FEDERAL GOVERNMENT RELATIONS
Deadlines Approaching for IBA Annual Washington Trip
The registration deadline is fast approaching for the IBA Annual Washington Trip, scheduled for July 18-20. The deadline to register is Friday, June 25. Registrations received after June 25 will still be accepted, but attendees may not receive guaranteed access to briefings held on site. In addition, the deadline to secure hotel reservations at The Willard InterContinental with the IBA special room rate is Saturday, June 26 at 5:00pm. For questions on how to register, contact Lizzie Ketzenberger at lketzenberger@indiana.bank or call 317-387-9380. We look forward to seeing you in Washington!
Biden Signs Juneteenth Into Law, Federal Reserve Open June 18
Yesterday President Biden signed S. 475 into law, making June 19 a federal holiday to celebrate Juneteenth. The law was passed unanimously by the Senate earlier this week, and passed the House on Wednesday by a vote of 415-14. The newest nationally recognized holiday, Juneteenth, commemorates the date June 19th, 1865, when the last enslaved individuals located in Texas discovered they were free. Juneteenth officially memorializes the day that slavery truly ended in the United States.
This Saturday will be the first observance of Juneteenth as a federal holiday. The Office of Personnel Management announced yesterday that “most” federal employees will take off Friday, June 18, to observe the holiday. However, the holiday will not affect the Federal Reserve, which will be open for business June 18 and closed as normal on Saturday.
CFPB to Restart Military Lending Act Supervision
In a reversal of existing policy, the Consumer Financial Protection Bureau on Wednesday issued an interpretive rule stating that it has statutory authority to conduct Military Lending Act supervision activities, and signaled that it will resume MLA examinations. The interpretive rule takes effect upon publication in the Federal Register.
The CFPB had previously discontinued MLA-related examination activities on the grounds that Congress had not expressly granted the authority to conduct such examinations.
Fed: Economic Risks Remain Even as Vaccinations Reduce Effects of Pandemic
Risks to the economic outlook remain even as progress on vaccinations will likely continue to reduce the effects of the coronavirus pandemic, the Federal Open Market Committee indicated on Wednesday, adding that the path of the economy will significantly depend on the course of the virus.
The committee said that inflation has risen “largely reflecting transitory factors,” and that it will keep the target range for the federal funds rate at zero to 0.25% until inflation has risen to 2% and is on track to moderately exceed that for some time.
In a press conference after the release of the FOMC statement, Fed Chairman Jerome Powell said that supply bottlenecks from a rebound in spending as the economy continues to reopen have been larger than expected. “Supply bottlenecks have limited how quickly production in some sectors can respond in the near term. These bottleneck effects have been larger than anticipated,” he said. “As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal.”
FHFA Calls on Congress for Authority to Examine Third-Party Service Providers
In the Federal Housing Finance Agency’s annual report to Congress, the agency requested the authority to examine third-party service providers to identify practices that could pose safety and soundness risks to Fannie Mae and Freddie Mac.
“The Enterprises’ exposure to non-bank seller/servicers has grown significantly since 2008,” said FHFA Director Mark Calabria. “Non-banks, which operate outside the federal prudential regulatory system, are expected to service most of the Enterprises’ portfolios in 2021. A limited and tailored grant of examination authority should position FHFA to achieve its statutory mandate to ensure the safe and sound operations of the regulated entities as housing finance continues to evolve.”
Calabria also urged lawmakers to grant FHFA chartering authority, which would enable it to charter competitors to Fannie and Freddie, and to amend or remove statutory capital definitions to enable FHFA to simplify its capital rule.
The report also included a comprehensive overview of the steps FHFA has taken to respond to the coronavirus pandemic, the work it has done regarding climate and natural disaster risk, and how it is preparing Fannie Mae and Freddie Mac to exit conservatorship.
FDIC Votes Not to Raise Assessments
The Federal Deposit Insurance Corp. board on Tuesday voted not to raise deposit insurance assessments on banks in order to recapitalize its insurance fund. Instead, the FDIC will continue monitoring the situation, as FDIC staff expect the pandemic-related surge in deposits during 2020 that caused the Deposit Insurance Fund reserve ratio to fall below its statutory minimum of 1.35%, even as the DIF reached a record level of $119 billion.
The FDIC is required under law to implement a plan to recapitalize the DIF within eight years when it falls below its minimum, which normally involves raising the assessments schedules. While the ratio declined from 1.38% in March 2020 to 1.3% last June, “the growth in insured deposits associated with the pandemic may recede as depositor behavior returns to normal and individuals and businesses redirect deposits toward consumption and higher-yielding investments,” the FDIC staff memo indicated.
