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!
OCC’s Hsu: Recent Approvals of Crypto Charters ‘On the Table’ for Review
As the Office of the Comptroller of the Currency reviews recent interpretive letters on digital assets and trust charters, “everything’s on the table,” current Acting Comptroller Michael Hsu told reporters during a press briefing on Wednesday – including reviewing provisional approvals already granted under prior acting agency leadership.
“Charters that were in the pipeline as well as those that were conditionally approved” are “in the scope of the review,” Hsu said. For example, cryptocurrency firms Anchorage, Paxos and Protego have received conditional approvals for national trust charters to custody digital assets.
Hsu expanded on his recent congressional testimony, arguing that regulatory agencies need to work together on “an overall strategy and overall view about where the regulatory perimeter should be set” for innovative financial business models, ensuring that “all of these individual decisions fit and are in broader alignment with those strategies.” As a member of the Federal Deposit Insurance Corp. board and of the Financial Stability Oversight Council, Hsu said “I want to use all the seats I have” to pursue that strategy.
FSB Issues Roadmap, Additional Resources for Libor Transition
As banks prepare for the cessation of Libor – certain tenors of which are set to begin phasing out at the end of 2021 – the Financial Stability Board on Wednesday published an updated global transition roadmap identifying steps firms should take to ensure an orderly transition prior to the end of the year.
While the roadmap does not constitute regulatory advice, it recommends that by mid-2021, firms should have determined which of their legacy contracts can be amended ahead of year-end and established formalized plans to do so where counterparties agree. Where Libor-linked exposures extend beyond year-end, firms should make contact with other parties to discuss how existing contracts may be affected, according to the FSB.
Firms should also have systems and processes in place to support the transition, and aim to use robust alternative reference rates – such as the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred Libor alternative – in new contracts wherever possible. By year-end, FSB recommended that all new business contracts be conducted in alternative rates, “or be capable of switching at limited notice” as additional Libor tenors stop being published.
In addition to the roadmap, FSB also published a paper reviewing overnight risk-free rates and term rates, a statement on the use of the International Swaps and Derivatives Association spread adjustments in cash products, and a statement encouraging authorities to set globally consistent expectations regarding the cessation of Libor.
Fed Issues Final Rule Amending Regulation D
The Federal Reserve on Wednesday issued a final rule amending Regulation D, which addresses reserve requirements of depository institutions. The rule eliminates references to an “interest on required reserves” rate and to an “interest on excess reserves rate,” replacing them with a reference to a single “interest on reserve balances” rate.
In the final rule, the Fed also simplified the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks. The final rule takes effect July 29.
Fed Proposes Changes to Reg J to Accommodate FedNow
The Federal Reserve on Tuesday proposed to create a new subpart of Regulation J that would provide a “comprehensive set of rules” to govern funds transfers made through FedNow, the real-time payments network the Fed is developing.
The new subpart, Subpart C, would specify terms and conditions under which reserve banks will process funds transfers, and grants the reserve banks authority to issue an operating circular for the FedNow service. Also included in Subpart C would be a requirement for a FedNow participant that is the beneficiary’s bank to make funds available to the beneficiary immediately after it has accepted the payment order over the service.
The proposal also includes changes and clarifications to Subpart B of Reg J – which governs the Fedwire Funds Service – to reflect that the reserve banks will be operating a second funds transfer service in addition to Fedwire, along with technical changes to Subpart A, which governs check service. Comments on the proposal are due 60 days after publication in the Federal Register.
EEOC Updates Vaccination Guidance
The Equal Employment Opportunity Commission last Friday updated its technical assistance question-and-answer document to confirm that a bank or other employer may offer an incentive to employees to receive a COVID-19 vaccination. If the employer is administering the vaccine, the incentive may not be “so substantial as to be coercive.”
The EEOC also confirmed that, under the Americans with Disabilities Act, an employer may inquire about or request documentation or other confirmation that an employee obtained a COVID-19 vaccine. In addition, the EEOC stated that an immunocompromised employee who is fully vaccinated for COVID-19 may be eligible for a reasonable accommodation because of a continuing concern that he or she faces a heightened risk of severe illness from a COVID-19 infection, despite being vaccinated.
The EEOC also stated that if an employee chooses not to receive a COVID-19 vaccination due to pregnancy, the employer must ensure that the employee is not discriminated against compared to other employees similar in their ability (or inability) to work.
Treasury Releases Details on Tax Proposals to Fund Proposed Budget
The Department of the Treasury last Friday released its “Green Book,” which contains details on the tax changes that the Biden administration is proposing to help fund the budget for the coming fiscal year. High-level descriptions of most of the tax proposals have been included in the Biden administration’s previously released legislative agendas. The Green Book provides explanations of the proposals and suggested legislative and technical changes required should they be adopted.
The 114-page document includes increases in the corporate tax rate to 28% and an increase in the individual tax rate to 39.6%, effective starting after the 2021 tax year. It also includes a book earnings minimum tax, significant changes to international taxation rules, and elimination of the capital gains rate preference and step-up in basis at death (excluding $1 million in gains).
The Green Book provides a few details on President Biden’s proposed expansion in information reporting for financial institutions, which would apply to all business and personal accounts at financial institutions, including deposit accounts, loans and investment accounts. A $600 de minimis gross inflow threshold would apply to reporting, and Treasury would have broad authority to issue regulations for the proposed requirements, which if enacted would take effect starting after the 2022 tax year.
Fed Issues Proposal Aimed at Improving Intraday Liquidity Management
The Federal Reserve last Friday asked for comments on proposed changes to its payments system risk policy that would expand access to collateralized intraday credit from the Federal Reserve Banks. The proposal is aimed at improving intraday liquidity management and payment flows while assisting the reserve banks in managing intraday credit risk.
The proposed changes also seek to clarify the terms for accessing uncollateralized intraday credit and the circumstances under which an institution may remain eligible for uncollateralized capacity if its holding company or affiliate is assigned a low supervisory rating.
The changes will also align the Fed’s payments system risk and overnight overdraft policies with the deployment of FedNow, the real-time payments network the Fed is developing. Comments are due 60 days after publication in the Federal Register.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.