Week ahead: Fed update, bank diversity and more

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With President Trump’s impeachment trial over, both chambers of Congress are returning to regular business this week.

Notably, committees in both the House and Senate will hear from Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday when he presents the Fed’s semi-annual monetary policy report.

Powell is expected to focus on the fact that economic growth continued at a moderate pace in 2019, with the U.S. now entering its 11th consecutive year of economic expansion – the longest streak on record.

“The U.S. financial system is substantially more resilient than it was before the financial crisis,” the Fed’s report reads. “Leverage in the financial sector appears low relative to historical norms.”

The Fed also said that financial conditions support spending activity in businesses and households alike. Foreign economic growth slowed in 2019, but recent indicators have shown hints of stabilization. Consumer spending around the world is ticking up while the manufacturing slowdown appears to be on the decline. The coronavirus, however, could threaten the U.S. economy if the economic hit in China spreads to the rest of the globe.

The Fed also released its updated scenarios for 2020 stress testing last week, which the National Credit Union Administration and other regulators use to conduct stress tests for financial institutions. The Fed removed its adverse scenario test from its pipeline and now only provides baseline and severely adverse scenarios for testing.

The House Financial Services Committee on Wednesday will examine diversity and inclusion at big banks in America. Credit unions regularly tout their efforts in that sphere and the industry is in some ways more diverse than the competition, however there remains work to be done. The panel’s Task Force on Artificial Intelligence will also examine how to reduce AI bias within the financial services industry during a Wednesday hearing.

On the regulatory side of things, industry groups are calling for credit unions to comment on NCUA’s proposal regarding credit union-bank purchases, including proposed rulemaking that would add language governing CUs’ acquisition of bank assets.

The National Association of Federally-Insured Credit Unions is also soliciting feedback on whether credit union net worth is on the decline among institutions that have bought banks, since CUs are prohibited from counting adjusted retained earnings from a bank merger as part of their net worth. The group is also asking for input regarding field-of-membership requirements on these deals.

NCUA estimates this rule would apply to about 20 transactions per year.

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Law and regulation NCUA M&A Federal Reserve Jerome Powell Monetary policy