ABA Dodd-Frank Tracker

ABA’s Chessen Op-Ed on Risk-Based & Leverage Capital

2013-05-09T07:55:00.004-04:00

Regulators should stick to the risk-based capital system for banks, rather than return to a simplistic capital-to-lending ratio, ABA Chief Economist James Chessen argued in an American Banker op-ed.

The risk-based approach “remains a better way of gauging and guarding against the true risks associated with a bank than the one-dimensional leverage ratio to which some policymakers want to return,” he wrote.

“The concept behind risk-based capital is simple and fair: Make capital commensurate with underlying risk. It's true that putting this into practice has not been simple.”

Chessen emphasized that leverage ratios -- to which some in Congress seem to want to return -- did not distinguish banks that failed post-2008 and those that remained healthy. “Once economic conditions deteriorated, losses overwhelmed capital and led to failures. . . . [T]he losses were so great that no reasonable level of capital would have been enough to absorb them.”

Chessen noted the importance of not confusing “more capital” with “you can’t have too much capital,” warning: “Capital comes at a cost -- both to banks and the economy at large -- in the form of foregone lending as institutions shrink to meet extreme capital-to-asset ratios.”

Read the op-ed.

ABA, Associations Urge Fed to Reconsider Foreign Bank Rules

2013-05-01T07:44:00.000-04:00

ABA and other trade groups urged the Federal Reserve to reconsider, or at a minimum delay, new rules on the supervision of foreign banking organizations. Under the Dodd-Frank Act, the Fed has proposed to require foreign banks with significant U.S. operations to create intermediate holding companies for their U.S. subsidiaries, meet higher capital requirements and maintain stronger liquidity positions.

The groups argued that international bank regulation should be based on cooperation, and that the Fed’s “ring-fenced, balkanized approach . . . could both impair economic recovery and growth and increase, rather than decrease, systemic risk.”

They added that such ring-fencing -- especially if mandated reciprocally by other countries’ regulators -- might limit swift movement of capital in crises and create crippling layers of capital and liquidity burdens. The Fed’s proposal also jeopardizes progress on the development of international regulatory standards, they said.

Read the comment letter.

Brown, Vitter Introduce ‘Too Big to Fail’ Bill

2013-04-25T08:35:00.002-04:00

Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) introduced legislation (S. 798) which would require large banks to hold significantly higher capital.

The legislation would take the U.S. out of the Basel III capital standards and instead require regional banks—those between $50 billion and $500 billion in assets—to hold 8 percent capital, and the largest banks—those with over $500 billion in assets— to hold 15 percent capital. Regulators would determine capital levels for banks with less than $50 billion in assets.

The bill adds other restrictions on the activities of very large banks and provides some regulatory relief to community banks, especially those with less than $10 billion in assets. For example, it expands the definition of rural lenders eligible to provide balloon mortgages and creates an ombudsman for bank examination fairness.

“The banking industry strongly supports adequate, high-quality capital,” said ABA EVP James Ballentine. “However, the proposal, as introduced, would impose arbitrarily high levels that would harm banks and their customers, local communities and the broader economy.”

Ballentine noted that bank capital is at “near-record levels” and growing. “Raising capital-to-asset ratios would require many banks to shrink their businesses, resulting in substantially decreased lending, tighter credit availability and higher costs to borrow,” he added.

ABA Urges Support for Basel III CASE Act

2013-04-23T11:24:00.000-04:00

ABA President and CEO Frank Keating wrote to Sens. Joe Manchin (D-W.Va.) and Dean Heller (R-Nev.) yesterday to express strong support for S. 731, which Manchin and Heller introduced on April 16. The bill, known as the Basel III CASE Act, would require bank regulatory agencies to conduct a comprehensive study of the Basel III capital proposals’ effects on community and regional banks before issuing any final rules.

“The rules proposed by the federal banking agencies go far beyond the Basel III framework,” wrote Keating. “They would impact banks of all sizes and business models and would have adverse consequences for the communities they serve and the overall U.S. economy.”

Keating pointed out that the regulatory agencies have not done a thorough quantitative analysis of the effects of Basel III, and that S. 731 corrects this flaw.

Read the letter.

Bill Would Require Study on Basel III

2013-04-18T09:00:00.000-04:00

Sen. Joe Manchin (D-WV) and Sen. Dean Heller (R-NV) introduced ABA-supported legislation (S. 731) that would require the banking regulators to conduct a comprehensive study of the Basel III capital proposals’ impact before issuing any final rules. The study would need to include a quantitative analysis of the proposals’ effects on the financial services, including community, mid-size, and regional institutions, as well as a determination of the rules’ long-term impact.

