6 banking issues to watch when Congress reconvenes

WASHINGTON — Unlike most recent congressional recesses, this past summer's break has seen some key financial policy news as bank regulators finalized a pivotal rule rolling back the Volcker Rule.

But when lawmakers return from their late-summer break on Sept. 9, there are a host of other unresolved financial services issues facing them, including efforts to let bankers serve the marijuana industry to reforms of anti-money-laundering requirements.

Late last week, House Financial Services Committee Chairwoman Maxine Waters, D-Calif., outlined her panel's priorities for the fall, including oversight of Trump-appointed banking regulators and reviewing Facebook's proposed cryptocurrency. The committee will also consider solutions to increase access to homeownership, explore data privacy and the use of artificial intelligence in financial services and examine the state of minority depository institutions, among other things, Waters said in a press release.

It is unclear if Congress will be able advance any of these initiatives, with the 2020 presidential primaries fast approaching and the nation focused on more polarizing cultural issues. But the end of the August recess gives the industry a chance to continue engaging with lawmakers on legislative priorities.

Here are the key financial policy issues to pay attention to as Congress gets back to work.

Marijuana banking
A bowl of marijuana is displayed for a photograph at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/Bloomberg
After Democrats took control of the House, banks got their first hearing on a bill aimed at enabling the industry to serve marijuana businesses in the states where the substance is legal, without fear of repercussion from regulators.

The House Financial Services Committee passed the SAFE Banking Act, which would prohibit federal regulators to penalize firms that accepts insured deposits from state-approved cannabis businesses, in a 45-15 vote, with all of the committee’s Democrats joined by 11 Republicans in support of the legislation.

The Republican-controlled Senate has been viewed as an obstacle for cannabis banking, but the industry got a hearing in the Senate Banking Committee in July over the challenges for banks posed by the conflict between the federal ban on marijuana and state legalization efforts.

Though Banking Committee Chairman Mike Crapo, R-Idaho, was the only Republican to attend the hearing, the industry is optimistic that Congress will provide them clarity on whether they can serve state-approved cannabis businesses.

“We are very much focused on trying to get the bipartisan cannabis bill through the House,” said James Ballentine, executive vice president for political affairs and congressional relations at the American Bankers Association. “We were very supportive and interested in the Senate hearing that took place in July and certainly the questions that members asked demonstrated a lot of interest in this issue.”

However, it will likely still be a challenge to get a Senate committee vote on any cannabis-related legislation as some Republicans are sitting out the debate until their primaries are over.
GSE reform
Fannie Mae's headquarters
It was widely reported that the Treasury Department has completed its draft blueprint for reforming the housing finance system and submitted the report to the White House. The plan for the government-sponsored enterprises is expected to come out after Labor Day.

Reforming the system so that the government can finally release the mortgage giants Fannie Mae and Freddie Mac from a decadelong conservatorship has confounded policymakers since the financial crisis.

Some speculate the administration’s plan could call for releasing Fannie and Freddie without legislative action, provided they have enough capital to compete with private-market players. But lawmakers have been trying to advance a more comprehensive reform plan for years. Administrative action on GSE reform could motivate lawmakers to resume their efforts as opposed to just waiting it out. But many also predict that the administration’s plan could steer clear of advocating for a single approach, preferring to leave the long-term work of reforming the system to others.
Anti-money-laundering reforms
Sen. Mark Warner, D-Va.
Senator Mark Warner, a Democrat from Virginia, speaks during a Business Roundtable CEO Innovation Summit discussion in Washington, D.C., U.S., on Thursday, Dec. 6, 2018. The summit features discussions with Americas top chief executive officers, government leaders and industry experts on ideas and policies. Photographer: Andrew Harrer/Bloomberg
For years the industry hoped that Congress would update anti-money-laundering laws that banks view as outdated.

Financial institutions have pushed for Congress to raise the dollar thresholds for submitting suspicious activity reports and currency transaction reports. They have also asked Congress to require businesses to report their true owners at incorporation, rather than requiring financial firms to provide that information.

In June, the House Financial Services Committee passed a bill 43-16 that would require businesses to report their beneficial owners. Ten Republicans joined all of the panel's Democrats in supporting the measure. However, the panel has yet to advance legislation to raise the SAR and CTR thresholds.

Although beneficial ownership legislation appears to have some bipartisan support, there are still concerns among Republicans that the requirement will impose unnecessary burdens on small businesses.

