Continuing a nearly 150-year-old debate about the effectiveness of the state-based regulation of insurance, the Financial Services Subcommittee on Housing and Insurance met June 13, 2013, to discuss international insurance standard-setting activity. According to a Financial Services Committee memorandum, there are various international regulatory standards being proposed by the Group of Twenty Finance Ministers and Central Bank Governors (G-20), Financial Stability Board, International Association of Insurance Supervisors, and other international supervisory authorities, which could impact the U.S. insurance industry.
The House of Representatives has passed the Business Risk Mitigation and Price Stabilization Act (H.R. 634) by an overwhelming bipartisan vote of 411-12. The legislation would codify an exemption for non-financial end users that use derivatives in their commercial businesses from the margin requirements of the Dodd-Frank Act.
H.R. 634 would ensure that end users can continue to use derivatives to hedge business risk, such as the cost of fuel. There is a broad consensus that Congress never intended for nonfinancial end users to be required to post margin under the Dodd-Frank Act. Legislative history indicates that the act intended to exempt end users from margin requirements. However, there is regulatory uncertainty around the issue because, while the Securities and Exchange Commission and the Commodity Futures Trading Commission would exempt end users from margin, the Federal Reserve Board has issued regulations that would capture many end users.
The Federal Reserve Board has revised its Reg. Z examination procedures to reflect amendments issued by the Consumer Financial Protection Bureau. According to the Fed, the procedures reflect amendments implementing revisions to the Truth in Lending Act under the Dodd-Frank Act that:
restrict mandatory arbitration agreements in mortgage loans; and
revise existing escrow requirements on first-lien, higher-priced mortgage loans.
Financial institutions have been reminded that swaps clearing requirements, imposed by the Dodd-Frank Act, become effective June 10, 2013. The Commodity Futures Trading Commission finalized a rule in December 2012 that applies to most national banks, federal savings associations, state banks, holding companies, and branches and agencies of foreign banks. In most cases, interest rate swaps and credit default swaps will need to be cleared by a derivatives clearing organization or a futures commission merchant, according to the federal regulatory agencies. Exceptions exist for smaller banks with total assets of $10 billion or less and certain interaffiliate swaps.
"A framework requiring higher quality and quantity of capital should be established post-haste," stated Fed Governor Sarah Bloom Raskin in remarks before the Ohio Bankers Day in Columbus, Ohio. Final rules implementing the new capital framework required by Basel III need to be adopted soon, according to Raskin, but the rules need to be simple enough not to burden community banks. Noting the importance that community banks play in the financial system, she emphasized that the final rules adopted by the regulators must not put community banks at a disadvantage when compared to their larger competitors.
The Treasury Department has announced that it intends to sell 30 million additional shares of General Motors Company common stock in an underwritten public offering in conjunction with GM's inclusion in the S&P 500 index effective as of the close of trading on June 6, 2013, as previously announced by Standard & Poor's. The UAW Retiree Medical Benefits Trust will also participate in the proposed offering by selling 20 million shares, making the total offering size 50 million shares.
The flow of consumer data throughout the debt collection process is being examined by the Federal Trade Commission and Consumer Financial Protection Bureau at a June 6, 2013, roundtable. In advance of the event, Senate Banking Subcommittee on Financial Institutions and Consumer Protection Chairman Sherrod Brown (D-Ohio) wrote to Consumer Financial Protection Bureau Director Richard Cordray urging the bureau to examine practices of both creditors and third-party debt collectors in the industry and suggesting a number of rules he says would reform the debt collection industry. According to Brown, "It's hard enough when families aren't able to make enough to pay their bills, but it's tragic that families who are struggling to make ends meet are being hounded to make payments on debts that they have already paid off or that they never owed in the first place."
The criteria for determining if a company is predominantly engaged in "activities that are financial in nature or incidental thereto" for purposes of Title II of the Dodd-Frank Act has been finalized by the Federal Deposit Insurance Corp. Title II establishes a process for the appointment of the FDIC as receiver of a failing financial company if the company's failure would otherwise have serious adverse effects on U.S. financial stability. The FDIC's rule aligns with the Federal Reserve Board's April 5, 2013, final rule defining the term "predominantly engaged in financial activities" for purposes of Title I. The Fed rule establishes criteria the Financial Stability Oversight Council will use in deciding which nonbank companies will be designated for consolidated supervision by the Fed.
In order to provide the banking industry with advance notice of the bureau's exam expectations, the Consumer Financial Protection Bureau has updated its mortgage lending examination procedures to incorporate rules that go into effect in January 2014. The regulations, many of which were mandated by the Dodd-Frank Act, include rules on appraisals, escrow accounts, and compensation and qualifications for loan originators.
The Financial Stability Oversight Council proposed designating certain non-bank financial companies as significantly important financial institutions (SIFIs) in a closed June 3, 2013, meeting. The FSOC is authorized under the Dodd-Frank Act to determine that a nonbank financial company's material financial distress could pose a threat to U.S. financial stability. Companies designated as SIFIs will be subject to consolidated supervision by the Federal Reserve Board and enhanced prudential standards. Although the results of the FSOC's designation have not been made public, expectations are that three companies will be designated as SIFIs--American International Group, Inc., Prudential Financial Inc., and GE Capital.
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