Sen. Richard Shelby (R-AL) also introduced a bill (S. 737) yesterday that would require a “quantitative impact study of the cumulative effect” of Basel III before regulators could issue final rules.

Fed Governor Stein Weighs In on TBTF

2013-04-18T07:56:00.002-04:00

Federal Reserve Board Governor Jeremy Stein said yesterday that while much has been done to address too-big-to-fail, there is more to do. “We’ve made considerable progress with respect to SIFIs [systemically important financial institutions] since the financial crisis. And we’re not yet at a point where we should be satisfied,” he said.

Stein compared two approaches to addressing TBTF: limiting the size of banks versus applying Basel III and related systemic capital rules to the largest banks. He concluded that applying the capital rules being worked on -- including the planned SIFI surcharge for the largest banks -- is the better approach.

Referring to the opinions of those favoring size caps on banks, Stein said: “My own view is somewhat different. While I agree that we have a long way to go, I believe that the way to get there is not by abandoning the current reform agenda, but rather by sticking to its broad contours.”

Read the speech.

ABA to Congress: It’s Time to Move from Good Intentions to Tangible Results for Community Banks

2013-04-16T13:53:00.000-04:00

The ABA testified on the critical steps needed to reduce community banks’ regulatory burden and assure our country has a healthy and vibrant community banking sector in the future.

Kenneth Burgess, chairman of FirstCapital Bank of Texas, testified on behalf of ABA before the House Subcommittee on Financial Institutions and Consumer Credit. FirstCapital is a $713 million bank serving Midland, Amarillo and Lubbock, Texas.

In his testimony, Burgess said that it’s time to move from good intentions to substantive changes that will have tangible results for community banks. He noted that recent actions taken by regulators on capital standards and mortgage lending can have unintended consequences that slow economic growth.

Read more.

Plagge Op-Ed: Big-Bank Break-Up Could Harm Community Banks

2013-04-16T13:45:00.000-04:00

It's difficult to see how community banks can be insulated from the negative effects of proposals to break up the country's largest banks, ABA Chairman-Elect Jeff Plagge said in an opinion piece published by American Banker.

"Some people assume that when big banks lose, community banks win. I'm not convinced," said Plagge, who is president and CEO of Northwest Financial Corp., a $1.5 billion bank community bank holding company in Arnolds Park, Iowa.

Plagge noted that a government-mandated break-up of a large bank could produce a dozen or more superregionals "that would make a direct play for the kinds of small business, agricultural and commercial real estate loans that are the bread and butter for banks like mine." He added that it would be more difficult for banks of any size to attract capital "once Uncle Sam has established his rights to further manage the business of banking."

Proposals that dramatically increase capital requirements also would force many banks to the sidelines of the economy while they bring their ratios in line, Plagge said. It would be hard to insulate community banks from the macroeconomic effects of such a disruption.

"So let's be careful what we wish for. Let's find solutions that first do no harm to the recovery and the economy in general," Plagge said. "Second, let's bring about positive change for community banks and the banking industry as a whole."

Read the op-ed.

House Financial Services Committee’s Tentative Hearing Schedule

2013-03-22T07:52:00.002-04:00

House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced his panel’s tentative April schedule that includes Financial Institutions Subcommittee hearings April 10 and 16 on regulatory relief for small community financial institutions.

Other scheduled hearings are:

April 11, Capital Markets Subcommittee -- review of legislation to reform Dodd-Frank Act derivatives provisions.
April 16, Oversight and Investigation Subcommittee -- the need to end “Too Big to Fail.”
April 17, full committee -- impediments to private capital in the housing finance system.

Keating Fires Back at 'Too-Big-to-Fail' Op-Ed

2013-03-14T08:18:00.000-04:00

It's disappointing that Dallas Fed President Richard Fisher would call Dodd-Frank's too-big-to-fail solution a failure when regulators haven't even finished implementing it, ABA President and CEO Frank Keating said in a letter to the editor published in this morning's Wall Street Journal.

Keating was responding to a March 11 Journal op-ed piece by Fisher and Dallas Fed EVP Harvey Rosenblum in which they advocated restructuring large banks.

"Before we add another layer of new restrictions and corporate restructurings, it's important to consider what Dodd-Frank actually instructs regulators -- including the Fed -- to do," Keating said.

He listed several changes mandated by the reform law that target too-big-to-fail, including more stringent capital and liquidity rules, annual stress tests, living wills and creation of the Financial Stability Oversight Council.

