US Regulatory Research
Senate Banking Committee Holds Hearing on Designating GSEs as SIFIs
On 25 June, the U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee”) held a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?” Testifying at the hearing were: Alex Pollock, Distinguished Senior Fellow, R Street Institute; Douglas Holtz-Eakin, President, American Action Forum; and Susan Wachter, Sussman Professor of Real Estate and Professor of Finance, The Wharton School of the University of Pennsylvania. Pollock stated his belief that Fannie Mae and Freddie Mac were systemically important financial institutions (“SIFIs”) because “[g]uaranteeing half the credit risk of the biggest credit market in the world (except for U.S. Treasury securities) is a systemically important and systemically risky activity.” Holtz-Eakin also testified that the two financial institutions should be considered SIFIs because they “not only participate in a systemically risky activity – they dominate it.” Finally, Wachter testified that Fannie Mae and Freddie Mac should be designated as Systemically Important Financial Market Utilities (“SIFMUs”), not SIFIs, “because the [government sponsored enterprises] provide a structural foundation to the secondary mortgage market.”
Senate Agriculture Committee Holds Hearing on the Derivatives Market
On 25 June, the U.S. Senate Committee on Agriculture, Nutrition, & Forestry (“Senate Agriculture Committee”) held a hearing entitled “The State of the Derivatives Market and Perspectives for CFTC Reauthorization.” Testifying at the hearing were: Dennis Kelleher, President and CEO, Better Markets; Joe Barker, Director of Brokerage Services, CHS Hedging; Walter Lukken, President and CEO, Futures Industry Association (“FIA”); and Thomas Sexton, President and CEO, National Futures Association (“NFA”). Kelleher testified about the need for “clean reauthorization, new authorities, and substantially more funding” for the Commodity Futures Trading Commission (“CFTC”) to serve as the police force on the derivatives beat. Barker highlighted concerns that farmers and their cooperatives have in the agriculture industry, including (i) unreasonable costs to end users and (ii) unduly burdensome federal speculative position limits. Lukken testified about his support for the reauthorization of the CFTC, so long as the agency: (i) maintains access to global markets, (ii) creates regulatory harmonization, (iii) provides consumer protection, (iv) enhances data collection methods and practices, (v) modernizes itself, (vii) carefully reviews all risks associated with “emerging crypto-assets and the derivatives market”, and (viii) encourages the recalibration of capital charge surrounding the “considerable amount of capital for client clearing activity.” Sexton testified about “changes to the NFA’s oversight responsibilities, cybersecurity and customer protection issues that [NFA] ha[s] addressed with the CFTC's support since the CFTC's formal authorization expired in September 2013.”
House Financial Services Subcommittee Holds Hearing on Diverse Asset Managers
On 25 June, the U.S. House Committee on Financial Services’ (“House Financial Services Committee”) Subcommittee on Diversity and Inclusion held a hearing entitled “Diverse Asset Managers: Challenges, Solutions, and Opportunities for Inclusion.” Testifying at the hearing were: Juan Martinez, Vice President/Chief Executive Officer and Treasurer, Knight Foundation; John Rogers, Chairman, CEO & Chief Investment Officer, Ariel Investments; Brenda Chia, Founding Board Member & Co-Chair, Association of Asian American Investment Managers; Angela Miller-May, Chief Investment Officer, Chicago Teachers’ Pension Fund; and Meredith Jones, investment researcher and author. The following draft bill was considered:
· H.R. ____, the “Diverse Asset Managers Act” [DRAFT] which would require the Fed, companies registered with the SEC, and companies registering securities with the Commission, to consider diverse individual owned and controlled asset management firms when seeking asset management services, and for other purposes.
