House Democrats implore regulators to get in sync on CRA

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WASHINGTON — House Democrats on Wednesday criticized the apparent decision by two federal banking regulators to move forward with a proposal to revamp the Community Reinvestment Act without the Federal Reserve.

The Office of the Comptroller of the Currency is widely expected to release a CRA proposal as early as next week, and Federal Deposit Insurance Corp. Chairman Jelena McWilliams has signaled her agency's willingness to support the plan with conditions.

But with the Fed still holding out, members of the Financial Services Committee raised concerns with McWilliams about the prospect of a proposal lacking full support from the three agencies. The regulators have struggled to form consensus over how CRA compliance is measured, the definition of CRA assessment areas and other issues.

“Regulators are making a brazen attempt to weaken the implementation of the Community Reinvestment Act,” said House Financial Services Committee Chairwoman Maxine Waters, D-Calif., at a hearing where McWilliams testified along with Federal Reserve Vice Chairman of Supervision Randal Quarles and National Credit Union Administration Chairman Rodney Hood.

“The Federal Reserve does not agree with you. How do you resolve that?” Waters said.

Comptroller of the Currency Joseph Otting did not accept an invitation to appear before the committee but submitted testimony for the record. Waters said she plans for him to testify at another time, potentially by himself.

“It seems as if you and Mr. Otting have just made a decision despite the Federal Reserve and without any interaction with the committee,” Waters told McWilliams.

McWilliams told the committee that she “would not sign on to a proposal that undermines the original intent of the CRA.”

Quarles defended the Fed’s decision to sit out the release of the OCC proposal, saying that it does not preclude the three agencies from coming to agreenment on a final plan.

"We are only at the point of whether a notice of proposed rulemaking will go out. We are not at the point of a final rule. And the objective ought to be that at the end all three agencies will join in a final rule," he said.

That point was echoed by written testimony submitted by Otting. "While the Federal Reserve has determined that it will not join a notice of proposed rulemaking at this time, it is our shared hope that final rules can be issued to provide a consistent regulatory framework for all insured depository institutions covered by CRA," he said.

Committee Democrats indicated they were concerned with the decrease in the number of minority depository institutions, and the potential impact of a revamped CRA on minority borrowers.

Rep. Ayanna Pressley, D-Mass., expressed frustration with Quarles when he could not specifically say which civil rights groups he has met with as the regulator looks to update the law.

“I’m incredulous that you cannot immediately cite civil rights organizations knowing what a priority a strong CRA is for those groups,” Pressley said.

But the pressure on the regulators didn’t just come from Democrats. Republicans have been actively pushing regulators both to implement swiftly the law enacted last year rolling back portions of the Dodd-Frank Act, and to ease other regulations.

The Fed last year proposed implementing a “stress capital buffer” to replace a framework of metrics that banks must hit during their stress tests to determine their capital strength.

Rep. Ann Wagner, R-Mo., pressed Quarles on whether the Fed will finalize before the next stress testing cycle, citing concerns about timing.

“We are still aiming to have that done in time for this stress testing cycle,” Quarles said. “You are absolutely right that the time is short, but it is not impossible for us to get this done.”

Meanwhile, Rep. Patrick McHenry, R-N.C., the committee's ranking member, sounded the alarm on the Fed’s intervention in the repurchase agreement market. The Fed recently injected billions of dollars in the market after a September spike in interest rates on overnight repos. Some have suggested the episode raises concerns about the effects of liquidity rules and other post-crisis regulatory requirements.

“The Fed’s intervention in the repo market raises the important question of how regulatory changes to our financial system are impacting its structure and function and impacting monetary policy,” McHenry said.

Quarles admitted that some parts of the Fed’s supervisory framework could have contributed to the disruption in the repo market, and that the Fed should examine those contributors.

“We have identified some areas where our existing supervision of the regulatory framework, less the calibration or structure of the framework itself, may have created some incentives that were contributors," Quarles said. "Particularly among them are the internal liquidity stress tests that we run that … can create a preference at some institutions for central bank reserves over other liquid assets.”

Lawmakers also questioned the regulators on the recent spike in credit unions acquiring banks. Community bankers have long pushed for credit unions to be taxed and to be subject to the CRA, in order to create a more level playing field.

McWilliams appeared sympathetic to the community bankers’ concerns.

“There is a great consolidation in the community banking sector and I am concerned about the communities that are losing a banking presence,” McWilliams said in response to questioning from Rep. Bill Huizenga, R-Mich. “Congress set up credit unions in a certain way. They are not subject to taxation. And they also don’t have CRA requirements. … The playing field may not be exactly level.”

But when asked whether he saw a problem with the spike in credit unions buying banks, Hood downplayed concerns.

“These are transactions that must be approved by both the FDIC and the NCUA,” Hood said.

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CRA Regulatory reform Stress tests Capital requirements Randal Quarles Jelena McWilliams House Financial Services Committee Federal Reserve FDIC OCC
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