CRA, capital rules, reg relief: Regulators’ busy fall to-do list

The bank regulatory agencies have yet to develop a joint proposal on reforming their CRA policy to keep pace with how the industry has changed since the community reinvestment law was enacted in 1977.

The rare step taken by Office of the Comptroller of the Currency to issue its own advance notice of proposed rulemaking — asking the public questions to gather feedback on a future reform plan — without the other agencies has fed speculation that the regulators don’t see eye to eye.

Sen. Elizabeth Warren, D-Mass., pointed to this fact when she sparred with Otting at the hearing Tuesday.

“Notably, the Fed and FDIC did not join in that proposal, even though usually all three agencies work together on CRA,” Warren said. “Now that was a pretty sharp sign that there are problems with your proposal and … I dug into the details.”

The OCC and the other agencies say they are still in discussions and intend to issue a joint proposal. But Warren said there were signs that the OCC’s approach had ruffled some feathers. For examples, she said some of the OCC’s questions for comment suggested an interest giving more CRA investments equal weight.

“So a dollar to help a family buy a home is the same as a dollar to print a financial education pamphlet,” Warren said.

Otting objected to that interpretation, calling it “incorrect.” He said the agency is simply seeking feedback on a “concept,” and is focused on making the CRA measurement system clearer.

“This is in an ANPR. … It's a document to get feedback from people,” Otting said. “We spent time with over 1,100 people before that document was produced. We gathered that feedback from civil rights groups [and] community organizations."

McWilliams and Quarles were somewhat guarded about their agencies’ thinking.

“The OCC put out an ANPR. We are going to work jointly on the basis of that information to put out an NPR,” Quarles said. “I don’t want to front-run that process of committing now.”

McWilliams echoed in others in saying that CRA reforms should not result in a dilution of resources for banks’ direct communities.

“I would want the final rule to ensure that the original congressional intent behind the CRA satisfies it,” said McWilliams. “Banks are supposed to serve the communities in which they operate.”

Republicans in both the House and Senate have been pushing the Fed to “re-calibrate” its rule for imposing an additional capital surcharge on the U.S.-based “global systemically important banks.” The central bank finalized its rule — which builds off of an international Basel Committee plan — in 2015.

Republicans have argued that U.S. banks subject to the Fed rule face a tougher surcharge than that of foreign G-SIBs, putting them at a competitive disadvantage.

“We're concerned about competition,” said Sen. Mike Rounds, R-S.D. “And it's not so much about favoritism. It's about trying to level the playing field. And what our concern was is that we have competition on an international basis right now.”

But Sherrod Brown, D-Ohio, the Senate Banking Committee’s ranking member, argued that banks still don’t have the proper capital to maintain financial stability.

“Research indicates that bank capital is below the level needed to insulate taxpayers from risk,” Brown said.

Quarles said the he thinks bank capital levels are “roughly about right” and would not say whether the Fed planned to change the current surcharge. The Fed should “go where the analysis would lead it to go,” he said.

The Fed and the OCC have proposed changes to the “enhanced supplementary leverage ratio” that would transition it from a fixed ratio applied to all of the biggest banks to a variable ratio based in part on a bank’s capital surcharge.

But a remaining question is whether the FDIC under McWilliams will join the proposal. Under former Chairman Martin Gruenberg, the FDIC had helped craft the current eSLR, but Gruenberg did not support the Fed and OCC’s proposal to ease the measure, arguing that it would weaken the biggest banks’ capital.

“I certainly appreciate his views … as well as I appreciate the views of all our board members,” said McWilliams, the former chief legal officer at Fifth Third Bank who has also worked as a lawyer at the Fed. “It's an open rulemaking. I wasn't privy to the process that went into consideration of the rulemaking. And I certainly would want to understand the logistics and the reasoning behind coming up with a proposal as it is.”