Senate FDIC Vote This Week Fills Out Financial Regulator Bench

By Jeff Bater

Jelena McWilliams’ expected confirmation this week to lead the Federal Deposit Insurance Corp. will allow President Donald Trump to move faster on deregulation as his picks will finally lead all of the major banking regulators.

The Senate is scheduled to begin debate this week on McWilliams’s nomination to replace Martin Gruenberg, an Obama-era appointee who has opposed changes to existing capital, liquidity, and leverage rules.

McWilliams is expected to be confirmed easily after winning approval in the Senate Banking Committee in February by a 24-1 margin. She would join a Trump regulatory team that includes Comptroller of the Currency Joseph Otting and Federal Reserve Chair Jerome Powell.

“The administration will finally have the people it wants heading these agencies, so they should be able to move faster,” Bipartisan Policy Center fellow Justin Schardin told Bloomberg Law.

The FDIC confirmation is critical to advancing regulatory changes because Gruenberg is “unlikely to budge on capital, liquidity or leverage rules,” said Jaret Seiberg, a Cowen & Company analyst.

Volcker Change

The first order of business for McWilliams might be the Volcker Rule. Financial regulators are expected to announce a makeover in coming weeks of the Dodd-Frank Act restrictions on proprietary trading by banks and their opportunities to hold stakes in private-equity and hedge funds.

The plan is to scrap a restrictive presumption that short-term trades — those held by banks for less than 60 days — automatically violate the rule, according to Bloomberg News. Instead, banks would have leeway to conclude that their trades comply with the rule, putting the burden on regulators to challenge such judgments.

Other Priorities

Other items likely to cross McWilliams’ desk are small-dollar loan policy, cybersecurity standards, leveraged lending guidance, and the Community Reinvestment Act.

McWilliams served as chief counsel for the Senate Banking Committee and executive vice president at Fifth Third Bank, giving her a unique view of the Dodd-Frank Act as the administration works to reshape the law.

“She knows where all the bodies are buried,” Ed Mills, a Washington policy analyst with Raymond James, told Bloomberg Law. “It is very interesting you are putting a technocrat in charge of the FDIC. She knows how the law was drafted because she worked for the committee. She knows the law was implemented because she worked for a regional bank. They’re going to rely upon her expertise.”

McWilliams pledged at her confirmation hearing in January that she would find ways to encourage bank formation and help community lenders.

She promised swift review of applications for industrial loan company charters. The FDIC has been cautious over the past decade in approving new ILCs after a political tumult caused by Walmart Inc.’s interest in entering the lending space through an ILC.

McWilliams told senators the FDIC will help community banks by reviewing capital and liquidity requirements. Some of the regulations are not applicable to small lenders, she said.

In her time as a Banking Committee aide, McWilliams worked closely on regulatory relief legislation and “really would hit the ground running at making sure regulations are tailored to the business models of banks,” Paul Merski, vice president of congressional relations and strategy for the Independent Community Bankers of America, told Bloomberg Law.

Small-Dollar Loans

The Trump administration can push harder on encouraging small-dollar lending by banks with McWilliams in place.

Banks “can and should be part of small-dollar loan market,” Vance Price, a deputy comptroller at the Office of the Comptroller of the Currency, told a Washington conference in March.

The OCC recently voided 2013 guidance that had prompted banks to stop issuing deposit advance loans amid fears of regulatory scrutiny by examiners. Deposit advances are lines of credit offered to bank customers as a feature of an existing account.

The FDIC could rescind its deposit advance warning — issued in 2013 to state-chartered banks — once McWilliams takes the helm.

Cyber criminals are another priority for the FDIC under McWilliams.

The three banking agencies issued an advance notice of proposed rulemaking in 2016 on cybersecurity. The FDIC will follow up and decide on a course of action, McWilliams told senators at her confirmation hearing.

Leveraged Lending, CRA Revamp

With McWilliams in place, the FDIC, the OCC, and the Fed are also likely to tackle leveraged lending guidelines that were imposed in 2013 as the regulators warned banks about taking on too much debt.

The OCC’s Otting has already signaled a shift in policy. Banks should have the right to do the leveraged lending they want as long as they have the capital and personnel to manage risk and not impair bank safety and soundness, he told a conference in February.

Otting emphasized the 2013 guidelines didn’t constitute a rule. Fed Chair Powell echoed that point at a House Financial Services Committee hearing in February, telling lawmakers the guidance is nonbinding and that the regulator wants to make that point clear to its banking supervisors.

McWilliams will also join other regulators in a planned revamp of the Community Reinvestment Act, the 1977 law aimed at making sure that banks lend in low- to middle-income neighborhoods that could otherwise go underserved.

An April report from the Treasury Department called for the Fed, the OCC, and the FDIC to expand the types of lending used to calculate a bank’s performance and provide more certainty in the examination process, among other things.

The FDIC’s work has been somewhat on hold as it awaits McWilliams’s confirmation.

Fed Governor Lael Brainard addressed a CRA revamp in a speech May 18. She said the banking agencies “should do more to encourage banks to offer deposit and credit products designed to help rent-burdened customers save for homeownership and build strong credit scores that will enable them to succeed in obtaining mortgage credit on favorable terms.”

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