STATE GOVERNMENT RELATIONS
Morales Addresses NASAA Meeting
Indiana Secretary of State Diego Morales, co-chairman of the National Association of Secretaries of State (NASS) Securities Regulation Committee, addressed the North American Securities Administrators Association (NASAA) this week at their fall meeting in San Diego. Secretary Morales emphasized the growing importance of financial literacy programs in schools, investor education initiatives, and keeping regulatory pace with the use of technology in investments. "It was an honor to speak at the NASAA Fall Meeting among leaders from across North America," said Morales. "It has been a very active conference with meaningful interactions to further the Securities Division's goals of encouraging capital formation and business development by maintaining the securities market." Morales will serve as co-chair of the NASS Securities Committee until the conclusion of the NASS 2024 Summer Conference.
Land Use Task Force Could Consider Limits on Local Zoning
A leader of the General Assembly's Land Use Task Force expects it to prepare recommendations for helping address Indiana's housing needs ahead of the 2024 legislative session. The task force met last Friday for the first of its expected three meetings over the coming weeks, hearing from housing and real estate representatives, economic development groups and utility companies.
FEDERAL GOVERNMENT RELATIONS
Lawmakers Demand Banking Regulators Withdraw Proposed Capital Requirements
Republicans on the House Financial Services Committee Thursday called on federal regulators to withdraw proposed capital requirements for banks with more than $100 billion in assets. In a letter in conjunction with a subcommittee hearing on the proposal, the lawmakers argued that the regulators have not been forthcoming with the justifications or data behind the rulemaking and other recent regulatory changes.
"Over the past two months, your agencies have released numerous proposals that lack sound rationale and economic analysis," the lawmakers said. "Your opaque approach raises serious questions about the long-term impact these actions will have on our financial system and economy more broadly. As currently drafted, these proposals will undermine core principles and risk models that serve as the foundation of our financial system."
The proposal would implement the so-called "Basel III endgame" standards while eliminating the practice of relying on banks' internal risk models. House Republicans were particularly critical of Federal Reserve Vice Chairman for Supervision Michael Barr's recent holistic review of capital standards, saying the need for the review was unclear given the strong performance of banking institutions during the COVID-19 pandemic. They also argued that regulators were trying to negate legislation passed by Congress in 2018 – SB 2155 – that gave agencies more leeway in tailoring regulation for financial institutions based on asset size.
Committee Democrats have been more supportive of the proposed capital standards. However, during Thursday's hearing, some raised potential problems, such as its potential negative effects on clean energy tax equity investments. Also, Rep. Bill Foster, D-Ill., criticized the Fed for failing to provide the key assumptions it used when conducting the holistic review that led to the proposal. "The Federal Reserve's response to date has not included this information that we asked for, and I urge them to be more forthcoming," he said.
Industry Warns Credit Union Lending Bill Would Negate Existing Safeguards
Legislation to make it easier for credit unions to underwrite large-scale commercial real estate development projects undermines their congressionally mandated mission to serve people of modest means in underserved areas, industry representatives said last week in a letter to the bill's sponsors. The Member Business Loan Expansion Act, sponsored by Reps. Vicente Gonzalez, D-Texas, and Brian Fitzpatrick, R-Pa., would double the current exemption for small loans and expand credit union access to low-cost sources of funds for business loans.
It is noted that the limits set in existing laws, such as the Credit Union Member Access Act, were intended to prevent the credit union tax subsidy from being used to support commercial rather than consumer lending. While CUMAA's relaxed membership rules led to substantial growth in credit union membership and assets, it did at least place some restrictions on credit union business lending, according to the American Bankers Association.
Barr Says Fed 'a Long Way' from Decision on CBDC
The Federal Reserve is "a long way" from deciding whether to proceed with a central bank digital currency and would only do so with clear support from the executive branch and authorizing legislation from Congress, Fed Vice Chairman for Supervision Michael Barr said last Friday. Speaking at a fintech conference in Philadelphia, Barr also said he remains deeply concerned about stablecoin issuance without strong federal oversight.
"Stablecoins are a form of money, and the ultimate source of credibility in money is the central bank," Barr said. "If non-federally regulated stablecoins were to become a widespread means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system. It is important to get the legislative and regulatory framework right before significant risks emerge."
As for a CBDC, Barr said the Fed continues to speak to a broad range of stakeholders and conduct basic research in emerging technologies that might support a framework for the currency. However, he stressed that investigation and research are not the same thing as deciding whether to issue a CBDC.
Barr also spoke briefly about the new novel activities supervision program the Fed launched last month to oversee bank activities in digital assets and nonbank partnerships. Many banks that engage in such activities are already doing so safely and soundly, but "other institutions have some learning to do," he said during a Q&A. "This team of experts will work with local supervisors on the ground to make sure our institutions have access to that expertise, access to that clarity, and timely and expert judgment."
Central Banks Brace for Ongoing Battle with Inflation
Seven of the world's main central banks, including the Federal Reserve and the European Central Bank, are due to make interest-rate decisions within the week, and most appear likely to hold rates at relatively high levels. Maintaining elevated rates was a constant theme at the Fed's recent retreat in Jackson Hole, Wyoming.
Yellen "Feeling Very Good" About Odds for Soft Landing
Treasury Secretary Janet Yellen has expressed confidence that the economy will experience a soft landing with inflation. "I am feeling very good about that prediction. I think you'd have to say we're on a path that looks exactly like that," Yellen said while returning from a Group of 20 summit in New Delhi. Yellen has also said China has "policy space" to address its economic troubles, which are having global ramifications.