WASHINGTON UPDATE. Nathan Ross. Director Legislative Policy Conference of State Bank Supervisors

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1 WASHINGTON UPDATE Nathan Ross Director Legislative Policy Conference of State Bank Supervisors

2 Insights from Washington Nathan Ross Director, Legislative Policy Conference of State Bank Supervisors

3 CSBS Who We Are State Banking Regulators Washington DC Field Office Legislative and Regulatory Policy Advocacy Regulatory Coordination Federal Financial Institutions Examination Council (FFIEC) Financial Stability Oversight Council (FSOC) Training Accreditation 3

4 Agenda I. Industry Composition II. Washington s New World Order III. Public Policy Outlook 4

5 U.S. Charters by Authority 7% OCC Thrifts 16% OCC Banks 77% State Source: FDIC In 1985 there were more than 18,000 active bank charters in the United States. Of the 5,989 banks in operation as of Q3 2016, 4,654 (77%) hold a state charter. 5

6 Industry Composition and Concentration There are 5,989 FDIC insured banks in operation as of Q o 78 banks left the system in Q3 (202 total YTD) (5 failures YTD) o 327 in 2015 (8 failures) o Only one recent de novo (Q1 2015) New Hampshire. Banks with assets less than $10 billion control only 18% of total industry assets. 89% of state chartered institutions have less than $1 billion in assets. Approx. 60% of National Bank assets are concentrated in 4 institutions. o Those four banks hold 41% of total industry assets 6

7 Percent Consolidation Impacts Diversity % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% >1T 100B to 1T 50B to 100B 10B to 50B 1B to 10B 100M to 1B <100M 10.00% 0.00% Source: FDIC 7

8 Community Banks are a Vital Source of Credit 8

9 Small Business Lending as a % of Total Lending by Asset Group Small Business Lending as a % of Total Lending By Asset Group 100% 96% 95% 97% 91% 90% 87% 80% 74% 70% 60% 50% 40% 30% 26% 20% 13% 9% 10% 4% 5% 3% 0% <1B 1-10B 10-50B B 100B-1T >1T SBL Other 9

10 Community Banking in the 21 st Century Conference National Survey Direct banker engagement Community Bank Case Study Competition Video Series Academic Research 10

11 Agenda I. Industry Composition II. Washington s New World Order III. Public Policy Outlook 11

12 The Trump Administration Donald Trump is the 45 th President Vice President Mike Pence Oversaw transition Close to House Financial Services Chairman Hensarling Treasury Secretary Steven Mnuchin Goldman Sachs OneWest National Economic Council Director Gary Cohn Goldman Sachs Close to tech industry 12

13 115 th Congress Balance of Power Republicans lost some seats in the House, but maintain control of both chambers of Congress. House: 238 Republican Seats, 194 Democrat Seats 4 races still outstanding. Senate: 52 Republican Seats, 46 Democrat Seats, 2 Independent (Caucus with D s) 13

14 115 th Congress Committee Leadership Senate Banking, Housing & Urban Affairs Chairman Mike Crapo (R-ID); Ranking Member Sherrod Brown (D-OH) FI Subcommittee: Chairman Pat Toomey (R-PA); Ranking Member Elizabeth Warren (D-MA) House Financial Services Committee Chairman Jeb Hensarling (R-TX); Ranking Member Maxine Waters (D-CA) FI Subcommittee: Chairman Blaine Luetkemeyer (R-MO); Ranking Member Lacy Clay (D-MO) 14

15 Senate Banking Members & 2018 Source: New York Times 15

16 Agenda I. Industry Composition II. Washington s New World Order III. Public Policy Outlook 16

17 What to do with Dodd-Frank? Repeal or Amend? Hot ticket items Financial Stability Oversight Council (FSOC) Authority Process Consumer Financial Protection Bureau (CFPB) Funding Leadership structure $50 billion threshold for Enhanced Prudential Standards Orderly Liquidation Authority and Too Big to Fail Community bank regulatory relief Volcker rule 21 st Century Glass-Steagall? 17

18 Nominations Agency Leadership Term Expires FDIC Martin Gruenberg November 2017 OCC Tom Curry (Acting Comptroller) CFPB Richard Cordray July 2018 Federal Reserve Board Chair Janet Yellen (Term as Chair ends in February 2018) (January 2024) Vice Chairman Stanley Fischer (January 2020) Vice Chairmanship ends June 2018 Lael Brainard (2026) Jay Powell (2028) Vacancy Vacancy Vacancy Additional vacancies at the FDIC, Fed Vice Chair of Supervision & Treasury 18

19 Regulatory Relief by Executive Order Two-for-one Core Principles for Regulating the U.S. Financial System Deregulatory Task Forces 19

20 Congress s Financial Services Agenda Nominations Flood Insurance Regulatory Relief (aka, Repeal/Replace Dodd-Frank ) GSE Reform 20

21 Financial CHOICE Act (2.0) HFSC Chair Jeb Hensarling s Repeal & Replace Plan Highlights: Banks holding 10% leverage capital get regulatory relief from Basel III standards and Dodd-Frank s Enhanced Prudential Standards Repeal FSOC authority to designate SIFIs Fundamentally reform the CFPB (shift from single director to commission) Make changes to Federal Reserve and FOMC; Repeal the Volcker Rule prohibition on proprietary trading Make all federal financial agencies operate as bipartisan commissions; Eliminate head of CFPB and OCC from FDIC Board; Require many regulations to receive congressional approval before becoming effective; Repeal the Chevron doctrine; Overhaul the living will process for SIFIs; Expand QM Safe Harbor to all loans held in portfolio Repeal DFA Section 1071 (CFPB Small Business Lending Data Collection) 21

22 The Senate and Regulatory Reform Crapo-Brown Request for Economic Growth Proposals What s past is prologue? Shelby s Financial Regulatory Improvement Act Regulatory relief for community financial institutions Systemically important BHCs FSOC and non-bank designations Federal Reserve reform Brown s Democratic Substitute Community Financial Institution Regulatory Relief and Consumer Protection Act 22

23 Recent Community Bank Wins Highway bill of December 2015: Rural petition process for the CFPB; Expanded CFPB Escrow exemptions for rural and underserved areas; QM Balloon Loans held in portfolio for rural and underserved areas; Granted relief from Gramm-Leach-Bliley privacy notice requirements; and Increased from $500 million to $1 billion the threshold for wellcapitalized banks eligible for an 18-month exam cycle. More broadly, agency officials talk with more certainty about the difference in how community banks operate and the regulatory approach. 23

24 Congressional Review Act Alternative path for some regulatory relief CFPB prepaid card rule Tax inversion Swaps rules Forthcoming Fed rules 24

25 Also on the To Do List Flood Insurance Reauthorization Must do by September 30 Housing Finance Reform The role of government in the housing finance system FinTech Banks and innovation Friends or Foes State-federal balance in regulation What s at stake BSA/AML Reform Rising compliance costs and complexity 25

26 Questions? 26

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