FDIC zeros in on asset managers

Jul 30, 2024

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QUICK FIX

FDIC Chair Marty Gruenberg may be on his way out, but he’s sprinting full speed ahead to the finish line when it comes to banking policy.

Gruenberg, who agreed to resign pending the confirmation of a successor in the wake of a toxic workplace scandal, is likely to stay on the job a bit longer than some might have expected. The Senate will head into its summer recess without even a committee vote on the nomination of Christy Goldsmith Romero, President Joe Biden’s pick for a new FDIC leader. (The calendar for September is tight before lawmakers again skip town for the month of October to campaign).

In the meantime, though, Gruenberg intends to charge forward with major policy changes, if the packed agenda for today’s FDIC board meeting is any indication. Here’s our look at what to expect:

Asset managers beware: Republicans and Democrats on the FDIC board for months have been exploring ways to more closely scrutinize index fund giants like BlackRock and Vanguard that own significant stakes in U.S. banks. But in April the board split over exactly how to do that, tabling a pair of proposals.

Now it appears the board is closing in on a bipartisan agreement to toughen the framework the agency uses to analyze the influence that asset managers may have on the banks in which they invest — and whether they’re meeting their promises to remain “passive” investors. More from your MM host here.

Under the tentative deal, which is set to be discussed at today’s meeting, the FDIC would renegotiate those passivity agreements with asset managers and take a more hands-on approach to the investment companies by moving away from self-certification.

The FDIC board is also expected to take up a broader regulatory proposal by CFPB Director Rohit Chopra that would give the agency more power to stop investors from taking a large stake in banks or their parent companies.

Eye on brokered deposits: The FDIC is also expected to vote on a rollback of Trump-era changes to how the regulator defines brokered deposits, funds that a third party directs to a bank. The 2020 changes narrowed the scope of companies that are considered deposit brokers in an effort to make it easier for banks to partner with outside firms.

Gruenberg, who voted against those changes, and other Democrats, argue that they created loopholes for how regulators treat a riskier class of deposits. Travis Hill, the Republican vice chair, meanwhile, preemptively warned against reopening those changes in a speech last week.

Also on the agenda: The board will vote on a proposal by Gruenberg to revise another set of rules, the FDIC adopted during the previous agenda: policies governing how the regulator approaches industrial banks. In addition, the board plans to vote on finalizing guidance on how some large banks, though not the biggest institutions, must submit their wind-down plans.

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Driving the day

Latest pushback to state ‘fair access’ laws: Key provisions of new state laws that dictate when banks can refuse service to customers may be preempted by federal law, a top federal banking regulator is warning.

Florida, Tennessee, and other states have passed or considered “fair access” laws that are aimed at concerns that banks are discriminating against conservatives or curtailing business with the firearms or energy industry.

Michael Hsu, the acting comptroller of the currency, writes in a new letter to Rep. Josh Gottheimer (D-N.J.) that states can’t interfere in banks’ federal requirements to conduct risk-based due diligence on their customers and filing suspicious activity reports.

The letter, which was shared with MM, echoes Hsu’s remarks earlier this month in which he vowed to serve as a “bulwark” against a “worrisome trend” of state laws targeting national banks for political reasons.

A top Treasury official earlier this month also warned that Florida’s law could undermine federal efforts to curb the flow of money to criminals and terrorists.

Yellen in Philly: Treasury Secretary Janet Yellen heads to Philadelphia today to tout Pennsylvania’s inclusion in the IRS Direct File program. She’ll appear at a roundtable with the battleground state’s governor and Democratic vice presidential contender Josh Shapiro.

Speaking of taxes, Senate Majority Leader Chuck Schumer (D-N.Y.) is teeing up a procedural vote this week on a bipartisan tax package that includes an expansion of the Child Tax Credit and key business provisions. As Benjamin Guggenheim reports, the legislation is unlikely to pass given GOP opposition in the Senate but the election-year vote is designed to put Republicans on the spot.

CRYPTO CORNER

Durbin skeptical of Stabenow's crypto push — Senate Majority Whip Dick Durbin said in an interview Monday that he has "mixed feelings" about Senate Agriculture Chair Debbie Stabenow's cryptocurrency proposal, Eleanor Mueller reports.

"I think regulation is important; the question is whether the Commodity Futures Trading Commission has the resources to do the job," Durbin said. "But that's an Appropriations item, not Agriculture."

Asked whether he has communicated those concerns to Stabenow, Durbin replied: "Oh yeah."

In related news, Stabenow also told Eleanor that she’s optimistic about collaborating with Vice President Kamala Harris on cryptocurrency issues. "She's somebody that we absolutely can work with," the Michigan Democrat said. "She'll have to decide exactly what she's going to say about it, but I feel very good about being able to work with her.”

SANCTIONS CORNER

Venezuela fallout: The Biden administration said Monday it has serious concerns with Venezuela’s disputed election but stopped short of declaring the narrow victory of President Nicolas Maduro fraudulent or calling for additional sanctions against the South American country, Eric Bazail-Eimil reports.

The administration is under pressure from Republican lawmakers representing states and districts with large Venezuelan communities who have criticized Biden’s strategy of offering Caracas sanctions relief in exchange for guarantees of free and fair voting. In April, the Biden administration reimposed oil sanctions on Venezuela, saying Maduro reneged on a deal to enact democratic reforms.

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Federal reserve

On Fed watch — Investors are on alert heading into the Federal Reserve’s meeting this Wednesday for how strongly officials signal their desire to cut rates in September, the Wall Street Journal reports.

Markets

Has CRE reached its low? Foreclosure rates on commercial property have reached the highest in a decade, the Wall Street Journal reports, suggesting that it’s a sign that the sector’s downturn may be approaching a market bottom.

Personnel Moves

McHenry gets new staff director — Kim Betz will take over from Matt Hoffman as House Financial Services Chair Patrick McHenry's staff director, the committee announced Monday. Betz previously served as McHenry's chief counsel. Hoffman joins crypto software company Digital Asset as its director of regulatory and government affairs.

Next top business lobbyist — The U.S. Chamber of Commerce has hired former Rep. Rodney Davis (R-Ill.) as its next head of government affairs, where he’ll lead the venerable business group’s engagement on the Hill and with the executive branch, our colleagues over at Politico Influence report.

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