[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Notices]
[Pages 65808-65814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25928]
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FEDERAL DEPOSIT INSURANCE CORPORATION
RIN 3064-ZA13
Request for Information on a Framework for Analyzing the Effects
of FDIC Regulatory Actions
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Notice and request for information (RFI).
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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is seeking
comment on approaches it is considering to analyze the effects of its
regulatory actions. The FDIC views analysis of the effects of
regulatory actions and alternatives as an important part of a credible
and transparent rulemaking process. The comments received will help the
FDIC to strengthen its analysis of regulatory actions.
DATES: Comments must be received by January 28, 2020.
ADDRESSES: You may submit comments, identified by RIN 3064-ZA13, by any
of the following methods:
Agency Website: http://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the Agency
website.
Email: [email protected]. Include the RIN 3064-ZA13 in the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW,
Washington, DC 20429.
Hand Delivery: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7:00 a.m. and 5:00 p.m.
Public Inspection: All comments received must include the
agency name and RIN for this rulemaking. All comments received will be
posted without change to http://www.fdic.gov/regulations/laws/federal/
--including any personal information provided--for public inspection.
Paper copies of public comments may be ordered from the FDIC Public
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington,
VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.
FOR FURTHER INFORMATION CONTACT: For further information about this
request for comments, contact George French (202-898-3929), or Ryan
Singer (202-898-7352), Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION: The FDIC has had a longstanding commitment
to improving the quality of its regulations and policies, to minimizing
regulatory burdens on the public and the banking industry, and
generally to ensuring that its regulations and policies achieve
legislative goals efficiently and effectively.\1\ An objective and
transparent analysis of the effects of regulatory actions and
alternatives supports both good policy decisions and the meaningful
involvement and trust of the public in the rulemaking process.
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\1\ See the FDIC's revised ``Statement of Policy on the
Development and Review of Regulations'' at 63 FR 25157 May 7, 1998,
and further revised at 77 FR 22771 April 17, 2013.
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The FDIC is considering ways to improve the quality of its analysis
of regulatory actions. The approaches being considered are consistent
with, and supportive of, efforts to apply the FDIC's ``Statement of
Policy on the Development and Review of Regulations.'' In broad terms,
the FDIC is considering a more structured approach to regulatory
analysis and one that incorporates a number of analytical practices
identified in standard references. Comments received on this RFI will
be of assistance to the FDIC in strengthening its analysis of the
effects of regulatory actions.
As background, the FDIC is subject to a number of statutory
mandates relevant to the effects of regulations. The Administrative
Procedures Act (APA) governs the procedural requirements for all
federal government rulemakings. The Regulatory Flexibility Act (RFA)
requires the FDIC and other agencies to review the effects of
regulatory actions on small entities, identify whether the actions
would have a significant economic effect on a substantial number of
small entities, and if so, consider whether the purpose of the rule
could be achieved in a way that mitigates adverse impacts on small
entities. The Paperwork Reduction Act requires the FDIC and other
agencies to identify the
[[Page 65809]]
paperwork burdens of regulatory actions. The Congressional Review Act
(CRA) requires the FDIC, or any agency promulgating a rule covered by
that Act, to submit a report to each House of Congress and to the
Comptroller General, that contains a copy of the rule, a concise
general statement describing the rule (including whether it is a major
rule), and the proposed effective date of the rule. Congress has the
ability to review the rule, and potentially disapprove it. The Office
of Management and Budget (OMB) determines whether regulatory actions
are ``major rules'' for purposes of the CRA. The FDIC assists the OMB
by providing, for each final rule, analysis and recommendations
regarding whether that rule should be deemed major.
The FDIC performs all statutorily required analyses in connection
with its rulemakings. The FDIC's intention to improve the quality of
its analysis of regulatory actions is not in response to any specific
statutory mandate, but in the belief that robust analysis can enhance
decision making and regulatory transparency. While this RFI is
primarily directed toward issues of analytical content, the FDIC also
is considering improvements to its internal approaches to developing
the analysis. Issues under consideration include procedures for
inclusion of regulatory analysis staff on rule teams at a sufficiently
early stage of the rulemaking process, procedures for reviewing the
analysis, processes for seeking information from stakeholders, as
appropriate, prior to the proposed rule stage, and processes for
retrospective analysis of the effects of regulations.
