Regulatory Watch: What Banks Should Keep an Eye On - June Update

The potential regulatory changes stemming from the collapse of SVB, Signature Bank, and First Republic continue to be a source of activity across multiple agencies and branches of government in Washington, D.C.  Coherent is committed to helping you stay in the know with our regulatory watch updates. Here are the regulatory events in June that you need to know:

11 New Congressional Bills Introduced

In late June, House Democrats introduced 11 new bills that will increase regulations in the financial services industry and aim to prevent additional bank failures.  The bills, some of which have bipartisan support, include changes such as:

• Expanding regulatory authority for bank executives, such as compensation restrictions and fines in a bank failure situation.
• Increasing regulatory authority to block executive stock sales in certain circumstances.
• Closing loopholes to increase the number of banks subject to the Dodd-Frank regulations.
• Providing FDIC with the ability to increase the threshold to exempt banks from systemic risk assessments.
• Requiring a Chief Risk Officer for larger banks.
• Changing requirements to purchase a failed bank, enabling smaller banks to bid.
• Expanding stress test requirements.

The range of bills and willingness from some Republicans to negotiate on legislation should be a major indicator to banks of all sizes that stricter regulations are inevitable, even in a divisive political environment.

Department of Justice Considers Merger Review Changes

The Department of Justice is considering changes to the bank merger review process.  The Justice Department wants to expand the number of factors they consider beyond the share of local deposits and branch overlaps.  These guidelines from 1995 no longer reflect the modern world of banking, particularly as it relates to online banking.  With the expanded guidelines, smaller bank deals, including fintechs, will be subject to merger review and not just activity from the largest banks.

This broader view into what defines competitive activity has the potential to impact all financial institutions considering a merger, but many of the proposed regulations may have a disproportionate impact on regional banks.

New Capital Requirements Imminent

The Federal Reserve is expected to announce new capital requirements within the next month. According to Barron’s sources, large banks may need to increase capital levels by 20% and smaller banks, previously exempt from stricter rules, will likely also face a change in capital requirements. 

Banks will have some time to prepare for the new rules which will go into effect 2025. However, for banks that struggle with visibility across the data, models, and analytical tools needed for effective and compliant stress testing, that timeline may be surprisingly short. Banks need a clear plan to strengthen their risk management strategies. And with the Federal Reserve considering new types of “reverse stress testing” to identify more external risk factors that could break a bank, transparency across multiple risk models is more important than ever.

Accelerating the Growth of Open Banking

The Consumer Financial Protection Bureau (CFPB) is proposing open-banking regulations per the Dodd-Frank Act to increase banking competition and open market access for consumers. Digital technologies should make it easier for consumers to switch banks or apply for loans, but hurdles still exist.  The new rules will enable consumers to have more control of their personal financial data so switching banks is easier.

The open banking changes not only add to the list of regulations that institutions must meet, they also make many banks more susceptible to higher rates of customer churn. The financial services industry will need to be more responsive to customer demands and introduce more new products at a faster rate to stay competitive. For some banks, product development cycles can be lengthy, especially compared to more nimble fintechs.

The Solution for Adding Control, Visibility, and Accelerated Time to Market

Coherent believes that financial institutions with legacy infrastructure can meet new regulations and compete with companies built on modern technology without a multi-year digital transformation project. But, they need innovative solutions that enable them to sidestep legacy processes and siloed financial models stuck in spreadsheets.

Solutions like Coherent Spark can help banks gain regulatory control by enabling them to convert, control, and connect their spreadsheets in an integrated environment. This not only enhances risk management, but also helps product development teams to bypass months, or even years, of programming by converting complex business into cloud-based code in minutes. Hundreds of thousands of lines of code can be created without programmers and traditional project management cycles, dramatically improving risk management and accelerating time-to-market.

See How Spark Can Help You Get Ahead of Bank Regulations  

With Spark, your teams can build, model, and test directly in the Coherent platform with regression and analytics tools that are completely traceable, or connect the workflows to a broader, cloud-based integrated solution.

‍Connect with the Coherent team to learn how your team can turn legacy spreadsheet models into enterprise-wide code and transform risk into opportunity.