U.S. Regulators Reveal 2023 Agendas
Today the Office of Information and Regulatory Affairs belatedly released an updated version of the Unified Agenda of Regulatory and Deregulatory Actions, a compilation of regulatory agendas submitted semiannually by each of more than 60 federal regulatory agencies. Agencies generally are directed to include on their agendas those rulemakings for which the agency currently plans to issue an ANPR, NPR or final rule within the next 12 months.
The Unified Agenda, although published today, is as of Fall 2022 and is based on data submitted no later than September 30. For this and other reasons the agenda is not necessarily something to be taken literally. It is frequently the case that items listed on the agenda are not completed on the timelines provided by the agencies. It is also inherent in prudential regulation that sometimes unexpected issues arise which require regulatory action even if such action was not originally planned.
Even with all those caveats, the agenda occasionally includes interesting details about an agency’s thinking. This post looks at what the federal banking regulators and a few of their banking-adjacent colleagues say they have planned for 2023.1
Basel III Endgame
Updated Agenda. The FDIC and OCC each list a March 2023 target date for a proposed rule. The Board does not include a Basel III endgame rule on its agenda, but I would not take that seriously - this is going to be a joint rulemaking. Likewise, although the FDIC’s and OCC’s respective descriptions of the proposal vary, as shown below, no actual substantive deviations in content are expected.
The FDIC, OCC, and FRB (Agencies) are inviting public comment on a notice of proposed rulemaking (proposal) that would substantially revise the risk-based requirements applicable to the largest and most complex U.S. banking organizations (those subject to the Category I and Category II prudential standards established by the Agencies), as well as banking organizations with significant trading activity.
The OCC, FRB, and FDIC plan to issue a notice of proposed rulemaking that would comprehensively revise the agencies’ risk-based capital rules, including revisions to the current standardized and advanced approaches capital rules. The agencies plan to issue this rule with the Standardized Approach for Calculating the Exposure Amount of Derivative Contracts, RIN 1557-AF01, and the Capital Requirements for Market Risk; Trading Book, RIN 1557-AE62.
The FDIC and OCC (but not the Board) also included substantially the same statements on their Spring 2022 agendas, targeting December 2022 for a proposal.
Additional Context
This rulemaking was always going to be of great interest, but the anticipation (or trepidation) was further increased by a speech delivered in December by Federal Reserve Board Vice Chair for Supervision Michael Barr. That speech was widely read as signaling that Barr would not mind if capital requirements were to increase as the result of the U.S. implementation of the final Basel III standards.
One interesting thing (among several!) to look out for with any proposal is the universe of firms to which it would apply. As you can see from the FDIC’s statement above, they refer to firms in Category I and Category II. There is at least one pressure group that is already pushing for the agencies to go further by applying the new rules to any firm with $250 billion or more in total assets.
Also on the subject of capital, note the absence from the Board's agenda of anything relating to stress testing, another area that VCS Barr hinted that he might want to revisit. The explanation for this absence could be that a proposal is still in the very early stages. It could also be that certain changes - for instance, increasing the severity of the stress scenario - may not necessarily require new rules.3
Community Reinvestment Act
The Board, FDIC and OCC all list a March 2023 target date for a final rule. This is consistent with statements from each of the agencies saying that the prompt issuance of a final rule is a high priority.
The final rule, when adopted, will mark the end of a convoluted regulatory process begun during the Trump Administration. In December 2019, the FDIC and OCC proposed revisions to the CRA regulations, but the Federal Reserve Board did not join in. The OCC in 2020 finalized updated CRA regulations (the FDIC did not), but the OCC in 2021 rescinded that rule. The finalized rules this time around are expected to represent a unified approach across the three agencies.
Even though the regulators are expected to be unified, that does not mean the final rule will be adopted without complaint. For instance last month Politico had a quote from a community bank group worrying that the agencies are moving too quickly and have not given due consideration to concerns raised about aspects of the proposal banks view as “almost punitive.”
SEC Rulemakings
I generally avoid in-depth discussions of issues purely related to the federal securities laws,4 but there are at least two items of potential interest to banks on the SEC’s updated agenda.
