By Jacob Bielanski
The extent to which Congress will need to deal with issues documented within the 50-page report will depend on how well the country emerges, economically, from the COVID-19 pandemic.
The Congressional Research Service (CRS) has released a March 2021 report outlining banking policy issues faced by the 117th Congress, noting that the path the legislature may need to take will depend on how well the economy emerges from the effects of the coronavirus pandemic.
According to the CRS, the "unprecedented" economic conditions created by the pandemic could continue to stress the banking industry, following a legislative session in which Congress largely weakened policies designed to guard against bank failures. Specifically, the 2018 Economic Growth, Regulatory Relief and Consumer Protection (EGRRCP) Act offered a push-back to the "unjustifiably burdensome" reforms of the 2007-2008 global financial crisis, with proponents seeking further loosening of regulations.
"A key issue surrounding regulatory relief made pursuant to the [EGRRCP] and regulator-initiated changes is whether these measures reduced regulatory burden without undermining the goals and effectiveness of the regulations or whether more stringent regulation should be reinstated," the researchers wrote.
In addition to the general risks, the CRS specifically pointed to mortgage forbearances allowed under the Coronavirus Aid, Relief and Economic Security (CARES) Act, noting that if post-pandemic economic recovery does not allow borrowers to largely emerge default-free from their agreements, then widespread defaults would result in "significant losses" for banks that could endanger wider financial stability.
"The pandemic will put the post 2007-2009 crisis regulatory framework to a significant test for the first time, and depending on how the banking industry fares, it is possible significant regulatory changes and even government interventions will be undertaken," the CRS wrote.
Beyond COVID-19, CRS researchers noted a number of other issues legislators will likely grapple with in the next two years, particularly "once the effects of the pandemic begin to fade." These long-standing issues relate to whether the benefit of bank regulations justify the cost of compliance. Key topics of debate for legislators, according to the CRS, will include policies for "Too Big to Fail" banks, removing regulatory barriers for community banks, consumer fairness and access issues, and general policies regarding safety and soundness.
The report also suggested relatively new areas of concern, including the proper balances for regulating financial technology companies, as well as the way regulators treat banks’ handling of climate change risks.
"How economic and financial conditions unfold and how well the bank industry withstands losses and avoids widespread failures is likely to largely determine what further response policymakers may undertake," the researchers wrote.
The CRS is a non-partisan, shared staff that conducts its research at the behest, and direction, of Congress.
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