View from CBA May 30, 2014

CFPB Delays Timetable for Overdraft, Payday Rules The CFPB announced a semi-annual update to its rulemaking agenda, which sets out the Bureau’s regulatory plans. The agenda is provided by the Bureau to the Office of Management and Budget (OMB), and reflects the Bureau’s best estimate of its upcoming rulemaking activities. While we did not expect overdraft proposed rules in July, the February deadline is a little later than anticipated. It also looks like we will be in more DAP uncertainty for some time as well. It should be interesting when we see the OCC in June on their possible new guidance. Let's just say this continuous uncertainty is not good (for most part) for anyone. Overall, this is a useful guide but it does not represent a definitive timetable as we believe the Bureau does not consider itself bound by the agenda. A comprehensive analysis of the CFPB’s updated agenda was distributed to CBA’s membership earlier this week. 

FDIC QBP Reveals Challenging Era for Banks – by CBA’s Dong Hong and Kate Larson

This week, the Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile, a comprehensive report on the status of the banking industry. Overall, the first quarter of 2014 was a challenging period for U.S. banks. Although the industry earned $37.2 billion in profits, this was the second time in the last three quarters in which banks and thrifts saw a year-over-year decline in profits (7.6 percent). The industry also lost 79 reporting institutions from the last quarter through merger or failure, while adding no new charters. The year-over-year decline is even more dramatic, with 316 fewer banks and thrifts. 
The drop-off in profits can be attributed in large part to a sharp reduction in mortgage originations – an almost 50 percent decline in mortgage revenue – and trading revenue ($1.4 billion, or 18.3 percent). As noted by FDIC Chairman Gruenberg in a press statement“industry revenue has been affected by narrow margins, modest loan growth, and a decline in noninterest income as higher interest rates have reduced mortgage-related activity and trading income fell.” 
On a more positive note, asset quality levels for the industry are near pre-crisis levels. For the 15th consecutive quarter, net charge-offs declined year-over-year ($5.5 billion, or 34.8 percent) and non-current balances fell to $195.1 billion, a 5.8 percent improvement from the last quarter. Furthermore, the industry made improvements in capital and leverage ratios. As stated by the FDIC: At the end of the first quarter, 98.2 percent of all insured institutions, representing 99.8 percent of industry assets, met or exceeded the requirements of the highest capital category. 

Fiserv Forum Wrap-Up

While at the Fiserv Forum this month I had the opportunity to hear from President George W. Bush and former Apple, Target, and JCPenney executive Ron Johnson. President Bush was very much relaxed and refused to talk at all about our current President – continuing his long-standing policy. He did discuss extensively life post-9/11, the wars in Afghanistan and Iraq as well as his decisions surrounding TARP. While his principles would have allowed banks to fail, his key advisors assured him Americans' economic wellbeing would have been severely impacted. 
Johnson, a successful executive at many major retailers, failed in his bid to turnaround JCPenney. Reflecting on this, he urged attendees to be careful, and not proceed too fast in pursuing change for board members, shareholders, and most importantly consumers to adapt. All must be ready and committed to change – which often takes years to reveal real results. Though it took failure in his role at JCPenney to realize this, it is a lesson all of us should heed. 

Senate to Hold Multiple Hearings on Student Loans

The Senate Budget Committee will hold a hearing on June 4 at 10 a.m,  with CFPB Student Loan Ombudsman Rohit Chopra to be among the witnesses testifying on the potential impact of student debt on the broader economy. At the same date and time, the Senate Banking Committee will hold a hearing on student loan servicing. These hearings and the tentative scheduling of Sen. Elizabeth Warren’s (D-MA) student loan refinancing bill to be considered by the full Senate on June 13th are no coincidence. This is a broader effort by Senate Democrats to gin up support among younger voters ahead of this year’s midterm elections. Expect similar hearings and legislation, unlikely to ever reach to President’s desk, to be in the news prior to the fall. 

OCC to Scale Back Resident Examiner Program

The OCC has announced it will adopt several recommendations of an independent audit which suggests scaling back the resident examiner program. They will start rotating all examiners to cities where there are multiple large banks every five years, while increasing the amount of other staff members, who focus on policy and emerging bank trends, from 21 employees to 100. More details here

CBA Team News

Kate Larson has joined CBA as Regulatory Counsel. She comes from law firm Williams & Jensen where she served as Director of Legislation and Research. Kate is a graduate of Pepperdine School of Law and the University of Southern California.