Tag Archives: banking reform

Paradigm change? New FDIC approach focuses on GSIBs

In a joint press release with other regulators, the FDIC on April 2 indicated it plans to focus rules protecting against system failures on large institutions —

“Global systemically important bank holding companies, or GSIBs, are the largest and most complex banking organizations and are required to issue debt with certain features under the Board’s ‘total loss-absorbing capacity,’ or TLAC, rule. That debt would be used to recapitalize the holding company during bankruptcy or resolution if it were to fail.

“To discourage GSIBs and “advanced approaches” banking organizations—generally, firms that have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure from purchasing large amounts of TLAC debt, the proposal would require such banking organizations to hold additional capital against substantial holdings of TLAC debt. This would reduce interconnectedness between large banking organizations and, if a GSIB were to fail, reduce the impact on the financial system from that failure.”

It’s taken awhile, but federal regulators seem to be catching up with the work of economists and other scholars who realize the dangers of industry concentration — and the benefits of a healthy community banking sector. See, for example, last year’s important Federal Reserve study on the impact of bank size on system risk.

Spring break: Small banks near premium-relief threshold

   AFTER PAYING HIGHER deposit insurance assessment fees since the 2008-2009 big=bank bailout and Dodd-Frank legislation, community banks may soon be getting a break.

   The FDIC’s Deposit Insurance Fund ratio of reserves to insured deposits is nearing a threshold that wouldtrigger a reprieve from paying assessment fees for institutions with less than $10 billion of assets.

It’s unclear how many banks will find the result financially material enough to improve earnings. For most banks, the premiums constitute less than 5 percent of revenues. But for others, they exceed that level.

Moreover, each bank gets a chance to decide how it will use the extra funds — so even if the reduction doesn’t go immediately to the bottom line, it may be used for capital expenditures such as improved technological services.

Rebalancing the Financial Regulatory Landscape (we hope)

   WHILE LOBBYISTS and lawyers and legislators alike scramble to figure out the intricacies of the new “Economic Growth Regulatory Relief and Consumer Protection Act” — a.k.a. the Crapo Act, *whew* …

   … the keen barristers and analysts at DavisPolk have put together an exhaustive study of the new law’s hopeful impact: “Bipartisan Banking Act Will Rebalance the Financial Regulatory Landscape.”

   We’re a little more reticent. It’s true: federal regulators acted in July to indicate that some of the act’s changes would take immediate effect. But the wheels of government turn slowly, if at all, and there are “miles to go… before we sleep.”

Meantime, we’re headed off to the shore — with hope in our hearts, and a printout of the DavisPolk analysis in our beach bag.

Fed: one step forward, two steps… well, yet to come

Late Friday (July 6), the Federal Reserve issued a joint statment on implementation of “the Crapo Act,” or, as its principal authors christened it, the “Economic Growth, Regulatory Relief, and Consumer Protection Act.”

The statement itself was written in regulationese — though perhaps this befits any comment on a piece of legislation that infelicitously acronyms out to “EGRRCPA.” The Fed was joined in the statement by the Federal Deposit Insurance Corporation and the Comptroller of the Currency. The regulators outlined which provisions of the Crapo At will take immediate effect, and which will require further regulatory action.

After reassuring the public (read: themselves) that their agencies “will continue” to enjoy vast discretion in oversight of the financial system, the

Good news: modification of the Volcker Rule will take effect immediately, freeing most institutions with total assets of less than $10 billion from the constraints of the Volcker Rule. The regulators way of expressing this was to say that their institutions “will not enforce the final rule implementing section 13 of the BHC Act in a manner inconsistent with the amendments made by EGRRCPA to section 13 of the BHC Act.”

Less good news: two of the more significant areas of regulatory relief for community banks — the respective increases in thresholds for the small bank holding company policy statement, and the off-ramp regarding mortgages and mortgage-backed securities — will await regulation re-writes.

That said, the statement doesn’t constitute a proverbial “two steps back.” Just, “two steps yet to come.”

Trump signs Crapo Act.
Fed: you’re up next.

