In separate remarks delivered before the annual Washington meeting of the Institute for International Bankers on March 11, FDIC Chair Jelena McWilliams and Comptroller of the Currency Joseph Otting both said that the federal financial regulatory agencies are actively considering revisions to the Volcker Rule regulations, including a reconfiguration of the interagency Volcker Rule regulatory proposals published in June 2018. Ms. McWilliams, among other things, indicated that “all options are on the table," and stated that the federal agencies “need to right size the rule's extraterritorial scope while also minimizing competitive inequities between U.S. banking entities and their foreign counterparts…” with a particular focus on foreign funds.

On July 6, the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (together, the Agencies) issued an interagency statement (Statement) regarding the impact of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (the tongue-tying EGRRCPA), which we previously summarized. The new law amended the Dodd-Frank Act to streamline certain of its systemic regulation requirements, and provide a modest level of relief for midsized banks and community banking institutions. The Statement addressed some of the immediate impacts of EGRRCPA and the Agencies’ responses to those provisions that took effect immediately. The Federal Reserve Board also issued a separate conforming statement addressing the impact of EGRRCPA on bank holding companies subject to its supervision (FRB Statement).

Among other things, EGRRCPA increases the Dodd-Frank Act enhanced prudential supervision threshold for bank holding companies with $50 billion in total consolidated assets by exempting bank holding companies with total consolidated assets of less than $100 billion immediately upon enactment (May 24, 2018), and raising this threshold to $250 billion 18 months after the date of enactment (November 25, 2019). EGRRCPA also allows the application of any enhanced prudential standard to bank holding companies with between $100 billion and $250 billion in total consolidated assets.

Since taking on the role in November 2017, Comptroller of the Currency Joseph Otting has been relatively circumspect regarding his views on the banking industry, bank regulation, and bank regulatory reform. In testimony on June 14 before the Senate Committee on Banking, Housing, and Urban Affairs, Comptroller Otting provided the clearest insight to date about his views on the federal banking system and the role of bank regulation.

In his testimony, Comptroller Otting first discussed risk in the banking system and the OCC’s “supervision by risk” approach, noting the following areas of heightened risk:

  • Elevated credit risk due to eased credit underwriting, increased commercial real estate concentration limits, and policy exceptions that create a higher level of concern
  • Elevated operational risk created by cybersecurity threats and third-party relationships, including risks created by consolidation in the fintech industry, which has led to a limited number of providers servicing large segments of the banking industry
  • Elevated compliance risk due to Bank Secrecy Act (BSA) requirements, the new FinCEN beneficial ownership rules, and new technologies that attempt to increase customer convenience and access to financial products and services, and the need for banks to better manage implementation of regulatory changes in consumer laws

It’s here. The Federal Reserve Board and the Federal Deposit Insurance Corporation have released a proposed rule (Proposed Rule) that would make important modifications to Section 13 of the Bank Holding Company Act, commonly known as “the Volcker Rule.” The Proposed Rule is intended to address the “complexity” of the Volcker Rule, which has created “compliance uncertainty” and, in the words of Fed Chairman Jerome Powell, to “allow firms to conduct appropriate activities without undue burden and without sacrificing safety and soundness.”

The remaining three agencies responsible for implementation of the Volcker Rule (Office of the Comptroller of Currency, the US Securities and Exchange Commission, and the Commodity Futures Trading Commission) are expected to release their proposals shortly. Other than agency-specific variations, the proposal released by each of the five agencies is expected to be the same. The comment period for the Proposed Rule will be 60 days from the date of publication of the proposal in the Federal Register.

Just over two months after the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S 2155), the House voted 258-159 (with 33 Democrats voting “yea”) to pass S 2155 without amendments. S 2155 was quickly signed into law by President Donald Trump.

Until recently, S 2155 faced an uncertain future in the House. In June 2017, the House had passed its version of financial regulatory reform (HR 10, better known as the Financial CHOICE Act of 2017 (CHOICE Act). The CHOICE Act was a relatively comprehensive effort to reform the Dodd-Frank Act. Because it included a large number of provisions that would not attract broad bipartisan support, however, the CHOICE Act never was seen as having much, if any, chance of passing the Senate.

