|
June 22, 2009 - NASCUS continues to study the effects of the Obama Financial Regulatory Reform proposal introduced on June 17. The following are some of the provisions presented in the proposal that are of particular interest to NASCUS and its members.
The proposal seeks to achieve five key objectives, including:
- Promote robust supervision and regulation of financial firms
- Establish comprehensive supervision of financial markets
- Protect consumers and investors from financial abuse
- Provide government with the tools it needs to manage financial crisis
- Raise international regulatory standards and improve international cooperation
Promote robust supervision and regulation of financial firms
Under the proposal, the National Credit Union Administration remains an independent federal agency with insurance authority over credit unions. Dual chartering would remain intact and the state credit union system would function in much the same way it does now. It is important that the Administration recognized the importance of these issues.
Likewise, the proposal provides that the Federal Reserve Board (Fed) and the Federal Deposit Insurance Corporation (FDIC) would maintain their respective roles in the supervision and regulation of state-chartered banks.
The proposal suggests the creation of a new federal government agency, the National Bank Supervisor (NBS) that would conduct prudential supervision and regulation of national banks and federal branches and agencies of foreign banks. The new regulator would assume the prudential responsibilities of the Office of the Comptroller of the Currency (OCC), which currently charters and supervises nationally chartered banks and federal branches and agencies of foreign banks. In addition, the NBS would assume the responsibilities for the institutions currently supervised by the Office of Thrift Supervision (OTS), which is responsible for supervising federally chartered thrifts and thrift holding companies.
Additionally, the proposal discusses charter shopping and suggests that multiple federal supervisors of firms that could easily change their charter was what led to weaker regulation and became a serious structural problem of the supervisory system. The plan would eliminate the thrift charter (with a reasonable transition time); prudential supervision and regulation would no longer be a function of whether a firm conducts its business as a national bank or a federal thrift.
The NBS would inherit the OCC’s and the OTS’s authorities to conduct examinations, impose and enforce prudential requirements and overall supervision of national banks and federal branches and agencies of foreign banks.
Interstate Branching
The proposal addresses interstate branching. It recognizes that interstate banking and branching are good for consumers, good for banks and good for the broader economy and would eliminate the remaining restrictions on interstate branching by national and state banks. It proposes that states should not be allowed to prevent de novo branching into their states, or impose minimum requirements on the age of in-state banks that could be acquired by an out-of-state banking firm. All consumer protections and deposit concentration caps with respect to interstate banking should remain.
Note: This provision about interstate branching is positive for the banking community, but it raises parity issues for state-chartered credit unions because they would remain the only financial institutions that have restrictions in their interstate branching opportunities.
Financial Services Oversight Council
The proposal would create a Financial Services Oversight Council with the purpose of facilitating information sharing and coordination, identifying emerging risks and advising the Fed about identification of firms whose failures could pose a threat to financial stability due to their combination of size, leverage and interconnectedness, referred to as Tier 1 Financial Holding Companies. The Oversight Council would provide a forum to discuss issues spread among different jurisdictions and regulators.
Members would include:
- Secretary of Treasury, who would serve as Chairman
- Chairman of the Board of Governors of the Fed
- Director of the National Bank Supervisor
- Director of the Consumer Financial Protection Agency
- Chairman of the SEC
- Chairman of the CFTC
- Chairman of the FDIC
- Director of the Federal Housing Finance Agency
Note: The National Credit Union Administration is not included as one of the regulators on the Council and state authority is not represented. NASCUS believes state regulatory expertise would be appropriate on this Council to ensure oversight and to identify emerging risks throughout the state system. It might be appropriate for the State Liaison Committee of FFIEC to be included as a Council member. NASCUS believes that systemic risks can be mitigated through the cooperation of state and federal regulators.
