FEDERAL GOVERNMENT RELATIONS
IBA Washington Trip - July 18-20
Register now for the IBA Annual Washington Trip, scheduled for July 18-20. Join with fellow Hoosiers as we travel to our nation’s capital to tell the story of Indiana banking to elected officials and regulators. This is an opportunity to discuss the impact legislation has had or may have on your bank, and how currently proposed policies could influence your customers and communities. It is more important now than ever to engage in grassroots advocacy as you share your concerns, your successes and what you believe will allow you to better serve your communities. We look forward to seeing you in Washington!
Fed Issues FedNow Message Specifications
The Federal Reserve recently released the FedNow Service ISO 20022 specifications that will define the service’s message flows and formats when operational in 2023. The specifications and the Fed’s “How To: Gaining Access to MyStandards” guide allow financial institutions to begin preparing systems and developing solutions to support FedNow instant payments.
USDA to Begin Paying off Direct Loans to Minority Farmers
The U.S. Department of Agriculture has announced the initial phase of plans to pay off USDA direct loans to socially disadvantaged (SDA) farmers and ranchers. It will subsequently announce its process for paying off guaranteed loans.
Background: Section 1005 of the recently passed American Rescue Plan Act relief legislation requires the USDA to pay off 120% of all direct and guaranteed loans existing as of Jan. 1, 2021.
OCC Issues Final Rule on Collective Investment Funds
The Office of the Comptroller of the Currency has finalized a rule on prior notice periods for withdrawals from collective investment funds that are invested in real estate or assets not readily marketable. The final rule – which codifies an interim final rule issued by the OCC last year – allows banks to apply to the OCC to extend the one-year redemption period by another year due to unanticipated and severe market conditions for specific assets held by the fund, subject to meeting certain conditions.
The final rule is substantively similar to the IFR; however, the OCC made a minor revision to one of the conditions necessary for the extension. The rule takes effect upon publication in the Federal Register.
President Biden Signs Sweeping Executive Order on Climate-Related Financial Risk
President Biden last week signed an executive order on climate-related financial risk that, among other provisions, directs financial regulators to take several steps to ensure the appropriate measurement and mitigation of these risks. The order directs the Treasury secretary to work with the members of the Financial Stability Oversight Council to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk, including both physical and transition risks, to the financial stability of the federal government and the stability of the U.S. financial system,” as well as facilitating the sharing of climate-related risk information between FSOC member agencies and other areas of the federal government as needed.
In addition, the Department of the Treasury must issue a report within 180 days on current efforts by the financial regulatory agencies to incorporate climate-related financial risk into their policies and programs. That report should include recommendations on how “identified climate-related financial risks can be mitigated, including through new or revised regulatory standards as appropriate,” according to the order. This action by the Biden administration comes after officials from the Federal Reserve, OCC, FDIC and SEC in recent weeks have all indicated that they are focusing efforts on climate-related financial risks.
The executive order also directs the secretary of labor to take certain actions to address climate-related financial risks that could affect retirement savings and pension funds. Among other directives, the Labor Department should “consider publishing, by September 2021” proposals to “suspend, revise or rescind” the Trump administration’s finalized rules on ESG (environmental, social and governance) investing and proxy voting. DOL already has suspended enforcement of these rules and is in the process of reexamining them for revision.
Brainard: Fed Sharpening Focus on Central Bank Digital Currency Research
In remarks at a virtual industry event on Monday, Federal Reserve Governor Lael Brainard said the Federal Reserve is sharpening its focus on central bank digital currencies, and that it is working on several areas of research about the technology. She also discussed a number of potential benefits a CBDC could offer, including improved efficiencies, increased competition and diversity and lower transaction costs, reduced cross-border frictions, and an increase in financial inclusion.
In any assessment of a CBDC, Brainard noted that it is important to be clear about what benefits a CBDC would offer over and above current and emerging payments options, what costs and risks a CBDC might entail, and how it might affect broader policy objectives.
In a partnership with the Massachusetts Institute of Technology, the Fed is working on building and testing a hypothetical digital currency platform to research the feasibility of the core processing of a CBDC, Brainard said. Future work with MIT will explore how addressing additional requirements, including resiliency, privacy and anti-money laundering features, will affect core processing performance and design.
Brainard said the Fed’s TechLab group is working on research and experimentation about potential future states of money, payments and digital currencies. A second group at the Fed, the digital innovations policy program, is considering a broad range of policy issues associated with the rise of digital payments, including the potential benefits and risks associated with CBDC.
To explore the broader issues around CBDC, the Federal Reserve is also undertaking research on financial inclusion. The Federal Reserve Bank of Atlanta is launching a special committee on payments inclusion to ensure that cash-based and vulnerable populations can safely access and benefit from digital payments, while the Federal Reserve Bank of Cleveland is launching an initiative to explore the prospects for CBDC to increase financial inclusion.
Quarles: Financial Stability Risks Currently Moderate
Federal Reserve Vice Chairman Randal Quarles told the Senate Banking Committee on Tuesday that he sees the overall risks to financial stability as “moderate,” but that there are some risks around nonbank financial institutions. Quarles told the committee that COVID-19 highlighted some risks in the potential exposure of nonbanks in the financial sector, and that these exposures could be a source of instability. He added, however, that he does not think the risk is large at this time.
“One area where I’m particularly focused, both domestically and also in my international work as chair of the [Financial Stability Board], is on the regulatory framework for nonbank finance,” said Quarles. “I think we saw that there could be some improvements in that regulatory framework that would make the system more resilient for the next time it faces a shock like March of 2020.”
During the hearing, Quarles also addressed the Fed’s work on climate change, saying it is in the early stages of developing a framework for climate financial risk but added that “our job is ensuring the resilience of the financial system, not advancing a particular view of climate policy. That's for Congress, perhaps other agencies – it’s not the job of the Fed or other financial regulators.”
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.