Bank Resilience and Regulatory Improvement Act (H.R. 8337)

Bank Resilience and Regulatory Improvement Act (H.R. 8337)

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May 30, 2024
Bank Resilience and Regulatory Improvement Act (H.R. 8337)
On May 16, 2024, the House Financial Services Committee
• eligible for the Community Bank
ordered an amendment in the nature of a substitute to H.R.
Leverage Ratio (CBLR), which allows
8337 to be reported. The bill would provide various forms
banks to elect to be exempted from risk-
of regulatory relief to banks, as discussed in this In Focus.
weighted capital requirements.
In addition, the bill has two sections related to issues raised
by the failure of three large banks in 2023.
Section 601 would raise the asset threshold from $3 billion
to $10 billion for the Small Bank Holding Company Policy
Higher Regulatory Thresholds
Statement (SBHCPS), which allows eligible bank holding
Some bank regulations are “tailored,” with small banks
companies below the threshold to take on more debt to
either exempted from regulations or allowed to comply with
complete mergers and exempts holding companies from
streamlined versions of regulations. Congress has debated
Basel III requirements. The current thresholds for the
what size is appropriate for certain regulations to apply to
Volcker Rule, Portfolio QM, CBLR, and SBHCPS were set
banks, with various thresholds currently used.
by P.L. 115-174 in 2018.
Figure 1. Depository Institutions by Asset Size, 2023
Figure 1 shows how many institutions are below the $10
billion in assets threshold and how many fall between $10
billion and $50 billion. (Whether a bank, holding company,
or credit union would be exempted depends on the
provision and whether the institution meets other qualifying
criteria.) For more information, see CRS Report R46779,
Over the Line: Asset Thresholds in Bank Regulation.
Mergers
The bank merger process has been criticized by some as too
lax and by others as too slow and vulnerable to interference.
Because the merger application process is iterative, it can
be lengthy, particularly for large institutions. Depending on
the legal structure of the merger, current law sets deadlines

