"Chairman Crapo, Ranking Member Brown, and members of the Committee, thank you for the invitation to appear before you today to discuss the Economic Growth, Regulatory Relief, and Consumer Protection Act (Economic Growth Act or Act). I am honored to join my colleagues from the
"The Economic Growth Act is a testament to the bipartisan work of this Committee, under the leadership of Chairman Crapo, to provide prudent burden relief for the small and mid-size financial institutions that need it most.
"Before I turn to the specific progress the OCC has made to implement the Economic Growth Act, I would like to describe briefly the current condition of the federal banking system. The OCC has supervisory responsibility for over 1,300 banks. Together, these banks hold
"The OCC works to promote a vibrant and diverse banking system that benefits consumers, communities, businesses, and the economy. We ensure that banks operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. The dedication and commitment of the OCC, and that of the other agencies, have contributed to the strength and resiliency of the
"I am well aware, however, that with opportunity comes risk. The OCC regulates banks to ensure that their boards of directors and management clearly understand and actively manage the risks they face. We are closely monitoring trends with respect to credit, interest rate, operational, and compliance risks, and we continue to share our insights and concerns with the banks we supervise. In addition, the OCC assesses new and emerging threats, including those related to cybersecurity. I believe that these efforts have made and will continue to make banks safer and stronger.
The Economic Growth Act
"The strength and vitality of the nation's financial system depend, in large part, on the ability of financial institutions, particularly community and mid-size banks, to operate efficiently, effectively, and without unnecessary regulatory burden. The Economic Growth Act is a bipartisan, common sense law that will significantly reduce regulatory burden for small and mid-size institutions while safeguarding the financial system and protecting consumers. The Act includes several features that will benefit community banks in particular and are consistent with my priorities as Comptroller, including reducing the number of banks subject to the Volcker Rule and providing a simpler capital regime for highly capitalized community banks. These and other provisions in the Act will help the federal banking system continue to foster job creation and promote economic opportunity. Today, I will outline the steps the OCC has taken to ensure that the relief provided by the Economic Growth Act is realized as quickly as possible.
A. Interagency Statement Regarding the Impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act1
"Following passage of the Economic Growth Act and in response to questions from various stakeholders, the agencies issued an Interagency Statement to financial institutions to clarify how we would administer certain provisions of the Act. For example, a number of provisions of the Act were effective upon enactment or soon thereafter, but agency regulations had yet to be revised to reflect these changes in the law. In order to avoid confusion and the unnecessary use of institutions' compliance resources, the agencies issued the Interagency Statement to demonstrate our commitment to administering our regulations, during the interim period before we promulgate any necessary conforming regulations, in a manner consistent with the Act.
"The Interagency Statement provides direction and sets the table for upcoming regulatory revisions in a number of areas. For example, the Economic Growth Act at section 401 raises the threshold at which bank holding companies (BHCs) and depository institutions are required to perform company-run stress tests from
"In addition, sections 203 and 204 of the Economic Growth Act make changes to the statutory provisions underlying the Volcker Rule, including reducing the number of institutions subject to its requirements. These changes provide regulatory relief to institutions that do not pose the types of risks the Volcker Rule was intended to limit. To address conflicts between the agencies' current Volcker Rule and these statutory changes, the Interagency Statement explains that the agencies will not enforce the Volcker Rule in a manner inconsistent with the Act.
B. Recently Completed Actions
"I am happy to report that we have made steady and significant progress implementing the Act since the agencies issued the Interagency Statement in early July. As discussed below, we have completed several actions and are engaged with our fellow regulators to move quickly on the remaining rulemakings.
"Thrift charter flexibility. On
"The Act, together with the OCC's rulemaking, will provide federal savings associations with additional flexibility to adapt to evolving economic conditions and business environments and allow them to better serve the changing needs of their customers--without the burden and expense of changing charters. The public comment period on the
"HVCRE. Section 214 of the Economic Growth Act provides that the agencies can require an institution to assign a heightened risk weight to a high volatility commercial real estate (HVCRE) exposure only if it meets the Act's new definition of an HVCRE acquisition, development, and construction loan. To address conflicts among this provision, existing rules, and relevant Consolidated Reports of Condition and Income (Call Report) instructions, the Interagency Statement provides that institutions can choose either to rely on the Act's definition when risk-weighting and reporting HVCRE exposures or to continue to risk-weight and report HVCRE exposures consistent with current Call Report instructions. On
"Examination cycle. On
"High quality liquid assets (HQLA). Section 403 of the Economic Growth Act directs the agencies to treat certain municipal obligations as HQLA for purposes of their regulations, including the liquidity coverage ratio (LCR). It further directs the agencies to amend their liquidity regulations to implement these changes within 90 days of enactment.
"In anticipation of this rulemaking, the agencies announced in the Interagency Statement that they will not require an institution subject to the liquidity regulations to exclude from the definition of HQLA those municipal obligations they believe meet the statutory criteria for inclusion in HQLA. Subsequently, on
C. Additional Actions Underway to Implement the Economic Growth Act
"The agencies, working both jointly and independently, continue to move forward with the remaining steps to fully implement the Economic Growth Act. The OCC is participating actively in interagency consultations related to the rulemakings and other efforts underway by the
"Community bank leverage ratio. The agencies are working to implement section 201 of the Act, which addresses the complex and burdensome process--particularly for highly capitalized community and mid-size institutions--of calculating and reporting regulatory capital. In addition to providing much needed clarity regarding the capital treatment of HVCRE exposures (discussed above), the Act directs the agencies to draft regulations that allow certain institutions--those that exceed a "community bank leverage ratio" (tangible equity to average total consolidated assets of 8 percent to 10 percent) and engage only in traditional banking activities--to be deemed in compliance with current leverage and risk-based capital provisions.
