STATE GOVERNMENT RELATIONS
Organization Day Leaves Historic Mark
Tuesday was Organization Day for the Indiana General Assembly. This ceremonial first day – usually a procedural day set aside to prepare for the nearing legislative session – took on historic context this year when Speaker of the House Brian Bosma announced that he will retire after the 2020 legislative session.
His upcoming retirement opens up the speakership for 2021, which the Republican caucus plans to fill through a vote to name the speaker-elect within the next two weeks. Whoever is chosen as the speaker-elect will begin service as speaker of the House in the 2021 legislative session.
The 2020 session will be Bosma’s 34th legislative session. He is the state’s longest-serving House speaker, having led the Chamber since the 2011 session following prior service as 2004-06 speaker.
IBA Legislative Briefing and Reception
Save the date for the 2020 IBA Legislative Briefing and Reception, scheduled for Jan. 15 at the Hyatt Regency Indianapolis. As the first IBA grassroots advocacy event of the new year, this is a prime opportunity to get your bank involved in 2020. The briefing, conducted by the IBA Government Relations Team, will include an in-depth discussion of current legislative issues. The following reception will allow for valuable networking time to connect with your banking peers and Indiana legislators.
FEDERAL GOVERNMENT RELATIONS
FDIC Votes to Codify 'Valid-When-Made' Principle
Following action by the Office of the Comptroller of the Currency this week, the Federal Deposit Insurance Corp. proposed a rule stipulating that interest rates valid when the loan is made by a bank remain valid when the loan is transferred or sold. This action by the agencies is intended to ensure that "valid when made" is codified for both national and state-chartered banks. Under the proposal, federal regulations would provide that interest on permissible loans would "not be affected by subsequent events, such as a change in state law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan." Comments on the proposal are due 60 days after it is published in the Federal Register.
The so-called "Madden fix" addresses a Second Circuit Court of Appeals ruling in Madden v. Midland Funding, which held that a nonbank buyer of a loan issued by a national bank could not export the originated interest rate because it violated state law where the borrower lived. The Supreme Court declined to take up an appeal of Madden, resulting in conflicting precedent around the country and increasing the urgency of regulatory or legislative action.
Powell Shortens Time Frame on FedNow Launch
Federal Reserve Chairman Jerome Powell last week told Congress that the Fed doesn't think implementing its FedNow real-time payments service will take the full five years it originally projected.
Powell told the House Budget Committee that the agency thinks the FedNow launch will take three or four years. "Getting it right the first time is key," Powell said. "So we want to have it up and running within three to four years."
House Passes Seven-Year Extension for Terrorism Risk Insurance Program
The House voted 385 to 22 on Monday to reauthorize the Terrorism Risk Insurance Act program. The bill – which was previously approved unanimously by the House Financial Services Committee – would extend the program for an additional seven years. The Senate Committee on Banking, Housing, and Urban Affairs is expected to consider its own TRIA reauthorization bill soon.
FDIC Finalizes Counterparty Credit Risk Proposal for Derivatives
The FDIC, OCC and the Federal Reserve have finalized a new approach for calculating the exposure of derivative contracts under the regulatory capital rule. The standardized approach for counterparty credit risk, or SA-CCR, would serve as an alternative to the current exposure methodology for calculating advanced approaches total risk-weighted assets under the capital rule.
Banks subject to the advanced approaches will be required to use SA-CCR to calculate their standardized total risk-weighted assets; banks not subject to the advanced approaches could elect to use either of the two methodologies. The final rule will also incorporate SA-CCR into capital requirements for cleared transactions and in the supplementary leverage ratio. It will be effective April 1, 2020, with a mandatory compliance date of Jan. 1, 2022, for advanced approaches organizations.
The final rule included several changes from the initial proposals to address concerns raised by industry stakeholders. Specifically, the final rule makes adjustments to the exposure amount calculation for derivative contracts with commercial end-user counterparties and the netting treatment for settled-to-market derivative contracts. It also allows for greater recognition of collateral in the calculation of total leverage exposure relating to client-cleared derivative contracts.
Agencies Finalize Proposed Rule Regarding Treatment of HVCRE
The FDIC, Federal Reserve and the OCC on Wednesday finalized a rule implementing a provision of the S. 2155 regulatory reform law regarding the treatment of high-volatility commercial real estate. The law limits the exposures subject to a 150% risk weight to only those high-volatility commercial real estate loans that fall under the statutory “HVCRE ADC” definition. The final rule will be effective April 1, 2020.
The final rule defines an HVCRE ADC loan as one that is primarily financing or refinancing the acquisition, development or construction of a real property; is secured by land or improved real property; has the purpose of providing financing to acquire, develop or improve the real property such that the property would become income producing; and is dependent upon future income or sales proceeds from, or refinancing of, the real property for repayment of the loan.
Under the final rule, loans secured by land or improved real property may be excluded from the higher risk weight if they meet one or more criteria. These include loans made to finance one-to-four family residential properties; real property projects for which the primary purpose is community development; agricultural land; existing income-producing real property secured by a mortgage on such property, provided certain conditions are met; and certain commercial real property projects. In turn, the agencies are not automatically including "other land loans" as HVCRE exposures.