WASHINGTON UPDATE

Nathan RossDirector – Legislative PolicyConference of State Bank Supervisors

Insights from Washington

Nathan RossDirector, Legislative Policy

Conference of State Bank Supervisors202.728.5753

nross@csbs.org@CSBSnews

CSBS – Who We Are

• State Banking Regulators’ Washington DC “Field Office”

• Legislative and Regulatory Policy Advocacy

• Regulatory Coordination

– Federal Financial Institutions Examination Council (FFIEC)

– Financial Stability Oversight Council (FSOC)

• Training

• Accreditation

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Agenda

I. Industry Composition

II. Washington’s “New World Order”

III. Public Policy Outlook

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U.S. Charters by Authority

77% State

16% OCC Banks

7% OCC Thrifts

• In 1985 there were more than 18,000 active bank charters in the United States. • Of the 5,989 banks in operation as of Q3 2016, 4,654 (77%) hold a state charter.

Source: FDIC

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Industry Composition and Concentration

• There are 5,989 FDIC insured banks in operation as of Q3 2016. o 78 banks left the system in Q3 (202 total YTD) (5 failures YTD)

o 327 in 2015 (8 failures)

o Only one recent de novo (Q1 2015)—New Hampshire.

• Banks with assets less than $10 billion control only 18% of total industry assets.

• 89% of state chartered institutions have less than $1 billion in assets.

• Approx. 60% of National Bank assets are concentrated in 4 institutions.o Those four banks hold 41% of total industry assets

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Consolidation Impacts Diversity

Source: FDIC7

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Per

cen

t

>1T

100B to 1T

50B to 100B

10B to 50B

1B to 10B

100M to 1B

<100M

Community Banks are a Vital Source of Credit

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Small Business Lending as a % of Total

Lending by Asset Group

9

26%

13%9%

4% 5% 3%

74%

87%91%

96% 95% 97%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<1B 1-10B 10-50B 50-100B 100B-1T >1T

Small Business Lending as a % of Total Lending By Asset Group

SBL Other

Community Banking in the 21st Century

Conference

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• National Survey

• Direct banker

engagement

• Community Bank Case

Study Competition

• Video Series

• Academic Research

Agenda

I. Industry Composition

II. Washington’s “New World Order”

III. Public Policy Outlook

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The Trump Administration

• Donald Trump is the 45th President

• Vice President Mike Pence

– Oversaw transition

– Close to House Financial Services Chairman Hensarling

• Treasury Secretary Steven Mnuchin

– Goldman Sachs

– OneWest

• National Economic Council Director Gary Cohn

– Goldman Sachs

– Close to tech industry

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115th Congress – Balance of Power

• Republicans lost some seats in the House,

but maintain control of both chambers of

Congress.

– House: 238 Republican Seats, 194 Democrat

Seats – 4 races still outstanding.

– Senate: 52 Republican Seats, 46 Democrat

Seats, 2 Independent (Caucus with D’s)

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115th Congress – Committee Leadership

• Senate Banking, Housing & Urban Affairs

– Chairman Mike Crapo (R-ID); Ranking Member

Sherrod Brown (D-OH)

• FI Subcommittee: Chairman Pat Toomey (R-PA); Ranking

Member Elizabeth Warren (D-MA)

• House Financial Services Committee

– Chairman Jeb Hensarling (R-TX); Ranking Member

Maxine Waters (D-CA)

• FI Subcommittee: Chairman Blaine Luetkemeyer (R-MO);

Ranking Member Lacy Clay (D-MO)

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Senate Banking Members & 2018

15Source: New York Times

Agenda

I. Industry Composition

II. Washington’s “New World Order”

III. Public Policy Outlook

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What to do with Dodd-Frank?

• Repeal or Amend?

• Hot ticket items– Financial Stability Oversight Council (FSOC)

• Authority

• Process

– Consumer Financial Protection Bureau (CFPB)

• Funding

• Leadership structure

– $50 billion threshold for Enhanced Prudential Standards

– Orderly Liquidation Authority and Too Big to Fail

– Community bank regulatory relief

– Volcker rule

• 21st Century Glass-Steagall?

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NominationsAgency Leadership Term Expires

FDIC Martin Gruenberg November 2017

OCC Tom Curry (Acting Comptroller)

CFPB Richard Cordray July 2018

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Federal Reserve Board

Chair Janet Yellen (Term as Chair ends in February 2018) (January 2024)

Vice Chairman Stanley Fischer (January 2020) – Vice Chairmanship ends June 2018

Vacancy

Lael Brainard (2026) Vacancy

Jay Powell (2028) Vacancy

• Additional vacancies at the FDIC, Fed Vice Chair of Supervision & Treasury

Regulatory Relief by Executive Order

• “Two-for-one”

• Core Principles for Regulating the U.S. Financial System

• Deregulatory Task Forces

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Congress’s Financial Services Agenda

• Nominations

• Flood Insurance

• Regulatory Relief (aka, “Repeal/Replace Dodd-Frank”)

• GSE Reform

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Financial CHOICE Act (2.0)• HFSC Chair Jeb Hensarling’s “Repeal & Replace” Plan

• Highlights:– Banks holding 10% leverage capital get regulatory relief from Basel

III standards and Dodd-Frank’s Enhanced Prudential Standards

– Repeal FSOC authority to designate SIFIs

– Fundamentally reform the CFPB (shift from single director to commission)

– Make changes to Federal Reserve and FOMC;

– Repeal the Volcker Rule prohibition on proprietary trading

– Make all federal financial agencies operate as bipartisan commissions;

– Eliminate head of CFPB and OCC from FDIC Board;

– Require many regulations to receive congressional approval before becoming effective;

– Repeal the Chevron doctrine;

– Overhaul the “living will” process for SIFIs;

– Expand QM Safe Harbor to all loans held in portfolio

– Repeal DFA Section 1071 (CFPB Small Business Lending Data Collection)

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The Senate and Regulatory Reform

• Crapo-Brown Request for Economic Growth Proposals

• What’s past is prologue?

– Shelby’s “Financial Regulatory Improvement Act”

• Regulatory relief for community financial institutions

• Systemically important BHCs

• FSOC and non-bank designations

• Federal Reserve reform

– Brown’s Democratic Substitute – “Community Financial

Institution Regulatory Relief and Consumer Protection Act”

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Recent Community Bank “Wins”

• Highway bill of December 2015:

– Rural petition process for the CFPB;

– Expanded CFPB Escrow exemptions for rural and underserved

areas;

– QM Balloon Loans held in portfolio for rural and underserved

areas;

– Granted relief from Gramm-Leach-Bliley privacy notice

requirements; and

– Increased from $500 million to $1 billion the threshold for well-

capitalized banks eligible for an 18-month exam cycle.

• More broadly, agency officials talk with more certainty

about the difference in how community banks operate

and the regulatory approach.

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Congressional Review Act

• Alternative path for some regulatory relief

– CFPB prepaid card rule

– Tax inversion

– Swaps rules

– Forthcoming Fed rules

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Also on the “To Do” List

• Flood Insurance Reauthorization

– Must do by September 30

• Housing Finance Reform

– The role of government in the housing finance system

• FinTech

– Banks and innovation – Friends or Foes

– State-federal balance in regulation

– What’s at stake

• BSA/AML Reform

– Rising compliance costs and complexity

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Questions?

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