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Washington Wrap — Obama-era regulator fights from within FDIC

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to, and

At the FDIC

Former Federal Deposit Insurance Corp. Chairman Martin Gruenberg delivered a speech Sept. 6 warning that easing the enhanced supplementary leverage ratio on the largest banks would lead to a "serious weakening" of postcrisis regulatory reforms.

Gruenberg criticized a proposal from the Federal Reserve and the Office of the Comptroller of the Currency to tweak the eSLR standards to allow for firm-specific requirements that would broadly loosen leverage requirements for U.S. global systemically important banks. Unlike risk-based capital ratios, leverage ratios do not include risk weights in their calculations.

Proponents of the eSLR changes argue that a leverage ratio, which is a binding constraint for some firms, has the unintended effect of encouraging more risk-taking.

But Gruenberg, now a director on the FDIC board, expressed skepticism that risk-based capital requirements would be a reliable binding constraint instead.

"Banks may tend to expand activities where risk is underestimated by risk-based capital," Gruenberg said.

Although the FDIC did not join the eSLR proposal, its new chair, Jelena McWilliams, said she is open to endorsing it.

At the regulators

McWilliams will have an opportunity to clarify her agenda at the FDIC when she joins the Comptroller of the Currency Joseph Otting, Fed Vice Chairman for Supervision Randal Quarles and National Credit Union Administration Chairman Mark McWatters at a Senate Banking Committee hearing Sept. 13.

The panel of financial regulators is expected to provide a progress report on how they are implementing the Dodd-Frank revision package signed into law in May.

A major aim of the overhaul was to ease regulations for banks between $100 billion and $250 billion in assets. But regulators in charge of overseeing those banks have a wide array of options in deciding the requirements that banks in that range will face — and whether some might see stricter standards than others.

Quarles has said the Fed will "move much more rapidly" than the 18-month deadline it has to decide the new rules. But a group of Republican senators said last month they had concerns with Fed officials' comments on the implementation of the law so far. They also pressed the Fed to ease liquidity regulations for banks in that range, among other possible changes.

The Fed and the four other regulators involved with the Volcker rule announced Sept. 4 that they would be extending the comment period on the rule's revision by a month. Comments on how the regulators should revise the rule limiting proprietary trading will now be due Oct. 17.

Texas Department of Banking Commissioner Charles Cooper is the new state banking representative on the Financial Stability Oversight Council. The Conference of State Bank Supervisors announced Sept. 7 that Cooper has immediately replaced North Carolina Bank Commissioner Ray Grace as an FSOC representative, a few weeks short of the end of Grace’s two-year term.

On Capitol Hill

The U.S. Senate confirmed Elad Roisman as the newest SEC commissioner, returning the agency’s five-person commission to full strength.

Confirmed by a vote of 85-14, Roisman, a Republican, takes over for former SEC Commissioner Michael Piwowar, who left the agency in July. Piwowar was recently named executive director of the Milken Institute’s Center for Financial Markets.

The SEC's commission may not be at capacity for long though. Democratic Commissioner Kara Stein, who has been at the SEC since 2013, is able to stay on as a commissioner until the end of 2018. The White House has yet to officially nominate a successor for Stein, but Allison Lee, a former SEC enforcement attorney, has been linked to the impending vacancy.

Sen. David Perdue, R-Ga., plans on introducing a bill that will allow publicly traded companies to remove a civil action alleging securities fraud from a state court to a federal court. A legislative draft obtained by S&P Global Market Intelligence shows that the bill would be substantially similar to a provision introduced in the House by New Jersey Republican Thomas MacArthur.

A spokeswoman for Perdue's office confirmed that the bill would be coming, adding that the goal is to attach the provision to the Senate version of a capital formation bill package passed by the House in July.

With a limited amount of legislative days left in the current Congress, it is unclear if the Senate, currently tied up with the Supreme Court nomination, will have enough time to get a so-called JOBS 3.0 bill to President Donald Trump's desk. There is also some skepticism that the Republicans would be able to whip enough Democratic support to get 60 votes since moderate Senate Democrats indicated that they spent too much of their bipartisan political capital on supporting the Dodd-Frank revision bill signed into law in May.

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