Amy Heaslet, Executive Vice President/General Counsel, Tennessee Bankers Association
Nearly 100 Tennessee bankers, associate members, and association staff returned to D.C. in May for the 2023 Washington Conference. The conference, led by TBA Government Relations and BankPac Chairman Ted Williams, CEO, TriStar Bank, Dickson, included meetings with Federal Reserve Governor Michelle Bowman, Acting Comptroller of the Currency Michael Hsu, FDIC director Jonathan McKernan, and senior staff from the CFPB and FHFA. Attendees also received briefings from the ICBA, ABA and CSBS; visited with Tennessee’s Congressmen and Senators; and participated in a roundtable discussion with TDFI Commissioner Greg Gonzales.
Legislative Visits
This year’s conference was an opportunity to highlight the strength of the Tennessee banking industry. A major talking point of all our meetings was that if current regulations are enforced in Washington, there is no need for additional regulation as a result of the recent bank failures. But if changes are enacted, they should be tailored to the risk profile of the bank. Tennessee’s delegation was receptive to this and appreciative of the work Tennessee bankers do to maintain a safe and sound banking system that supports and enables their communities to grow and thrive.
Tennessee is fortunate to have one of the strongest Congressional delegations for the banking industry, so we were able to use our time thanking members for their support and providing addition information as reinforcement for their positions.
Senators Blackburn and Hagerty were supportive of bankers’ concerns about unnecessary regulations that could result from the recent bank failures, and Senator Hagerty discussed his recently filed legislation to address the current stress on the banking system and restore confidence in the financial sector, which bankers were very supportive of. His legislation would introduce a two-year transaction guarantee for non-interest-bearing accounts up to $100 million to protect commercial deposits; increase the limit on reciprocal deposits to protect retail deposits; streamline the regulatory process for well-capitalized banks; and amend the FDIC’s least cost test to expand the considerations used for a potential sale of a failed bank.
Bankers also urged House members to consider updating the Deposit Insurance Fund, citing the outdated limit of $250,000, which could drive customers from community banks to larger institutions that could receive unlimited deposit insurance protection if deemed systemically important.
Bankers thanked House members for their support of H.J. Res. 50, which would nullify the CFPB’s Section 1071 Rule on small business lending data collection. Two Tennessee congressmen were already cosponsors of this and several more agreed to sign on.
Regulatory Meetings
Bankers took full advantage of having the ear of the agency heads at a time when there are so many pivotal issues at-play among federal regulators. Top issues bankers raised with the regulatory representatives included: potential new regulations in response to the bank failures; reforms to deposit insurance; overdraft protection programs; small business data collection; and consumers’ access to their financial records.
Kicking off the dialogue with regulators was Jonathan McKernan, FDIC director and former senior financial policy advisor to former Senator Bob Corker, who addressed the group Monday evening. McKernan focused his remarks on the FDIC’s recently approved advance notice of proposed rulemaking (ANPR) for a special assessment to replenish the deposit insurance fund (DIF) after the agency invoked the systemic risk determinations for Silicon Valley Bank (SVB) and covered all deposits. The proposed special assessment would be 12.5 basis points for a two-year assessment period and would apply only to banks over $5 billion in assets and exempt banks’ first $5 billion in uninsured deposits. McKernan, one of two votes against the ANPR, supports the exemption for small banks but believes it could be better calibrated.
McKernan returned to the conference the following day, joined by Mark Pearce, director of the FDIC’s division of depositor and consumer protection, to discuss other FDIC priorities. During Q & A, bankers pressed Pearce on whether the FDIC has changed its position from its August 2022 Financial Institutions Letter where it cited potential violations of law when banks charge multiple NSF fees for unpaid transactions if those are not covered in the bank’s disclosures. Pearce acknowledged the agency is aware of the challenges banks have in doing look backs to identify when multiple NSF fees were imposed for the same transaction and said that their new focus is on situations where there could have been significant consumer harm.
McKernan, when asked again about the FDIC’s proposed special assessment, was open to bankers’ suggestions that uninsured deposits that are collateralized should be excluded from the special assessment calculation. McKernan also encouraged bankers, after a discussion on recent FDIC exams, to share any concerns banks have about their exams with their local office or ombudsman.
Governor Bowman led her meeting with bankers by discussing several priorities of the Federal Reserve, including that, in the wake of the bank failures, exams will likely focus on commercial real estate and interest rate risk. Bowman agreed with bankers who advocated for the need of tailored exams and recognition that CRE needs for Tennessee banks will be drastically different than the needs of banks in coastal cities that are experiencing different norms for return to work. Bowman also believes the unique nature and business models of the banks that recently failed do not justify imposing new, overly complex regulatory and supervisory expectations on a broad range of banks.
As for inflation and the Fed’s historic rate increases, she noted progress in fighting inflation but emphasized that other tools to fight inflation will also need to be used to achieve the Fed’s goal of two percent inflation. Bowman also addressed FedNow, which launched in July and recognized bankers’ concerns with fraud and whether banks’ core providers will be able to provide access to the system at a reasonable cost. When she asked the attendees whether they planned to participate, not a single hand was raised.
Another priority topic while meeting with senior staff from the CFPB was the bureau’s proposed rule on Dodd Frank Section 1033. The staff believes that the rule, which would require financial service providers to make consumers’ financial information available to them, would have the most significant impact on data providers and third parties. Bankers expressed serious concerns with the rule’s unintended consequences that could result from consumers’ giving access to and sharing their financial information with third parties. Additionally, banks will have difficulty sharing such information with institutions that use different core providers.
The CFPB staff said the bureau may issue a notice of proposed rulemaking on overdraft programs as early as the end of this year. Bankers advocated for the benefit that overdraft programs provide their customers, as it is a low-cost source of capital, but the bureau’s staff was not too receptive to this and expressed that only overdraft fees that a customer could “reasonably expect should be charged, regardless of opt-in standards and disclosures.”
Acting Comptroller of the Currency Michael Hsu stressed the importance of community banks in the financial system and that regulators and bankers alike should be focus on digitalization and use of technology in the long term. Although there has been increasing interagency collaboration on fintech, the OCC has emerged as the lead agency on this. Hsu believes that while fintech and artificial intelligence offer great benefits, it is just as concerning to go too fast towards adoption as it is too slow.
Dan Fichtler, senior advisor at FHFA, updated the group on the agency’s comprehensive review of the Federal Home Loan Bank System and expects that recommendations will center on increasing focus and investment in affordable housing. Fichtler also explained recent changes to the agency’s pricing framework, saying that it had been eight to nine years since any pricing changes were implemented and Fannie and Freddie have an entirely new capital structure. The changes included increased fees for mission remote products, like second homes and cash out refinances, that have enabled elimination of loan level price adjustment fees for mission products, like first time home sales. He tried to dispel any misinformation in the public that individuals with high credit scores will pay more while those with low credit scores will pay less in up-front fees. He added, however, that because Fannie and Freddie now have to hold more capital, the fees overall were increased.
Conclusion
The Washington Conference is one of the most impactful events TBA hosts each year, and this year in particular marked a critical time for Tennessee to be represented in Washington. Not only did this year’s conference provide great opportunities for bankers to advocate directly to regulators about top issues for the industry, but it also provided tremendous networking opportunities for bankers and lawmakers. Those relationships are the foundation of what it takes to succeed in advocating for the banking industry in Washington. I hope bankers will continue to remain engaged and advocate for our industry alongside the TBA. Please plan to join us in D.C. next year—May 6-8, 2024.
