Remarks by Governor Bowman on the Consequences of Fewer Banks in the U.S. Banking SystemOn April 14, Federal Reserve Governor Bowman discussed the consequences of fewer banks in the U.S. banking system and potential policy responses. She noted that from 2002 to 2022, the number of FDIC-insured banks declined by nearly half, with de novo bank formation stagnating for the past decade. Expressing concern about the decline in the number of new bank formations, she explained that a robust and diverse banking system ensures wider access to and availability of credit, reaching all levels of the income spectrum and supporting a range of large and small businesses.
Governor Bowman identified several features of the current U.S. banking system that suggest to her that there is an unmet demand for de novo bank charters: (1) the ongoing demand for "charter strip" acquisitions; (2) the shift of traditional banking activities out of the banking sector into non-bank financial entities, or the "shadow banking" sector; and (3) the rising demand for banking-as-a-service partnerships. She also identified several barriers to de novo bank formations, including the complexity of the applications process, often involving multiple bank regulatory agencies and a lack of clarity in how long the applications process will take.
As a policy response, she calls for efficiency in regulation and supervision of de novo banks, proportionate to the size, activities, business model, and risks of an institution. She also calls for transparency in regulatory expectations and regulatory support, identifying the New Bank Start-up Unit initiative created by the Prudential Regulation Authority and the Financial Conduct Authority in the United Kingdom as a potential model for providing transparent, single-stop resources about the life cycle of de novo bank formation, including planning, applying, early-stage operation, eventually moving into a mature, steady state as a viable banking operation and even preparing for recovery, resolvability, and a solvent wind-down of operations.
“As policymakers consider the regulatory and supervisory framework in the U.S. banking system and consider specific adjustments to address identified shortcomings, we should also take into account the impact of incremental additional regulatory changes not only on de novo bank formation, but also on credit availability, competition, and the financial system.”
~ Federal Reserve Governor Michelle Bowman
CFPB Revises Methodology for Determining APORsOn April 14, the CFPB published a revised “Methodology for Determining Average Prime Offer Rates.” The CFPB’s methodology describes the calculations used to determine average prime offer rates (APORs) for purposes of Regulations C and Z, in light of the imminent unavailability of data from Freddie Mac’s Primary Mortgage Market Survey, which was previously relied on to calculate APORs. On or after April 21, 2023, the CFPB will begin using ICE Mortgage Technology data and the CFPB’s revised methodology to calculate APORs. The CFPB will continue to post the survey data used to calculate APORs on the Federal Financial Institutions Examination Council’s website and will continue to identify the source of the data on that page.
Change to UK Insider Dealing Laws: A Step Towards CoherenceOn April 17, HM Treasury (HMT) published the draft Insider Dealing (Securities and Regulated Markets) Order 2023 (the Order) and an explanatory memorandum. The Order brings the list of securities captured under the criminal insider dealing regime in the Criminal Justice Act 1993 (CJA) broadly in line with the administrative market insider dealing and unlawful disclosure of inside information regimes in the UK Market Abuse Regulation (MAR). Although the list of securities under the CJA regime will expand, the alignment will help compliance and other professionals charged with explaining and policing potential insider dealing within companies with listed UK securities and regulated firms that trade in or manage those securities.
Of note for US and other non-UK firms, the Order does not extend the territorial scope of the CJA to align it with MAR: for insider dealing in listed UK securities to be a criminal offence in the UK, it will still have to take place in the UK. A person can be guilty of insider dealing in listed UK securities under MAR even if the conduct occurs outside the UK. The Order will enter into force 21 days after the day on which it is made, which on current Parliamentary timetables is likely to be during Q3 2023.
UK regulated firms should update their compliance manuals/policies to reflect these changes once the Order is made. Learn more about this update in a recent client alert.
Enforcement and Litigation Updates
Third Circuit Upholds Dismissal of TILA Claim Based on Failure to Itemize Annual Credit Card Renewal Notice FeesOn Tuesday, April 11, a three-judge panel of the United States Court of Appeals for the Third Circuit affirmed the dismissal of a putative class action alleging that JP Morgan Chase Bank, N.A. (Chase) failed to itemize annual fees on its credit card renewal notices in violation of the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq. See Weichsel v. JP Morgan Chase Bank, N.A., No. 21-3371 (decided April 11, 2023) (Opinion).
Read more about this update in more detail on Goodwin’s Consumer Finance Insights blog.
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Samantha M. Kirby