Keating emphasized that deceptively simple solutions aren't the answer, and artificial government-mandated restructuring never works in a free-market, democratic society.

[W]e have the strongest banking sector in the world with all-size banks connected in ways that are essential to our economy.

Breaking up large institutions would destroy these synergies and drive business to foreign competitors and shadow banks, ending our country's status as a premier financial center. Let's implement the mandates Congress enacted to end too-big-to-fail and enhance our financial system -- not destroy it.

Large Banks Could Withstand Severe Downturn

2013-03-08T08:11:00.002-05:00

The 18 largest U.S. banks have continued to improve their ability to withstand a severe economic downturn and they’re in a much stronger capital position than before the financial crisis, according to the results of Dodd-Frank Act-mandated stress tests the Federal Reserve recently released.

“Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty,” Fed Governor Daniel Tarullo said.

ABA President and CEO Frank Keating said the association is pleased that an overwhelming majority of institutions once again passed the stress-tests “with flying colors.”

“These results, achieved in the face of extreme assumptions and highly pessimistic scenarios, are further proof that the banking industry has rapidly regained its health and is strong enough to withstand even the most challenging economic circumstances,” he said.

Read the stress-test methodology and results.
Read Keating’s statement.

Federal Reserve Extends Comment Period on Foreign Bank Proposal

2013-02-22T12:27:00.000-05:00

The Federal Reserve Board has extended until April 30, 2013, the comment period on a proposed rule to implement the enhanced prudential standards and early remediation requirements mandated by the Dodd-Frank Act for foreign banking organizations and foreign nonbank financial companies supervised by the Board.

The enhanced prudential standards include risk-based capital and leverage requirements, liquidity standards, risk management and risk committee requirements, single-counterparty credit limits, and stress test requirements.

Originally, comments were due by March 31, 2013.

Read more.

Reps. Capito, Maloney Express Basel III Concerns

2013-02-20T07:45:00.001-05:00

Shelley Moore Capito (R-W.Va.), chairman of Financial Services’ Financial Institutions Subcommittee, and panel member Carolyn Maloney (D-N.Y.) yesterday urged the federal banking regulators to tailor the final Basel III capital requirements so that they’re appropriate for the wide range of institutions that comprise the U.S. financial system.

“We are concerned that the compliance costs of implementing the Basel III framework will force many [small] institutions that are not engaged in global banking to consolidate or go out of business altogether,” Capito and Maloney said in a letter.

The lawmakers also said they’re concerned that consumers ultimately will bear Basel III’s cost in the form of higher down payments and higher interest rates on residential mortgages.

ABA in its fall comment letter recommended that the agencies withdraw the Basel III standardized approach that contains unnecessarily complex risk-weighting calculations and other excessive details that aren’t needed to establish adequate capital levels.

Read the lawmakers’ letter.

ABA Comments on Fed’s Scenario Design Framework for Stress Testing

2013-02-19T09:15:00.000-05:00

ABA and The Financial Services Roundtable submitted a comment letter on the scenario development policy statement issued by the Board of Governors of the Federal Reserve. The Dodd-Frank Act mandates banking regulatory agencies to provide at least three different sets of stressed scenarios.

The associations have concerns about several components of the policy statement and requested the Agencies:

Coordinate to provide identical stress test scenarios to depository institutions and bank holding companies;
Provide scenarios to institutions earlier to enhance institutions’ internal governance of the results;
Adopt an approach for developing supervisory stress scenarios that leads to predictable, complete, and reasonable scenarios;
Provide a more detailed written description of the adverse and severely adverse scenarios; and
Provide clarity on how the Agencies developed the international assumptions and provide additional country specific variables.

Read the full letter.

Tarullo: Regulators Should Consider Making QM, QRM ‘Congruent’

2013-02-15T07:59:00.002-05:00

Regulators should consider aligning the pending risk retention rule’s “qualified residential mortgage” standard with the “qualified mortgage” standard under the ability-to-repay rule the CFPB finalized on Jan. 10, Federal Reserve Governor Daniel Tarullo said yesterday at a Senate Banking Committee hearing on bank oversight and Dodd-Frank Act implementation.

Regulators should be careful to ensure that different rules do not “constrict credit to middle and lower-middle class people, who might be priced out of the housing market,” Tarullo explained. “So I think it’s definitely the case that on the table should be consideration of making QRM more or less congruent with QM.”

Tarullo also told senators that they should expect “a good bit of change” in the final regulations implementing the Volcker Rule and Basel III. Both proposals have been criticized for being too complex, and Tarullo said regulators are taking that into consideration.

