By Nicole D. Prysby, J.D.
The Congressional Research Service has released a report on banking issues likely to be considered by the 116th Congress. Topics in the report range from current debates over the effectiveness of anti-money laundering rules to the merits of granting bank charters to fintechs.
The Congressional Research Service has released a report on current banking issues, covering economic and technological trends likely to be faced by the 116th Congress. The report, Banking Policy Issues in the 116th Congress, discusses issues related to the safety and soundness of banks; consumer protection, lending, and access; community and large banks; bank charters; and market trends.
The following issues were addressed in the report:
- Safety and soundness. The report considers prudential regulation, anti-money laundering (AML) measures, and cybersecurity. Congress and regulators have recently taken actions in response to concerns over the complexity of the Volcker Rule and agencies have called for public comment on a proposal to simplify the rule while proponents argue that the changes would undermine its effectiveness. With regard to AML, a current debate is whether the AML regulations are inefficient and overly costly; Congress may consider adjusting the Currency Transaction Report or Suspicious Activity Report thresholds. Cybersecurity is a concern and although state and federal laws and regulations have been implemented for bank cybersecurity, there is a question of effectiveness.
- Consumer protection, fair lending, and access to banking. Recently, banks and other providers of financial products (e.g., mortgages and credit cards) have been affected by new Consumer Financial Protection Bureau regulations, such as the Ability-to-Repay and Qualified Mortgage Standards Rule (ATR/QM) and Truth in Lending Act/Real Estate Settlement Act Integrated Disclosure Rule (TRID). Debates over the cost of these regulations are ongoing. Lack of bank access leads some households to rely on alternative financial service providers, such as payday lenders. Prudential regulators are currently exploring options to encourage banks to offer small-dollar credit products to consumers, to make banking accessible to a greater percentage of the population. There are current proposals regarding the Community Reinvestment Act (CRA), that may include adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity of the regulations.
- Community banks. Current issues surrounding community banks include regulatory relief proposals and the long-term decline in the number of community banks. The number of community banks has fallen from a peak of 18,083 in 1986 to 5,477 in 2018, with a majority of that decline due to bank mergers. There are various proposals to reduce the regulatory burden on community banks, mainly relating to determining the systemic risk presented by small banks and the costs/benefits of specific regulations on smaller banks.
- Large banks. There has been a recent reduction in the application of enhanced prudential regulations for certain large banks and there are proposals to create additional tiers for enhanced regulation for banks with more than $100 billion in assets. The Federal Reserve has made two proposals to simplify and relax capital ratio requirements. The Fed has also proposed linking large banks’ capital requirements to other risk measures such as stress test results.
- Eligibility for bank charters. The Office of the Comptroller of the Currency has indicated its willingness for financial technology companies (fintechs) to receive national bank charters, rather than being regulated at the state level. Aside from the merits of the proposal, whether the OCC has the authority to grant such charters is being questioned in a lawsuit. The Federal Deposit Insurance Corporation is also considering whether it should accept applications for industrial loan company charters.
- Recent trends. Recent market trends include a migration of financial activity from banks into nonbanks or the "shadow banking" system. Concerns exist as to the risk involved in shadow banking. Policymakers are also debating the extent to which fintech innovations can be adopted into the financial system without additional regulatory action. The recent rise of interest rates is also a topic of discussion. Because new loans over the past decade were made in a low interest rate environment, there is a challenge for banks seeking to hold a mix of loans with different rates.
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