Dodd-Frank News Center

Hoenig Seeks Narrower Financial Safety Net

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest

FDIC Director Thomas Hoenig called for narrowing the financial safety net to where it is most needed and stopping the extension of its subsidy to an ever-greater number of firms and activities. Speaking Nov. 30, 2012, before the AICPA/SIFMA FSA National Conference in New York, N.Y., Hoenig said the safety net “continues to expand to cover activities and enterprises it was not intended to protect, resulting in subsidized risk taking by the largest financial firms and fueling their leverage.”

Narrowing the safety net, limiting its coverage and realigning incentives must be among the highest priorities following the financial crisis, Hoenig asserted. He added that governments “would be wise to limit commercial banking activities to primarily those for which the safety net's protection was intended: stabilizing the payments system and the intermediation process between short-term lenders and long-term borrowers.” Hoenig proposed, as an alternative to “the unmanageably complex Basel risk-weighted standards,” a system whereby banks hold a tangible-equity-to-tangible-asset ratio of 10 percent. He noted that such a change would offer global supervisors a “clear benchmark” to test against and enforce a minimum level. He also called for reestablishing a more rigorous examination program for the largest banks and bank holding companies in order to best understand the risk profile of both individual firms and financial markets.

CFPB Guides on Specialty Consumer Reporting Agency Requirements

By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide, Bank Digest; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis

Nationwide specialty consumer reporting agencies are covered by the obligation to provide consumers with one free report each year, and consumers should avail themselves of their right, according to a post by CFPB Senior Content Specialist Dan Rutherford. The Fair Credit Reporting Act defines a nationwide specialty consumer reporting agency as a consumer reporting agency that maintains files on consumers on a nationwide basis relating to medical records or payments, residential or tenant history, check writing history, employment history or insurance claims.

The CFPB says that the accuracy of these reports is critical to consumers because of the “range and frequency of decisions” that rely on the information. The bureau issued a bulletin warning that any nationwide specialty consumer reporting agency that does not currently have a process that satisfies FCRA requirements “should take immediate steps to comply.”

Basel III Burden on Community Banks, Insurers Focus of Hearing

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest

Lawmakers and state regulators expressed concern that new rules being drafted to implement Basel III capital requirements will place an undue burden on community banks and insurers and urged regulators to appropriately tailor the requirements to fit a variety of financial institutions. At a Nov. 29, 2012, joint House Financial Services subcommittee hearing (webcast), co-chairman Rep. Shelley Moore Capito, R-W.Va., noted that “there needs to be significant flexibility in the way these rules are finalized that properly takes into account the differences in their business models.”

Community Bank Concerns

Rep. David Scott, D-Ga., remarked, “there's a difference between your mega banks, your regional banks and your community banks. One size does not fit all.”

Financial Services Committee Chairman-elect Rep. Jeb Hensarling, R-Texas, noted “it's a very open question whether Basel III should even apply to our community-based financial institutions.”

Rep. Carolyn Maloney, D-N.Y., voiced unease that the new requirements “may force out of business a lot of community and regional banks...I'm very, very concerned.”

Tarullo Seeks More Standardized Regulatory Structure for Foreign Banks

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest

Fed Governor Daniel Tarullo has called for a more standardized regulatory structure on the U.S. operations of foreign banks to ensure that enhanced prudential standards, required by the Dodd-Frank Act, are applied consistently across foreign banks and in comparable ways between U.S. and foreign banking organizations. In a speech at the Yale School of Management Leaders Forum, Tarullo stressed that in modifying the regulatory regime for foreign banking organizations, “we must remain mindful of the benefits that foreign banks can bring to our economy and of the important policies of national treatment and comparable competitive opportunity.”