Martinez highlighted three key findings of a study on the state of diversity in the investment industry: (i) a small percentage (1.3%) of assets managed by US-based asset managers were managed by women- or diverse-owned firms, (ii) there is no evidence of differences in investment performance between women and diverse-owned firms and their non-diverse-owned peers, and (iii) public funds and high net worth individuals represent a disproportionality larger percentage of the investments in diverse-owned funds. Rogers identified three solutions to dissolve barriers in the asset management industry: (i) adopt the Rooney Rule, which would “requir[e] banks and other entities to consider diverse-owned firms when aiming to fill new investment mandates”; (ii) measure spending by categories and replace the term ”supplier diversity” with ”business diversity”; and (iii) hold CEOs and their management teams accountable for providing meaningful transparency and making measurable progress. Chia discussed the danger of the model minority stereotype, which is “the perception that [Asian American and Pacific Islanders] are successful and do not need help in any field.” Miller-May highlighted challenges faced by allocators and diverse managers, including (i) investor and consultant bias, (ii) perception of weaker performance of diverse firms, and (iii) industry trends. Jones testified that “the lack of women and minorities in the asset management and investment industries is making everyone, from Wall Street to Main Street, poorer.”
House Financial Services Committee Task Force Holds Hearing on Overseeing Fintech Revolution
On 25 June, the House Financial Services Committee’s Task Force on Financial Technology (“Fintech”) held a hearing entitled “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation.” Testifying at the hearing were: Paul Watkins, Assistant Director, Office of Innovation, Consumer Financial Protection Bureau (“CFPB”); Beth Knickerbocker, Chief Innovation Officer, Office of the Comptroller of the Currency (“OCC”); Valerie Szczepanik, Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation, Securities and Exchange Commission (“SEC”); Charles Clark, Director, Department of Financial Institutions, State of Washington, on behalf of the Conference of State Bank Supervisors; and Christopher Woolard, Board Member and Director of Strategy and Competition, Financial Conduct Authority, United Kingdom. Watkins testified about the CFPB’s financial innovation work, including (i) creating the Office of Innovation; (ii) encouraging Trial Disclosure Programs; and (iii) collaborating with other regulators. Knickerbocker highlighted initiatives that the OCC has taken to encourage responsible innovation in the federal banking system, including (i) establishing the Office of Innovation, (ii) supporting partnerships between banks and Fintech companies, (iii) establishing the Innovation Pilot Program to facilitate testing of products, and (iv) supporting opportunities for Fintech companies to become full-service or special purpose national banks. Szczepanik testified about the importance of SEC’s Strategic Hub for Innovation and Financial Technology (“FinHub”), stating that it (i) provides a portal for industry and public to engage with SEC staff on innovative ideas and technological developments, (ii) organizes events through which the public can participate in FinHub’s work, (iii) acts as a clearinghouse of information regarding the SEC’s activities and initiatives involving fintech, (iv) acts as a platform for SEC staff to disseminate relevant information within the agency, and (v) serves as a liaison to other domestic and international regulators regarding emerging technologies. Clark testified about the relationship between state regulators and the Fintech industry, highlighting how state regulators “are engaged and proactive in ensuring that state supervision of Fintechs is effective and efficient in this rapidly growing space.” Woolard testified about work that his agency and other UK agencies have been doing in relation to Innovation and Open Banking, which includes reports, investigations, speeches, and whitepapers.
House Passes FY 2020 Appropriations Bill Funding CFTC
House Passes FY 2020 Financial Services and General Government Funding Bill
On 26 June, the U.S. House passed, by a vote of 224 to 196, FY 2020 Financial Services and General Government funding bill. The legislation would provide, among other funding: (i) $13.56 billion for the Department of the Treasury (“Treasury”), an increase of $793.9 million above the FY 2019 enacted level; and (ii) $1.85 billion for the SEC, an increase of $175 million above FY 2019. The Treasury funding includes $167.7 million for the Office of Terrorism and Financial Intelligence, an increase of $8.7 million above FY 2019.
