2019: Different Approach, Same Agenda
Significant progress at the regulatory agencies as well as the passage and implementation of long-sought bipartisan regulatory reform made 2018 a breakthrough year in many ways. The new year brings fresh challenges, including how to maintain momentum for policy improvements in the face of a newly divided Congress.
But as I have said on many occasions, the fundamental business of banking — from the deployment of credit to the building of communities — does not belong to one party. Banking issues can and should be bipartisan. So while our tactics might change with the new dynamic in Washington, our agenda hasn’t, and won’t.
The American Bankers Association will actively advocate on a range of policy issues in 2019, including additional regulatory reforms that didn’t make it into S. 2155, such as exam-fairness provisions that would establish deadlines for banking agencies to issue exam reports and create an independent examination review and appeal process. Other topics we think are ripe for bipartisan action include:
Bank Secrecy Act Reform
There is growing consensus that now is the time to update the compliance structure surrounding the nation’s anti-money laundering rules, which has not changed since 1970.
We will be working to build bipartisan support for BSA/AML reform, including updated Suspicious Activity Report and Currency Transaction Report thresholds, further modifications to customer due-diligence rules and better communication between banks and law enforcement.
As cannabis is now legal in some form in 33 states, the growth in dispensaries — as well as numerous fast-growing offshoot businesses — is putting our industry in an untenable position. A bank might choose not to serve a marijuana grower or dispensary since cannabis remains illegal under federal law, yet still face significant legal, operational and regulatory risk if it offers services to a customer with a tangential connection to cannabis. We’ve heard many stories, like the bank that was told by its regulator not to lend any more to a local mall owner after it leased space to a cannabis dispensary.
This conflict between federal and state law is reaching a tipping point, and we believe Congress and regulators must provide greater legal clarity. Watch for hearings, likely to begin with the House Financial Services Committee, and for the introduction of bills that address banks’ challenges. While the American Bankers Association is not weighing in on the societal, cultural or moral aspects of this issue, we do want legal protections for banks providing services in states where cannabis is legal.
CECL Accounting Standard
Understanding the impact that the Financial Accounting Standards Board’s Current Expected Credit Loss accounting standard will have when fully implemented is a significant challenge. But we know that the standard’s upfront loss recognition changes the economics of lending and could force hundreds of banks to raise capital or limit their product offerings. For this reason, the American Bankers Association is advocating that a thorough, quantitative impact study be conducted before allowing the standard to take effect.
The standard is scheduled to take effect in 2020 for Securities Exchange Commission registrants, 2021 for non-registrant banks with outside equity/debt holders, and 2022 for privately held and mutual banks.
Community Reinvestment Act Modernization
Regulations implementing the Community Reinvestment Act have not kept pace with changes in banking and technology, and the Office of the Comptroller of the Currency has taken the lead in modernizing them. The comment period following OCC’s issue of an Advance Notice of Proposed Rulemaking closed in November 2018, with some 300 banks weighing in. That kind of engagement will be needed again in 2019, when we expect the banking agencies to jointly issue a proposed rule. This is a once-in-a-generation opportunity to move CRA into the future, but it will face substantial headwinds from those who fear (wrongly) that modernization will reduce banks’ commitment to their communities. We will be working to allay those fears and make the case for commonsense improvements. Fortunately or unfortunately, banking always has a full pipeline of issues demanding attention. So while those above seem ripe for action in the coming months, ABA will be advocating on a host of other, equally important issues, from data security and housing finance reform to flood insurance and student debt concerns.
Your continued engagement will be the key to advancing any of these issues, and creating smarter, more effective bank regulation.
Rob Nichols is the president and CEO of the American Bankers Association. You may email him at email@example.com.