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April 7, 2017

Financial reg reform talk intensifies

While it’s unclear whether financial regulatory reform legislation will proceed, at the earliest, later this year or early next (following consideration of big issues such as health care and tax reform this year), some in Congress were busy nonetheless this week addressing reform issues, including with a House hearing where a witness proposed consolidating NCUA and other federal regulators into one agency.

Thursday’s regulatory reform hearing (held by the House financial institutions subcommittee) considered the impact of federal regulator rules and processes – including NCUA’s – on providers of financial institutions and their customers and members, with an emphasis on examining “opportunities for reform of these federal financial agencies” and the aim of “improving transparency, accountability and due process for regulated persons and entities and their customers,” according to the subcommittee’s memo outlining the hearing’s scope.

In that context, witness Norbert Michel from the Heritage Foundation recommended that lawmakers consider several plans, including one establishing a single bank and credit union supervisor and regulator by merging the NCUA, OCC, the FDIC, and the Federal Reserve’s bank supervisory and regulatory functions. “There is no good reason, for example, to have seven federal financial regulators (the Federal Reserve, the FDIC, the OCC, the NCUA, the SEC, the CFTC, and the CFPB) and individual state regulatory agencies,” Michel said. “Congress should work with the Trump Administration to improve the effectiveness and efficiency of the U.S. financial regulatory system.” Michel also recommended revising the structure, mission and functions of CFPB (as did other witnesses on the panel), and merging the CFTC and SEC. Michel, one of four witnesses at the hearing, was the only one to recommend regulatory consolidation.

Testimony of Norbert Michel, The Heritage Foundation (see last two pages)


Earlier in the week, at a separate hearing about the governance structure of the Federal Reserve (held by the House monetary policy and trade subcommittee), Chairman Randy Barr (R-Ky.) suggested “it is time for a policy framework that finally ends centrally directed monetary interventions and restores economic dynamism,” asserting that the Fed’s recent “most interventionist” of monetary policies, “left us with a persistent economic funk.” Coincidentally (and perhaps giving some momentum to Fed reformers’ efforts), the same day of the hearing, the president of the Richmond Federal Reserve Bank resigned, after admitting that he had improperly disclosed sensitive information about monetary policy to a financial analyst in 2012. In a statement, bank President Jeffrey Lacker said he regretted that five years ago “I crossed the line to confirming information that should have remained confidential,” he said.


Meanwhile, three other voices spoke up about financial regulatory reform this week – from several sides of the issue. On Tuesday, outgoing Federal Reserve Board Gov. Daniel K. Tarullo – in a speech titled “Departing Thoughts” (Wednesday was his last day on the board) – said it is crucial that a strong capital regime for financial institutions be maintained. “Neither regulators nor legislators should agree to changes that would effectively weaken that regime, whether directly or indirectly,” he said. “It would be tragic if the lessons of the financial crisis were forgotten so quickly,” he added. That same day, however (but in a separate venue), President Donald Trump told a CEO town hall that his administration wants strong banking regulation, but not regulation that makes it impossible for the banks to loan to people who are going to create jobs. “We are going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people that need it," he said. The next day (according to news reports) Trump’s senior economic adviser, Gary Cohn, told a group of visiting senators that he favors separating lending and investing at banks, essentially, reinstating Glass-Steagall restrictions.


Also meanwhile: Treasury Secretary Steven Mnuchin and top staff members have been meeting this week with financial industry groups (including those from credit unions and banks) about financial regulatory reform. High on the list for the groups meeting with the Treasury officials: reducing their regulatory burdens. The meetings were held, in part, to inform Mnuchin’s drafting of a report mandated by President Trump’s Feb. 3 executive order, which outlined “Core Principles” for regulating the U.S. financial system. Among the six core principles: restoring public accountability within federal financial regulatory agencies, and “rationalizing the federal financial regulatory framework.” Mnuchin has a deadline of June 5 (120 days since the order was issued) for completing his report. Among the items mandated to be included in the report: determine what actions (including laws and regulations) have been or are being taken “to promote and support the Core Principles.”

Presidential Executive Order on Core Principles for Regulating the United States Financial System


A bill intended to address the disparity in certain residential loans made by credit unions and banks was introduced this week by Sens. Lisa Murkowski (R-Alaska) and Ron Wyden (D-Oregon). If enacted, S. 836 (the Credit Union Residential Loan Parity Act) would correct a disparity between credit unions and banks: now, if a credit union lends money to purchase a 1- 4 unit non-owner occupied residential dwelling, the loan is classified as a business loan and is then subject to the member business lending cap. However, if a bank were to make the same loan it is classified as a residential real estate loan. The legislation is intended to correct the disparity. A House version of the measure (H.R. 389, the “Credit Union Residential Loan Parity Act”) was introduced in January.

S.836: Credit Union Residential Loan Parity Act


A summary of CFPB’s call for comments on the effectiveness of the bureau’s rule on remittances has been prepared and posted by NASCUS, noting six areas in which comments are being sought. Comments are due by May 23. In its notice announcing the “assessment” of its rule (which is required by law every five years), CFPB stated that it included a request for suggestions of sources of data and to generally provide information that “would help with the assessment.” A report on assessment of the remittance rule , the agency said, will be issued in the fall of 2018, and will (as required by law) address the rule’s effectiveness in “meeting the purposes and objectives of Title X of the Dodd-Frank Act and the specific goals of the remittance rule, using available evidence and data.” The NASCUS summary provides a quick outline of the six-page request for comments, as well as access to information needed to submit comments.

