Bolstering Community Banking; A Sweeping Plan for Overhauling Financial Rules; Crypto Policy Shift Starts to Take Shape
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Joe Biden’s final remaining financial overseers were officially supplanted this week. Rohit Chopra was temporarily replaced at the CFPB by the Treasury secretary (who days later handed the job off to the newly confirmed head of OMB). We looked at the departed consumer bureau chief’s legacy — and how quickly it will be dismantled. At the OCC, Rodney Hood, a former NCUA chairman in the prior Trump administration, was installed as acting comptroller of the currency. He takes over for Michael Hsu.
Both the House and Senate held hearings on debanking. While lawmakers of both parties professed ire about Americans losing access to financial accounts, there was little agreement about how to deal with the issue. On digital assets policy, the White House crypto and AI czar traveled up to Capitol Hill for his first press conference. But in a sign that change may not come quickly, his big reveal was the creation of yet another working group.
We also wrote about a plan for overhauling regulation of both banking and the capital markets that was just sent to the NEC, SEC, CFTC and key congressional committees. It comes from a group of high-powered business leaders and academics and is likely to garner a lot of attention in the coming months. For our Friday interview, we spoke with the Arkansas state bank commissioner.
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Friday Q and A: With deregulation on the agenda, and federal agencies under fire, the role of state oversight in financial services is being thrust into the spotlight. State banking supervisors in particular are eyeing what they see as their best chance in years to advance a long-held priority: Boosting the fortunes of their hometown community banks.
In Arkansas, for example, a new lender hasn’t launched in twenty years – and no one is more attuned to that than Susannah Marshall, the banking and securities commissioner. A lifelong bank examiner, Marshall has devoted her decades-long career to balancing proper supervision with creating an environment where local lenders can thrive.
This week, Marshall traveled to Washington to testify before the House Financial Services Committee, now led by former banker – and fellow Razorback – French Hill. We caught up with Marshall during her visit to discuss how she (and other members of the Conference of State Bank Supervisors) view the regulatory landscape in Trump 2.0. No surprise, she’s an advocate for streamlining rules for community banks. But she also stresses that her counterparts in the federal government could learn a lot if they listened more to state officials who have boots on the ground. What follows is our (lightly edited and condensed) conversation.
Capitol Account: Big picture, what does a state banking regulator do?
Susannah Marshall: We have chartering authority [for banks], but then we have the ultimate responsibility to oversee those institutions on a day-to-day basis. We are also responsible, and very much in charge of, consumer protection for our citizens and customers of our institutions. Unique to the state system is that our focus is on economic development in our communities.
CA: You’re in Washington to testify about making community banking great again. Why?
SM: We want to ensure that…consumers have access to a variety of financial products and services. A community bank is almost always the best provider of that. Community banks are the ones that are in the most rural parts of a state. They are hands-on working with small businesses, individuals. They help support the community, whether it's the scoreboard on the Friday night football field, or whether it's a new business coming to town.
CA: There is concern that small banks are disappearing.
SM: There have been well over 2,000…in recent years that have merged or gone out of existence. That trend is not reversing. When I first started…there were 175 community banks in Arkansas. Today, I have 70. And that is apparent in any state you go to look at. We need to think about – as policy makers, as regulators, all stakeholders – how we can reverse that trend.
CA: What’s your message to lawmakers?
SM: We do not need a nation where we have a handful of large institutions that are not focused on communities…We need to focus our efforts and our resources and ability to ensure we have a vibrant community banking system.
CA: Does it help to have a former small banker – and an Arkansan – as the chairman of the financial services panel?
SM: I’m thrilled that he is the leader…I believe he'll have strong support, and will be very successful because he has the background, experience and knowledge.
CA: Large banks have a lot of complaints about how they are examined by the federal agencies. What’s supervision like at the state level?
SM: Community banks know their communities and state regulators know their community banks. It's a much better day-to-day, one-on-one relationship. It's important [to have] boots on the ground, because although I appreciate my federal regulators and we do our job in coordination with them every day, they don't live and work in most of the communities in our states – specifically the federal regulators that operate here in D.C. They don't have a good perspective on what happens out in the field.
CA: What’s the breakdown of banks that operate under state oversight versus federal?
SM: Seventy-nine percent of the banks in this country have chosen to be a state charter. And in my state, that number is closer to 90 percent…I only have seven national banks in Arkansas.
CA: How many do you supervise overall?
SM: Seventy.
CA: Are they all tiny?
SM: No. I have four over $10 billion [in assets]. And that’s a very good topic for this conversation. Over the years, there has been federal guidance that has determined that the community bank-large bank threshold needs to be $10 billion. That's been in existence for quite some time – Dodd-Frank era. Nobody really has a lens as to why $10 billion was the mark. It's more arbitrary than anything.
CA: Banks under that cutoff are often exempted from a number of regulations. It sounds like you think the threshold is too low.
SM: I'm not saying it was ever an appropriate number, but it’s certainly no longer an appropriate number in today's marketplace. A $10 billion community bank is just that. It's just a community bank that was $9 billion yesterday and organically grew or had a [merger or acquisition] and grew over a $10 billion mark.
