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The Examiner

"Fair is foul, and foul is fair."
― Shakespeare's MacBeth debuts in the Great Hall at Hampton Court Palace on this day in 1606

CSBS Names Laura Fisher as Communications Head

Laura Fisher has joined CSBS as Vice President of Communications, the organization announced this week. Her new role builds on a 22-year career of working in financial communications, media relations and issues advocacy. 

Most recently, Fisher served as Senior Vice President for the public affairs firm VOX Global, where she led the Financial Services and Fintech Practice Group. In this role, she advised government, nonprofit and corporate clients on working with the media, engaging bank and financial services professionals, and managing reputation risk. Fisher also previously worked as a senior executive at the American Bankers Association. 

In her new role, Fisher will be responsible for managing CSBS’s communications program, including media outreach, public policy communications, executive communications, digital marketing and brand management. She will work with a wide range of stakeholders, from CSBS members to reporters and editors to policy influentials. 

John Ryan, CSBS President and CEO: “We are so fortunate to have someone with Laura’s credentials wanting to join our organization. With her track record and family background in banking, Laura’s leadership will undoubtedly lead to a greater appreciation for the vital role that state regulators perform in the U.S. financial system and actions they are taking to modernize the system.”

Laura Fisher, CSBS Vice President of Communications: “I’m excited to join this esteemed organization and lead a team of highly skilled and talented communicators. I look forward to supporting the state regulators in their efforts to ensure that financial services are safe and sound to protect consumers and foster economic development.”

Fisher takes over CSBS communications from Jim Kurtzke, who is retiring later this year after a 37-year career. 

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State and Federal Coordination in Consumer Finance Sphere

Effective partnership between federal and state regulators is an essential aspect of successful regulatory oversight, especially when it comes to the consumer finance industry. The states and the Consumer Financial Protection Bureau (CFPB) recognize this and actively find ways to work together.

Their ability to coordinate and collaborate ensures a balanced regulatory environment that focuses on both the specific needs of consumers as well as nationwide concerns. To maintain this balance, it is imperative that state and federal regulators find ways to work together to protect consumers from harmful practices. 

Earlier this year, CFPB established the Taskforce on Federal Consumer Financial Law to assess the current legal and regulatory environment facing consumers and financial services providers. Following thorough analysis of consumer financial laws in the United States, the Taskforce will provide recommendations to CFPB Director Kathy Kraninger on ways to harmonize, modernize and update enumerated consumer credit laws. 

This new taskforce found inspiration in part from the National Commission on Consumer Finance of 1968, a body established by the Consumer Credit Protection Act to provide insight on the consumer finance industry. The 1968 commission investigated the regulatory landscape of consumer credit and subsequently reported their findings, analysis and recommendations to Congress.

Their report led to significant legislative and regulatory developments in consumer finance and ultimately helped shape the industry’s perspective for years to come. The new taskforce intends to conduct similar research into consumer financial laws and regulations with the ultimate goal of proposing improvements to the existing legal and regulatory environment. 

Recently, the chair of the taskforce met with CSBS staff to discuss its high-level objectives and gain insight on the areas of concern for state regulators in the consumer finance industry. The discussion centered around the different yet equally important perspectives that state and federal regulators contribute to this area. This dialogue is one of the many instances where state and federal regulators come together to further their joint supervisory mission of consumer protection. 

Since the establishment of the CFPB in 2010, state regulators have exercised concurrent regulatory, supervisory and enforcement authority with their federal counterpart. As the consumer finance industry has grown and evolved with changes in innovation and technology, state regulators have continued to develop standards to foster a more efficient and effective regulatory system. 

Currently, state regulators license and regulate more than 20,000 nonbank financial services providers. This supervisory authority makes state regulators responsible for ensuring these providers operate in compliance with state and federal consumer protection laws while continuing to provide consumers with access to a wide array of financial services. State regulators often act as the first regulatory point of contact for consumers and play a critical role in intaking, reviewing, and following-up on consumer complaints. They also provide a unique perspective of the industry basing many of their regulatory responses off local knowledge and direct ties to the needs of the community. 

In addition to establishing the CFPB as the primary federal regulating authority for consumer financial issues, the Dodd-Frank Act recognized the need for state regulators as a force multiplier for consumer protection. This law empowers state regulators to enforce statutory provisions of federal consumer financial laws within their respective states either as a co-enforcer with the CFPB or an independent actor.