While the FDIC is an independent regulatory agency and is not
required to follow OMB's guidance with regard to regulatory analysis,
the FDIC nonetheless views OMB Circular A-4 (henceforth, A-4 or
Circular A-4) as a useful set of general principles regarding
regulatory analysis.\2\ The approaches the FDIC is considering draw in
part on principles set forth in A-4, as well as other published
discussions of regulatory analysis.\3\ It is noted, however, that A-4
draws its examples generally from health, safety and environmental
regulation, and does not explicitly address banking or financial
regulation. Professional judgment is needed to apply A-4's principles
to the analysis of bank regulation.
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\2\ Office of Management and Budget, Circular A-4, ``Regulatory
Analysis,'' September 17, 2003.
\3\ See also ``Current Guidance on Economic Analysis in SEC
Rulemaking'' available at https://www.sec.gov/page/dera_economicanalysis; and U.S. Commodity Futures Trading
Commission, Staff Guidance on Cost-Benefit Considerations for Final
Rulemakings under the Dodd Frank Act, (May 13, 2011) in U.S.
Commodity Futures Trading Commission Office of the Inspector
General, A Review of Cost-Benefit Analyses Performed by the
Commodity Futures Trading Commission in Connection with Rulemakings
Undertaken Pursuant to the Dodd Frank Act, June 13, 2011 at 34-45,
available at http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig_investigation_061311.pdf.
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A unique feature of the notices of rulemaking for banking
regulations is that some are published by individual agencies and
others are published jointly by multiple agencies. For joint rules, the
statutorily required analyses contained in the ``administrative law
matters'' (or similarly titled) section of the preamble are conducted
by each participating agency in satisfaction of its legal mandates and
labeled as such, while the common preamble represents the participating
agencies' agreed joint statement about the rule. The analysis presented
in the common preambles of interagency rules accordingly reflects
interagency agreement.
The remainder of this RFI describes a conceptual template for
organizing the issues typically arising in bank regulation, and
analyzing effects in a manner consistent with general principles for
regulatory analysis. The conceptual template is a guide to analysis
only in the sense of discussing the types of issues that ought to be
considered in any regulatory analysis: It is difficult to be more
specific in advance given the diversity of regulatory actions the FDIC
undertakes. Moreover, the ability to quantify the costs, benefits and
effects of regulations can be limited both by a lack of data, and by a
lack of knowledge or agreement among economists about relevant channels
of cause and effect or future behavioral responses. The remainder of
the document should thus be understood as outlining a view of the type
of regulatory analysis that should be conducted to the extent feasible.
Comments are solicited on the conceptual framework in general and its
individual elements.
Economic Analysis of FDIC Rulemakings
The FDIC is considering including the following in its rulemaking
actions: A statement of the need for the proposed action; the
identification of a baseline against which the effects of the action
are compared; the identification of alternative regulatory approaches;
and an evaluation of the benefits and costs from all major stakeholder
perspectives, that includes qualitative discussion, and quantitative
analysis where relevant and practicable, of the proposed action and the
main alternatives identified by the analysis. Moreover, the analysis
should be transparent about its assumptions and significant
uncertainties.\4\
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\4\ This broad organizational outline is consistent with
approaches described in OMB Circular A-4.
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The Need for an Action
The need for regulatory actions can arise from the need to
implement or interpret statutory mandates, improve government
processes, address market failures,\5\ or otherwise address specific
problems that have become evident and suggest the need to change, add
or remove specific regulations. For discretionary actions, an agency's
determination that it needs to take that action is a judgment it has
arrived at based on the totality of the available information. A
rulemaking action should include a concise summary of why the agency
believes that the action is needed.
