Notes from the Bloomberg teleconference on community banks

Bloomberg today organized a teleconference highlighting the regulatory and political landscape for community banks. The high points:

FDIC changes

  • New rules on April 26 for assessing fees on banks w less than $10B in assets. Includes a statistical function that estimates 5Y probability of failure. FDIC expects 93% will see a drop in assessments, with 7% seeing a rise.
  • FDIC also relaxed its rules on April 6 that it will shorten the period of heightened supervision for de novo banks from seven years to three years.

Action in the House of Representatives

  • The Taylor Act, HR2896 would require regulators to explain how banking bills apply to different types of institutions. Approved in committee with party-line vote.
  • In 2015, a 5-year highway funding bill included provisions that extended regulatory exam cycles from 12 to 18 months on banks with total assets between $500MM and $1B.
  • Fed lately has also allowed banks to submit loan tapes for regulatory review rather than doing the review onsite

Developments at the Consumer Financial Protection Bureau

  • Field hearing on May 5 and may unveil rules that limits fee dispute clauses in consumer lending contracts that rule out class action suits.
  • In June may pass rules requiring more disclosure on pre-paid cards and may apply credit card standards similar overdraft fees
  • Proposed rule on payday loans could require lenders to meet ATR rules, although this concern has been around for years
  • Community bank lobbyists have pressured DC to limit Dodd-Frank impact on Community Banks, but the White House has largely blocked these efforts. A change in administration could change the field. One big push is to change CFPB from a director-led to a commission-led agency.

The political landscape in Congress

  • Issues haven’t really changed from 2015, and all issues get filtered through their impact on Dodd-Frank requirements. Democrats blunt changes to Dodd-Frank, Republicans encourage them. House churns out bills with its Republican majority even though they have little change of Senate approval. Ability to filibuster in the Senate and Sen. Warren’s opposition to any changes in Dodd-Frank limits the chance of change in the Senate. Election incentives change the incentives to pass different kinds of bills. The budget process opens a window for change, with each party trying to attach changes that would not stand on their own, the bank provisions in the 5-year highway bill being a case in point.
  • Likely upcoming issues will be too-big-to-fail. It’s showing up in the presidential campaign. Nothing is likely to pass, but the noise signals that policymakers – including regulators – are refocusing on reigning in big banks.
  • There’s interest in expanding a Qualified Mortgage to include any that goes into a bank portfolio, with the differences being whether that means any bank portfolio or only community bank portfolios.

The courts and the law

  • Real Estate Settlement Procedures Act (RESPA). PHH Corp. v CFPB in US Court of Appeals for the DC Circuit. The key issue here is whether lender behavior subject to CFPB administrative actions have no statute of limitations or will be subject to the same 3-year limit that applies to court action.

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