Welcome to The Vault. Every week you'll find a sample of FedFin opinion and analysis on the most recent issues facing financial services firms. Check back frequently to see what's new. Click here to contact us.

One of the most interesting exchanges at a pivotal Senate Banking hearing yesterday came when Sens. Brown and Warren pressed regulators on bank capital distributions.  Each alleged that banks – especially way-big ones – pay dividends and repurchase shares to enrich shareholders at grave cost to struggling borrowers.  Sen. Brown went further, arguing that banks should be barred from capital distributions if profits come from regulatory relief.  Given the capital windfalls that analysts project from recent Treasury recommendations, Democrats are laying pipe for a stiff price they hope to extract from any big banks that reap benefits from regulatory rewrites.  Should they get it?

Read more: Karen Petrou on What a Capital-Distribution Ban Would Do

At a hearing that led Ranking Member Brown (D-OH) politely to question the political independence of the witnesses, Senate Banking today heard from FRB Gov. Powell, Acting Comptroller Noreika, FDIC Chairman Gruenberg, NCUA Acting Chairman McWatters, and a witnesses for state bank supervisors, Commissioner Cooper.  Chairman Crapo (R-ID) reiterated his plans to advance bipartisan legislation on issues such as community-bank reform and tailoring, closing today’s session by asking witnesses quickly to respond to outstanding questions because he plans rapid legislative action.  As detailed in this report, Messrs. Powell and Noreika laid out many areas in which they agreed with Treasury’s recommendations to reverse key planks in the U.S. post-crisis framework.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.

Here, we turn to Treasury’s proposed changes to the Community Reinvestment Act (CRA).  As detailed below, Treasury’s report was largely confined to changing CRA regulation, not the law.  Although Republicans who believe that GSE affordable-housing requirements led to the financial crisis also argue that CRA distorts credit-allocation and investment decisions, even FinServ Chairman Hensarling (R-TX) has been reluctant to tackle CRA.  Democrats are strongly behind the law and, even if it could be amended or repealed in spite of this, many home-town groups have become accustomed to bank community-level activities that might stop or drop if statutory requirements are substantively revised.  Treasury’s CRA recommendations will, opponents say, have the same result, but Administration-appointed regulators could accomplish them without the personal political fall-out feared by Members of Congress.  Even so, Treasury is moving carefully, advocating now only CRA study, not specific reforms.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.

We continue our assessment of Treasury’s sweeping bank-reform recommendations with an analysis of its corporate-governance provisions.  These are a relatively minor part of the paper but one Sen. Warren (D-MA) may well have targeted for additional criticism beyond that she and other Congressional Democrats have already leveled at the Trump Administration’s paper.  As we noted Monday, Sen. Warren has sent the Federal Reserve a letter focused on Wells Fargo asking why directors have yet to be sanctioned for risk-management failures.  We expect that she will sharply question FRB Gov. Powell on this point at Thursday’s Senate Banking hearing, using this to critique the “reset” he urged for regulatory corporate-governance scrutiny echoed in the Treasury paper.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.