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\5\ ``Market failure'' is an economics term that refers to
situations where the operation of a free market leads to an
inefficient allocation of goods and services, or put another way,
where individually rational decisions lead to irrational outcomes
for a group. For example, deposit insurance can be viewed as a
response to the market failure of bank runs, in which individually
rational decisions to withdraw funds can cascade and lead to the
collectively suboptimal outcome of large numbers of liquidity
failures.
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Defining a Baseline
The analysis of a regulatory action should be explicit about the
baseline against which the effects of the rule are compared. Broadly
speaking, the appropriate question for the analysis is how the ``world
with the rule'' would compare to the ``world without the rule.'' For
the analysis or evaluation of an alternative, comparisons should
generally be between that alternative and the proposed or adopted
regulatory action. The body of extant banking and financial
regulation--but as discussed below, generally not including proposed
rules--should be part of the baseline. Also, since any comparisons
between the rule and the baseline will be relevant only for entities
that are affected by the action, the analysis of every regulatory
action should identify the set of regulated entities and other affected
parties.
Questions can arise when selecting a baseline for rules that
implement statutory requirements. It is sometimes noted that the
``world without the rule'' would still include the statute that the
rule is implementing. By this reasoning, the rule itself could be
viewed as having minimal effects even when the statute
[[Page 65810]]
has large effects. Circular A-4 states that to facilitate a more
comprehensive understanding of the effects of rules, analysis should
include a pre-statute baseline.\6\ While potentially more
comprehensive, analyzing pre-statute baselines may also involve
implicitly evaluating the merits of statutes. Moreover, since the
agency does not have the option of not implementing statutes, pre-
statute baselines may not always produce results that inform the
decisions actually available to the agency. The FDIC is interested in
commenters' views on the appropriate baseline for rules that implement
statutory requirements.
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\6\ Since the ``world without the rule'' includes existing law,
Circular A-4 can also be viewed as supporting a post-statute
baseline, and in fact it suggests that multiple baselines may be
useful.
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Other issues can arise when analyzing rules that finalize or
propose rules that have been previously proposed. For some such
rulemakings, it might be argued that affected entities have already
adjusted their activities as a result of the previously proposed rule.
Using this reasoning, if the analyst selects as a baseline the
situation that includes regulated entities' adjustments made as a
result of the earlier proposal, the action that is the subject of
analysis might be viewed as having little effect in itself.
To provide for meaningful consideration of alternatives other than
simply finalizing the original proposal, analysis should include a
baseline that compares the current action to a situation without the
original proposal. When much time has passed between the proposal and
the action being analyzed, there may be uncertainties about whether
actions regulated entities took in the intervening time were in
response to the proposal, or would have been taken without the
proposal. Such uncertainties should be acknowledged as part of the
analysis.
Identification and Discussion of Alternatives
Rulemaking actions should include discussion of reasonable and
possible alternatives considered by the FDIC or proposed by commenters.
All reasonable alternatives raised by commenters should be discussed,
or reasons offered for why such alternatives were not considered.
Otherwise, the extent of discussion of alternatives is a matter for
judgment. Some rules may have dozens or hundreds of individual
provisions and discussing alternatives to all of them may not be
practicable. Nonetheless, important rule provisions for which there was
serious discussion of alternatives during the rulemaking process should
be identified, along with the reasons for the course of action chosen.
Finally, the FDIC believes that while it is useful to state and
evaluate the main alternatives considered in a separate and
identifiable section of the preamble, issues raised by commenters that
are identified and discussed in other sections of the preamble do not
necessarily need to be restated in an ``alternatives'' section.
