09/17/2019

Reform, not revolution: what to expect from Capitol Hill

Mike Sumner September 17th, 2019

The next year looks like a busy one on Capitol Hill. In the midst of presidential primaries and with 2020 elections looming, financial services regulatory reform may not grab headlines. But here at Deluxe, we’re laser-focused on issues impacting financial institutions and their customers. With some significant developments recently announced, or expected soon—here are a few key issues to keep an eye on.

CECL: Slowed, but not stopped

The incoming Current Expected Credit Loss model will ultimately require all FIs to model for losses over the life of a loan. CECL was proposed to provide more accurate and actionable expected-loss modeling. But since its announcement, industry voices have been sounding the alarm over the high cost and unclear impact of the model to institutions and consumers alike. While implementation was initially slated for January 2022 at the latest—small institutions now have until January 2023. In the meantime, industry groups and legislators are echoing concerns over the consequences of the new requirement. While smaller institutions now have some breathing room, an implementation plan and institutional impact assessment remain necessities for the foreseeable future.

Anti-money-laundering (AML) reform

Both the House and Senate have called for AML reform. In June, the House Financial Services Committee approved a bill that would shift the burden of disclosing a business’ true ownership back to the business at the point of incorporation. Meanwhile, a bipartisan group of senators has proposed similar legislation, which would also better coordinate law enforcement’s AML efforts; require metrics on how law enforcement uses FIs’ AML reporting; and extend AML enforcement to digital currency. While Congress is yet to move on SAR/CTR thresholds, the direction of travel is clearly towards a reduced burden on financial institutions.

Fannie and Freddie cut loose?

This month the Trump administration announced its mortgage finance reform plan, privatizing Fannie Mae and Freddie Mac after eleven years of conservatorship. The administration’s plan revolves around “ensuring that the GSEs… are appropriately capitalized to remain viable as going concerns after a severe economic downturn and also to ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses.” Reforms include “simplifying” the Qualified Mortgage rule and bringing GSE regulatory requirements in line with the industry; streamlining regulation for private-label securitization; and bolstering private-sector competition to the GSEs. While most of these changes do not require legislation, the plan is still a long-term endeavor. We should expect changes to roll out incrementally, probably over a number of years. But again, we’re clearly moving toward more sustainable, competitive housing finance.

Prepare for reform with Banker’s Dashboard

While reforms like these take time, it’s imperative that financial institutions understand the impact and prepare to weather the changes without missing a beat. Tools like Banker’s Dashboard can help. With flexible forecasting tools and custom modeling, Deluxe can help your institution prepare for any regulatory or market changes. Deluxe can also help drive the performance culture that will allow your institution to thrive. For more information—contact us today!

This content is accurate at the time of publication and may not be updated.