US Treasury Department Takes Action to Address Financial Stability Risks

The US Treasury Department has been actively working to address financial stability risks in the areas of hedge funds and digital assets. The department’s efforts are an important step toward ensuring the health and competitiveness of the US economy’s banking system. Moreover, policymakers are urging that raising or suspending the debt limit is crucial to safeguard financial stability.

Addressing Risk Due to Leverage

The US Treasury Department has taken action to strengthen the regulatory framework surrounding hedge funds. It restored the Financial Stability Oversight Council’s Hedge Fund Working Group to identify hedge fund-related risks to the financial system. Additionally, the Office of Financial Research at the Treasury Department is enhancing data collection on bilateral repo transactions without a central counterparty.

Mitigating Risks in Digital Assets

The digital assets ecosystem has grown substantially in scale and scope, subject to significant shocks and volatility. The US Treasury Department recognizes stablecoins’ potential widespread use for payments for goods and services but highlights that they create run incentives and risks similar to those in traditional financial systems. As such, they recommend Congress enact legislation establishing a comprehensive prudential regulatory framework for stablecoin issuers. There is also a need for identifying gaps in existing authority for cryptoassets oversight.

Raising or Suspending Debt Limit as Means of Safeguarding Financial Stability

Raising or suspending the debt limit is critical in preventing an economic and financial catastrophe while maintaining public trust and confidence in government finances. Such action will enable necessary financial resources towards safeguarding against future financial crises, underscoring that government plays a vital role in providing financial stability.

Title: Reforming Community Reinvestment Act for Equity

The Federal Reserve, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) are collaborating on a final rule for reforming the Community Reinvestment Act (CRA). The CRA is a law enacted to address systemic inequities in access to credit and help ensure banks serve the credit needs of the communities in which they do business, including low and moderate-income communities.

Advancing Core Purpose of the CRA

A successful reform of the CRA must advance the core purpose of the statute to address inequities in access to credit and promote community engagement and financial inclusion in low and moderate-income communities. The new rule should address significant banking sector changes since regulations were last revised more than a quarter-century ago, such as online and mobile banking. The rule should provide greater clarity, consistency, and transparency to ensure everyone understands what counts for CRA consideration and how ratings are determined.

Providing Clarification for Compliance

The new CRA rule should align evaluations and data collection to bank size and type, accommodating different banks’ sizes and ensuring smaller banks do not have similar requirements as larger ones. The agencies are diligently working together to craft a final rule in light of extensive public comments received on the proposal. A new CRA final rule is expected to support impactful bank lending, investing, and services that benefit communities in today’s banking environment.

Title: Acting Comptroller Emphasizes Fairness in Banking

Acting Comptroller Michael J. Hsu emphasizes fairness in banking as an equal priority with safety and soundness concerns. Nonfinancial risks like persistent inequality can create systemic hazards that marginalize customers, drive them towards less regulated entities like shadow banks.

Discouraging Junk Fees

The OCC is prioritizing elevating fairness, particularly for underserved and financially vulnerable populations. Two particular junk fees of concern include “authorize positive, settle negative” and “representment” fees that charge an additional fee each time a third party resubmits the same transaction. Murky disclosure of such practices could be seen as deceptive under federal antidiscrimination laws.

Tackling Discrimination and Bias

The OCC is also addressing discrimination and bias in lending, appraisals, and risks posed by AI. It has strengthened its supervisory processes and resources for compliance with fair lending laws. The OCC is keen to tackle appraisal bias as it exacerbates inequality and perpetuates the racial and ethnic wealth gap. Appraisal bias evaluation is being analyzed to update supervisory methods.

Expanding Financial Inclusion

The OCC aims to expand financial inclusion and opportunity through its proposed rule to strengthen and modernize the Community Reinvestment Act and project REACh. Project REACh has facilitated pilot programs to make those without credit scores visible to lenders, secured pledges to support minority depository institutions, promoted homeownership, and supported minority small businesses’ awareness of special purpose credit programs.

In conclusion, the US Treasury Department’s actions towards a more stable banking system highlight the importance of government regulation in maintaining economic stability while safeguarding public trust in government finances. Reforms in areas like the Community Reinvestment Act reinforce economic fairness while financial inclusion efforts provide opportunities for all sectors of society to benefit from a well-functioning financial system.

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