Intermediate Holding Company Structure

To achieve this goal, Tarullo called for a “middle course” to make targeted adjustments to address specific risks. Those adjustments would include requiring the largest U.S. operations of foreign banks to establish a top-tier U.S. intermediate holding company over all their U.S. bank and nonbank subsidiaries, which, according to Tarullo, would provide the Fed a uniform platform to implement a consistent supervisory program. Tarullo also called for requiring the same capital rules that apply to U.S. bank holding companies to apply to U.S. intermediate holding companies and pointed to the need for liquidity standards for large U.S. operations of foreign banks. Tarullo said standards are needed to increase the liquidity resiliency of these operations during times of stress and to reduce the threat of destabilizing runs. “In revamping our approach, we will both be guarding against a return to pre-crisis practices and, more generally, ensuring that foreign banking operations in the United States that pose potential risks to U.S. financial stability are regulated similarly to domestic banking operations posing similar risks,” Tarullo stated. He added that he expects the Fed to issue a notice of proposed rulemaking in the coming weeks that elaborates on the basic approach he outlined.

FSOC Issues FAQs on MMF Reform

This story appeared in Bank Digest.

Following its proposed recommendations to reform the money market mutual fund (MMF) industry, the FSOC has issued a set of frequently asked questions about MMFs. The FAQs address: what are MMFs; the need for reform; why the FSOC got involved; and future action following release of the recommendations.

Changes Coming to Remittance Rule; Effective Date Extended

This story appeared in Bank Digest.

In a blog entry, the CFPB has noted that it will be propose a narrow set of changes to the remittance rule (Feb. 2012 final rule) (Aug. 2012 final rule) to address practical challenges in implementing the rule. The proposed changes, which the CFPB expects to release in December 2012, will address what should happen if a consumer provides an incorrect account number for a transfer and how remittance providers must disclose certain third-party fees and foreign taxes. In addition, the bureau released a bulletin to further explain the proposed changes and an extension of the effective date for the remittance rule.

Banking Groups Reiterate Opposition to CFPB Generic Clearance Request

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest.

The American Bankers Association and the Consumer Bankers Association have reiterated concerns about the Consumer Financial Protection Bureau’s request to the Office of Management and Budget for a generic clearance for the collection of information on compliance costs and other effects of regulations.

In a recent letter to the CFPB and OMB, the associations noted the “inappropriateness” of the CFPB request as the information and data collected “will have significant substantive and policy implications.”

Regulators Issue Statement on Restricted Charter Conversions

By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide, Bank Digest; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The federal prudential regulatory agencies and the Conference of State Bank Supervisors have jointly issued a description of the process to be followed when a financial institution subject to ongoing regulatory enforcement activity wishes to convert to a different charter. The Dodd-Frank Act prohibits such conversions without the agreement of the regulatory agencies that are involved, and it requires that conditions be imposed to ensure that the conditions that gave rise to the enforcement activity are remedied.

Bernanke Warns of Fiscal Cliff Economic Impact

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest.

Federal Reserve Board Chairman Ben Bernanke urged Congress and the administration to protect the economy from the “full brunt” of a severe fiscal tightening at the beginning of next year—the so-called fiscal cliff—that would occur if a deal is not reached.

Speaking Nov. 20, 2012, at the New York Economic Club, Bernanke warned that a combination of automatic tax increases and spending cuts, absent offsetting changes, “would pose a substantial threat to the recovery.” Bernanke noted that “coming together to find fiscal solutions will not be easy, but the stakes are high.”

Senators Call for FHFA to Abandon G-Fees Hike

This story appeared in Bank Digest.

Sens. Robert Menendez, D-N.J., Frank R. Lautenberg, D-N.J., Charles Schumer, D-N.Y., Kirsten Gillibrand, D-N.Y., Richard Blumenthal, D-Conn., Joseph Lieberman, I-Conn., and Bill Nelson, D-Fla., called on Acting Federal Housing Finance Agency Director Ed DeMarco to abandon a proposal to increase the guarantee fees or “g-fees” on loans guaranteed by Fannie Mae and Freddie Mac in five states, warning it is unfair to states with strong consumer protection laws and will increase the cost of homeownership. In a letter to DeMarco, the senators argued that the agency’s proposal would unfairly penalize homeowners in the five states that better protect consumers from lending and foreclosure abuses: “The main reason cited by FHFA for its proposed rule, is that state and local policies designed to protect homeowners from improper lending and foreclosure practices and that reduce the likelihood of future defaults, have increased the financial costs faced by the GSEs.  However, in its effort to recoup the foreclosure-related costs faced by the GSEs in the short-term, FHFA is creating undue barriers that could undermine vital consumer protections and restrain residential lending.”