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Washington Wrap: OCC's fintech push 'positive' but could go further for banks, observer says

Banking Essentials Newsletter December Edition Part 2

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

Estimating Credit Losses Under COVID-19 and the Post-Crisis Recovery


Washington Wrap: OCC's fintech push 'positive' but could go further for banks, observer says

The Washington Wrap isa weekly look at regulations, news and chatter from the Capitol. Send tips and ideasto mcosta@snl.com.

News

MetLife Inc.won a court victory March 30 againstthe Financial Stability Oversight Council to shed its designation as a nonbank systemicallyimportant financial institution. It was the first to challenge the FSOC nonbankSIFI designations. The U.S. District Court of the District of Columbia sided withthe insurance company and ordered FSOC to rescind its SIFI designation. Meanwhile,the Department of Treasury defended MetLife's SIFI designation but did not confirmif it would appeal the decision. "We strongly disagree with the court's decision,"a spokesperson for the Department of Treasury said in a statement March 30. "Weare confident that FSOC's determination was lawful and will continue to defend theCouncil's designations process vigorously."

A day after MetLife's win, GeneralElectric Capital Corp. askedthe FSOC to remove its SIFI designation, arguing it was no longer a systemic riskto the financial system. It argues it has substantially reduced its risk profile.The company said it reduced its assets 52% to $265 billion from $549 billion. Ithas also decreased its financing receivables 74% to $72 billion from $277 billionand loans to consumers 95% to $4 billion from $72 billion. It increased its cashand cash-like investments 35% to $77 billion from $57 billion.


A number of Financial Crisis Inquiry Commission documents releasedMarch 11 revealed that recommendations for criminal charges against Wall Streetexecutives made it to the Department of Justice but to no avail, The Wall Street Journal reportedMarch 30. The individuals include Charles Prince, former chief executive of ; former ChiefExecutive Stanley O'Neal; and AmericanInternational Group Inc. executive Joseph Cassano.


Total U.S. nonfarm payroll employment increased by 215,000 in March while the unemployment rateincreased to 5.0%, according to the Labor Department's latest Employment Situationreport released April 1.

Scott Anderson, chief economist at Bank of the West, said in a memo that the labor market inthe first quarter of 2016 "must be impressing even Janet Yellen, especiallyin the face of some less than spectacular financial market and GDP growth performance."While the unemployment rate ticked up, Anderson stated it was because of more peoplesearching for employment rather than a weakness in the market. One of the weakernumbers coming from the jobs report was manufacturing job losses of 29,000 in March,Anderson said. Mining employment also declined by 12,000 in March.

Chatter

The Government Accountability Office recommends Congress to change or expand the powers of theFinancial Stability Oversight Council in a Feb. 25 report. The agency also needsbetter tools to monitor and identify new threats, the GAO found.  "Because of the limitations in FSOC's authorities,without congressional action FSOC may not have the tools it needs to carry out itsmission to comprehensively respond to systemic risks, and it may be difficult tohold the council accountable for doing so," the GAO stated.


Changes in oil prices, interest rates and stock values sinceDecember have not altered the Federal Open Market Committee's outlook over the mediumterm, Federal Reserve Chair Janet Yellen saidMarch 29. The FOMC expects labor market improvement and its 2% inflation targetreached in two or three years, she said.


Conservative think tanks want Congress to implement a regulatorybudget "to address the cost of federal regulations," such as a proposalintroduced by Rep. Tom Price, R-Ga., in the House Budget Resolution for Fiscal Year2017. In a March 30 letter,the coalition claims that regulations are just as burdensome as tax increases, deficitsand borrowing and that the "current rulemaking process is broken."


Legislation/regulation

The Municipal Securities Rulemaking Board is seeking commenton public access to muni loans made by banks, it saidin a March 28 press release. The board claims that banks are bypassing regulationsby lending directly to city and state governments. Investors do not have timelyaccess to the terms of the issuances, the board contends. While the regulator alreadyasks municipalities and banks to voluntarily publish the terms and conditions ofsuch loans on its website, it is considering requiring municipal advisors to disclosefinancings to the board.


The Consumer Financial Protection Bureau's final rule on prepaidcards probably will not appear until May or June, according to a March 29 research note by Compass Point Research& Trading analyst Isaac Boltansky. The final rule had been expected in March,he said.


The OCC releaseda white paper March 31 on how it plans to regulate financial technology, includingpotentially opening a new office dedicated to innovation. Comptroller of the CurrencyThomas Curry cautioned banks to innovate in a safe and sound manner that minimizesrisks. The regulator will, at the very least, need to make sure it is able to understandnew trends and technology, he said about the white paper at the Harvard KennedySchool's New Directions in Regulation Seminar March 31.

Isaac Boltansky, analyst at Compass Point Research & Trading,LLC, said in a memo he does not see the white paper as shifting the policy "butit is representative of the increasing regulatory interest in the space." OliverIreland, a partner at Morrison & Foerster, said in an interview that the paperwas a "positive" but was short of a statement recognizing that fintechcould take business away from banks and result in shadow banking. "I thinksome banks might have preferred the OCC to be a little more aggressive in that regard,but I guess from a regulator it's not surprising," he said.


For the first time since July 2011, the No. 1 complaint on theConsumer Financial Protection Bureau's monthly report is not mortgages, the agencyreportedMarch 29. The March report states nationally, debt collection received the mostconsumer complaints during that month.

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