WASHINGTON The Senate Banking Committee is debating a number of key policy proposals including changes to the qualified mortgage rule and capital standards for small banks ahead of a highly anticipated vote next week.
Sen. Richard Shelby, R-Ala., has been working for months on the Financial Regulatory Improvement Act, a regulatory relief bill for community and regional banks, though its provisions remain in flux. An earlier May 14 date for the markup was delayed by a week after panel Democrats warned that they would vote against the legislation unless they could see the proposal, which is not yet public.
But sources close to the process are getting a better sense of what is likely to be in the bill, which is expected to be publicly unveiled later on Tuesday. Following is a tentative list of what is likely to be included (a Shelby spokeswoman declined to comment), although sources cautioned that the situation is fluid and not all of these could make the final cut:
Changes to the CFPB's Qualified Mortgage rule
Community banks have long complained about the Consumer Financial Protection Bureau's "qualified mortgage" rule, which outlines underwriting standards that lenders must meet for greater legal liability protection.
Sources said Shelby is considering two significant changes to QM. Under one, loans that were held in portfolio would automatically win QM status. Another provision would change how certain points and fees are calculated under the rule.
Sen. Elizabeth Warren, D-Mass., has spoken out strongly against both provisions and many House Democrats balked when the "points and fees" measure came up for a vote on the floor last month. It's possible that one or both of those provisions could ultimately be limited to smaller institutions, though where Shelby would draw that line is still unclear.
Raising the systemic threshold above $50 billion of assets
Shelby is said to be pushing to raise the $50 billion asset line above which banks must comply with tougher rules to $500 billion. Regulators most likely the Fed would be responsible for deciding which banks between $50 billion and $500 billion are systemically risky enough to be required to meet the new standards under the Dodd-Frank Act.
This area is tricky politically. On the one hand, most policymakers agree that the $50 billion threshold is too low, but $500 billion may be seen as too high a cut-off for Democrats and regulators. That threshold could potentially exclude key regional banks like PNC, Regions, SunTrust and Fifth Third from new rules, effectively leaving just a few large megabanks as subject to the higher standards.
At the same time, smaller institutions between $10 billion to $50 billion of assets may also get a reprieve from at least some of the requirements under the Fed's annual "stress tests."
Reforms to the Fed structure
Shelby is likely to include a provision that would require a commission to look further into whether changes to the structure of the Fed are necessary. The central bank has become a popular punching bag for both the right and the left on the political spectrum. By keeping it limited to a commission, rather than mandating changes, Shelby could sidestep significant controversy that could slow or kill the overall bill.
Shelby is also considering adding a proposal by Sen. Jack Reed, D-R.I., that would require the president of the Federal Reserve Bank of New York to be nominated by the White House and approved by the Senate. That idea has gained significant traction in recent years given the New York Fed's role during the financial crisis. Currently, all seven board members of the Fed must be nominated by the president, but none of the regional Fed presidents are subject to such a requirement.
Changes to privacy notices, exam schedules
Other, more modest changes to the banking industry could also wind up in the bill, including a long-standing measure that would permit banks to send out privacy disclosures when policies change, instead of annually.
In addition, Shelby has hinted that he's looking to extend the exam schedule for community banks from every 12 months to something longer, perhaps every 18 months, a proposal backed by the Office of the Comptroller of the Currency.
Nod to the GSEs
It's possible the bill could also include measures related to Fannie Mae and Freddie Mac.
Shelby has a long history of pushing for changes to the government-sponsored enterprises, and while the regulatory relief package is unlikely to outline wholesale reform of the mortgage finance system, it could begin to nibble around the edges.
For example, the legislation could include a measure by Sen. Bob Corker, R-Tenn., and others that would ban the sale of Treasury-owned senior preferred shares of the GSEs without lawmaker approval, essentially affirming that the executive branch can't move forward on GSE reform without Congress.
A simplified capital regime for small banks?
At one point, sources said Shelby's bill might have included a provision that allowed community banks to follow capital rules under Basel I, rather than switching to the more complicated standards of the Basel III accord. Critics of Basel III have argued the capital accord was designed for the largest banks and is not appropriate for smaller institutions. But for now, the provision does not appear to be part of the latest draft.
(An earlier version of this story said the capital provision might have been included.)