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Washington Wrap — Senators push bill to halt bank accounting standard CECL

The Washington Wrap is a weekly recap of financial regulation, news and chatter from around the capital. Send tips and ideas to polo.rocha@spglobal.com, david.hood@spglobal.com and declan.harty@spglobal.com.

On Capitol Hill

A bill that would effectively delay the current expected credit loss accounting standard was finally introduced this week by a Senate Republican.

The effort, led by Sen. Thom Tillis, R-N.C., would require the SEC and other financial regulators to conduct a broad economic study of the standard. At the same time, the bill would prohibit the regulators from enforcing compliance. The bill was introduced about six months before the standard, known as CECL, is set to go into effect for many financial institutions. The measure has five Republican co-sponsors as of May 24.

In the House, Rep. Maxine Waters, a Democrat from California who leads the House Financial Services Committee, notched a win with the passage of a bill that would "fix the damage" that former Acting Director Mick Mulvaney caused at the Consumer Financial Protection Bureau. The bill would require the agency to maintain a minimum level of staff, reestablish a dedicated student loan officer and restore the supervisory and enforcement power of the CFPB's fair lending and equal opportunity division.

The bill passed the House 231-191.

At the SEC

Wall Street's top securities regulator has raised the bar for U.S. stock exchanges looking to adjust their market data products' fees.

On May 21, the SEC Division of Trading and Markets issued new guidance detailing how exchanges including the Intercontinental Exchange Inc.-owned New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc. must now "fully and fairly describe" any adjustments to the prices of their highly coveted, but controversial, trading data feeds, which have become necessities for much of the financial community.

As the regulator's latest check on the exchanges, the guidance requires that any future fee filings from the exchanges use "plain English" to describe the price change and the exchange's reasoning. The exchanges are also now expected to explain how and why a fee may impact market participants differently based on their role or size.

The guidance raised concerns with at least one major exchange group. A Cboe spokesperson said in a statement that the exchange is worried that parts of the regulator's new framework "may go beyond the requirements of the Exchange Act and add unnecessary complexity to exchange fee filings, thereby impeding competition to the detriment of investors."

Other news

The Office of the Comptroller of the Currency highlighted several potential risks to the banking industry in a semiannual report released May 20.

Among the items in the 33-page report was the scrutiny of financial technology partnerships that banks are increasingly pursuing.

"Most of the increase in retail loan risk-taking has occurred outside the federal banking system, particularly increased volumes of subprime lending by nonbank lenders," the agency said in the report. It said that banks need to understand if they bear any indirect risk exposure from external activity, including partnerships with nonbank institutions.

Compass Point analyst Isaac Boltansky viewed the OCC's report as "a harbinger of increased regulatory scrutiny" of bank-fintech partnerships, he said in a note the following day.

OCC officials told reporters on a call that banks should ensure their fintech partners understand the regulatory environment that banks are required to operate in.

The report also noted that leveraged lending is a burgeoning risk to banks' financial stability. But it is difficult for regulators to fully analyze the risks in leveraged lending because much of the credit risk associated with the issue lies outside the banking industry, Comptroller Joseph Otting told reporters.

The OCC's comments on leveraged lending came days after Federal Reserve Chairman Jerome Powell said the central bank is closely monitoring the issue. But Powell added that comparisons to financial crisis-era subprime loans are "not fully convincing."

Powell said in a speech May 18 that while leveraged lending poses a threat, the resiliency of banks to weather another crisis is strong.

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