House Agriculture Subcommittee Holds Hearing on International Developments and U.S. Derivatives Markets
On 26 June, the U.S. House Committee on Agriculture’s (“House Agriculture Committee”) Subcommittee on Commodity Exchanges, Energy, and Credit held a hearing entitled “Brexit and Other International Developments Affecting U.S. Derivatives Markets.” Testifying at the hearing were: Terrence Duffy, Chairman and CEO, Chicago Mercantile Exchange (“CME”); Christopher Edmonds, Senior Vice President of Financial Markets, Intercontinental Exchange (“ICE”); Daniel Maguire, CEO, LCH Group; Walter Lukken, President and CEO, FIA; and Stephen Berger, Managing Director, Global Head of Government and Regulatory Policy, Citadel LLC, on behalf of the Managed Funds Association (“MFA”). Duffy testified about how CME is not a systemic risk to the EU and thus should be regulated under U.S. financial markets. He also stated that if CME were to be subject to EU supervision and regulation, this “would have negative implications for the U.S. economy and regulatory sovereignty,” such as (i) conflicts over corporate governance, (ii) unfamiliar regulatory standards, and (iii) potential systemic risk due to that regulatory complexity. Edmonds testified about ICE’s support for the CFTC’s proposed rule to “move to a flexible, outcomes-based approach for cross-border equivalence and substituted compliance and to employ deference to overseas regulators” in order to ensure the minimization of supervisory duplication and conflict. Maguire’s testimony highlighted three key points: (i) contingency measures taken to ensure clearing houses in the UK and EU can continue to offer services to clients in the event the “UK exits the EU without an agreement,” (ii) the evolving international dialogue on cross-border regulation of global clearing houses, and (iii) clearing house resilience and “our views on how the global regulatory framework for clearing houses can best support the common objective of strengthening these increasingly important components of the financial markets.” Lukken testified about the FIA’s focus in ensuring a smooth transition in the Brexit process by (i) minimizing disruption, (ii) avoiding fragmentation of liquidity by regulatory actions, and (iii) maintaining global access to markets and counterparties. Berger urged Congress to “examine and encourage Treasury and regulators to formulate positions in each of these important areas, and then work with their international counterparts to resolve impediments to the objectives of open, efficient, and fair capital markets” in order to prevent financial markets from becoming fragmented along jurisdictional lines.
House Financial Services Committee Task Force Holds Hearing on Perspectives on Artificial Intelligence
On 26 June, the House Financial Services Committee’s Task Force on Artificial Intelligence (“AI”) held a hearing entitled “Perspectives on Artificial Intelligence: Where We Are and the Next Frontier in Financial Services.” Testifying at the hearing were: Nicol Turner-Lee, Fellow, Governance Studies, Center for Technology Innovation, Brookings Institution; Bonnie Buchanan, Head of School of Finance and Accounting and Professor of Finance, Surrey Business School, University of Surrey; Douglas Merrill, Founder and CEO, ZestFinance; and R. Jesse McWaters, Financial Innovation Lead, World Economic Forum. Turner-Lee testified about (i) algorithmic decision making by machines and (ii) how “unchecked, biased algorithms can lead to decisions which can have a collective, disparate impact on certain groups of people even without the programmer’s intention to discriminate.” Buchanan testified about developments regarding AI, highlighting (i) how AI can enhance financial inclusion, so long as algorithms are not discriminatory, (ii) how AI can help identify fraud and cybersecurity crimes, (iii) that human skill will remain critical alongside AI, (iv) that AI is still a risky field, and (v) that banks are beginning to spend massive amounts of money on AI. Merrill testified about machine learning (“ML”) and how “ML models are opaque and inherently biased.” He said, however, that his company has techniques that “render ML models truly transparent.” Merrill testified that Congress should not regulate the entirety of ML in finance but rather encourage regulators to set high standards for ML. McWaters testified about seven key points regarding AI: (i) there is a lack of understanding of what AI is and how it works, which poses a serious impediment to effective governance; (ii) AI’s near-term impact on finance is best understood through the capabilities it enables; (iii) as the adoption of AI becomes ubiquitous, access to data will become a core strategic priority of financial institutions; (iv) early AI adopters will be well-positioned to entrench their market dominance; (v) the shifting landscape of financial services resulting from increased use of AI will create new uncertainties; (vi) AI does not require a fundamental re-thinking of regulatory principles and objectives; and (vii) the use of AI in financial services introduces both opportunities and risks.
