#2022-28, October 21, 2022

FDIC Approves Controversial Deposit Insurance Assessment Rate Increase

Despite opposition by the banking industry and some members of Congress, earlier this week the Federal Deposit Insurance Corporation (FDIC) board unanimously approved a rule increasing deposit insurance assessment rates for banks by two basis points beginning with the first quarterly assessment period of 2023.  The rule, which represents a 54 percent increase in the current average assessment rate, will remain in effect until the Deposit Insurance Fund (DIF) reserve ratio meets the agency’s long-term goal of 2 percent.

As we reported previously, when the reserve ratio fell from 1.41 percent in 2019 to 1.30 percent in 2020 due to the surge of deposits into banks in reaction to the pandemic, the FDIC approved a restoration plan to restore the fund to the statutory minimum of 1.35 percent by 2028.  Subsequently, a continued inflow in deposits and significant unrealized losses in its securities portfolio caused the reserve ratio to decline to 1.23 percent in March.

Acting Chairman Martin Gruenberg indicated that the rate increase is now necessary because the banking industry faces significant downside risks from inflation, slowing economic growth and geopolitical uncertainty.  Industry groups and other critics of the higher rate stated that FDIC data shows a decline in deposit levels is already underway.

To read more, click here.

Federal Appeals Court Invalidates CFPB’s Funding Structure and Small-Dollar Lending Rule

In a ruling released this week, a three-judge panel of the federal Fifth Circuit Court of Appeals ruled that the Consumer Financial Protection Bureau’s (CFPB) funding structure violates the separation of powers clause of the Constitution. As part of the ruling, the court also vacated the Bureau’s small-dollar lending rule.

The case, which was filed by the Community Financial Services Association of America and the Consumer Service Alliance of Texas, challenged the 2017 small-dollar lending rule on several constitutional grounds. The Fifth Circuit panel agreed with the plaintiffs only on the CFPB’s “unique, double-insulated funding mechanism.”  Uniquely among federal agencies, the CFPB receives its funding directly from the Federal Reserve System based on a request by the bureau’s director.

The court found that in establishing that structure, Congress ceded both direct control over the CFPB’s budget by insulating it from annual appropriations and indirect control by making the CFPB’s source also insulated from the appropriations process. “The Bureau’s perpetual insulation from Congress’s appropriations power, including the express exemption from congressional review of its funding, renders the Bureau ‘no longer dependent and, as a result, no longer accountable' to Congress and, ultimately, to the people,” the court found, adding that the issue is more acute because of the CFPB’s expansive powers.

The case is expected to be appealed to a hearing by the full Fifth Circuit.  

MBA Joins Banking Trade Groups in Calling on FHFA to Change to FHLB Advance Qualifications

The Association joined the American Bankers Association (ABA), the Independent Community Bankers of America (ICBA) and more than 70 state banking associations on a letter submitted earlier this week to the Federal Housing Finance Agency (FHFA) urging it to stop using tangible capital when deciding whether financial institutions qualify for Federal Home Loan Banks advances.

Specifically, the letter notes that instead of the regulatory language directing the FHLBs to use tangible capital in assessing a commercial bank’s credit worthiness for purposes of issuing advances, a better assessment metric is Tier 1 capital as defined by the Federal Reserve, FDIC and the Office of the Comptroller of the Currency (OCC), which "offers the best picture of a bank’s financial condition."

The groups go on to state that, "As the bank regulators have recognized, looking to tangible capital could create confusion and, in a rising interest rate environment such as today’s, incorrectly suggest that otherwise sound banks are not creditworthy for purposes of access to FHLB advances. This is particularly true for community banks."

The letter indicates that the change can be done most efficiently through an interim final rule. "Making the change from tangible capital to regulatory capital in the near term, prior to any future stress, would help to ensure that banks, particularly smaller banks, have seamless access to an important liquidity tool without compromising the FHLBs’ ability to screen for troubled institutions or work with a bank’s PFR," they said. "Failure to fix this inconsistency in the regulations may exacerbate a stress as banks continue to navigate rising rates and the ongoing macroeconomic volatility."

To read the letter, click here.

89th Annual New England Trust and Wealth Management Conference -- Members Encouraged to Attend

The Association is proud to host the 89th annual New England Wealth Management and Trust Conference on Friday, October 28 at the Westin in Waltham, MA. This year’s conference features an informative, timely agenda developed by our members with speakers discussing a broad range of topics, including hot button subjects such as ESG and Cryptocurrency sessions, facing fiduciaries and money managers in today’s turbulent markets.  All member banks offering trust and investment services are encouraged to attend.

For those interested in exhibiting or sponsoring the event, please click here.