H.R.2702 - Financial Integrity and Regulation Management Act; FIRM Act (119th Congress)
Summary
H.R.2702, the Financial Integrity and Regulation Management Act (FIRM Act), aims to limit the influence of political considerations in the supervision of depository institutions by federal banking agencies. Specifically, it seeks to remove "reputational risk" as a factor in the regulatory oversight of these institutions. The bill argues that using reputational risk allows agencies to implement political agendas unrelated to the safety and soundness of financial institutions.
The bill defines key terms like "depository institution," "federal banking agency," "insured credit union," and "reputational risk." It mandates that federal banking agencies eliminate any reference to reputational risk in their guidance, rules, and examination manuals. Furthermore, it prohibits agencies from engaging in activities related to the regulation, supervision, or examination of reputational risk management at depository institutions.
Finally, the bill requires federal banking agencies to submit a report to Congress confirming their implementation of the Act and describing any changes made to internal policies as a result.
Expected Effects
The FIRM Act, if enacted, would likely change how federal banking agencies supervise depository institutions. It would reduce the agencies' ability to consider public perception or potential negative publicity when evaluating the risk profile of a financial institution. This could lead to a more standardized and potentially less politically influenced regulatory environment.
However, it might also limit the agencies' ability to address risks that, while not directly impacting financial soundness, could lead to instability or loss of public confidence in the institution. The removal of reputational risk as a supervisory factor could have unintended consequences on the overall stability and public trust in the financial system.
The reports mandated by the bill would provide Congress with insights into how agencies are adapting to the new regulations, allowing for further oversight and potential adjustments to the law.
Potential Benefits
- Could reduce the potential for politically motivated targeting of specific industries or businesses by federal banking agencies.
- May lead to a more objective and consistent application of banking regulations.
- Could foster a more predictable regulatory environment for depository institutions, encouraging investment and growth.
- Might limit the ability of agencies to overreach their statutory authority by relying on subjective assessments of reputational risk.
- Could promote a fairer playing field for all federally legal businesses seeking financial services.
Most Benefited Areas:
Potential Disadvantages
- Could weaken the ability of federal banking agencies to address emerging risks that are not easily quantifiable but could significantly impact financial institutions.
- May reduce the incentive for depository institutions to consider the broader social and ethical implications of their business practices.
- Could lead to a decline in public trust in the financial system if institutions are perceived as engaging in risky or unethical behavior without regulatory oversight.
- Might create loopholes that allow institutions to engage in activities that are harmful to consumers or the environment, as long as they do not directly threaten the institution's financial soundness.
- Could hinder the ability of agencies to respond to crises or scandals that could damage the reputation of the financial system as a whole.
Constitutional Alignment
The bill's focus on limiting the scope of federal agency power aligns with constitutional principles related to the separation of powers and the delegation of authority. By restricting the use of "reputational risk" as a regulatory factor, the bill seeks to prevent agencies from exceeding their statutory mandates. This aligns with the principle that Congress should define the scope of agency authority, as outlined in Article I, Section 1, which vests all legislative powers in Congress.
However, the bill's potential impact on the ability of agencies to protect the financial system could raise concerns about the government's responsibility to "promote the general Welfare," as stated in the Preamble of the Constitution. The extent to which the bill achieves a balance between limiting agency power and ensuring financial stability will determine its overall constitutional alignment.
Furthermore, the bill does not appear to infringe upon any specific individual rights or liberties protected by the Bill of Rights.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).