Read witnesses’ testimony.

Sens. Johnson, Crapo Urge Regulators to Address Basel III Concerns

2013-02-14T07:58:00.000-05:00

Senate Banking Committee Chairman Tim Johnson (D-S.D.) and panel ranking member Mike Crapo (R-Idaho) yesterday urged federal banking regulators to carefully consider how the Basel III capital proposals would affect community banks and to ensure that here are no unintended consequences.

In a letter the lawmakers noted that there are several Basel III issues that may adversely impact smaller banks.

[W]e are concerned that the proposed treatment of accumulated other comprehensive income, or AOCI, may increase volatility and make interest-rate risk more difficult for small banks to manage.

The senators added that they are also concerned that the Basel III proposed risk weights could hurt small banks’ ability to offer and service mortgages, especially in rural areas.

ABA Banking Journal: How Will Banks Fare in Washington This Year

2013-01-24T10:24:00.000-05:00

ABA Banking Journal has published a special report entitled “The Road Ahead: How Will Banking Fare in Washington This Year.” The ABA Banking Journal interviewed ABA’s top lobbyist and staff experts to gain their insights on what the banking industry might face in 2013.

Topics covered range from Basel III, mortgage reform, possible Dodd-Frank fixes, the CFPB, and exam reform.

Wayne Abernathy, ABA executive vice-president, financial institutions policy and regulatory affairs, on the outlook for 2013:

We're hoping that with the elections being over, the political fun with the banking industry is now also over. Now, maybe, people here [in Washington] can recognize that the banking industry can actually be an important part of economic recovery. And that kind of depoliticizes it.

[In 2013,] I believe that bank policy on the Hill and among the regulators is going to be far less politicized.

Read the full ABA Banking Journal article.

ABA Distributes Business-of-Banking Guide to Lawmakers

2013-01-24T08:12:00.000-05:00

ABA this week distributed to Capitol Hill offices a new resource to help lawmakers evaluate legislative proposals affecting banks. "The Business of Banking: What Every Policy Maker Needs to Know" reviews the basics of banking and provides a foundation for understanding how banking policy decisions affect communities and constituents.

“Policy issues surrounding banking can be complex, but the basic business of banking is not,” ABA President and CEO Frank Keating wrote in a cover memo to the guide. “Banks convert customer deposits and other funds to loans that help individuals, businesses and the economy grow. With growth comes jobs, and with jobs comes prosperity.”

Keating added that since banks’ fundamental mission is a vital one, policies should help rather than hinder it. “Congress, regulators and banks have a shared vested interest in the health and success of America’s banking industry,” he said.

Bankers can download the guide at aba.com/businessofbanking.

The Week Ahead: January 21 – January 25

2013-01-18T07:59:00.000-05:00

Tuesday

Comment Due SEC: Capital & Marginal Requirements on Swaps. Read more.
Comments Due FDIC: Development and Distribution of Annual Stress Test Scenarios. Read more.

Thursday

ABA Telephone Briefing: Managing 2013 Compliance Priorities. Read more and register.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

Join us at the ABA Government Relations Summit
The ABA Government Relations Summit is your opportunity to educate lawmakers and regulators about the vital role banks play in the economy. It’s also a time to meet with new leadership and advocate for policy change to support the banking industry. Read more and join us this April!

Basel Rules Out of Touch with Laws, Customs and Economic Conditions

2013-01-16T07:00:00.000-05:00

“The Basel rules are seriously out of touch with the laws, customs and economic conditions in the U.S., yet the proposition is that banks should follow them anyway for the sake of international regulatory solidarity,” wrote Wayne Abernathy, ABA’s EVP for Financial Institutions Policy and Regulatory Affairs.

In Abernathy’s American Banker article published today, he continues,

The idea that bankers must manage their liquidity positions is a good one. The idea that a college of experts in Switzerland can tell bankers around the world how to do it is unreasonable, and dangerous. Liquidity is a chameleon, directly affected by the local environment, which in turn is subject to change in many ways, predictable and otherwise.

Abernathy describes communications he has had with a banker in South Africa, noting Basel standards crafted in Switzerland will be applied from New York to Soweto.

When I raised concerns that Basel capital rules would contract bank services, my South African colleague recast the issue in starker terms. Authorities could encourage growth or they could repress the banking industry, but not both. As he saw it, the authorities have, for now, chosen repression.

Read the full article by following our ABARegPolicy twitter account, on the left hand side of the Dodd-Frank Tracker homepage.