Benefits and Costs of the Action and Alternatives
In reaching decisions about rules, agencies consider the effects on
the public, on regulated entities, and on the achievement of statutory
objectives. Decision-makers consider all these perspectives in order to
arrive at a regulatory action that is in the public interest. This
description of decision making corresponds to two principles that the
FDIC believes are important to incorporate in its regulatory analysis:
First, to consider costs and benefits from all major stakeholder and
policy perspectives; and second, to attempt to identify costs and
benefits relative to the concept of broad economic welfare.\7\
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\7\ A-4 does not state these principles directly, but they
fairly capture important aspects of A-4. For example, in stating
that non-quantified effects may be important (page 2), that analysis
should focus on benefits and costs accruing to citizens and
residents of the United States (page 15), that distributional
effects and transfers should be clearly identified (pages 13 and 38)
and that analysis should look beyond direct effects to ancillary
costs and benefits (page 26), A-4 recognizes the importance of
considering all perspectives on rules. In stating that analysis
should focus on benefits and costs accruing to citizens and
residents of the United States (again, page 15), in measuring costs
and benefits by reference to the sum of consumer and producer
surplus (pages 19 and 38), and in specifically excluding transfers
from costs and benefits (page 38), A-4 articulates a vision of
regulatory analysis as an attempt to measure net economic effects to
society and not just to individual stakeholder groups.
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Systematic consideration of the stakeholders and policy interests
that can benefit from, or be burdened by, a rule is a prerequisite to
analyzing its effects. Bank regulations can be complex and have a broad
range of effects on the achievement of statutory objectives, the manner
in which banks interact with customers and the type and level of credit
and other financial intermediation services, which in turn can affect
the broader economy and the safety and soundness of the banking system.
Identifying costs and benefits accruing to specific stakeholder
groups is not the same as identifying broad economic costs and
benefits. For example, whether a reduction in banks' compliance expense
provides broad economic benefits is a nuanced question. As one extreme,
if banks' reduced compliance spending is matched by reduced revenue or
wages to compliance professionals with no change in the cost or
availability of banking services, it could reasonably be said that
broad economic effects are zero. If banks' reduced cost structure
results in lower costs to bank customers or greater availability of
financial services, the result could be increased economic output,
which could reasonably be said to reflect broad economic benefits. If
reduced compliance expense results in statutory goals not being
achieved, a material increase in future bank failures or other adverse
effects, one could reasonably classify the results as broad economic
costs.
While there is no universally agreed-upon measure of broad economic
welfare to use in tallying the effects of bank regulations as economic
costs or benefits, the approach described in this document generally is
that a goal of maximizing long-term, sustainable U.S. economic output
supported by the banking industry, subject to the achievement of
statutory goals and avoidance of significant adverse unintended
consequences, is an appropriate concept by which to evaluate the broad
economic effects of regulation.
To ensure adequate consideration of the broad range of interests
that may be affected by FDIC rules, the FDIC believes it would be
useful for analysts to consider the relevance of a rule from each of
the perspectives listed in Table 1. These are stakeholder and policy
perspectives potentially relevant to any FDIC rulemaking. For the first
five topics listed in Table 1, the stakeholder or policy perspective
may be viewed in an abstract sense as the public interest in the
satisfaction of the FDIC's statutory mandates. The remaining topics
reflect broader effects FDIC rules can have on banks and the public.
[[Page 65811]]
Table 1--Major Stakeholder and Policy Perspectives To Be Considered in the Analysis of FDIC Rules
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Issue Relevance of rule
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Effects on bank safety and soundness and public Direct effects/indirect effects/no identified effects.
confidence.
Effects on the treatment of bank customers or
financially underserved communities..
Effects on the potential for illicit use of the
financial system.
Effects on the FDIC's statutory resolution
functions.
Effects on the FDIC's Deposit Insurance Fund (DIF)
Effects on the availability of bank credit and
other financial services.
Compliance costs or profitability effects on banks
or the public.
Effects on U.S. economic performance..............
Distributional effects............................
Other significant issues, if identified...........
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Much of the regulatory analysis of any rule will consist of
describing the expected or potential effects of the rule, including
potential costs and benefits, from each of the relevant perspectives
listed in Table 1. The first five rows of the table relate to broad
categories of statutory goals. Most regulatory actions would be
expected to have effects related to one or more of these categories.
For any regulatory action, the analysis should consider whether and how
the proposed action might affect the achievement of the relevant
statutory goals. Topics of interest for such an analysis could include
the effectiveness and efficiency of different ways to meet statutory
goals, and anticipating potential unintended consequences.