NASCUS Summary: Request for Information Regarding Remittance Rule Assessment Plan


Any changes to “regulatory and enforcement systems” for marijuana by the federal government should be preceded by engagement with their states, four western governors have recommended to U.S. Attorney General Jeff Sessions, especially as doing so could pose safety risks to both the public and state regulators enforcing those systems. In a letter from Govs. Bill Walker (I-Alaska), John Hickenlooper (D-Colo.), Kate Brown (D-Oregon) and Jay Inslee (D-Wash.) to Sessions, the governors noted that the 2013 “Cole Memorandum” from the Justice Department struck a balance that has been “indispensable – providing the necessary framework for state regulatory programs on public safety and health protections.” However, the state leaders told Sessions it is their understanding that the attorney general and others in the Trump administration have concerns regarding marijuana. But, they noted, altering the Cole Memo may not be the way to address those concerns.

“Overhauling the Cole Memo is sure to produce unintended and harmful consequences,” the four governors wrote. “Changes that hurt the regulated market would divert existing marijuana product into the black market and increase dangerous activity in both our states and our neighboring states.”

The governors also pointed out that without related Financial Crimes Enforcement Network (FinCEN) guidance, financial institutions would be less willing to provide services to marijuana-related businesses. “This would force industry participants to be even more cash reliant, posing safety risks both to the public and to state regulators conducting enforcement activity,” they stated. They added that both the Cole Memo and the FinCEN guidance are critical to the success of collaboration between state and federal governments. “Twenty-eight states, representing more than 60 percent of Americans, have authorized some form of marijuana-related conduct,” they wrote. “As we face the reality of these legalizations, we stand eager to work with our federal partners to address implementation and enforcement concerns cooperatively.”

Letter from four governors to AG Sessions on marijuana laws


Conversions as of Feb 17Conversions of federally chartered credit unions to state charters is continuing in 2017, with larger credit unions converting to the state charter, resuming a four-year trend going back to 2012 (but interrupted in 2016). According to the latest charter conversion figures compiled and analyzed by NASCUS, three federally chartered credit unions, with combined assets of $1.4 billion, have made the switch to a state charter so far this year (through February). From 2012 on, the NASCUS compilation shows, 47 credit unions have switched from federal to state charters, with combined assets of $28.7 billion. Over the same period, only 15 state credit unions (with combined assets of $2.8 billion) have made the move to a federal charter, the NASCUS analysis shows. However, in 2016 five state charters (with assets of $530 million) moved to a federal charter, while only four federals switched to state (with assets of $251 million), the only year in the period 2012-17 that state-to-federal conversions outdistanced federal-to-state.


Tennessee Commissioner of Financial Institutions Greg Gonzales and Idaho Financial Institutions Bureau Chief Mary Hughes have been re-appointed to seats on the FFIEC’s State Liaison Committee (SLC), both to two-year terms, the Exam Council announced this week. Hughes is the NASCUS representative on the panel, through March 2019. NASCUS Chairman Mary Ellen O’Neill (Director, Financial Institution Division, Connecticut Department of Banking) appointed Hughes to the two-year term. In other developments, NCUA Acting Board Chairman J. Mark McWatters participated in his first meeting last week of the Exam Council in his current position.

BRIEFLY: Alt. capital work; ‘Pleased’ with GAO; FRB council applications; DOL fiduciary rule; Leg/Reg cmte. meets

NASCUS’ working group on the NCUA alternative capital proposal meets today, to begin assembling the association’s comments on the issue … Private credit union deposit insurer American Share Insurance (ASI) said this week it was “pleased to see the favorable and constructive comments” within the Government Accountability Office’s (GAO) recently released report, noting that privately insured credit unions disclose their insurance status, but more guidance is needed by CFPB. NASCUS President and CEO Lucy Ito echoed the company’s comments (voiced by ASI CEO Dennis Adams), and noted that the GAO report underscores the dynamism of the dual charter system … Representatives of consumer and community development organizations - including credit union representatives - can apply for membership on the Federal Reserve Board's Community Advisory Council for terms beginning Jan. 1, 2018; see the link below for details … The Labor Department has extended by 60 days – to June 9 rather than on April 10, 2017, as originally scheduled -- the applicability dates of its fiduciary rule and related exemptions, including the Best Interest Contract Exemption … The NASCUS Legislative/Regulatory Committee met Thursday (the first Thursday of the month – the group’s regular meeting date) to discuss a variety of issues, including NCUA’s 2017 regulatory review, NCUA Acting Chairman McWatters’ regulatory relief agenda, and recent litigation. Reminder: membership on the committee is open to all NASCUS members.

Federal Reserve Board accepting applications for its Community Advisory Council

NASCUS Regulatory Resources/latest updates

Information Contact:
Patrick Keefe, NASCUS Communications, or (703) 528-5974