When S 2155 was passed, House Financial Services Committee Chairman Jeb Hensarling (R-TX) signaled that the House was not inclined to pass it without incorporating at least some elements of the CHOICE Act. In the interim, however, Mr. Hensarling and other Republicans were persuaded to allow a vote on S 2155 without further amendment, with the promise that additional provisions of the CHOICE Act could be brought as a separate bill or bills, which resulted in House passage of the bill.

In a rare bipartisan vote, 16 Democrats and one Independent who caucuses with the Democrats joined with 50 Republicans to pass Senate Bill 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Senate Bill). The Senate Bill is the most comprehensive reform to the Dodd-Frank Act that has passed the Senate, although it is more limited in scope than HR 10, better known as the Financial CHOICE Act of 2017, the Dodd-Frank Act reform bill passed by the House of Representatives in June 2017.

There are a number of notable provisions in the Senate Bill.

In pointed and detailed public remarks, Federal Reserve Board Vice Chairman for Supervision Randal Quarles said on Monday that the Volcker Rule is “an example of a complex regulation that is not working well” and proposed a number of possible changes to the Volcker Rule. Mr. Quarles emphasized that all five regulatory agencies responsible for the implementation of the Volcker Rule are actively working on changes to the Volcker Rule. Overall, the possible changes outlined by Mr. Quarles focus on reducing the burden of the Volcker Rule within the boundaries of the statutory requirements, particularly for financial institutions that do not have large trading operations, as well as limiting unintended extraterritorial effects of the Volcker Rule. Further, it is not clear whether all five regulatory agencies are in alignment with the priorities and solutions that Mr. Quarles outlined in his speech, although he stated that he thought the odds of implementing the changes are “pretty good.”

US financial reform at the congressional and regulatory agency levels continues to move along—albeit more in fits and starts than in a blaze of big happenings. Below is a recap on where matters currently stand.

Congress

The US Senate financial regulatory reform bill, “The Economic Growth, Regulatory Relief and Consumer Protection Act” (S. 2155), about which we have previously written, remains on the Senate legislative calendar and now has 25 co-sponsors (12 Democrats, 12 Republicans, and 1 Independent who caucuses with the Democrats). No major actions on the bill have been taken. Given the bipartisan nature of the bill, it stands a reasonable chance of passing in the Senate (a vote will reportedly occur sometime in March) but will face strong opposition from Senator Elizabeth Warren and other progressive Democrats. There has been no indication from the House of Representatives thus far as to whether it will take up the Senate bill (if passed) or push for broader regulatory reform to align with its own financial regulatory reform bill.

Targeted bipartisan financial regulatory reform legislation announced last month has been approved by the Senate Banking Committee after a markup session on December 5. The “Economic Growth, Regulatory Relief and Consumer Protection Act” (S. 2155) is sponsored by Senate Banking Committee Chair Mike Crapo (R-ID) and has 19 co-sponsors (nine Democrats, nine Republicans, and one Independent who caucuses with the Democrats), and makes some significant changes to parts of the Dodd-Frank Act. The markup session resulted in technical and other less significant, mutually agreed-upon changes to the bill.

S. 2155 would make targeted changes to Dodd-Frank Act requirements that are applicable to banks, mortgage companies, and other providers of consumer financial services, and that are primarily intended to ease regulatory burdens on regional and community banking organizations. Some of the more notable changes include the following:

As the first anniversary of the Trump administration fast approaches, we decided to take a quick look at where matters stand on financial services reform.

This is what we see at the present time:

Congressional Action

On the congressional front, we have not been optimistic about the general prospects for changes to the Dodd-Frank Act or other financial reform legislation. But Senate Banking Committee Chair Mike Crapo and several Banking Committee Democrats on November 13 announced a bipartisan agreement in principle on the outlines of targeted “economic growth” legislation. The new proposal would, among other things, raise the current Dodd-Frank Act $50 billion asset threshold for a bank to be treated as “systemically important”—and therefore subject to more stringent Dodd-Frank systemic regulation—to $250 billion. The proposal also contains other “community bank relief” measures, including an exemption from the Volcker Rule for banking organizations with less than $10 billion in assets and limited trading assets. As is generally the case these days, prospects for further action on this proposal are uncertain, with progressive members of Congress already beginning to speak out against it. The fact that the proposal has (some) bipartisan support, however, may give this initiative the “legs” that prior congressional initiatives such as the Financial CHOICE Act never really had.