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The Examiner

“I’m Chevy Chase… and you’re not.”
- Chevy Chase, on Saturday Night Live, which premiered this day in 1975

Op-Ed: Let's Improve State and Federal Regulation of Bank Vendors

This article was published in The Hill, September 28, 2019

By John Ryan
CSBS President and CEO

JRRecently the House unanimously approved legislation that would enhance the ability of state and federal regulators to coordinate the examinations of a bank’s technology vendor. I urge the Senate to do the same.

The Bank Service Company Examination Coordination Act (BSCA), H.R. 241, would update an existing law so that regulators can effectively and efficiently examine third-party service providers (TSPs).

That law, the Bank Service Company Act, authorizes federal regulators to examine TSPs to assess any potential risks they pose to individual client banks and the broader banking system.

Many state banking regulators are authorized under state law to examine TSPs and are responsible for ensuring these relationships do not pose undue risks to the state-chartered banking system, which accounts for 79 percent of the nation’s banks. However, the Bank Service Company Act is silent regarding state bank regulators. That limits the ability of federal regulators to share information with state regulators and often results in duplicative and inefficient examinations.

79 Percent
The percentage of banks nationwide that are state-chartered

To be clear, H.R. 241 would not grant any new authority to state regulators; it would update federal law to recognize the state’s role in supervising TSPs and encourage state and federal coordination of their exams.

This means an improved and more efficient regulatory system, which is increasingly important with the explosive growth of fintech companies and cloud computing solutions that partner with banks to provide core business services

This bill complies with the Financial Stability Oversight Council’s 2017 annual report that recommended coordinated federal and state TSP examinations. Additionally, for state regulators, H.R. 241 is a matter of protecting consumers’ sensitive information.

When state and federal regulators are working together, we provide a network of supervision that strengthens our financial system. And that helps the communities served by the banks we supervise. The most recent CSBS annual survey shows that cybersecurity breaches are the greatest concern to community banks. This bill would help address those breaches early on.

The Bank Service Company Examination Coordination Act additionally would reduce regulatory burdens for the vendors. H.R. 241 does not encourage more examinations. It promotes information sharing between state and federal regulators who are already examining a TSP so they can effectively use resources to avoid duplicative examinations.

And it is time. The Bank Service Company Act was enacted in 1962. As Rep. Steve Stivers (R-Ohio) noted on the House floor, that was a year before zip codes were introduced and the first push button phones were made available in this country.

Think about how much the world has changed since then. For banks, a modern world includes providing technology to keep up with customer demands. That means they increasingly contract with third-party vendors to provide services for core business operations that includes loan production, deposit taking, payment services, IT security and call centers.

We think regulation should adapt as well. Information sharing between federal and state regulators will mean more efficient and effective examinations of TSPs. Who could argue with that?

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State Financial Regulators Seek Public Comment on Model Payments Law

CSBS is seeking public input on draft language for model payments legislation that could be introduced in all 50 states. The proposed legislative language covers issues related to state money transmission and payments regulation.

Creating model payments legislation and standards is one of several recommendations of the CSBS Fintech Industry Advisory Panel, part of CSBS Vision 2020, the state initiative to streamline multistate licensing and supervision for nonbanks.

CSBS encourages commenters to provide actionable language and redline edits by November 1, 2019. The draft legislation and other materials are available at

The request for comment solicits input on several outstanding questions outlined in the executive summary, including questions of ensuring consistent interpretations across the states.

After November 1, CSBS will focus on the most impactful measures for Vision 2020. Depending on feedback received, this may mean finalizing less controversial issues before standardizing more complex matters.

CSBS Begins Accreditation of State Agencies for MSB Supervision

CSBS, in partnership with the Money Transmitter Regulators Association (MRTA), will now offer accreditation of state regulatory agencies that supervise money services businesses. 

“As the primary supervisors of money services businesses, state regulators are charged with ensuring that licensed entities operate in a safe and sound manner and protecting consumers from bad actors and business practices," said CSBS President and CEO John Ryan. "The new CSBS MSB Accreditation Program will signal to the public that their regulators meet the highest standards for MSB supervision.”

This initiative is part of the CSBS Vision 2020 goal to modernize nonbank licensing and supervision throughout the United States.

Key Points:

  • The new accreditation program sets benchmark standards for a modernized and coordinated system of supervising MSBs 
  • To achieve accreditation, a state must demonstrate it has:
    • The legal authority to supervise MSBs
    • The ability to participate in multistate supervision of MSBs
    • The authority to examine MSBs at an adequate frequency, or the ability to accept MSB examinations from other states to ensure frequent examination
    • Adequate qualified staff with the necessary expertise
    • Adequate funding to achieve all of the above
  • States that obtain MSB accreditation will be certified they have the resources and implemented processes necessary to ensure MSBs in their state operate safely and soundly, follow BSA/AML standards, and are abiding by state and federal consumer protection laws

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Data Corner: The Steady March of Bank Consolidation 

By Brennan Zubrick, CSBS Senior Director of Analytics and Research

In this edition of the CSBS Data Corner, we explore trends in asset distribution between the largest institutions and all other institutions going back to 1976.

Chart 1 show’s compares the aggregate total assets held by the 100 largest insured depository institutions (IDIs) to the amount held by all other IDIs, while Chart 2 draws the same comparison between the 10 largest IDIs and all other IDIs. Chart 2 shows that starting in 1993, the 100 largest banks grew in size at a much faster rate relative to all other banks, while the Chart 1 shows that it wasn’t until the years leading up to the financial crisis that the 10 largest banks gained the majority of total asset market share. The green line in both charts plots the number of IDIs over time to further illustrate how assets have grown amid a period of substantial industry consolidation. 

Chart 1: Top 10 Insured Depository Institutions

Aggregate Total Assets of Top 100 Largest Insured Depository Institutions and All Other Insured Depository Institutions


Chart 2: Top 100 Insured Depository Institutions 

Aggregate Total Assets of Top 10 Largest Insured Depository Institutions and All Other Insured Depository Institutions

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