The proposed Council would be supported by permanent, full-time staff at Treasury responsible for providing the Council with the information and resources it needs. The Council would replace President’s Working Group on Financial Markets. Additionally, the proposed Council would have added authorities and responsibilities related to systemic risk and have authority to gather information from any financial firm for referring emerging risks to the attention of regulators. The Council would be able to require periodic and other reports from any U.S. financial firm for purpose of assessing if a firm poses a threat financial stability.
Note: The proposed Council would have the authority to gather information from any financial firm and be responsible for referring emerging risks to the attention of regulator, but it would not have authority to take action against a firm itself.
Bank Holding Company Act (BHC Act)
According to the plan, all companies that control an insured depository institution, however organized, would be subject to robust consolidated supervision and regulation at the federal level by the Fed and should be subject to nonbanking activity restrictions of the BHC Act. The proposal reaffirms and strengthens the separation of banking from commerce and would close loopholes in the BHC Act.
Under the proposal, thrift holding companies, industrial loan companies, credit card banks holding companies, trust companies and “non banks” would become bank holding companies and be subject to the BHC Act. These firms would have five years to conform to the existing activity restrictions imposed by the BHC Act. BHCs are subject to consolidated supervision and regulation by the Federal Reserve and nonbanking activity restrictions in the BHC Act.
Protecting Consumers and Investors from Financial Abuse
The proposal would create the Consumer Financial Protection Agency (CFPA) a single primary federal consumer protection supervisor to protect consumers using credit, savings, payment and other consumer financial products and services and to regulate providers of such products and services. The CFPA would have broad jurisdiction to protect consumers using these financial products.
As proposed, the agency would have sole-rulemaking authority for consumer financial protection statutes, including the Truth in Lending Act (TILA), Home Ownership and Equity Protection Act (HOEPA), Real Estate Settlement and Procedures Act (RESPA), Community Reinvestment Act (CRA), Equal Credit Opportunity Act (ECOA) and Home Mortgage Disclosure Act (HMDA) and the Fair Debt Collection Practices Act (FDCPA). The agency would be given similar rulemaking authority under future consumer protection laws. The CFPA would be an independent agency with funding, made possible from fees assessed on entities and transactions across the financial sector, including bank and non-bank institutions.
Its jurisdiction would include insured depositories and a variety firms not previously subject to comprehensive federal supervision; it would work with the Department of Justice to enforce the statutes under its jurisdiction in federal court. The rules developed by the CFPA would serve as a floor and not a ceiling and the proposal provides that the CFPA should coordinate enforcement efforts with the states.
As proposed, the FTC would continue to be the lead federal consumer protection agency on matters concerning data security, with front-end privacy protection on financial issues moved to CFPA. The rule suggests that the FTC should be authorized to conduct rulemakings for unfair and deceptive practices under standard notice and comment procedures and to obtain civil penalties for unfair and deceptive practices.
The proposal also provides provisions that would reform consumer protection, suggesting the importance of transparency, fairness and simplicity.
Note: NASCUS is pleased the proposal allows rules created by the CFPA to act as a floor, rather than a ceiling. States have typically retained authority under federal consumer protection and fair lending statutes to adopt stricter laws, as long as they do not interfere with federal laws. The proposal does not disturb this arrangement. Under the proposal, states would have the ability to adopt and enforce consumer protections that are stricter than the federal law for all institutions, regardless of charter type. Additionally, the proposal would allow states the ability to enforce federal law concurrently with respect to institutions of all types, also regardless of charter.
Note: The proposal suggests the agency should be required to notify prudential regulators of major matters and share confidential examinations. In return, the agencies are required to refer potential compliance matters to the CFPA and should be authorized to take action if the CFPA fails to act. This is true for state supervisors of state-chartered institutions, too.
Note: There are a number of important matters contained in this particular section of the plan. Many questions arise relative to this new agency, such as how its funding impacts SCUs, what about state confidentiality agreements, etc.
NASCUS is studying the proposal further and will keep you informed about issues that may effect state credit union regulation. |