On May 24, President Donald Trump signed the Crapo Bill — longer disignation, S-2155, Economic Growth, Regulatory Relief, and Consumer Protection Act — into law…

Bringing at least some relief to the beleaguered small and community bank sector.

We’ll know a bit more when the FDIC releases its quarterly banking profile in June.

But it will take well beyond that for the Federal Reserve, FDIC, and other regulatory institutions to implement many of the new law’s provisions — and longer still for their impact to be felt in the real world.

Here are three sign-posts to watch for:

1. One of the stated purposes of Crapo is to reduce the economic burden of compliance on community banks — which because of their size, must spend disproportionate resources on meeting its fixed costs. Will Crapo’s changes reach the bottom line as we head into 2019 and 2020?

2. Will community banks continue to go out of business, and banking industry concentration continue apace — or will these trends, finally, be reversed?

3. It has been nearly a decade since a new community bank was started. Will we see some new market entrants in 2019? 2020?

Make *real* banking reform work for communities

Freedman's Bank Texas bank US bank reforms Charles Cooper

Texas bank regulator Charles Cooper discusses the plight of community banks and small-business lending in a cogent article for the Express-News, reprinted by permission.

AS A STATE REGUATOR, [I’ve found] nothing is more evident than how community banks impact Main Street America — in Texas and across the country. They are deeply invested in the community where their customers live and work, helping local businesses and residents, and generating economic growth from the bottom up.

Collectively these banks are responsible for almost half of all small business lending and three-quarters of all agricultural lending in the United States. At a time when the big banks offer cookie-cutter solutions and some are pulling back on their local presence, it is good to know that our citizens can rely on the local community bank that better understands their needs.

But in recent years, community banks have been hampered by regulations defined at the federal level. After the U.S. financial crisis nearly a decade ago, federal policymakers focused on how regulation could head off future crises. And so, a large number of new regulations and procedures were adopted.

Texas banking regulation Charles Cooper US bank reform Dodd-FrankThere was just one problem: Many new rules addressing too-big-to-fail institutions also applied to community banks that posed no systemic risk to taxpayers.

Due to this increased complexity, compliance costs have increased for community banks. A recent study by the St. Louis Federal Reserve Bank estimates community banks spend about $4.6 billion every year in regulatory compliance. These higher costs have been a contributing factor to a decline in the number of banks, in turn limiting access to credit and banking services for consumers.

IN TEXEAS, WE HAVE gone from 644 banks in 2009 to 464 today.

Fortunately, there is an opportunity to solve this problem. In the U.S. House of Representatives, the Financial Services Committee chairman is Texas’ own Jeb Hensarling, who has jump-started congressional efforts to right-size regulation for a post-crisis environment.

As Texans, we should be proud one of our own is playing such a critical role at the federal level.

In addition, similar reform efforts are underway in the Senate. Combined, these developments offer hope that regulatory reforms just might make their way into law.

Perhaps the best place to start is where there is bipartisan support. In my recent visit to Washington, D.C., I met with members of the Texas delegation and others in Congress. The one unifying topic — regulatory right-sizing for community banks.

WHAT COULD REFORM look like?

The Conference of State Bank Supervisors, whose members regulate 78 percent of all U.S. banks, supports creating a common definition for a community bank, and then exempting all those that qualify from federal rules aimed at bigger and more complex banks.

Such a definition — based on a combination of factors such as assets, local ownership and lending in the community — would enable legislators and regulators alike to create a regulatory regime tailored for community banks.

This idea of a community bank definition, and the accompanying right-sized regulation, is not a novel one.

US bank failures by state FDIC mapThe Federal Deposit Insurance Corp. uses a common definition to perform its community bank research.

Governors at the Federal Reserve Board support applying different rules for big and small banks.

In an executive order, President Donald Trump recently directed his administration to make sure that regulation is “effective, efficient and appropriately tailored” for financial institutions.

When folks head in the same direction, you tend to get results. With the political winds in Washington favoring community banks, I am optimistic we can achieve common-sense regulation that permits community banks to do what they do best — serve their communities.

Charles G. Cooper is commissioner of the Texas Department of Banking and chairman of the Conference of State Bank Supervisors.