The board decision recognized that the banking sector remains strong, FDIC Chairman Jelena McWilliams noted, “with robust levels of capital and liquidity, after serving as a source of strength throughout the pandemic last year.”
FDIC Proposes to Align Real Estate Lending Standards With CBLR
The Federal Deposit Insurance Corp. on Tuesday proposed changes to its guidelines for real estate lending policies in order to align standards with the community bank leverage ratio, which does not require electing institutions to calculate tier 2 capital or total capital.
According to the FDIC, the proposed rule would allow “a consistent approach for calculating the ratio of loans in excess of the supervisory loan-to-value limits at all FDIC-supervised institutions, using a methodology that approximates the historical methodology the FDIC has followed for calculating this measurement without requiring institutions to calculate tier 2 capital.” The agency said the new rule also would avoid any regulatory burden that could arise if an FDIC-supervised bank decides to switch between different capital frameworks.
In addition, the proposal would ensure that the FDIC’s regulation regarding supervisory LTV limits is consistent with how examiners calculate credit concentrations, as directed by a statement issued last year that examiners will use tier 1 capital plus the appropriate allowance for credit losses as the denominator when calculating credit concentrations. Comments are due 30 days after the comment is published in the Federal Register.
Agencies Update Regulatory Agendas
Federal agencies last Friday announced updates to their rulemaking agendas. Items on the agendas and their associated timelines were submitted to the White House’s Office of Management and Budget in late April. The Consumer Financial Protection Bureau's agenda does not necessarily reflect the priorities of Rohit Chopra, whose nomination to serve as CFPB director is pending in the Senate.
The CFPB’s agenda stated that the agency is “prioritizing” issuance of a final rule, projected for July, to amend mortgage servicing early intervention and loss mitigation-related provisions in Regulation X “to provide relief for consumers facing hardship due to COVID-19 and the related economic crisis.” The bureau indicated it also intends to issue a proposed rule in September to implement Section 1071 of the Dodd-Frank Act (regarding small business lending data collection) and to finalize a rule in January 2022 to facilitate compliance by creditors with Regulation Z as they transition away from Libor. In addition, the bureau will this month to finalize an extension – until Jan. 29, 2022 – of the effective date of its debt collection rules on third-party debt and disclosures.
The Securities and Exchange Commission projected that it will issue a proposed rule in October to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities. The Federal Reserve and the Financial Crimes Enforcement Network said they will issue a final rule in September that would apply information collection requirements to domestic and cross-border transactions involving cryptocurrencies. FinCEN also anticipates issuing a final rule in November to impose Bank Secrecy Act recordkeeping and identity verification requirements to transactions involving convertible virtual currency or digital assets with legal tender status.
The Federal Reserve included its work on Community Reinvestment Act modernization in its list of long-term actions and did provide a date for additional action.
FDIC Announces Tech Sprint to Reach Unbanked
The Federal Deposit Insurance Corp. has announced a “tech sprint” designed to explore new technologies to help banks meet the needs of unbanked individuals and households.
Sprint: The tech sprint from the agency’s tech lab, FDITECH, will challenge participants to identify better resources and tools to help reach unbanked households.
Participants: Banks, nonprofits, academic institutions and others are invited to participate, with registration opening in a few weeks.
FDIC Proposes Amending Real Estate Lending Standards
The Federal Deposit Insurance Corp. has proposed a rule to amend the Interagency Guidelines for Real Estate Lending Policies. The proposal would conform the method for calculating the ratio of loans exceeding supervisory loan-to-value limits with the capital framework established in the Community Bank Leverage Ratio. Comments are due in 30 days.
ARRC Welcomes Regulator Emphasis on LIBOR Transition
The Alternative Reference Rates Committee spotlighted comments from top banking officials last week on the need for financial institutions to transition from LIBOR to an alternate reference rate.
SOFR: The ARRC noted that officials such as Treasury Secretary Janet Yellen, Acting Comptroller of the Currency Michael Hsu and Fed Vice Chairman Randal Quarles cited the Secured Overnight Financing Rate as a “robust” replacement rate.
Transition: The ARRC is implementing the LIBOR transition and encouraging the use of SOFR. It also encourages market participants to continue the transition using currently available tools.
Pending Deadline: The U.K. Financial Conduct Authority has indicated it will cease publishing LIBOR for the one-week and two-month settings immediately after Dec. 31, 2021. U.S. regulators last fall encouraged banks to cease entering new USD LIBOR contracts by that date.