on how long the regulators may take to make a decision on
Source: CRS calculations based on data from Federal Reserve,
a merger application, and the regulators have internal
Federal Deposit Insurance Corporation, and National Credit Union
guidelines on how long the approval process should take.
Administration.
Notes: Banks includes commercial banks and savings associations.
Section 201 would replace existing statutory deadlines with
Holding companies includes bank holding companies and thrift holding
new ones. It would require the relevant bank regulators to
companies. Figure does not include foreign banking organizations.
notify a merger applicant within 30 days of any information
needed to complete an application and then notify the
Section 101 of H.R. 8337 would raise a number of these
applicant within 30 days of any deficiencies in the
thresholds from $10 billion to $50 billion in assets. Banks
application. It would require the regulators to grant or deny
with assets between $10 billion and $50 billion would now,
an application within 90 days (with the potential to extend
provided they meet other qualifying criteria, be:
the deadline by 30 days) regardless of whether the initial
application was complete. If the regulators have not made a
• exempt from supervision for consumer
determination within that time period, the application would
compliance by the Consumer Financial
be deemed granted. For more information, see CRS In
Protection Bureau;
Focus IF11956, Bank Mergers and Acquisitions.
• exempt from the “Durbin Amendment,”
Stress Tests
which caps debit card swipe fees;
Large bank holding companies are subject to stress tests—
• exempt from the “Volcker Rule,” which
simulations to see if they would still be adequately
prohibits banks from proprietary trading
capitalized in severely adverse economic environments.
and sponsoring private funds;
Capital requirements for each large bank are based in part
on the outcome of the stress test run by the Federal Reserve
• eligible for the “Portfolio Qualified
(Fed) via the stress capital buffer. In 2019, the Fed issued a
Mortgage (QM)” compliance option;
final rule that increased transparency surrounding the stress
tests by disclosing more information on the Fed’s models.
In 2023, two banking trade groups filed a petition
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Bank Resilience and Regulatory Improvement Act (H.R. 8337)
requesting that the Fed engage in notice and comment
to “fully staff the [appeals] panel” from a broad range of
rulemaking to “codify by rule, any and all models,
professional backgrounds specified in the bill. (This differs
formulas, or other decisional methodologies that the Board
from the current approach, where the review committee is
uses to calculate the ‘stress capital buffer requirement.’”
comprised of agency officials.) The funding source for
The groups argue that doing so would “remedy the serious
these offices is not specified, so they would be funded by
existing legal defects” and provide external perspectives
the respective agencies’ independent budgets.
that would improve the stress tests. In 2019, the Fed
rejected a similar proposal on the grounds that it “could …
The bill would allow an IDI to file an appeal against
(allow) firms to make (business) modifications … that
supervisory findings and require the regulators to respond
would change their … stress test results without materially
to the appeal in an expedited manner. The regulators have
changing their risk profile.”
three choices: grant the appeal, refer the appeal to the
aforementioned panel, or deny the appeal. If the appeal is
Section 301 would require the Fed to issue a rule to
denied, the institution can appeal that decision, and it is sent
“establish any models, assumptions, formulas, or other
to a panel anyway. The panel can recommend that the
decisional methodologies that are used to determine … the
supervisory determination be continued, terminated, or
stress capital buffer.” Section 302 would require the Fed to
modified, or it can send it back to the examiners to allow
establish its stress test scenarios annually through
them to consider additional information. The agency head
rulemakings, which would add administrative cost.
must then ratify or deny the panel’s decision, and the
institution can petition the U.S. Court of Appeals to review
Section 302 would prohibit the Fed from imposing a
the agency head’s decision. (It is possible that the public
climate stress test on any nonbank that has been designated
record of an IDI filing a case with the U.S. Court of
a systemically important financial institution (SIFI). Section
Appeals could signal to the market that such an institution
303 would require a triennial report by the Government
has received an unfavorable supervisory rating, putting it at
Accountability Office on the effectiveness of nonbank SIFI
greater risk of a bank run.) For more information, see CRS
stress tests. To date, the Fed has never conducted a nonbank
Report R46648, Bank Supervision by Federal Regulators:
SIFI stress test, and there are currently no nonbank SIFIs.
Overview and Policy Issues.
For more information, see CRS Report R47876, Enhanced
Prudential Regulation of Large Banks.
Material Loss Review
Following a bank failure, the inspector general of the failed
Supervisory Appeals
bank’s primary regulator must conduct a “material loss
Insured depository institutions (IDIs, including banks and
review” (MLR) for each such failure, and a version of the
credit unions) are subject to examinations for safety and
MLR omitting confidential information must be publicly
soundness on a regular schedule. Supervisory decisions
released under current law. The report must review the
rendered by the depository agencies are not subject to
bank’s supervision to explain why the problems caused a
external appeal and are made in a confidential process
material loss to the Federal Deposit Insurance Corporation
without much independent oversight or recourse for the
(FDIC) and make recommendations to avoid future losses.
IDI. Section 309(a) of P.L. 103-325 required the IDI
regulators to establish an appellate process to review
Section 403 of the bill would broaden the scope of the MLR
supervisory determinations. Banks are expected to make a
to include an evaluation of whether the FDIC’s resolution
“good-faith effort … to resolve [a dispute with a
could have avoided a material loss. When three large banks
supervisory finding] with the on-site examiner and
failed in 2023, critics complained about how the FDIC
Regional Office.” However, they can also appeal material
selected winning bids to assume the failed banks’ assets and
supervisory determinations through the respective agencies’
deposits. The FDIC released a summary of the bids it
appellate processes. Confidentiality in supervisory findings
received to purchase the failing banks, although it is
is crucial to ensuring that those findings do not cause a
difficult to determine from that summary what the FDIC’s
bank run. IDIs must address matters requiring attention
losses would have been under each bid. For more
(MRAs) raised by supervisors, and poor ratings can result
information, see CRS In Focus IF12454, Bank Failures and
in restrictions on their activities. (The failure of Silicon
Congressional Oversight.
Valley Bank exposed the fact that MRAs are not always
addressed promptly.)
Discount Window
The Fed acts as a lender of last resort to banks by making
Section 401 would require, among other things, relevant
short-term loans through its discount window. Depositor
regulators to submit justifications to the IDI (upon request)
runs on three large banks that failed in 2023 raised
for all “material supervisory determinations” and to conduct
questions about the effectiveness of the discount window.
exit interviews with senior management and the board
Section 501 would require the Fed to conduct a review of
about the examination. It would further require agencies to
the effectiveness of the discount window, develop a
provide justifications for their regulatory authorities upon
remediation plan of any deficiencies identified in the
request and to publish summary reports of the
review, and issue a report to Congress. For more
determinations (while redacting sensitive information).
information, see CRS In Focus IF12655, Federal Reserve’s
Discount Window: Policy Issues.
Section 402 would establish an Office of Supervisory
Appeals at each of the depository regulators, the head of
Marc Labonte, Specialist in Macroeconomic Policy
which would appoint as many “appeals officials” as needed
Andrew P. Scott, Analyst in Financial Economics
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Bank Resilience and Regulatory Improvement Act (H.R. 8337)

IF12678

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