At an oversight hearing before the House Financial Services Committee (the "Committee"), legislators questioned prudential regulators on (i) diversity in banking, (ii) the regulatory response to the COVID-19 pandemic, and (iii) the changing regulatory landscape due to climate change, cybersecurity, and digitization.

The Committee heard testimony from FRB Vice Chair of Supervision Randal K. Quarles, FDIC Chair Jelena McWilliams, National Credit Union Administration ("NCUA") Chair Todd M. Harper, and OCC Acting Comptroller Michael J. Hsu.

FRB Vice Chair of Supervision Randal K. Quarles described the economic, financial and operational impact of the COVID-19 pandemic, and recommended further examination on: (i) short-term funding markets; (ii) Treasury markets; (iii) changing patterns in customer practices and use of financial services; and (iv) shifting relationships between banks and their nonbank partners. Mr. Quarles noted that the COVID-19 event was the "second destabilizing run on prime money market mutual funds in roughly a decade [that] required significant public intervention to address," which underscores vulnerabilities in such investment vehicles. On the changing financial landscape, Mr. Quarles stated that the FRB is currently taking action to understand the increasing use of artificial intelligence and the heightened disruptive shock risks arising from cybersecurity failures.

OCC Acting Comptroller Hsu identified the adaptation to digitalization as a challenge requiring the OCC's attention. He expressed concern over (i) "complacency by banks" (he noted the Archegos losses as reason to stay vigilant), (ii) banking inequality, and (iii) risks to the financial system arising from climate change. Mr. Hsu highlighted his decision to reconsider the OCC's 2020 final rule on the Community Reinvestment Act to (i) determine the effect of changed circumstances, and (ii) assess potential alternatives to the rule.

FDIC Chair Jelena McWilliams provided updates on agency efforts (i) to adjust to a "new normal," (ii) to respond to pandemic-related economic risks, (iii) on resolution preparedness, (iv) on processes for supervision and regulatory action, (v) on financial inclusion, and (vi) on promoting innovation.

NCUA Chair Harper requested that the Committee consider legislation to (i) enable the NCUA to have agency examination and enforcement authority over third-party vendors, (ii) enhance flexibility in National Credit Union Share Insurance Fund management, and (iii) permanently extend modifications to its Central Liquidity Facility. He also highlighted the NCUA's efforts to (i) promote diversity and inclusion, (ii) enhance consumer financial protection, and (iii) accelerate economic equity and justice.

Pending Legislation

For the hearing, Committee staff summarized the following pending bills:

  • H.J. Res. 35, a resolution to nullify the OCC's "True Lender" rule;
  • H.R. ____, the "Central Liquidity Facility Enhancement Act," which would permanently extend certain modifications made in the Coronavirus Aid, Relief, and Economic Security ("CARES") Act to NCUA's Central Liquidity Facility;
  • H.R. ____, the "Countercyclical Capital Buffer Act," which would mandate that the FRB activate for the largest banks the countercyclical capital buffer when the Federal Open Market Committee increases interest rates;
  • H.R. ____, the "Diversity in Financial Regulatory Advisory Committees Act," which would mandate that certain regulatory agencies (i) report the demographics of their advisory committees, and (ii) consider a minimum of one individual representative of gender diversity and one individual representative of racial or ethnic diversity when filling an advisory committee vacancy;
  • H.R. ____, the "Expanding Financial Access for Underserved Communities Act," which would enable credit unions to increase the scope of their membership to include underserved communities lacking a depository institution branch within 10 miles;
  • H.R. ____, the "Expanding Opportunities in Banking Act," which would increase employment opportunities for formerly incarcerated individuals at banks and credit unions;
  • H.R. ____, the "Federal Reserve Bank Board Diversity Act," which would mandate that the FRB consider a minimum of one individual representative of gender diversity and one individual representative of racial or ethnic diversity when filling a vacancy in its board of directors;
  • H.R. ____, the "NCUA Oversight of Third Party Vendors Act," which would provide NCUA with permanent authority over credit union third-party vendors; and
  • H.R. ____, the "Promoting New and Diverse Depository Institutions Act," which would mandate that the FRB, the OCC, the FDIC, NCUA and CFPB, in collaboration with the Treasury Secretary (i) undertake an 18-month study concerning the challenges faced by prospective de novo depository institutions, and (ii) create a plan to advocate for the development of newly chartered, particularly minority, depository and community development financial institutions in a way that "promotes, among other things, safety and soundness, consumer protection, and community reinvestment."

Primary Sources

  1. House Financial Services Committee: Virtual Hearing - Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions
  2. House Financial Services Committee Memorandum: Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions
  3. FRB Testimony, Randal Quarles: Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions
  4. OCC Testimony, Michael Hsu: Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions
  5. FDIC Testimony, Jelena McWilliams: Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions
  6. NCUA Testimony, Todd Harper: Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions

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