Washington, D.C. – The following is a statement by Aaron Klein, director of the Bipartisan Policy Center’s Financial Regulatory Reform Initiative:
“Nearly five years after the passage of the Dodd-Frank Act, draft legislation released on Tuesday by Senate Banking Committee Chairman Richard Shelby (R-AL) is an important step forward in the effort to continue with financial reform. We share Chairman Shelby’s commitment to providing common-sense regulatory relief to financial institutions, such as community and regional banks, without undermining important financial safeguards in Dodd-Frank. We are also encouraged by measures in the draft legislation that improve the transparency and accountability of market participants and financial regulators, including the Financial Stability Oversight Council (FSOC).
“We are pleased that Chairman Shelby’s proposal already includes several provisions recommended by the Bipartisan Policy Center’s (BPC) Financial Regulatory Reform Initiative. These include raising and indexing the so-called “bank SIFI” threshold while providing regulators flexibility to designate potentially risky institutions; streamlining the process for required privacy notices; and emphasizing the need to tailor prudential regulation of nonbanks for the ways they are different from banks. In addition, Chairman Shelby’s proposal includes ideas to increase the transparency of FSOC and improve both the designation and de-designation processes of systemically important financial institutions (SIFIs), goals which BPC shares.
“While the draft legislation is a good starting point, we believe that it can be improved. BPC has proposed several additional ideas to provide regulatory relief for small and regional banks, hold the Federal Reserve and Consumer Financial Protection Bureau (CFPB) more accountable, and improve international regulatory coordination. We believe these ideas can garner bipartisan support and hope that lawmakers will give them serious consideration with a full and robust amendment process that allows all members of the Committee to express their views.
Establishing a pilot program to streamline examination burdens on banks
“BPC envisions establishing a 5-year pilot program that would create task force teams of bank examiners made up of personnel from the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve (Fed) and the Office of the Comptroller of the Currency (OCC). In contrast with the current duplicative and fragmented system of bank supervision, each team would conduct coordinated exams chosen from a selected group of 20 banks of any size, including small, community, mid-size, regional and large banks.
“Under BPC’s proposal, each team would be led by the bank’s primary regulator and could undertake a full institutional exam or focus on a specific area, such as risk management. Working together, members of the team would be expected to:
- Ask a single set of questions to the bank;
- Review supervisory information; and
- Issue a single, joint examination report that would be available immediately to each participating agency.
“In addition, state banking agencies would have the option of participating in exam teams for banks within their jurisdictions. This would allow state agencies better access to federal resources, data and specialized personnel while reinforcing the dual banking system. This proposal would increase the quality of bank supervision and regulation while reducing the cost of duplicative regulatory oversight.
Holding the Federal Reserve and CFPB more accountable by enhancing the independence of the inspectors general at both regulatory institutions
“BPC has proposed that Congress establish independent inspectors general (IG) for the Fed and the CFPB. Both would be appointed by the president and subject to confirmation by the Senate. Taken together, these moves would improve the accountability of both the Fed and the CFPB. Currently, the Fed’s IG is appointed by the Fed’s chair, setting up an awkward arrangement in which an inspector general is tasked with investigating his or her own boss. Although the CFPB operates independently, it is currently subject to oversight from the Fed’s IG because the agency is formally housed within the Federal Reserve System.
Improving international regulatory coordination
“BPC has proposed that the Financial Stability Oversight Council (FSOC) conduct a full review of financial regulatory provisions with cross-border impact, as well as issue a set of recommendations to reduce inconsistencies and duplication as the United States engages in global financial regulation. This proposal would create opportunities to harmonize U.S. rules with international jurisdictions and improve the global financial regulatory regime to be more supportive of economic growth, financial stability, and consumer protection.
“Including these provisions in The Financial Regulatory Improvement Act of 2015 would improve the effectiveness and efficiency of financial regulation, preserving what has worked well in Dodd-Frank and building on the landmark financial reform law in areas it has not worked as well.”
KEYWORDS: 114TH CONGRESS, AARON KLEIN, CONSUMER FINANCIAL PROTECTION BUREAU (CFPB), DODD-FRANK ACT, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), FEDERAL RESERVE, OFFICE OF THE COMPTROLLER OF THE CURRENCY, RICHARD SHELBY, SENATE BANKING COMMITTEE