CA: What’s the real-world impact?
SM: All of a sudden they're in the spotlight as some higher risk, higher functioning institution that has to have a plethora of new oversight and regulation. And that is just simply not the case. Ten billion puts institutions and their management teams and their structure, to me, at a very large disadvantage. They're being oftentimes treated through regulation and application of laws and guidance in a bucket with an institution that may be $75 billion [with] a much higher risk profile that operates in a much more geographically dispersed area.
CA: Republicans have been sympathetic to this argument. Do you see an opportunity for a fix?
SM: This is an area that is ripe for change going forward. [The threshold] needs to be indexed. And quite frankly, those thresholds need to be evaluated over time.
CA: What else is on your list of policies that need to be looked at?
SM: Anything to do with tailoring of supervision and regulation. That probably could be a catchall phrase for so much of what we need to focus on for this industry…What has happened is without effective tailoring through regulation and proposals and guidance, you have this one-size-fits-all approach…(Friday)
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Blueprint: It’s been almost 20 years since Hal Scott put together a blue-ribbon group of academics and business leaders to help the Treasury Department reorder the U.S.’s financial oversight system. That effort was ultimately unsuccessful. But with Republicans ascendant and deregulation in the air, the emeritus Harvard Law professor is eager to try again.
On Thursday, Scott’s Committee on Capital Markets Regulation released an eight-page paper setting out priorities for a new overhaul. Covering both capital markets and banking, the document has been sent to the Treasury, NEC, SEC and CFTC, as well as the chairmen of key congressional panels. Scott hopes the Trump administration will embrace the recommendations – and even consider tapping his committee’s expertise to underpin the push.
“We have the resources and the capability. We’ve thought about all these things, we’ve done studies. We don’t need to start from square one,” Scott says. “I think we could help the administration with what they want, which is, bottom line, stronger economic growth.”
Still, prodding federal agencies into major policy U-turns is no easy feat – something that Scott knows well from his previous work with then-Secretary Henry Paulson. Streamlining financial oversight was a top priority for the Treasury chief, who asked Scott’s committee for a report and later issued a much-ballyhooed blueprint for a “modernized regulatory structure” in March 2008. It was quickly derailed by the financial crisis.
Scott’s committee, known as CCMR, has continued its focus over the ensuing years, though its influence in Washington tends to rise and fall depending on which party is in the White House. Over the last four years, it has essentially been in resistance mode, issuing comment letters, reports and amicus briefs opposing the Biden regulators’ aggressive rulemaking.
Now with Donald Trump in office and Congress controlled by Republicans, CCMR’s agenda of deregulation and promoting capital formation is back in vogue. The committee counts leading Wall Street players, financial trade association presidents and noted professors among its roughly 40 members. A handful of former government officials, including ex-Trump SEC Chairman Jay Clayton and Dan Gallagher, a former Republican commissioner, are also on the roster.
The group’s proposals touch on digital assets, merger policy, enforcement penalties and more. What follows is a rundown of some of the recommendations. For the entire document, click here.
Top of the list: “Probably the number one priority is reversing the damage that Gary Gensler did,” says Scott. Toward that end, the committee offers an interesting strategy for dealing with all the pending legal challenges to the prior SEC chief’s regulations: directing agency lawyers not to oppose the lawsuits. That would allow courts to strike each rule down…(Thursday)
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Gearing Up: Hype about new policies that will usher in a “Golden Age” of digital assets has reached a fever pitch in the early days of the Trump administration, and a flurry of announcements Tuesday only served to underscore that notion. But in terms of tangible developments, most of the news so far has a more pedestrian (and quintessentially Washington) ring to it. There are now enough crypto working groups in the government to make a career bureaucrat blush.
David Sacks, the White House AI & Crypto Czar, made his first appearance before the D.C. press corps at a packed news conference in the Senate Banking Committee's hearing room. He was flanked by committee chairs, including Tim Scott and Hill, which led some in the crypto industry to speculate about a big unveiling. The actual announcement was more mundane: A bicameral conclave to shepherd digital assets legislation.
Sacks, of course, already leads his own administration working group that has been ordered to “propose a regulatory framework” for stablecoins and other digital assets. Not to be outdone, the SEC has a crypto task force that is also getting into gear. Its leader, Hester Peirce, laid out a vast new road map. And as if that weren’t enough, the Blockchain Association unveiled 23 new working groups for industry leaders to foster consensus “as U.S. crypto policy enters a new era.”
With all the moving parts, Peirce may have felt it necessary to set expectations at the proper level: “It took us a long time to get into this mess, and it is going to take us some time to get out of it,” the commissioner noted, referring to what she described as a series of imprecise and impractical decisions under past administrations. “Determining how best to disentangle all these strands, including ongoing litigation, will take time…Please be patient.”
What follows is a rundown of the latest crypto maneuvering as the Trump administration’s approach begins to takes shape…(Tuesday)
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