Banks push for regulators to ease up on them
Banking representatives filed a petition to curb informal guidance practices
WASHINGTON— Banks are pushing for regulators to write a new rule limiting the use of informal guidance, a sign firms aren’t satisfied with the pace of deregulation under the Trump administration. Two industry groups—the Bank Policy Institute and American Bankers Association—filed a petition Monday with the Federal Reserve and other bank regulators. Their request: Write a rule stating that bank examiners won’t punish firms for violating informal policies known as “guidance.”
The petition is a gambit in a yearslong fight over guidance documents, which spell out regulatory expectations from loan underwriting to business relationships with third-party vendors. Bankers say regulators often punish or threaten to punish them for violating guidance, even though compliance is supposed to be voluntary. Regulators’ strict enforcement of guidelines on leveraged loans is one example.
Trump-appointed officials such as Fed Vice Chairman for Supervision Randal Quarles and Comptroller of the Currency Joseph Otting have said they want to adopt a less-draconian tone than their Obama-appointed predecessors, but both also oversee large bureaucracies where immediate change is difficult to achieve.
In September, regulators took a step in helping banks on the issue, releasing a joint statement saying, “Examiners will not criticize a supervised financial institution for a ‘violation’ of supervisory guidance.” Instead, such citations would have to be based on formal laws or regulations.
The statement has come to be known as the “guidance on guidance.”
The industry groups in their petition said the September statement didn’t go far enough to rein in bank examiners. “There is a concern that exam- iners might defeat the purpose of the statement” by working around it or arguing that it isn’t binding on them, the petition said.
It also points to matters requiring attention, or MRAs, which are letters that criticize banks for alleged deficiencies. The letters can sometimes be a precursor to stricter sanctions on a bank, such as fines or limits on growth, and can lead a bank to pull back from certain businesses.
The industry’s hope is that if regulators spell out in a formal rule that guidance can’t be the basis for such letters, then regulators would issue fewer or narrower ones.
Representatives of the Fed, Office of the Comptroller of the Currency and Consumer Financial Protection Bureau said the agencies had received the petition and were reviewing it. An FDIC spokesman said the agency “has taken a variety of steps to ensure our examiners understand the role of supervisory guidance, including written instructions, calls to examiners and regional and field personnel, and in-person training,” adding that “supervisory guidance does not have the force or effect of law.” Guidance documents have separately been under fire from Republicans in Congress, which nullified the consumer bureau’s guidelines on indirect auto lending earlier this year.
The banking industry’s petition said the agencies must, under the law, respond to its request and, if they decline to issue a rule, explain why.