OCC Curry Sees Congress Considering Technical Corrections to Dodd-Frank Act in 2013

2013-01-14T11:54:00.000-05:00

OCC Thomas Curry spoke to the California Bankers Association at the Annual Bank Presidents Seminar on the topic of looking ahead to some of the challenges and opportunities likely to be faced by the banking industry in 2013. Topics Curry focused on included the recovery of housing markets, the continued integration of the OTS and OCC, the regulatory and legislative landscape for 2013, and industry safety and soundness.

On the topic of Dodd-Frank, Curry stated:

As we look out over the legislative landscape, I think it is likely that Congress will consider a number of technical corrections to Dodd-Frank – and perhaps some corrections that are a bit more substantive than technical – but I doubt that the basic legislative framework will undergo significant change. So the rules we are finishing work on now are not likely to change much as a result of anything Congress might do.

Read Curry’s full remarks.

Basel Committee Revises Liquidity Standards for Banks

2013-01-07T09:04:00.000-05:00

The Basel Committee on Banking Supervision, after a meeting this weekend, announced its intent to delay the compliance date and soften Liquidity Coverage Ratio (LCR) requirements significantly.

In addition, the Committee suggested revisions to the definition of high quality liquid assets (HQLA) and net cash outflows; a timetable for phase-in of the standard; and a reaffirmation of the usability of the stock of liquid assets in periods of stress, including during the transition period.

Read more.

The Week Ahead: December 31 - January 4

2012-12-28T08:14:00.001-05:00

Monday

CFTC’s Temporary DFA Swaps Provisions Relief Expires. Read more.
FDIC TAG Program Ends. Read more.
Savings Associations Report of Condition on Foreign Branch Report.

Tuesday

Final Rule CFPB/Federal Reserve: Regulation M Official Interpretation. Read more.
Final Rule Effective CFPB/Federal Reserve: Regulation Z Official Interpretation. Read more.
Final Rule FDIC: Investment Grade Definition. Read more.
Final Rule OCC: Credit Rating Alternatives. Read more.
Joint Final Rule: Market Risk Capital. Read more.

Wednesday

Final Rule Effective CFPB: Supervision of Consumer Debt Collectors. Read more.
Final Rule Effective CFTC: Incorporating Swaps. Read more.
Final Rule Effective SEC: Clearing Agency Standards. Read more.

Friday

Comments Due OCC: Mutual Savings Association Advisory Committee. Read more.

Foreign Regulators' Basel Exams for U.S. Banks a Bad Idea

2012-12-19T07:50:00.003-05:00

The Basel Committee's peer review program under which foreign regulators will visit U.S. banks to ensure they're adopting Basel standards is a critically flawed idea, ABA senior counsel Hugh Carney said in a BankThink op-ed in the American Banker newspaper.

"I find it extremely troubling that foreign regulators will be in U.S. banks on U.S. soil to ensure they are complying with foreign standards, just because U.S. regulators felt it was OK," Carney wrote.

He noted that technically U.S. banks can opt out of the foreign-examiner visits. "However, when U.S. regulators have endorsed the program and even chair the Basel group running the program, few banks will view participation as voluntary," Carney said.

He emphasized that the Basel agreement is not a treaty, was never ratified by the Senate, or subjected to legislative review and sanction. "The initiative to extend authority to examine U.S. banks to a team of foreign inspectors is not one that can be comfortably taken without congressional action," Carney said.

Read the op-ed.

Fed Issues Proposal on Foreign Banks’ U.S. Operations

2012-12-17T07:37:00.000-05:00

The Federal Reserve issued a proposed rule that would require large foreign banks to organize their U.S. operations under a single intermediate holding company. An intermediate holding company—or IHC—“would create a platform for the consistent supervision and regulation of the U.S. operations of foreign [banks] and help facilitate the resolution of failing U.S. operations of a foreign bank if needed,” the Fed said.

The proposal implements provisions of the Dodd-Frank Act in a manner that addresses the complexity, interconnectedness, and concentration of the U.S. operations of foreign banking organizations.

Under the proposal, foreign bank IHCs would be subject to the same risk-based and leverage capital standards applicable to U.S. bank holding companies.

IHCs with $50 billion or more in consolidated assets also would be subject to the Fed’s capital plan rule, the agency said. The Fed added that the domestic operations of foreign banks with combined U.S. assets of $50 billion or more would be required to meet enhanced liquidity risk-management standards, conduct liquidity stress tests, and hold a 30-day buffer of highly liquid assets.

The comment deadline on the proposal is March 31.

Read more.
Read the proposed rule.