Money Market Fund Reform: SEC targeting April 2023 for a final rule.
Climate Disclosure: SEC also targeting April 2023 for a final rule.
The SEC’s Spring 2022 agenda identified October 2022 as the target date for final rules for both MMF reform and climate disclosures.
Final SEC action may not represent the end of the story for the climate disclosure rules, as the expectation is that lawsuits will be filed soon afterwards. This may be the fate of the money market reform rule as well, although that proposal has received comparatively less attention than some of the other items recently on the Commission’s agenda.
CFPB Rulemakings
As I did with the SEC above, I was planning to skip over most of what is on the CFPB’s agenda. But there are a few interesting things to note.
The CFPB is targeting January 2023 for a final rule regarding its small business lending data collection under Dodd-Frank Section 1071.
The CFPB is thinking about a November 2023 rulemaking on overdraft fees and, also, a November 2023 rulemaking on NSF fees.
As for the CFPB's open banking5 rule under Dodd-Frank Section 1033, it says the next step in the process is a February 2023 report on feedback received so far in response to the outline of potential approaches the CFPB released last fall.
Long Term Actions
In addition to items on which they expect to act within the next 12 months, agencies at their option also may include actions they plan to undertake over the longer term. Notable items on the federal banking regulators’ longer term agendas this time around include the following.6
Final rules or guidance regarding incentive-based compensation arrangements (Section 956 of the Dodd-Frank Act).
A proposed rule to implement the source of strength provisions of Section 616(d) of the Dodd-Frank Act.
Further action from the Federal Reserve Board following its 2019 Reg D ANPR.
The 2019 ANPR asked whether the Board should make changes to interest paid on excess reserve balances maintained by banks that “hold a very large proportion of their assets in the form of balances at Reserve Banks.” (An anti-The Narrow Bank rule.)
A final rule from the Federal Reserve Board imposing additional restrictions, as well as unfavorable capital treatment, on certain commodities activities of financial holding companies.
These commodities activities were previously the topic of a controversial ANPR in 2014 and NPR in 2016.7
A “comprehensive revision” of Regulation O, the Federal Reserve Board regulation limiting certain extensions of credit to insiders.
Technically this is included only on the FDIC’s Fall 2022 agenda, not the Board’s,8 but at various public appearances Federal Reserve Board staff have confirmed that updates to Reg O and some of the other of the Board’s not-recently-updated regulations (e.g., Reg W, Reg K) are in progress. Staff have generally not provided more specific details on timing, and it is not certain that any of this will happen in 2023.9
Indeed, other than the anti-narrow bank proposal and the source of strength proposed rule, each of which is now targeted for December 2023,10 the other items listed above are all assigned generic “to be determined” dates of further action.
Most of these rules have been on the long-term actions list for a while, and some I assume will eventually be finalized. For example, with respect to incentive compensation rules various agency principals have effectively promised Congress as much, and both those rules and the source of strength rules have technically now missed by more than 10 years the deadline set by Dodd-Frank for the agencies to adopt them.
Certain other rules, however, I am not sure will ever make it off the list.
Missing From the Agenda
Finally, there are a few items on which action might be expected this year that nonetheless appear nowhere on the agencies’ agendas.
In some cases, this is probably not because action is no longer planned. More likely it is because the agencies do not count their planned actions in these areas as rules as defined for regulatory agenda purposes. My quick list of possible matters in this category includes the following.
Finalization of principles for managing exposures to climate-related financial risks, proposed at various points by the OCC, FDIC and Federal Reserve Board in late 2021 or 2022.
Federal Reserve Board and FDIC guidance to Category II and Category III firms on resolution planning, which the Board and FDIC announced in September 2022 was under development (a statement the agencies reiterated in December).
Finalization of the Board, FDIC and OCC interagency guidance on third-party risk management, first proposed in July 2021, relevant to bank-fintech partnerships and many other things.
Other absences I find more mysterious. For instance, there is nothing on the agencies’ agendas relating to bank mergers. Nor is there anything laying out the planned next steps (if any) following the Board/FDIC October 2022 release of an ANPR on resolution-related resource requirements for banks that are large but are not U.S. G-SIBs. As with the above, I do not think the absence of these items should necessarily be taken as a sign that nothing will happen - in fact, I’d bet on the opposite.11 But still, a little puzzling.
