Federal Reserve Governor Michelle Bowman said Monday at a financial technology conference in Austria. She added that regulators’ initial response to innovation in the banking sector “is not one of openness and acceptance but rather suspicion and concern.” Some skepticism is understandable, “but it is incumbent on regulators to fight the temptation to say ‘no’ and resist new technology and instead focus on solutions.”
“I would suggest that adopting a posture receptive to innovation requires a shift in regulatory approach,” Bowman said. “The current temptation is to pre-judge financial innovation and to take a harsh view. But this resistance approach carries significant risks. One of the most important risks is that financial innovation stagnates or is pushed out of – and kept out of – the banking system...Ultimately, this approach could lead to a banking system that may be safer and smaller but also much less effective in providing banking products and services to support the U.S. economy.”
Bowman also suggested that regulators could promote innovation through transparency and open communication. “This includes providing clear guidance to banks and the broader public, incorporating innovation into the regulatory agenda in a comprehensive way, and encouraging interaction between industry and regulators,” she said. “This industry-regulator interaction must allow for feedback and information sharing throughout the innovation life cycle and incorporate regulatory feedback on innovation.”