Congressional and regulatory scrutiny of both regional banking and the neobanking industry continues weeks after the collapses of Signature Bank and Silicon Valley Bank.
On March 30, President Joe Biden urged federal banking agencies to reinstate liquidity and enhanced stress testing requirements for banks with between $100 billion and $250 billion after then-President Donald Trump raised the standard to banks with $250 billion or above in 2018. Biden also called for regional banks to face annual supervisory capital stress tests and comprehensive resolution plans.
Democrat Sens. Elizabeth Warren of Massachusetts and Katie Porter of California have introduced a bill repealing the loosened requirements. The bill could prove challenging to pass as moderate Democrats who supported the 2018 overhaul haven’t explicitly supported the proposal. Last month, U.S. Rep. Dean Phillips (DFL-Minn.), who was elected in the months following the overhaul, attributed the collapses to internal leadership failures, not the bill.
Congressional focus comes as the International Monetary Fund scrutinizes the lack of regulations surrounding the nonbank industry In an April 4 report, the agency said regulators should require nonbanks to better manage risks and prevent them from excessive risk-taking, possibly through mandating “timely and granular public data disclosures and governance requirements,” supported by capital and liquidity standards and stricter supervision.
The IMF deems the rules necessary due to the explosive growth of the nonbank sector, which now accounts for nearly half of global financial assets. Rocket Mortgage, United Shore Financial Services and loanDepot, all nonbanks, are considered the top three mortgage lenders.
According to the report, the regulations need to ensure that nonbank failures don’t spillover to the broader financial system as a possible recession looms.
“Such risks could intensify in the coming months amid the continued tightening of monetary policy globally, making it especially important to understand and safeguard this broad swath of the financial sector that comprises an array of institutions beyond banks,” wrote authors Antonio Garcia Pascual, Fabio Natalucci and Thomas Piontek.