Seventeen House Democrats Send Letter to Bank Regulators Regarding Initial Margin Requirements for Inter-Affiliate Swap Transactions
On 26 June, seventeen Democratic members of the U.S. House sent a letter to the heads of the Federal Reserve (“Fed”), Federal Deposit Insurance Corporation (“FDIC”), and OCC. The lawmakers stated: “We write to encourage expeditious action to modify initial margin requirements for inter-affiliate swap transactions. Specifically, we request you harmonize your approach with that of the [CFTC] and major G20 regulators.” The lawmakers expressed concern that: (i) the requirements are not warranted, and (ii) the bank regulators’ consideration of a modification to the requirements may take unnecessarily too long if part of a larger review of margin rules
House Financial Services Committee Holds Markup
On 26 June, the House Financial Services Committee held a markup in which it advanced two bills:
Senate Banking Committee Holds Hearing on Reauthorization of the Export-Import Bank
On 27 June, the Senate Banking Committee held a hearing entitled “Oversight and Reauthorization of the Export-Import Bank of the United States.” Kimberly Reed, President and Chairman of the Board of Directors, Export-Import Bank of the United States (“EXIM”), testified at the hearing. Reed discussed the efforts to secure the future of EXIM, including: (i) her travels to China to participate in the annual Group of 12 Member Nations Heads of Export Credit Agencies Meeting, (ii) the holding of the first EXIM board meeting since July 2015, (iii) her efforts in “improving EXIM’s transparency to the greatest extent that is practicable without divulging confidential business information,” (iv) EXIM’s strong support of small business through implementing “a forward-leaning, proactive strategy focused on providing improved resources that will help [federal, state, and local government agencies] more effectively communicate to small businesses about how EXIM financing solutions can make a difference in boosting their sales while protecting their bottom line,” and (v) efforts to create new ways to support the agricultural sector. In closing, Reed stated her desire to “[work] closely with Congress on how the U.S. can best combat the aggressive tactics of foreign [export credit agencies], provide certainty to U.S. exporters and the thousands of companies that make up their supply chains, and help more businesses grow their global market share and support U.S. workers.”
SEC & CFTC
CFTC’s Giancarlo and SEC’s Clayton Issue Joint Statement on Manufactured Credit Events
On 24 June, CFTC Chairman J. Christopher Giancarlo and SEC Chairman Jay Clayton (along with U.K. Financial Conduct Authority Chief Executive Andrew Bailey) issued a statement regarding the credit derivatives markets. The statement responded to manufactured credit events, which “may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally.” The chairmen stated that “the agencies will make collaborative efforts to prioritize the exploration of avenues, including industry input which will address these concerns and foster transparency, accountability, integrity, good conduct and investor protection in these markets.”
CFTC’s Giancarlo and SEC’s Clayton Issue Joint Statement on Portfolio Margining Harmonization Efforts
On 27 June, CFTC Chairman Giancarlo and SEC Chairman Clayton issued a joint statement regarding harmonizing agency rules to “ensure that our regulations are effective, consistent, mutually reinforcing, and efficient.” Specifically, the chairmen stated their desire to harmonizing the potential for portfolio margining of uncleared swaps with security-based swaps in order to “ensure robust investor protection and market integrity.” The chairmen stated they will seek further input from the public regarding these issues and will solicit comments and conduct market outreach.
SEC & Securities
SEC Announces Changes to Executive Staffing and Other Appointments
On 26 June, the SEC announced a number of changes to the executive staff of Chairman Jay Clayton, including, among others: (i) Lucas Moskowitz, outgoing Chief of Staff; (ii) Sean Memon, incoming Chief of Staff; and (iii) Bryan Wood, incoming Deputy Chief of Staff. The SEC also announced the appointment of Holli Heiles Pandol as the Director of the Office of Legislation and Intergovernmental Affairs. Earlier, the SEC announced the appointment of Vanessa Countryman as the Commission’s Secretary.
SEC Commissioner Peirce Delivers Remarks Regarding Diversity on Corporate Boards
On 28 June, SEC Commissioner Hester Peirce delivered remarks before the Society for Corporate Governance National Conference regarding diversity on corporate boards, in particular focusing on the inclusion of women on corporate boards. Peirce noted that there have been many advocacy efforts toward hiring more women on corporate boards for the sake of having more diversified boards, and she questioned the “premise seemingly underlying many of these advocacy efforts: that the presence of women, without regard to what their qualifications are, is inherently salutary.” She expressed a number of concerns regarding this issue, arguing that: (i) “much of the rhetoric on this subject overstates or misstates the research on the subject”; (ii) “calls to dictate or encourage particular board formulations from the government improperly override private sector decisions”; (iii) “external micromanagement of board composition adds yet another cost to the already high cost of being a public company”; and (iv) such efforts “send an unintended and inaccurate message—absent mandates, corporate boards will not recruit women.” She states, however, that a more diverse board does bring more unique perspectives and experiences to the table, but that initiatives to increase diversity on boards must be balanced and not inappropriately micromanage corporate governance.
