Dodd-Frank News Center

Agencies find weaknesses but not deficiencies in resolution plans of foreign-based banks

This story appeared in Bank Digest.                                   

The Federal Deposit Insurance Corporation and Federal Reserve Board have announced that the resolution plans of four foreign-based banks had weaknesses but not "deficiencies," which are weaknesses severe enough to result in additional prudential requirements if not corrected. Resolution plans, commonly known as living wills, are required by the Dodd-Frank Act and must describe each company's strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company.

The agencies determined that the plans of the four firms--Barclays, Credit Suisse, Deutsche Bank, and UBS--have "shortcomings," which are less severe weaknesses that require additional work in their next plan. The agencies sent feedback letters to each firm detailing the shortcomings and specific actions that can be taken to address them.

The agencies have also announced that they have finalized resolution plan guidance applying to the eight largest and most complex domestic banking organizations.

CFPB seeks renewal of Gramm-Leach-Bliley Act information collection

This story appeared in Bank Digest.                                   

The Consumer Financial Protection Bureau is proposing to renew, without change, the Office of Management and Budget approval for an existing information collection entitled "Gramm-Leach-Bliley Act (Regulation P) 12 CFR 1016." According to the Bureau's notice, Reg. P was promulgated to implement the Gramm-Leach-Bliley Act's notice requirements and restrictions on a financial institution's ability to disclose nonpublic personal information about consumers to nonaffiliated third parties.

On Oct. 1, 2018, the CFPB issued a 60-day notice at 83 Federal Register 49370 requesting comments on the proposed renewal. Written comments on the current notice must be received by Jan. 22, 2019, and will be reviewed by the OMB as part of its review of this request.

OIG says CFPB's purchase card program controls appear to be effective

This story appeared in Bank Digest.                                     

The Office of Inspector General for the Consumer Financial Protection Bureau and the Federal Reserve Board has issued an audit report regarding the controls for the Bureau's purchase card program for the period of April 1, 2017, through June 30, 2018. According to the report, the Bureau developed the purchase card program to support its purchasing needs and to reduce the administrative cost of purchasing small-dollar items.

The OIG found that the Bureau's purchase card program controls appear to be operating effectively to ensure that purchase card use is appropriate and in compliance with applicable laws, regulations, and the Bureau's policies and procedures. In addition, the report said the controls appear to be operating effectively to prevent and detect potentially improper or fraudulent use of purchase cards. The OIG made no recommendations in its report.

Democrats request that CFPB resume supervisory role over MLA

This story appeared in Bank Digest.                                   

House Financial Services Committee Ranking Member Maxine Waters (D-Calif), committee member Denny Heck (D-Wash), and 21 other committee Democrats have sent a letter to Consumer Financial Protection Bureau Director Kathy Kraninger urging her to recommit the Bureau to fulfilling its supervisory role over consumer protection laws, including the Military Lending Act, which the representatives said provides protections for active-duty servicemembers and their families from predatory loans and credit gouging.

In their letter, the representatives expressed their "deep concerns that the Consumer Bureau has recently decided to cease supervising its regulated entities for compliance with the Military Lending Act ("MLA"), a failure to fulfill its responsibility under the law and which is nothing less than a dereliction of duty. We write to seek your written commitment that you will promptly ensure that the Consumer Bureau fulfills its explicit statutory purpose and mandates by resuming a consistent supervisory role over consumer protection laws, including the MLA, for the most robust and efficient protection of servicemembers and their families."

Waters 'deeply troubled' over CFPB settlement with State Farm Bank

This story appeared in Bank Digest.                                   

House Financial Services Committee Ranking Member Maxine Waters (D-Calif) has issued a statement on the Consumer Financial Protection Bureau's settlement with State Farm Bank, FSB, over the alleged misuse of consumer credit information, in which the Bureau did not impose a civil penalty. In her statement, Waters said, "To cap off his harmful tenure at the Consumer Bureau, Mick Mulvaney has chosen to once again turn a blind eye to predatory behavior."

She added that she was "deeply troubled by the Consumer Bureau's announcement that State Farm Bank will not be held accountable for violating the law by improperly obtaining consumer reports and providing credit bureaus with inaccurate information. Financial institutions that abuse consumers need to face real consequences and State Farm Bank, which has over $16 billion in assets, is no exception."

Senators request update on FSOC's progress in reforming nonbank designation process

This story appeared in Bank Digest.  

