Fed's Quarles to Update Senate Panel on Supervisory Efforts

Federal Reserve Vice Chairman of Supervision Randal Quarles today at 10:00 a.m. will update the Senate Banking Committee on the regulator's supervisory efforts. Quarles testified before the House Financial Services Committee yesterday.

Quarles testimony may include an update on the Fed's efforts to implement the CUNA/League-backed Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). The Fed last week released its inaugural Supervision and Regulation Report.

The report noted that its regulatory policies implemented in the wake of the Great Recession "have contributed significantly to improving the safety and soundness of banking organizations and the financial system so they are able to support the needs of the economy through good times and bad." However, it also highlighted concerns related to risk management, including cybersecurity.

Quarles' report to the committees earlier this year focused on the regulatory and supervisory agenda of the Fed, including the steps the regulator has taken to reduce the burden on community financial institutions. He also discussed cybersecurity and fintech development.

During yesterday’s hearing Quarles acknowledged that implications of the Financial Accounting Standards Board's (FASB) current expected credit loss (CECL) standard aren't completely understood, but said the phased-in implementation of the standard should help mitigate issues.

He was responding to a question from House Financial Services Subcommittee Chairman Blaine Luetkemeyer (R-MO), who also voiced concerns about the increased costs smaller financial institutions will incur with the CECL standard.

Later during the hearing, Rep. Barry Loudermilk (R-GA) raised additional concerns about the CECL standard making financial institutions less likely to approve certain loans during economic downturns. Quarles reiterated that the Fed is monitoring both immediate and long-term impacts the standard will have on the banking industry.

Many committee members also asked about efforts to reform the Bank Secrecy Act/anti-money laundering (BSA/AML) regime. Quarles said he expects to see "material benefits." Rep. Gregory Meeks (D-NY) brought up "banking deserts" and how difficult it can be for small, community banks and credit unions to serve those areas because of compliance costs. He asked specifically about a recent statement from federal depository institution regulators allowing financial institutions to share BSA/AML resources.

"We are very supportive of efforts both to take advantage of the cost reductions that come from using new technologies and reducing the cost in general of effective BSA/AML compliance," Quarles said while also reassuring that the Fed will work to educate financial institutions on their ability to share resources.

Also discussed during the hearing were efforts to loosen Volcker rule requirements, revise the Community Reinvestment Act (CRA) and the Fed's role in creating a faster payments system.