A bipartisan group of senators has proposed similar legislation. Sens. Doug Jones, D-Ala., Mark Warner, D-Va., Tom Cotton, R-Ark., and Mike Rounds, R-S.D., released draft legislation in June to strengthen coordination on fighting AML threats, require law enforcement to report metrics on the use of financial institutions' AML reporting, establish a new beneficial ownership standard, and ensure that digital currency is included in AML enforcement of payment systems.

“We like the process that they have undertaken,” Ballentine said of the bipartisan effort.
CECL delay
Rep. Blaine Luetkemeyer, R-Mo.
Representative Blaine Luetkemeyer, a Republican from Missouri, speaks during a House Financial Services Committee hearing in Washington, D.C., U.S., on Wednesday, Nov. 14, 2018. Randal Quarles, vice chairman of supervision at the U.S. Federal Reserve, played down the risk of automation eliminating jobs and noted the "strong demand for labor in our current economy" as well as the hope that technology will enhance worker productivity. Photographer: Zach Gibson/Bloomberg
Community bankers have been pushing for a halt on the implementation of a new accounting standard for loan losses that they fear will be overly costly.

The Current Expected Credit Loss model, adopted by the Financial Accounting Standards Board in 2016, will require financial institutions to estimate losses over the entire life of a loan.

Initially, FASB proposed for publicly traded banks to convert to the new model by Jan. 1, 2020, followed by privately held institutions and credit unions on Jan. 1, 2022. But in July the standards board voted to give smaller lenders until January 2023 to adopt CECL. A proposed House and Senate bill also called for a delay and would require regulators to study the effects of CECL on credit availability, banks of various sizes and U.S. competitiveness.

At a May House Financial Services Committee hearing, Republicans and Democrats sounded the alarm on CECL’s potential harm to smaller financial institutions.

Rep. Blaine Luetkemeyer, R-Mo., has said the FASB vote to delay CECL is not enough. “Without a commitment to better understand the broad economic consequences of CECL, an implementation delay is merely a halfhearted attempt to placate its opponents," Luetkemeyer said in a press release last month. "This is not an acceptable alternative to a comprehensive analysis of the standard’s potential economic effects on financial institutions and consumers across the nation."
Flood insurance reform
Sen. Bob Menendez, D-N.J.
Senator Robert Menendez, a Democrat from New Jersey, arrives to a Senate Banking Committee confirmation hearing with Jerome Powell, chairman of the U.S. Federal Reserve nominee for U.S. President Donald Trump, not pictured, in Washington, D.C., U.S., on Tuesday, Nov. 28, 2017. Powell signaled broad support for how the Fed operates, regulates and guides the economy, offering a full-throated defense of the government institution he's about to lead. Photographer: Aaron P. Bernstein/Bloomberg
Reforms to the National Flood Insurance Program, which has gone through roughly a dozen short-term reauthorizations since 2017, are another priority for banks.

The industry was encouraged after the House Financial Services Committee unanimously passed a long-term reauthorization in June.

That bill would reauthorize the program for five years, require disclosure of property-specific risks for homeowners and homebuyers, update maps to create new flood zones and enable individuals with non-NFIP policies to return to the program without penalty.

But it’s unclear whether that bill would garner enough support in the Senate, where several members from flood-prone states are concerned that it won’t ensure sustainability and affordability for homeowners.

“The House has already passed a pretty strong flood insurance bill … that we support," said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America. “The support in the Senate once again will be a challenge.”

Sens. Bob Menendez, D-N.J., John Kennedy, R-La., and Bill Cassidy, R-La., introduced competing legislation in July that they say would keep flood insurance affordable while improving technology to combat flood risks.

That plan would cap premium increases at 9% per year, impose deadlines on insurance companies to process flood claims and provide affordability assistance to protect low- and middle-income families.

"Major reform needs to happen,” Ballentine said. “Reauthorization has to happen. We would hope that the perfect does not become the enemy of the good.”
Data security
Capital One signage is displayed outside a bank branch in New York.
Capital One Financial Corp. signage is displayed outside a bank branch in New York, U.S., on Saturday, July 13, 2019. Capital One Financial Corp. is scheduled to release earnings figures on July 18. Photographer: Mark Abramson/Bloomberg
Moving legislation to better safeguard consumers’ personal data and develop cybersecurity standards has also confounded Congress, and few expect Congress to move the needle anytime soon. But issues around data security and privacy have stayed in the news.

At the end of July, Capital One announced that personal data was compromised for over 100 million credit card applicants. Meanwhile, Facebook’s June announcement about the proposed creation of the Libra cryptocurrency brought heightened criticism from lawmakers and others about the social media giant’s track record in protecting users’ privacy.

Yet it still remains to be seen if news about data breaches and new innovations will compel lawmakers to make cybersecurity reforms a priority.