Modernizing Financial Regulation to Facilitate Shared Economic Prosperity

Regulatory Philosophy and Motivation

• FDIC Chairwoman Yellena McWilliams cites her immigration from Serbia and her father's loss of $2,000 in a collapsed Yugoslavian bank as the driving force behind her mission to protect depositors and foster shared prosperity.
• CFPB Director Kraninger draws on her Peace Corps service in Ukraine to emphasize the necessity of government transparency, robust public discourse, and responsive regulation that serves the people directly.
• OCC Comptroller Joseph Otting leverages his dual experience as a banker and regulator to argue for modernizing the Community Reinvestment Act (CRA) to bridge the wealth gap in inner-city America.
• Former OCC Comptroller Gene Ludwig asserts that community banking institutions are vital to U.S. diversity and entrepreneurship, warning that excessive regulation burdens CEOs who lack the resources of large institutions.

Regulatory Reform Initiatives and Data

• The FDIC has already reduced financial institution letters (directives) by 60% after auditing and archiving outdated compliance communications.
• OCC Comptroller Otting notes that 1,750 unique issues and ideas regarding regulations were submitted in response to Acting Director Mulvaney's call for evidence, highlighting the high volume of stakeholder feedback.
• Post-Dodd-Frank, regulators issued approximately 400 new rules over a 10-year period, creating a cumulative burden that often outweighs the impact of individual rules on small institutions.
• Senators have identified roughly 25 to 26 regulatory provisions within Dodd-Frank that disproportionately impact banks with assets under $10 billion, with agencies aiming to finalize these changes by the fourth quarter of the current year.
• Otting estimates that the current $500 million annual investment in CRA activities could increase by 25–30 percent if banks were given clearer guidance and measurement systems for community investments.

Modernization of the Community Reinvestment Act (CRA)

• The OCC received 1,500 public comments on its Advance Notice of Proposed Rulemaking for CRA reform, an unusually high number compared to the typical 100 comments per rule.
• The 1993 CRA reforms successfully increased lending to low- and moderate-income areas from $17 billion to $450 billion annually.
• Regulators define the modernization effort as "smart regulation" rather than deregulation, aiming to remove burdensome paperwork while maintaining or increasing support for LMI (low and moderate income) communities.
• Challenges in updating the CRA include defining "community" in a digital banking era where institutions may have no physical branches, and determining how non-physical branches and fintech activities qualify for CRA credit.

Fintech, Innovation, and Regulatory Frameworks

• The OCC announced in July 2018 its intent to accept applications from fintech companies for national bank charters, a process typically taking 9–12 months, targeting entities focused on small-ticket consumer/business lending and custody services.
• The CFPB established the Office of Innovation to host a "Project Sandbox," allowing fintech firms to test innovations with regulatory guidance while assessing risks to underserved and immigrant populations.
• The CFPB is engaging with the Global Financial Innovation Network (GFN) with the UK and Singapore to harmonize international innovation standards and address fragmented state-level regulations.
• The OCC's Office of Innovation has shifted its role from screening entities wanting to become banks to guiding them on how to partner with banks as suppliers.
• Regulators highlight the "Rolling Hills" regulatory model in the U.S., characterized by three banking regulators, two market regulators, the CFPB, FHFA, and varying state-level rules, which creates complexity for multi-state fintech operations.

Consumer Protection and Education

• The CFPB is pivoting from a focus on enforcement actions to a "prevention of harm" strategy, prioritizing supervision that encourages self-identification and remediation by institutions.
• The FDIC notes the existence of 56 federally funded financial literacy programs, yet the general population remains unable to distinguish between interest rates and Annual Percentage Rates (APRs).
• The CFPB is focusing its educational efforts on emergency savings and financial well-being, seeking partnerships with employers to reach consumers at critical decision-making moments.
• Regulators argue that enforcement actions signify a failure of both the regulator to identify issues early and the institution to remediate problems voluntarily.

Forward-Looking Statements and Strategic Goals

• The FDIC is conducting a nationwide listening tour across all 50 states to gather feedback from rural bankers and consumers regarding credit access and banking relationships.
• The CFPB aims to assess the efficacy of its post-crisis regulations five years after their implementation, specifically targeting rules like TRID to evaluate their intended impact on costs and benefits.
• OCC Comptroller Otting plans to address unwritten Dodd-Frank requirements, specifically executive compensation, with a notice of proposed rulemaking expected within the year.
• Regulators anticipate that the next major lever in financial services will be the use of data-driven technology to anticipate customer needs (e.g., retargeting for purchases) and expand services to unbanked populations.
• There is a shared commitment to redefining cybersecurity compliance to be cohesive across holding companies and subsidiaries, moving away from siloed data requests that do not reflect the unified nature of modern corporate risk.