"Staffs of the agencies are meeting frequently to develop rules to implement this provision, which represents an important new direction in capital regulation. A number of complex issues remain outstanding, including how to harmonize this provision of the Act with statutory provisions unaffected by the Act, and the agencies are working to resolve these issues. I am confident that a thoughtful implementation of this provision will lead to a substantial reduction in regulatory burden for highly capitalized, qualifying institutions while ensuring that these institutions continue to maintain appropriate capital levels.
"Asset threshold for short form Call Report. Section 205 of the Act provides for reduced reporting requirements on Call Reports for the first and third quarters for institutions with less than
"Periodic stress testing. In addition to the changes to the company-run stress testing thresholds discussed above, section 401 of the Act amends the required frequency of stress testing from annual to periodic and reduces the required number of scenarios from three to two. These agencies are working to implement all of these changes, which will reduce burden while maintaining this important supervisory tool. Stress testing serves a critical function for both regulators and financial institutions by ensuring that financial institutions consider potential economic events that could cause significant balance sheet disruptions and prepare to mitigate such disruptions if necessary.
"Supplementary leverage ratio. Section 402 of the Act directs the agencies to revise the leverage ratio requirements applicable to the largest
D. Additional Efforts to Promote Economic Growth and Job Creation
"In parallel with our efforts to implement the Act, the OCC is considering additional ways that we can reduce unnecessary burden on the banks we supervise, an endeavor that we believe is consistent with the purpose of the Act and will fuel job creation and economic opportunity.
"Additional capital framework changes. The OCC is meeting with the Board and the
"Recovery planning. On
Other Agency Priorities
"I would also like to take this opportunity to update the Committee on some of the other important work taking place at the OCC.
"Community Reinvestment Act of 1977 (CRA). While the communities that banks serve will benefit greatly from the economic opportunities that the Act makes possible, such progress does not always require congressional action. One area in which the agencies can achieve additional reforms on their own is the modernization of the CRA regulatory framework. I have seen firsthand how CRA activities reinvigorate financially distressed areas through community development and reinvestment, but stakeholders from all perspectives acknowledge the limitations of the current framework. Despite the best of intentions, the CRA regulatory framework, which has been pieced together over the past 40-plus years, is outdated, ambiguous, overly complex, and unnecessarily burdensome. These problems hinder banks' ability to fulfill the statute's goals.
"To continue the burden reduction and economic empowerment that
"Innovation. At the end of July, the OCC announced that it will accept applications for special purpose national bank charters from financial technology (fintech) companies that are engaged in the business of banking but do not take deposits, provided they meet the requirements and standards for obtaining a charter.10 This decision reflects the OCC's understanding that responsible innovation will enable banks to meet consumers', businesses', and communities' evolving needs; operate in a safe and sound manner; provide fair access to financial services; and treat customers fairly. Responsible innovation is important in order for banks to continue to promote economic opportunity and job creation going forward. Let me reiterate, however, that the OCC will supervise special purpose national banks like other similarly situated national banks. They will be held to the same high standards applicable to any other national bank, including with respect to capital, liquidity, and financial inclusion commitments as appropriate.
"The OCC's decision to consider applications for special purpose national bank charters followed extensive outreach by the OCC over a two-year period. It also is consistent with bipartisan government efforts at the federal and state levels to promote economic opportunity and support innovation that can improve the provision of and access to financial services.
"In addition, fintech companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as federally chartered banks. Contrary to what some have suggested, I believe that a special purpose national bank charter supports and enhances the dual banking system. A federal charter provides companies interested in banking with another choice, alongside others such as becoming a state bank, operating as a state-licensed financial service provider, or pursuing a partnership or business combination with an existing bank. Competition between these options yields a wider range of products and services available to consumers, lower regulatory costs, and more effective supervision.
"Short-term, small-dollar lending. On
"Bank Secrecy Act and Anti-money laundering (BSA/AML). The OCC has taken a leadership role in coordinating discussions among the
"Guidance. Finally, in response to recent inquiries suggesting the agencies clarify the differences between supervisory guidance and laws and regulations, on
"I appreciate the opportunity to update the Committee on the OCC's work to implement the Economic Growth Act and to share with you the progress we have made in other areas. I believe that consumers, businesses, and communities alike will benefit from these efforts for many years to come. The OCC looks forward to keeping the Committee apprised of our work."
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1 Joint Release, OCC NR 2018-69, Agencies Issue Statement Regarding the Impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act,
2 OCC NR 2018-95,
3 Joint Release, OCC NR 2018-100, Agencies Propose Rule Regarding the Treatment of
4 Joint Release, OCC NR 2018-82, Agencies Issue Interim Final Rules Expanding Examination Cycles for Qualifying Small Banks and
5 Joint Release, OCC NR 2018-81, Agencies Issue Interim Final Rule Regarding the Treatment of
6 82 Fed. Reg. 49984.
8 83 Fed. Reg. 47313.
9 OCC NR 2018-87, OCC Seeks Comments on Modernizing Community Reinvestment Act Regulations; 83 Fed. Reg. 45053 (
10 OCC NR 2018-74, OCC Begins Accepting National Bank Charter Applications From Financial Technology Companies,
11 OCC Bulletin 2018-14, Installment Lending: Core Lending Principles for Short-Term, Small-Dollar Installment Lending.
12 Joint Release, OCC NR 2018-97, Agencies Issue Statement Reaffirming the Role of Supervisory Guidance.