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Republicans push for faster S 2155 adoption

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Inside the Beltway
Friday, August 16, 2019

Republicans on the Senate Banking Committee recently wrote to federal banking regulators to urge the swifter adoption of changes made from recent regulatory financial reform in S. 2155.

“More can still be done to support the economic expansion,” the senators, led by Chairman Mike Crapo (R-Idaho), said in the letter. “The Banking Committee continues to explore additional ways that regulations can be tailored to further spur economic growth. As you move forward with finalizing rules implementing S. 2155 and proposing and finalizing other rules, we urge you to consider several critical issues.”

The letter was written to Fed Chairman Jerome Powell, Comptroller of the Currency Joseph Otting and Federal Deposit Insurance Corp. Chairwoman Jelena McWilliams. It is the latest expression of frustration from Republicans in Congress on the slow pace of adoption of reforms passed last year in S. 2155.

Among the specific complaints from Senate Republicans was the regulators’ adoption of a 9 percent Community Bank Leverage Ratio (CBLR), the midpoint of S. 2155’s statutory mandate of a range between 8 percent and 10 percent.

“The proposed 9 percent CBLR is well above the current Tier 1 leverage requirement for well-capitalized banks,” the letter stated. “The purpose of Section 201 of S. 2155 was to simplify the capital regime for community banks and ensure community banks maintain enough capital to weather a downturn. Accordingly, we encourage your agencies to use the discretion provided to you by Congress to establish the CBLR at 8 percent, which would result in community banks receiving relief under the CBLR while maintaining significant capital.”

In addition, the regulators’ proposal of 9 percent CBLR established a new prompt correction action (PCA) framework based on the 9 percent level. That also was not favored by the Senate Republicans.

“The operational restrictions imposed on institutions that fall into less-than-well-capitalized categories have significant negative effects on those businesses,” the letter stated. “Therefore, if your agencies decide to proceed with the framework for handling less-than-well-capitalized institutions as proposed, instead of opting for an alternative approach, we urge you to ensure that the CBLR thresholds used as proxies for PCA categories are not so punitive as to unintentionally deter qualified institutions from utilizing the CBLR framework.”

Another top area of concern was short-form call reports, addressed in Section 205 of S. 2155. But hewing to banking trade association complaints, the Senate Republicans said the relief granted by regulators did not go far enough to meet the expected standards in S. 2155.

“Under the final rule, current short-form call report filers would only save 1.03 hours per quarter, and some stakeholders have expressed concern about the limited relief,” the letter stated. “We urge you to continue to explore additional opportunities to reduce the regulatory reporting burden for community banks.”

Other areas of note included a call to help institutions with changes coming through the current expected credit losses (CECL) accounting standard, on relief from the Volcker Rule highlighted in S. 2155, and on more relief from stress tests and other tailoring available to regulators.

Finally, the Senate Republicans noted the urgency of consistency in the “valid-when-made” doctrine which was come into question since the Madden v. Midland Funding case ruling.

“Since Madden, the bank partnership model has been challenged by cases in other jurisdictions,” the letter stated. “The Treasury Department’s July 2018 report … recommended that your agencies should use your available authorities to address the challenges posed by Madden. … We urge your agencies to use all available authorities to clarify uncertainties introduced by Madden, and to weigh in with courts considering outstanding cases.”

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