CFTC & Derivatives
CFTC Staff Announcements
On 24 June, the CFTC announced that Eric Pan, Director of CFTC’s Office of International Affairs, will leave the agency in August.
On 26 June, the CFTC announced that Matthew Kulkin, Director of the CFTC’s Division of Swap Dealer & Intermediary Oversight (“DSIO”) will leave the agency.
CFTC Announces Whistleblower Award
On 24 June, the CFTC announced it was paying a $2.5 million award to an individual whistleblower. While substantial, “the award was reduced because of the whistleblower’s delay in reporting to the CFTC.” The CTFC’s Director of the Whistleblower Office, Christopher Ehrman, highlighted the importance of timely reporting, stating that “it plays a vital role in our assessment of whistleblower awards.”
CFTC Clarifies Cross-Border Regulatory Commitments
On 25 June, the CFTC announced it has approved a proposed rule amending Part 30 of the CFTC regulations, which “governs the offer and sale of foreign futures and options to customers located in the U.S.” The proposed amendments: (i) “would codify the CFTC’s authority to terminate exemptive relief issued to foreign firms” and (ii) are intended to “ensure there is no misunderstanding about the obligations for foreign authorities supervising brokers who are working with customers located in the U.S.” Comments on the rule are due within 30 days after the date of the rule’s publication in the Federal Register.
CFTC Announces LabCFTC And Fintech Conference
On 27 July, the CFTC announced the launch of LabCFTC Accelerator, a component of LabCFTC to “facilitate market-enhancing innovation, inform policy, and ensure that we have the technological and regulatory tools and understanding to keep pace with changes to our markets.” The CFTC also announced it would hold its second Fintech conference to “explore the latest in FinTech developments, including digital assets, commodities, and platforms, machine learning and AI, RegTech, and algorithmic trading.”
CFTC Issues No-Action Relief for Floor Traders Engaged in Swaps Activity
On 27 June, the CFTC’s DSIO announced it will provide no action-relief to registered floor traders from compliance with certain conditions in a CFTC regulation regarding the definition of “swap dealer.” The no-action relief would state that exchange-traded and cleared swaps are not to be considered when determining whether a firm must register as a swap dealer. DISO Director Matthew Kulkin stated that “[s]uch clarity will encourage new liquidity providers to trade cleared swaps on registered venues without regulatory uncertainty, benefiting market participants seeking to access liquid, competitive cleared swaps markets.”
o Following the announcement regarding the no-action relief, CFTC Commissioner Brian Quintenz released a statement supporting the policy of the no-action letter but noting that “the floor trader exception is a dangerous vehicle, and that no-action relief is a poor process, by which to achieve this substantial and justified policy outcome.” Quintenz called himself a “frequent and vocal critic of the CFTC’s prior expansive and misguided use of no-action letters” and urged the CFTC to revise its regulations through rulemaking.
o CFTC Commissioner Dan Berkovitz also released a statement regarding the no-action relief, which he supported. Berkovitz said that the no-action letter will “diversify the available sources of liquidity beyond the few large bank dealers that dominate swap trading today.” Berkovitz also stated that he believes rulemaking is the best way to fix the current issues, in the long run, but the no-action letter is appropriate interim action.
CFTC Extends Public Comment Period
On 28, June the CFTC announced it was extending until 13 September 2019 the comment period for the proposal to amend derivatives clearing organization regulations. The amendment will “address certain risk management and reporting obligations, clarify the meaning of certain provisions, simplify processes for registration and reporting, and codify existing staff relief and guidance.”