Note that no single stakeholder perspective or policy consideration
listed in Table 1 is the most important in all cases. All of the issues
identified in Table 1 could be relevant to reaching a decision that is
in the public interest. A general discussion of each of these issues
and the goals of the analysis follows.
(a) Effects on Bank Safety and Soundness and Public Confidence
The FDIC has statutory responsibilities to promote the safety and
soundness of FDIC-insured institutions, and to ensure that problems at
troubled institutions are resolved promptly and at minimum long-term
cost to the DIF. For any regulatory action, the analysis should
consider explicitly whether the action has the potential to affect bank
safety and soundness, describe the nature of the potential effects if
any, and bring to bear evidence, to the extent available, on the
potential likelihood and magnitude of the safety and soundness effects.
If applicable, the analysis should discuss, and quantify to the extent
practicable, potential effects on the frequency or severity of bank
failures or other FDIC resolution activities. The universe of banks
considered may be FDIC-supervised banks, or all insured banks,
depending on the context. Historical experience with troubled or failed
banks may, depending on the specific issue at hand, provide evidence on
potential effects of regulatory actions. For other issues, historical
experience may be of limited usefulness and the analysis would be more
qualitative in nature.
(b) Effects on the Treatment of Bank Customers or Financially
Underserved Communities
Evaluating the effects of rules on bank customers or underserved
communities is an important part of the rulemaking process. Many types
of rules affect bank customers. Just as potential safety and soundness
effects should be evaluated for any rule, so should the potential
effects on bank customers.
For example, consumer protection rules generally reflect statutory
goals regarding how banks should interact with customers,
counterparties and the general public. Many of these rules are under
the exclusive jurisdiction of other agencies, with the FDIC having
enforcement authority for the banks it supervises. Some, such as the
rules implementing the Community Reinvestment Act, flood insurance
requirements, management interlocks rules (designed to limit potential
anti-competitive practices) and rules regarding securities issued by
banks that are not required to register their securities with the SEC
(designed to ensure adequate information is provided to investors), are
promulgated by the FDIC and other banking agencies for institutions
under their respective supervision. Consumer protection rules that are
unique to the FDIC include regulations designed to ensure that
depositors have accurate information about the insured status of their
deposits.
There are two broad types of effects on consumers that are of
interest for the analysis. One is how the rule may affect the potential
for consumer harm, and the other is how the rule may affect the
availability and cost of financial services. Just as with the
evaluation of safety and soundness issues, historical or other evidence
may sometimes help shed light on the potential effects of rules on
consumers, although often the analysis will be qualitative.
It also is worth emphasizing that bank customers can be affected by
any rules that affect the availability and cost of financial services.
In the absence of consumer harm issues, a lower cost and higher
quantity of financial services would generally be viewed as a benefit
to bank customers, while a higher cost and lower quantity of financial
services would generally be viewed as a cost to them. The analysis
should consider these types of costs and benefits. For purposes of
clearly delineating distinct issues in the analysis, under the approach
described in this document these types of benefits and costs would be
considered under other headings in Table 1, specifically, ``Effects on
availability of bank credit and financial services,'' and ``Effects on
economic performance.''
(c) Effects on the Potential for Illicit Use of the Financial System
In its examination program, the FDIC enforces compliance with the
Bank Secrecy Act and other mandates designed to guard against illicit
use of the financial system, and some FDIC regulations (part 326, part
353) directly support the achievement of these mandates. It also is
possible that some regulatory actions in the area of cyber-security, or
other regulations designed to limit operational risks, could have
indirect effects on the potential for illicit use of the financial
system. The analysis should consider such issues to the extent they are
applicable.
(d) Effects on the FDIC's Statutory Resolution Functions
Some FDIC rules relate to the resolution process for failing banks.
Examples include rules governing the
[[Page 65812]]
insurance coverage of various types of deposits, recordkeeping
requirements, resolution plan requirements, rules for the treatment of
qualified financial contracts, rules governing the use of the FDIC's
orderly liquidation authority, customer notifications in the event a
bank assumes another bank's deposits or voluntarily relinquishes its
deposit insurance coverage, and other matters.
