Midterms may slow bank deregulation

A Democratic takeover of one or both chambers of Congress could put a damper on federal agencies' deregulatory agenda, but will not derail it entirely.

Stifel's Chief Washington Policy Strategist Brian Gardner's base case midterm election result is that democrats will win the House while republicans will retain control of the Senate, despite fears over the economy and affordability making the possibility of a democratic sweep more likely. Even if both chambers flipped, major financial services legislation would face significant obstacles with the President retaining veto power, but the industry would still face challenges like slower deregulatory progress and headline risk, according to the analyst. "We doubt that a Democratic win in the midterm elections would create a headwind for the industry, but it might not enjoy as strong of a following breeze as it has to this point," Gardner wrote in an Oct. 12 note.

A Democratic win could come with some positives for the industry, particularly for mid-sized banks, as the party is more open to revisiting deposit insurance. Gardner does not expect the midterm results to have an impact on bank M&A, but any banks wanting to complete larger deals will be "on the clock" to do so before the 2028 president election could potentially change merger policy.

But a change in congressional control would bring new financial services committee chairs and priorities. Democratic-led committees could slow the regulatory process through investigations and document requests directed at federal agencies, Gardner wrote.

"This can slow down, but not stop, the regulatory process. Thus, the administration's regulatory agenda for financials should continue, albeit at a slightly slower pace," he said. Under a Democratic-controlled House, Rep. Maxine Waters (Democrat-California) would likely chair the House Financial Services Committee, according to Gardner. While Waters is not a "friend of the banking industry," she is more likely to focus her priorities on housing, leaving the financial services sector "relatively unscathed," Gardner wrote.

The Senate Banking Committee chairmanship spot would be between Sen. Elizabeth Warren (Democrat-Massachusetts) and former Sen. Sherrod Brown (Democrat-Ohio), who is looking to win back his Senate seat. A banking committee led by Brown would "produce fewer negative headlines for the banking industry," compared to Warren, Gardner said. "If Warren becomes chair then we would expect a heavy focus on the Wall Street banks and more negative headlines," he wrote.

One area both chambers might focus on is the Jeffrey Epstein scandal, potentially bringing scrutiny to large banks.

"Democrats smell blood in the water regarding the Jeffrey Epstein scandal. As they investigate the administration's handling of the matter, their inquiries could put some large banks in a negative light to the extent that these institutions had relationships with Epstein and if the inquiries produce new information," Gardner wrote. 

Source: S&P Global

Technology is a great equalizer for community banks  

Now that fintech solutions are more accessible and more easily orchestrated, technology has become a great equalizer for community banks, according to an ICBA blog post.

In the new blog post, ICBA Vice President of Innovation Investments Kristina Morris says the tech curve has flattened out due to companies that have participated in ICBA’s ThinkTECH Accelerator.

Source: ICBA

Regulators should harmonize CRA modernization efforts

ICBA said FDIC and OCC proposals to amend Community Reinvestment Act regulations are a positive step, but all federal regulators should coordinate CRA rulemaking.

In a letter to the FDIC and OCC, ICBA said the agencies’ August proposals represent a meaningful step toward a CRA framework that is faithful to the statute, focused on lending, and proportionate in its demands on community banks.

ICBA said it:

• • Strongly supports modernizing the asset thresholds, which would increase the proportionality of the rule, but urged the agencies to raise the small-bank threshold to $10 billion.
• • Believes codifying an illustrative list of qualifying community development activities would replace decades of guesswork with transparency and give community banks the confidence to invest in worthwhile projects.
• • Recommends that the final rule recognize mission-focused partners such as minority depository institutions, community development financial institutions, and mutual banks.
• • Urges a de minimis exception, an exemption for small nonprofits, and an attestation safe harbor on the proposed 15% cap on recipients’ indirect costs.
• • Supports the optional geographic flexibility framework and recommends a de minimis exception for modest activities outside assessment areas, confirmation that activities with minority- and women-owned institutions remain exempt from the standard, and comparable treatment for CDFI banks and mutual banks.
• • Appreciates the redoubled focus on lending and narrowed consideration of lending products to only major product lines.
• • Supports retaining an assessment area framework grounded in a bank’s physical presence, as the statute and the court in the CRA litigation require, and urges the agencies to codify that limit.

In a national news release following the release of the FDIC and OCC joint proposal, ICBA noted it has long supported modernizing CRA regulations and minimizing community bank regulatory burdens. The FDIC, OCC, and Federal Reserve last year issued a joint proposal to rescind the 2023 CRA rule, with the agencies applying the 1995 CRA regulations to banks. ICBA applauded the agencies’ previous announcement of the proposal, citing the rule’s disproportionate implementation costs for community banks.

Separately, the FDIC and OCC in August filed motions in ongoing litigation over regulators’ 2023 CRA rule, asking the court to declare that rule and 2016 CRA guidance unlawful, to impose limits on future CRA regulations related to deposit products and assessing retail lending activities outside the geographic areas served by physical banking offices, and to resolve their role in the litigation. The Fed’s role in the litigation is proceeding separately.

In 2024, ICBA and other groups filed an appellate brief with the Fifth Circuit challenging the 2023 CRA final rule, arguing it unlawfully evaluates banks’ performance nationwide, not within the bank’s “community.” In their original complaint, the groups asserted that regulators exceeded their statutory authority with the CRA final rule, violating the Administrative Procedure Act, and that the rule would limit future bank lending.

ICBA has long sought CRA reforms to recognize the disproportionate reporting burden on community banks, including last year calling on regulators to rescind the 2023 CRA rule and reinstate the prior version in a letter responding to the Office of Management and Budget’s request for information on deregulation.

Source: ICBA

FDIC's Hill flags tokenized deposit risks

FDIC Chair Travis Hill said regulators need to do more work to understand how widespread use of tokenized deposits could affect bank supervision and the resolution of failed institutions, particularly if transactions increasingly settle around the clock, American Banker reported, citing Hill's remarks at DC Fintech week.

Feedback on the FDIC's proposal to implement the GENIUS Act has highlighted several regulatory issues involving tokenized deposits, Hill said. One concern is whether around-the-clock settlement could disrupt the FDIC's traditional process for closing a failed bank on Friday, transferring its assets and customers to a buyer over the weekend, and reopening the institution on Monday, the report said.

Around-the-clock settlement could complicate that process if transaction volumes do not slow at the end of the week, Hill said. Regulators could face greater difficulty determining when to close a bank and managing payments and other activity during the resolution period.

  Source: S&P Global

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Source: S&P Global

CSBS seeks mortgage loan originators’ input

The Conference of State Bank Supervisors announced a job analysis survey to gather information from state-licensed mortgage loan originators.

CSBS said the survey will help ensure the SAFE MLO National Test remains current and reflects the work MLOs perform.

Source: CSBS

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