Fed and CFPB Issues Final Rule Regarding the Availability of Funds and Collection of Checks under Regulation CC
On 24 June, the Fed and CFPB jointly issued a final rule that amends Regulation CC by implementing a statutory requirement to adjust for inflation the amount of funds depository institutions must make available to their customers. Regulation CC implements the Expedited Funds Availability Act (“EFA Act”), which, among other things, provides “the availability schedules within which banks must make funds available for withdrawal, exceptions to those schedules, disclosure of funds availability policies, and payment of interest.” The Dodd-Frank Act amended the EFA Act to include a new provision that requires the dollar amounts contained in the EFA Act to be adjusted every five years after December 31, 2011, by the annual percentage increase in inflation. The final rule also implements an amendment made to the EFA Act by the Economic Growth, Regulatory Relief, and Consumer Protection Act, which extended coverage of the EFA Act to American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam. The compliance date for the newly adjusted amounts is 1 July 2020.
Fed Chair Powell Delivers Speech Regarding Economic Outlook and Monetary Policy Review
On 25 June, Fed Chair Jerome Powell delivered a speech at the Council on Foreign Relations regarding the Fed’s review of its monetary policy strategy, tools, and communication practices. Powell also discussed the Fed’s outlook for the U.S. economy and monetary policy. With regards to the Fed’s review, Powell indicated that the Fed’s Federal Open Market Committee (“FOMC”) will soon begin discussing the feedback the Fed has received from its outreach events and intends to publicly report the conclusions of its discussions during the first half of next year. With regards to economic outlook and monetary policy, Powell noted that (i) the economy has performed reasonably well so far in 2019 and (ii) during the FOMC’s meeting at the start of May, “tentative evidence suggested [the] crosscurrents were moderating, and we saw no strong case for adjusting our policy rate.” Powell warned, however, that conditions have since changed, with “apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.” Against the backdrop of these changes, Powell indicated that (i) he and his colleagues “are grappling with … whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation” and (ii) the FOMC will “closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
FDIC Hosts Interagency Conference Focusing on Minority Depository Institutions
On 25-26 June, the FDIC, in partnership with the Fed and the OCC, hosted the 2019 Interagency Minority Depository Institution and CDFI Bank Conference. The conference focused on topics related to minority depository institutions (“MDIs”), such as innovation, supervision, cybersecurity, and federal programs supporting MDIs. During the event, FDIC Chairman Jelena McWilliams announced a number of initiatives relating to MDIs, including, among others: (i) establishing a new MDI subcommittee of the FDIC's Advisory Committee on Community Banking to provide a new platform for MDIs to exchange best practices; and (ii) launching a series of roundtables between MDIs and other FDIC-supervised institutions to promote collaboration. McWilliams also released a new research study regarding MDIs, which examined MDIs’ role in and impact on the financial services industry. According to the study: (i) “MDI financial performance has significantly improved over the past five years, particularly in terms of revenue generation and loan performance”; (ii) “MDI character was preserved in voluntary mergers and failures [as] more than three-fourths of the assets of the merged institutions and 86 percent of the assets of the failed institutions remained with MDI institutions”; and (iii) “MDIs originate a greater share of mortgages to borrowers in low- and moderate-income census tracts and in census tracts with larger shares of minority populations than non-MDIs.”
o On 25 June, Fed Governor Michelle Bowman delivered a speech during the conference focusing on three ways the Fed intends to assist MDIs: (i) by easing their regulatory burden, such as through revisions in the Volcker Rule, implementing a community bank leverage ratio proposal, allowing community banks to conduct portions of their examinations off-site if preferable; (ii) by “sponsoring valuable and actionable research on your contributions to your communities”; and (iii) by “seeking to better support you through outreach and hands-on technical assistance,” such as through the Partnership for Progress program.
FDIC and CFPB Announce Webinar on Elder Financial Abuse Prevention
On 26 June, the FDIC and CFPB announced that they will be co-hosting a webinar on elder financial abuse prevention on 25 July 2019. The webinar will focus on “the benefits of appropriate collaboration between financial institutions and law enforcement regarding this issue.”