In order to facilitate a coordinated system of supervision and information sharing, state regulators and the CFPB in 2013 established the State Coordinating Committee, which improved regulatory coordination in the oversight of nonbank entities and enhanced the supervisory capacity of both state and federal regulators. In recent years, coordinated efforts between the states and the CFPB proved that this valuable partnership fostered a more efficient and effective regulatory system. 

Federal and state regulators share the supervisory mission of protecting consumers from potentially harmful practices of consumer financial services providers. Together, they can achieve this pursuit by maintaining the spirit of coordination and collaboration they have held for many years. 

The Conference of State Bank Supervisors looks forward to the CFPBs’ continued engagement with the states as the Taskforce undertakes their work. 

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OCC’s Activities and Operations Rule Would Undermine the Dual Banking System

State regulators are opposed to portions of the Office of the Comptroller of the Currency’s proposed rule that would expand the scope of activities that could occur at non-branch offices of national banks because they would undermine the state regulatory system, CSBS said in a comment letter this week. 

CSBS asked the OCC to rescind the non-branch sections from the proposed rule because they:

  • Make far-reaching and unprecedented changes without legal authority
  • Undermine the dual banking system including the policy of competitive equality between state and national banks coupled with deference to state standards
  • Conflict with the limits on NBA preemption prescribed by Congress
  • Would allow national banks to operate de facto branches without branch-related obligations under the Community Reinvestment Act

Additionally, the OCC shortened the comment period timeframe by starting it from the day the proposed rule was posted on the agency’s website and not waiting until it was published in the Federal Register. 

“CSBS believes that issues of such importance to the balance of federal and state power in the dual banking system should not be rushed through the rulemaking process to avoid meaningful public input because well-reasoned, thoughtful and informed public policy demands time and consideration,” the letter said. 

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Simply Stated #25: Supervising Emergency Legislation In A Pandemic

Guest: Chuck Cross, Senior Vice President of Non-Bank Supervision
Host: Matt Longacre

Supervision is hard. Examiners, whether it’s for banks or nonbanks, are a unique breed. Not only must they have a mastery of financial services and the institutions that they supervise, and not only do they need a strong knowledge of what’s necessary for compliance, they must also orchestrate an extremely difficult balance between maintaining an examination procedure that is fair, impartial, and consistent from one company to another, but also continuously update their supervision based on changing circumstances and law.

So, when a crisis happens, the job only gets harder.

Previously on Simply Stated, we talked to experts about the impact of COVID-19 on community banks, looking at how they view their futures. We also talked to small business owners on the ground about how the CARES Act impacted their survival.

On this episode, we’re going to talk to some experts about what it’s like to be an examiner in the middle of a pandemic. We cover the complex landscape of supervision, how an examiner begins to tackle emergency legislation, and what it takes to turn a massive piece of legislation that impacts tens of thousands of financial services businesses into a consistent, repeatable exam process that is fair to companies and consumers.

Resources from the Podcast

Paper on Nonbank Supervision

COVID-19 Consumer Relief Guide

Examiner Guidance for CARES Act Examinations:

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The Shape of Things to Come: A Reverse-Radical Recovery?

By Thomas F. Siems, Ph.D., CSBS Senior Economist and Director of Research

Economists are contemplating the shape of the impending recovery following this year’s COVID-19 pandemic-inflicted economic lockdown recession. Typically, economists rely on certain letters of the alphabet to describe the shape of economic contractions and expansions, although they have also been known to consider bathtubs and checkmarks as possible profiles. So, what contour looms ahead now? Will this economic recovery be V-shaped? Or maybe U-shaped? How about a W or reverse L? Or maybe something entirely different? To assess the shape of things to come, we look back at the curvilinear forms of past recessions and recoveries and then consider a possible path forward.

In the Looking Glass: Past Recessions

According to the National Bureau of Economic Research (NBER) Business Cycle Dating Committee―the official arbiter for calling the start and end dates for recessions―there have been 12 economic recessions since 1948, including the most recent contraction that began in early 2020 when the expansion peaked in the fourth quarter of 2019. As shown in the nearby chart, by indexing real GDP at 100 for the peak quarter of each recession (excluding the short 1980 recession and the current 2020 downturn), we can compare the severity and length of each contraction and its subsequent recovery over several quarters. The chart displays the many shapes of U.S. recessions and subsequent expansions, clearly showing that the 2008-09 recession―often referred to as the Great Recession―was the deepest and longest on record prior to 2020. 