Changes to these rules could bring various types of costs and
benefits. Generally speaking, changes that would increase insurance
coverage would tend to reduce the likelihood of panic deposit
withdrawals. This would reduce the risk of bank runs but could also be
associated with greater moral hazard, and the transfer of risk to the
FDIC. Changes to record keeping requirements or resolution plan
requirements could increase (or decrease) information available to the
FDIC to effect non-disruptive, cost-effective resolutions, while
increasing (or decreasing) costs to institutions required to comply
with such requirements. Rule changes that affected the type of
resolution selected could affect the gross cash flows associated with
resolutions as well as their net cost. The importance and relative
magnitudes of all such effects would depend on the specifics of the
rule change under consideration. The analysis should consider such
issues to the extent they are applicable.
(e) Effects on the FDIC's DIF
Maintaining an adequate DIF and a system of assessments to ensure
that the cost of bank failures is not borne by taxpayers is a core
mission of the FDIC. Rules directly related to assessments and the DIF
can have important effects that should be analyzed, as noted below.
Other rules, particularly in the safety and soundness area, could
indirectly affect insurance fund losses and hence the size and adequacy
of the DIF. Consequently, the analysis of any rule should consider
whether there are potential effects on the DIF.
Part 327 of the FDIC's regulations governs the calculation and
collection of deposit insurance assessments and the FDIC's management
of the DIF. In principle, changes to these rules could have a variety
of effects. For example, changes in the target size of the DIF might
affect the volatility of assessment expenses over time, with lower fund
sizes expected to increase the need for large premium increases, FDIC
borrowings from Treasury, or both, during periods of economic stress.
Changes in the method of assessing premiums could affect the
distribution of assessments paid by different types of banks, and
potentially could affect incentives for banks to hold certain types of
assets or incur certain types of liabilities, depending upon the
specific risk gradations reflected in the assessment system. Changes in
regulatory definitions of Consolidated Reports of Condition and Income
(Call Report) entries used to calculate assessments could have indirect
effects on assessments collected, absent offsetting changes to the
assessment system. Analysis of the effects of rules should identify
such assessments-related effects and evaluate their significance.
(f) Effects on the Availability of Bank Credit and Other Financial
Services
The ability to provide credit and other financial services to the
U.S. economy is one of the hallmarks of a healthy banking system. In
turn, many regulations can directly or indirectly affect the cost and
availability of credit and other financial services. Thus,
consideration of the potential effects of changes in regulations on the
supply of credit and other financial services should be part of any
analysis of the costs and benefits of regulations (henceforth,
``credit'' will be used as a shorthand for ``credit and other financial
services'' unless otherwise clear from the context).
An illustrative but incomplete list of regulations that could
potentially affect the cost, availability and characteristics of credit
include requirements regarding capital, liquidity, proprietary trading
and stress testing; real estate, appraisal and mortgage underwriting
regulations; loan-to-one-borrower and other concentration limits; data
collection and disclosure requirements; flood insurance; the Community
Reinvestment Act; and many others.
The analysis should consider the potential links between changes in
the regulation and changes in the amount or nature of credit that might
reasonably be expected to result. Rules that reduce the cost of
providing credit would generally be expected to increase its
availability, and conversely. As noted in the section titled ``Effects
on U.S. economic performance,'' the analysis also should consider
whether such rules give rise to countervailing safety and soundness or
consumer harm effects. For some types of rules, historical experience
or other analysis may provide insight into potential effects.
Sometimes, however, there may be little in the way of historical
experience or other evidence to guide the analysis, and the discussion
will primarily be qualitative.
(g) Compliance Costs or Profitability Effects on Banks or the Public
The analysis of rules should consider effects on banks' regulatory
compliance costs and their profitability. This will facilitate
identifying the effects of rules on an important class of stakeholders,
and is necessary to satisfy specific statutory mandates to identify the
effects of rules on small banks. The identification of costs and
profitability effects on banks, along with lending effects as discussed
earlier, are closely connected to evaluating the effects of rules on
broader economic performance.
