Finalizing the Basel III endgame proposal is at the top of regulators' long 2024 to-do list, but the impending election could throw a wrench in their plans.
After the comment period for the contentious Basel III endgame proposal closes Jan. 16, 2024, regulators hope to move swiftly to finalize the proposal despite pushback from the industry and lawmakers. But that is just a small part of regulators' packed agendas for 2024. With the regional bank failures from March and May still fresh on their minds and looming economic uncertainty, regulators are ramping up their scrutiny of the industry overall and plan to tackle long-term debt requirements, resolution plans, anti-money laundering (AML) mandates, governance, cryptocurrency, liquidity and consumer protection in the new year.
However, the upcoming election in November 2024 could complicate regulators' final rule hopes, and regulators must move fast if they want to get rules finalized.
"It is unlikely that proposals issued in 2024 will be finalized before the end of the current administration," Brian Gardner, chief Washington policy strategist at Stifel Nicolaus & Co. Inc., wrote in a note Dec. 12. "They would likely be scrapped if the White House changes parties following the 2024 election, but they could be finalized in 2025 if Democrats retain the presidency."
Basel III
Regulators hope to finalize the Basel III endgame proposal as soon as possible in 2024. But the rule faces a long and bumpy road including industry pushback that could lead to drastic changes to the final version, the upcoming presidential election and industry litigation.
"Ultimately, our base case is that the core of the Basel III endgame capital proposal will be finalized next year, but we expect targeted tweaks to how the proposal treats mortgages, tax credit investments, fee-based income such as swipe fees, and trading activities," BTIG's Isaac Boltansky wrote in a note Nov. 29. "We also continue to believe that this particular proposal could face industry litigation."
BTIG's "base case is that the core of the Basel III endgame capital proposal will be finalized as early as" the second half of 2024. Stifel's Gardner predicted Basel III and long-term debt final rules will be released in June 2024.
Given the election, "if [Basel III] doesn't get done by early summer or mid-summer, it's not going to get done next year," Matthew Bisanz, a partner in Mayer Brown's Financial Services Regulatory and Enforcement practice, said in an interview.
Anti-money laundering
Regulators also hope to further crack down on weak AML practices among banks.
The Financial Crimes Enforcement Network (FinCEN) within Treasury will continue to work to implement the Corporate Transparency Act from January 2021. FinCEN already finalized two rules related to its beneficial ownership database and is gearing up to propose the third. Beneficial ownership tells companies which individuals directly or indirectly control or own a company and is important for identifying and avoiding sanctioned individuals. Many companies will have to report starting Jan. 1, 2024.
The third rule that is expected "is the one that's going to impact banks the most" because it will conform changes to the customer due diligence rule to requirements in the Corporate Transparency Act, Daniel Stipano, a partner at Davis Polk & Wardwell LLP and former deputy chief counsel at the Office of the Comptroller of the Currency, said in an interview.
The Treasury is also expected to issue a proposed rule, most likely in the first quarter of 2024, with priorities for banks to incorporate counterterrorism in AML programs, Stipano added.
Regulatory compliance issues related to the Bank Secrecy Act and AML are slowing bank M&A approval processes and sometimes preventing them from closing altogether.
Other anticipated activity
Other anticipated actions include the Federal Deposit Insurance Corp.'s final corporate governance rule. Banking industry advocates argue that community banks would have to spend more time and money on regulatory compliance under the rule.
Regulators could also propose revisions to banks' liquidity requirements and further action on permissible cryptocurrency activities, Bisanz said. However, he expressed uncertainty about whether "there are sufficient personnel within the agencies to write a comprehensive liquidity proposal at the same time" as they are working on other regulations, such as the Basel III endgame and long-term debt proposals.
Areas of potential legislative action from Congress related to banking include banking services for cannabis businesses and a regulatory framework for stablecoins.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau will continue to be hard at work in 2024 with a flurry of final rules expected amid its continuing crackdown on banks. The agency issued four enforcement actions with fines against banks in the last two months of 2023 alone, and industry experts expect that tough stance against banks to continue in the new year.
The agency is expected to release final rules on credit card late fees and proposed rules on overdraft fees soon, as they were expected by year-end. The agency is also expected to release final rules related to personal financial data, which will make it easier for customers to switch banks, and supervision of large payment providers.
Separately, the Supreme Court is expected to announce its decision in the CFPB case, which relates to the constitutionality of the agency's funding structure. However, analysts expect the court to side with the CFPB when its releases its ruling in 2024.