Senators Thom Tillis (R-NC), Mike Rounds (R-SD), Tom Cotton (R-Ark), and David Perdue (R-Ga) have written a letter to Treasury Secretary Steven Mnuchin requesting an update on the progress being made by the Financial Stability Oversight Council to reform the systematically important designation process for nonbank financial companies in accordance with recommendations the Treasury Department made in a November 2017 report.

The Dodd-Frank Act established the FSOC with the authority to determine that certain nonbank financial companies would be supervised by the Federal Reserve Board and subject to enhanced prudential standards.

In their letter, the senators said Treasury "should prioritize the enactment of reforms recommended in its report as soon as possible" and that the FSOC must make "fundamental changes to the way in which it operates." They went on to say, "Particularly troubling is its history of flawed designations that have subjected individual companies to inappropriate and burdensome regulation by the Federal Reserve." The senators asked for answers to several questions on the implementation of the recommended reforms.

Waters expresses concerns over CFPB proposal to revise no-action letter policy

This story appeared in Bank Digest.                                     

House Financial Services Committee Ranking Member Maxine Waters (D-Calif) has issued a statement regarding the Consumer Financial Protection Bureau's proposed Policy on No-Action Letters and the BCFP Product Sandbox. Waters said she was "very concerned" by the Bureau's proposal, which she said would "significantly loosen its 'no-action letter' policy in a way that could let bad actors that abuse consumers off the hook entirely from enforcement action by the agency."

The Bureau is proposing to revise its 2016 Policy on No-Action Letters and proposing the BCFP Product Sandbox, which would provide no-action relief substantially the same as that available under the No-Action Letter policy, as well as two additional forms of relief. The proposed policy contains revised information collection requirements which consist of the information that should be submitted in applications for admission to the BCFP Product Sandbox. Written comments on the proposal must be received by Feb. 11, 2019.

GAO issues report on GSIB actions to mitigate obstacles to orderly resolution

This story appeared in Bank Digest.

The Government Accountability Office has issued a report regarding actions U.S. global systemically important bank holding companies took to mitigate financial and legal obstacles they could face under the Bankruptcy Code that could undermine an orderly resolution. The GAO focused on five U.S. GSIBs with large portfolios of derivatives (because of resolution obstacles such financial contracts pose).

According to the report, the five U.S. GSIBs in the GAO's review incorporated procedures and other controls in their 2017 resolution plans to mitigate financial and legal obstacles to orderly resolution under the Bankruptcy Code. In their review, the Federal Deposit Insurance Corporation and Federal Reserve Board found no deficiencies with the GSIBs' 2017 plans.

Most experts the GAO interviewed viewed GSIB controls to mitigate financial obstacles as potentially somewhat effective, but these experts had mixed views on the potential effectiveness of GSIB controls to mitigate creditor challenges and other legal obstacles.

Brainard speaks in Washington on assessing financial stability

This story appeared in Bank Digest.

Federal Reserve Board Governor Lael Brainard spoke at the Peterson Institute for International Economics in Washington, D.C., on Dec. 7, 2018. The subject of her prepared remarks was "Assessing Financial Stability over the Cycle."

In her prepared remarks, Brainard said that if anything has been learned from the financial crisis, "it is that we must be especially vigilant to safeguard the resilience of our financial system in good times when vulnerabilities may be building." She went on to describe the state of the economy, highlight areas where she saw financial imbalances building, and discuss the implications for policy.

According to Brainard, while the U.S. financial system is much more resilient than before the crisis, "the appetite for risk among financial market participants rose notably over 2017 and much of 2018, and corporate borrowing has reached new heights amid rapid growth and deteriorating underwriting standards in riskier segments, such as leveraged lending." She went on to say, "At a time when cyclical pressures have been building and bank profitability has been strong, it might be prudent to ask large banking organizations to fortify their capital buffers, which could subsequently be released if conditions warrant."

Perdue introduces bill to provide relief from costs of 'duplicative capital buffers'

This story appeared in Bank Digest.                                   

Senator David Perdue (R-Ga) has introduced a bill (S. 3682) intended to provide relief from financial regulatory burdens and extra costs that are passed down to small business owners, farmers, and consumers. According to Perdue's press release, after the 2008-2009 financial crisis, federal bank regulators increased the amount of capital held by banks for certain "risky" activities. This included the supplemental leverage ratio (SLR), which requires banks to hold a certain amount of capital.

But according to the release, the SLR did not account for the initial margin that customers pay, and as a result, duplicative capital buffers were built as banks had to hold additional capital aside. The cost of this trapped capital was ultimately passed on to the end users, such as farmers and business owners.