The analysis of compliance costs should include the identification,
and quantification if possible, of: (i) Direct costs of compliance;
(ii) opportunity costs of resources used to comply with the action; and
(iii) effects that may arise from behavioral changes induced or
incentivized by the action. Bank profitability may be affected by these
changes in compliance costs, and also by changes in the volume of
lending or other activities, or changes in the composition of assets or
liabilities.
It may be difficult to estimate potential changes in bank
compliance costs or profitability resulting from regulatory actions.
Call Report-based analysis of cost and revenue trends may sometimes
shed light on the potential range of effects of some rules, and the
insights of subject matter experts and commenters may also be
informative. For some regulatory actions, it may be beneficial to
gather information from banks or other stakeholders prior to the
proposal stage.
The analysis should consider the potential for changes in
compliance costs or bank profitability to interact with other policy
considerations in ways that affect the public interest. For example,
rule changes that reduce banks' compliance expense or increase their
profitability should also be analyzed from the perspective of whether
there are accompanying issues of consumer harm or adverse changes in
bank safety and soundness. To ensure clear delineation of distinct
issues in the analysis, these issues should be addressed under separate
headings regarding safety and soundness effects and effects on
consumers.
(h) Effects on U.S. Economic Performance
The analysis should consider how the various individual effects
discussed in other headings might interact to affect economic
performance over time. This roughly corresponds to Circular A-4's
guidance that costs and benefits should be considered from a broad
economic
[[Page 65813]]
perspective.\8\ This is not to suggest that short-term maximization of
economic activity is the goal of bank regulation. Nonetheless, some
concept of how rules might affect economic output through time, if this
were estimable, would be a relevant consideration in evaluating the
effects of rules.
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\8\ See, for example, the A-4 discussions on pages 15, 19 and
38, to the general effect that the goal of analysis is to identify
effects on all U.S. citizens and residents, that the proper measure
of net benefits is the sum of producer surplus and consumer surplus,
and that costs or benefits to individual groups in the form of
transfers are to be viewed as distinct from, for example, ``costs to
society'' (page 38, emphasis added) and therefore not to be included
in costs and benefits identified as such by the analysis.
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If a rule results in some expansion or contraction in bank lending
or other financial services, it is reasonable to expect some
corresponding effect on measured U.S. economic output. For most rules
such effects are likely negligible, but some rules could have effects
that are important enough to warrant notice, and the analysis should
consider whether this might be the case.
Next, if a rule has potentially material safety and soundness
effects such that the likely frequency or severity of troubled or
failed banks is affected, effects on economic output would also be
expected. An increase in the volume of troubled and failed banks would
be expected to have negative effects on economic output. In the
extreme, banking crises may have substantially adverse spillover
effects on economic output. Conversely, avoiding the adverse effects on
economic output of bank failures might, all else equal, result in a
steadier level of output through time. Some rules may present a
tradeoff in which some potentially stimulative effects need to be
evaluated relative to the possibility of longer-term adverse effects on
safety and soundness, or in which some potential long-term safety and
soundness benefit needs to be evaluated relative to some possible
dampening of bank activity.
Similar considerations apply to rules that strengthen or weaken
consumer protections. Removal of restrictions, or reductions in
compliance expenses, for example, could be expected to reduce the cost
of affected financial products and increase their dollar volume, with a
resulting increase in economic activity. If the result could include an
eventual increase in the frequency or severity of consumer harm,
however, there could be ramifications to the affected consumers and
thus the broader economy.
Effects on economic output of rules are inherently difficult to
quantify, and even more so when there are tradeoffs involving potential
future safety and soundness or consumer harm effects. Quantified
estimates would generally be obtainable only by making a number of
assumptions, each of which is subject to uncertainty. Transparency
requires that decision makers and commenters should be informed about
the assumptions, and the nature of the uncertainty surrounding such
assumptions and the analysis in general.
(i) Distributional Effects
Changes in rules can cause a variety of distributional effects.
