Community Banks – Week in Review
Although it was a short week with even the regulators taking time off for Thanksgiving, a few releases over the past week are worth noting, among them the views of the Federal Open Market Committee and Federal Reserve Vice Chairman Fischer on the economy and the inflation rate. The full set of developments over the past week includes:
- Federal Open Market Committee releases minutes of meeting on Nov. 1-2 (Nov. 23).
- "Meeting participants agreed that information received over the intermeeting period indicated that the labor market had continued to strengthen and that growth of economic activity had picked up from the modest pace seen in the first half of the year."
- "Many participants commented on the rise in the labor force participation rate since late 2015. A few of them noted that the increase had largely reflected a diminution in the flow of individuals leaving the workforce rather than an increase of new entrants into the labor force and had been more prevalent among workers with relatively less education. Participants expressed uncertainty about how long the participation rate could be expected to continue rising, particularly in light of the downward structural trend in this series."
- "Readings on headline and core PCE price inflation had come in somewhat higher than expected in recent months. Participants generally regarded this as a positive development, consistent with headline inflation rising over the medium term to the Committee’s objective of 2 percent."
- "Based on the relatively limited information received since the September FOMC meeting, participants generally agreed that the case for increasing the target range for the federal funds rate had continued to strengthen."
- "Most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon, so long as incoming data provided some further evidence of continued progress toward the Committee’s objectives."
- Minutes available at https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.
- "Longer-Term Challenges for the U.S. Economy", remarks of Federal Reserve Vice Chairman Fischer at "A Conversation with Stanley Fischer," sponsored by the Council on Foreign Relations (Nov. 21).
- "Although the economy has moved back to the vicinity of the Committee's employment and inflation targets--suggesting that the cyclical drag on the economy has been greatly reduced, if not largely eliminated--along some dimensions this has not been a happy recovery. Unease with the economy reflects a number of longer-term challenges, challenges that will require a different set of policy tools than those used to address nearer-term cyclical shortfalls in growth. Prominent among these challenges are low equilibrium interest rates and sluggish productivity growth in the United States and abroad."
- "Low interest rates, together with only tepid growth, suggest that the equilibrium interest rate--that is, the rate that neither boosts nor slows the economy--has fallen. Why does this matter? Importantly, low interest rates make the economy more vulnerable to adverse shocks by constraining the ability of monetary policy to combat recessions using conventional interest rate policy--because the effective lower bound on the interest rate means that monetary policy has less room to reduce the interest rate when that becomes necessary. Also, low equilibrium rates could threaten financial stability by encouraging a reach for yield and compressing net interest margins."
- "More fundamentally, low equilibrium real rates could signal that the economy’s long-run growth prospects are dim."
- "Productivity growth over the past decade has been lackluster by post-World War II standards. Output per hour increased only 1-1/4 percent per year, on average, from 2006 to 2015, compared with its long-run average of 2-1/2 percent from 1949 to 2005. This halving of productivity growth, if it were to persist, would have wide-ranging consequences for living standards, wage growth, and economic policy more broadly."
- "Certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy and help confront some of our longer-term economic challenges. While there is disagreement about what the most effective policies would be, some combination of improved public infrastructure, better education, more encouragement for private investment, and more effective regulation all likely have a role to play in promoting faster growth of productivity and living standards."
- "By raising equilibrium interest rates, such policies may also reduce the probability that the economy, and the Federal Reserve, will have to contend more than is necessary with the effective lower bound on interest rates."
- Remarks available at https://www.federalreserve.gov/newsevents/speech/fischer20161121a.htm.
Consumer Credit and Lease Transactions
- Banking agencies finalize rules on method to be used to adjust exemption thresholds under TILA and Consumer Leasing Act (Nov. 23).
- Both thresholds to be adjusted by annual percentage increase (if any) in Consumer Price Index for Urban Wage Earners and Clerical Workers.
- Rules available at https://www.federalreserve.gov/newsevents/press/bcreg/20161123b.htm.
- OCC reminds national banks and federal thrifts with $50 billion or more in assets of ANPR on enhanced cyber risk management standards (Nov. 22).
- OCC Bulletin 2016-41 available at https://occ.gov/news-issuances/bulletins/2016/bulletin-2016-41.html.
- Comment deadline: Jan. 17, 2017.
Federal Reserve Banks
- Federal Reserve finalizes rule reducing the dividend rate on Reserve Bank stock held by member banks with more than $10 billion in assets to the lesser of 6% or the most recent 10-year Treasury auction rate prior to the dividend payment (Nov. 23).
- For all other member banks, dividend rate remains at 6%.
- Revision required by FAST Act.
- Final rule available at https://www.federalreserve.gov/newsevents/press/bcreg/20161123a.htm.
Higher-Priced Mortgage Loans
- Banking agencies issue final rule on method to be used to adjust threshold for exemption of higher-priced mortgage loans from special appraisal requirements (Nov. 23).
- Current threshold remains at $25,500.
- Threshold to be adjusted by annual percentage increase (if any) in Consumer Price Index for Urban Wage Earners and Clerical Workers.
- Rule available at https://www.federalreserve.gov/newsevents/press/bcreg/20161123c.htm.
- CFPB files suit against companies and individuals involved in providing structured settlements to victims of lead-paint poisoning (Nov. 21).
- Basis for CFPB jurisdiction is that structured settlement is a consumer financial product.
- Alleged unfair, deceptive, and abusive acts and practices included:
- Steering customers to a purported independent legal adviser who provided little advice and was paid by Access Funding.
- Misrepresentation that cash advance payments locked consumers into unfavorable settlements.
- Many victims cognitively impaired.
- Complaint in CFPB v. Access Funding, LLC, Case No. 1:16-cv-03759-JFM (Nov. 21, 2016) available at http://www.consumerfinance.gov/policy-compliance/enforcement/actions/access-funding-llc-access-holding-llc-reliance-funding-llc-lee-jundanian-raffi-boghosian-michael-borkowski-charles-smith/.
- Nov. 29
- FDIC Community Banking Initiative: De Novo Outreach Meeting, Atlanta GA.
- FDIC Banker Teleconference Series webinar: Recently Revised Interagency Questions and Answers Regarding Community Reinvestment.
- OCC Directors Workshop, "Risk Governance", Houston TX.
- Nov. 30
- OCC Directors Workshop, "Credit Risk", Houston TX.
- Dec. 1
- FDIC Banker Teleconference Series webinar: Military Lending Act Regulations.
- Dec. 1-2
- Office of Financial Research/Federal Reserve Bank of Cleveland, 2016 Financial Stability Conference, Washington DC.
- Dec. 6
- OCC Directors Workshop, "Risk Governance", Philadelphia PA.
- Dec. 7
- OCC Directors Workshop, "Compliance Risk," Philadelphia PA.
Regulatory Comment Deadlines
- Dec. 22 – Federal Reserve: limits on physical commodity activities of financial holding companies.
- Jan. 6, 2017 – Federal Reserve/FDIC/OCC: private flood insurance.
- Jan. 17, 2017 – Federal Reserve/FDIC/OCC: cyber risk management standards for banking institutions with more than $50 billion in assets.
- 90 days after publication in Federal Register – CFPB: consumer ability share financial records with nonbank providers.
For more information, contact Dwight Smith, firstname.lastname@example.org, or 202.545.2885.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.