Chart 1

To get a better view of each curve, the chart below presents each recession/recovery on its own, but alongside all the others for comparison. As shown, the 10 recessions and subsequent expansions appear to generally follow these shapes:

1949 Reverse L-shape
1953-54 U-shape
1957-58 V-shape
1960-61 Small V-shape
1970 Reverse L-shape
1974-75 Deep V-shape
1981-82 Bathtub-shape
1990-91 Checkmark
2001 Flat (mild)
2008-09 Prolonged U-shape


Chart 2

Clearly, the various paths that recessions and their ensuing recoveries trace out are varied and depend largely on a number of factors, including, but not limited to, the severity and intensity of any shock that might have preceded the downturn, the employment mix, demographics and industry sector composition at the time, and the policy responses before, during and after the recession was identified. The above chart also shows the strength and potency of each economic rebound once the expansion begins. The slope lines for the more recent recoveries are generally not as steep as those earlier in time, which indicates weaker economic growth.

Another way to look at this is to plot the annual compound economic growth rates over the next two- and three-years for each recession, as shown in the chart below. The two-year annual compound growth rate drops from an average 4.4% for the first five recoveries in this series to an average 1.7% in the last five recoveries. And the three-year average annual compounded growth rates are 4.3% and 2.3%, respectively.

Chart 3

Through the Looking Glass: The 2020 Recession

The 2020 pandemic/lockdown-induced recession began in March with a severe negative impact on economic growth. The BEA reported that first quarter 2020 real GDP fell by 5%, and the recently reported second quarter decline was 32.9%. If a recovery began in June or July, then this recession will be one of the shortest on record at roughly six months, but also the most severe with a peak-to-trough decline of 10.8%, more than twice the 4.4% decline experienced during the 2008-09 Great Recession. 

So, what shape will the approaching recovery take? As shown in the chart below, several high-frequency economic indicators suggest that the economy began to rebound in May and early June but seems to have paused since then as reported COVID-19 cases began to escalate in several large states. 

Chart 4

This pause will significantly impact future economic growth and likely result in a reverse-radical shaped recovery. As shown below, a radical symbol is the square root sign, and a reverse-radical is the mirror image of the square root sign.

The chart below shows how this recession and recovery may proceed given the apparent pause in economic activity that seems to be happening now. That is, the sharp decline in growth experienced in the first half of 2020 will be followed by a rebound, but one that will likely settle, or pause, until U.S. consumers are more comfortable interacting in large groups and business reopenings can occur with greater frequency. For economic growth to pick up significantly, consumer confidence will need to meaningfully rebound, which will probably only happen once fears of the COVID-19 virus have abated.

Chart 7

In conclusion, U.S. economic growth contracted nearly 11% in the first half of this year, making the pandemic/lockdown recession the deepest since the Great Depression of the 1930s. I believe that uncertainty remains the greatest obstacle to growth: uncertainty about the virus, uncertainty about consumer behavior, uncertainty about business reopenings and new protocols, uncertainty about public policy responses, and uncertainty about unintended consequences from, or misguided incentives in, enacted policies and business/trade dealings. 

While it appears that economic growth started to rebound in late May and early June, high-frequency data regarding consumer behavior and confidence suggests that there has been a pause in current economic activity that will likely create an entirely new recession/recovery shape classification: the reverse-radical. Wouldn’t it be nice to go back to a simple checkmark, or a V? How about a forward slash!

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FFIEC Issues Statement on Additional Loan Accommodations Related to COVID-19

The Federal Financial Institutions Examination Council on behalf of its members issued a statement this week setting forth prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers as initial coronavirus-related loan accommodation periods come to an end and they consider additional accommodations. 

The COVID event has had a significant adverse impact on consumers, businesses, financial institutions, and the economy.  To address some of these impacts, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides several forms of relief to business and individual borrowers, and some states and localities have taken action to provide similar credit accommodations.  Also, many financial institutions have voluntarily offered other credit accommodations to their borrowers.

As initial loan accommodation periods come to an end, some borrowers may be able to resume contractual payments, and others may be unable to meet their obligations due to continuing financial challenges.  The agencies encourage financial institutions to consider, when appropriate, prudent options for additional accommodations that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate the financial institution’s prudent management of its loans, consistent with applicable laws and regulations.

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