Some rules can increase, or decrease, incomes of entities that provide
services to banks. Capital requirements, by affecting the mix of debt
and equity at banks, can affect the portion of bank funding costs that
is tax-deductible interest. This can change banks' tax obligations,
resulting in a transfer between banks and the Treasury. Changes in
deposit insurance premiums can affect the distribution across banks of
the cost of funding the deposit insurance system. Consumer protection
rules can potentially have distributional effects as between banks and
their customers. Safety and soundness rules can increase or decrease
the assessments cost to well-run banks of paying for future bank
failures, and can affect the cash needed to resolve financial system
stress.
Distributional effects by their nature may not be associated with
any change in economic output, and it might be said of such effects
that one person's benefit is another person's cost. Distributional
effects nonetheless are often of great interest and concern to the
parties affected by rules, decision makers need to be aware of them,
and accordingly they should be identified as part of the analysis.
(j) Other Significant Issues, if Identified
Some rules may give rise to issues not covered by the list in Table
1. Examples could include rules that could have effects on wages or on
state, local and tribal governments--effects that are required to be
identified as part of major rule recommendations. The analysis should
address these issues as applicable.
Request for Comment
The FDIC seeks comment on all aspects of this RFI. With regard to
the substance of regulatory analysis, the FDIC is interested both in
commenters' broad views, and in examples of analytical approaches, or
sources of data or other information, that may assist in the analysis
of specific rules or classes of rules. Topics of interest include but
are not limited to the following.
Appropriate concepts for identifying the broad economic
benefits and costs of changes in bank regulation;
Effects of changes in regulations on the safety and
soundness of banks;
Effects of changes in regulations on the incidence of
consumer harm;
Effects of changes in regulations on the achievement of
the FDIC's statutory objectives regarding failure resolution or the
deposit insurance system;
Ways to achieve statutory mandates in the most efficient
and effective manner;
Approaches to anticipating potential unintended
consequences of regulatory changes;
Effects of changes in regulations on the cost and
availability of bank credit or other financial services;
Effects of changes in regulations on the direct and
indirect costs banks incur to comply with these regulations;
How to evaluate the effects of changes in banks'
compliance responsibilities on the achievement of statutory objectives
regarding safety and soundness, consumer protection or other matters;
Effects of changes in the cost and availability of bank
financial services on U.S. economic output;
Effects of changes in bank regulation on the frequency or
severity of bank failures or banking crises, and consequent effects on
U.S. economic output; and
Distributional effects of changes in bank regulation.
The FDIC is also seeking comment on an issue regarding the format
and presentation of regulatory analysis. Specifically, Circular A-4
recommends the use of accounting tables to summarize the analysis.\9\
Such tables are intended to identify key costs and benefits of rules,
including costs and benefits that are monetized, quantified but not
monetized, and not quantified.
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\9\ See Circular A-4, pages 44-47.
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The FDIC believes there are arguments for and against the use of
such tables to summarize the analysis of bank regulations. On the one
hand, there often may be an insufficient basis for quantifying key
costs and benefits associated with banking rules. The result may be
that such tables could tend to be sparse, in the sense of containing
few or no numbers. Comparisons between quantified and non-quantified
benefits and costs in such tables could be misleading, and quantified
estimates could only be understood relative to a clear discussion of
underlying assumptions and uncertainties. There also may be costs or
benefits that do not easily fit into a
[[Page 65814]]
standardized tabular format, so that the rigidity of the table might
make it more difficult to present the analysis than in a textual
narrative.
On the other hand, including such tables in a regulatory analysis
could potentially provide a high-level snapshot of how the FDIC viewed
key costs and benefits of the rule in one place. Completing such tables
may also serve to encourage a more systematic consideration of the
effects of rules, including drawing distinctions between effects on
specific stakeholder groups, distributional effects and transfers, and
broad economic benefits and costs.
The FDIC is interested in commenters' views on the usefulness of
accounting tables such as those found in OMB Circular A-4 for
presenting the results of the analysis of changes in bank regulations.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on November 19, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-25928 Filed 11-27-19; 8:45 am]
BILLING CODE 6714-01-P