OCC Issues Mortgage Metrics Report for First Quarter 2019
On 26 June, the OCC issued its Mortgage Metrics Report, First Quarter 2019 (the “Report”), which showed that 96.2 percent of mortgages included in the Report were current and performing at the end of the quarter, compared to 95.6 percent a year earlier. The Report also showed that servicers: (i) initiated 27,610 new foreclosures during the first quarter of 2019, a 6.5 percent decrease from the previous quarter and a 26 percent decrease from a year ago; and (ii) completed 17,561 mortgage modifications in the first quarter of 2019, 72.6 percent of which modifications reduced borrowers’ monthly payments.
FDIC Announces Intention to Centralize the Supervision and Resolution Activities for Large Banks and Complex Financial Institutions
On 27 June, the FDIC announced its intention to form a new Division of Complex Institution Supervision and Resolution (“CISR”) to centralize the supervision and resolution activities for the largest banks and complex financial institutions. According to the press release, the CISR will be responsible for: (i) “supervision and monitoring of banks with assets greater than $100 billion for which the FDIC is not the primary federal regulator”; and (ii) “planning for and executing the FDIC's resolution mandates for these institutions, as well as for other financial companies if called upon to protect U.S. financial stability.” The FDIC said that Rick Delfin, current Director of the FDIC's Office of Complex Financial Institutions, will head the CISR and that the new division is expected to begin operations on 21 July 2019.
Fed Publishes Results of CCAR
On 27 June, the Fed published the results of its latest Comprehensive Capital Analysis and Review (“CCAR”). The results showed that, among other things: (i) “the financial system is strong and resilient” and that “[l]arge banks have more than doubled their capital levels since the financial crisis, in part because of supervisory programs like CCAR”; (ii) the examined firms “have continued to strengthen their capital planning practices since , with many of those firms meeting supervisory expectations for capital planning”; and (iii) “[c]ertain firms that are newer to CCAR have additional work to undertake to have sound, established capital planning practices, and a limited number of firms that have been subject to the qualitative assessment for a number of years have certain weaknesses that limit their capital planning capabilities.” Based on these results, the Fed did not object to any of the capital plans submitted by the 18 firms subject to the CCAR, but did require Credit Suisse to address certain limited weaknesses identified from the test.
OCC Issues Document Describing Key Differences Among Requirements Applicable to National Banks and Federal Savings Associations
In a document dated 1 July 2019, the OCC “generally describe[d[ differences in the statutory and regulatory requirements applicable to national banks and federal savings associations.” The document states that it “provides a brief guide to some of the key differences rather than a comprehensive analysis of all of the statutes and regulations or policies applicable to, or the powers of those institutions,” but “does not provide official legal interpretations or create any rights or obligations.
CFPB Extends Comment Period for Advance Notice of Proposed Rulemaking Regarding HMDA
On 27 June, the CFPB extended until 15 October 2019 the comment period for its Advance Notice of Proposed Rulemaking (“ANPR”) relating to the Home Mortgage Disclosure Act (“HMDA”). The CFPB said that “[t]he extension will give interested parties an opportunity to review the Bureau’s annual overview of residential mortgage lending based on the HMDA data financial institutions collected in 2018, as requested by a variety of stakeholders.”
o July 1: Comments are due on the CFTC’s notice of intent to renew collection numbers 3038-0068 and 3038-0083: “Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants.”
o July 1: Comments are due on the Fed’s proposed rule regarding “Netting Eligibility for Financial Institutions.”
o July 1: Comments are due on the Fed, FCIC, and OCC’s notice of proposed rulemaking that would “amend the supplementary leverage ratio of the regulatory capital rule to exclude certain funds of banking organizations deposited with central banks if the banking organization is predominantly engaged in custody, safekeeping, and asset servicing activities.”
o July 1: Comments are due on the CFPB’s notice review of the economic impact on certain small entities of the Overdraft Rule (which limits the ability of financial institutions to assess overdraft fees in certain situations).
o July 8: The SEC will hold a Main Street Investors RoundTable, and Chairman Clayton will discuss the standards of conduct for financial professionals in Boston.
o July 10: The House Financial Services Committee will hold a hearing entitled, “Monetary Policy and the State of the Economy.”
o July 10: The House Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will convene a hearing entitled, “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social and Governance Disclosures.”
o July 25: The FDIC and CFPB will host a webinar on Elder Financial Abuse Prevention.