Thanks for reading! Feel free to email bankregblog@gmail.com with disagreements, comments, corrections, etc.
Errors: A previous version of this post stated that the CFPB has not provided an update on open banking. That was wrong, and the post has now been updated. This post has also been updated to fix a stray reference to a forthcoming proposed CRA rule, rather than a forthcoming final rule.
One additional caveat: to keep an already lengthy post from being any longer, I did not attempt a comprehensive rundown of every single item included by the agencies on their agendas. I think I have covered all the key ones, but your views might reasonably differ. Items for which a longer discussion was cut include the following (among others).
A final rule from the Federal Reserve Board on a consolidated capital requirement for certain insurance companies that own banks (discussed previously here), now expected by January 2023.
A proposed rule from the OCC that would “integrate and update a number of its national bank and Federal savings association regulations,” specifically “parts 2, 12/151, 13, part 21 (subpart A), parts 168, 24, 27, 34, 37, 128 and various provisions of parts 160 and 163,” for which the OCC in its Fall 2022 agenda gave an expected date of December 2022. (Refer to what I said above about the regulatory agenda sometimes being aspirational.)
Various BSA/AML-related actions on which I am not qualified to comment - for instance, a planned proposed rule by March 2023 that will “define an effective [BSA] compliance program.”
The OCC description is a little dated, in that it refers to a SA-CCR final rule which was previously finalized in January 2020.
On the question of how much the supervisory stress tests may be changed without needing to amend the underlying rules, a few questions the Board may be in the process of thinking through:
What constraints, if any, are imposed by the Board’s Policy Statement on Scenario Design, which says that the severely adverse stress scenario will “consist of a set of economic and financial conditions that reflect the conditions of post-war U.S. recessions”?
To what extent, if any, do the EGRRCPA provisions which direct that supervisory stress tests include only a severely adverse and baseline scenario, rather than severely adverse, adverse, and baseline scenarios, constrain the Board’s ability to test banks against multiple scenarios?
I am also skipping over the CFTC’s updated agenda.
Open banking is the shorthand sometimes used to describe this rulemaking, and I have adopted that use here even though purists may not see it as completely accurate. As CFPB Director Chopra explained in October: “While not explicitly an open banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition.”
Not mentioned in the main text above but also listed on the Board’s long-term agenda is further action on the Board/OCC 2018 eSLR proposal. I am choosing not to devote space to this under long-term actions because I assume further action on this (if any) will come as part of the Basel endgame proposals discussed earlier in this post.
See for instance this 233 page comment letter from trade associations in response to the ANPR.
The FDIC’s description says, “In response to a proposed comprehensive revision of 12 CFR part 215 … by the FRB, the FDIC is issuing a counterpart notice of proposed rulemaking to amend 12 CFR 337.3 of FDIC Regulations...”
In other words, if and when the Board proposes amendments to Regulation O, which applies to state member banks and national banks, the FDIC is planning to propose changes to its similar rules for state nonmember banks, which mostly incorporate Regulation O by reference.
Of the regulations listed in this sub-bullet, I would guess Reg O is the likeliest to see action taken in 2023. On December 22, 2022, the federal banking agencies released a statement saying that they intend to “continue to exercise discretion to not take enforcement action against either an asset manager that is a principal shareholder of a bank, or a bank for which an asset manager is a principal shareholder, with respect to extensions of credit by the bank to the related interests of such asset manager that otherwise would violate Regulation O.” This position is to last until “the sooner of January 1, 2024, or the effective date of a final Board rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of the bank.”
Of course, this December 2022 statement is an extension of a previous extension, so the same thing may happen again next December.
Technically, only the Board gives a December 2023 target date for source of strength. The FDIC and OCC go with TBD (as the Board did in its previous agenda).
For instance, I would not give too much weight to this on its own, but the Board’s 2023 performance plan includes as a goal the following: “Review the implementation of the Bank Merger Act, identifying areas for modernization, and implementing improvements.”