WASHINGTON – U.S. Sens. Mark R. Warner (D-VA) and Mike Rounds (R-SD) today introduced the Keeping Deposits Local Act, bipartisan legislation to modernize outdated rules on reciprocal deposits. Reciprocal deposits allow community banks to offer customers full FDIC insurance while keeping those dollars working in local communities. This legislation updates current statutory thresholds to make it easier for community and regional banks to receive non-brokered treatment for reciprocal deposits. Majority Whip Rep Tom Emmer (R-Minn.) and Rep. Joyce Beatty (D-Ohio) lead the companion legislation in the House.

“This bipartisan bill helps ensure community and regional banks can keep more capital working in their local economies,” said Sen. Warner. “By replacing the current one-size-fits-all cap with a tiered system, this legislation gives local banks the flexibility they need to better serve their customers and keep money close to home.”

“Reciprocal deposits provide a stable and low-cost source of funds for lending and investment in South Dakota communities,” said Sen. Rounds. “In fact, more than a third of banks headquartered in South Dakota utilize reciprocal deposits. They are relationship-based, core deposits that help our community banks retain local customers. By tailoring the rules, this legislation removes the outdated cap on reciprocal deposits for community banks. That flexibility will help South Dakota banks keep deposits local and strengthens the resilience of our financial system – a lesson reinforced by the bank failures in 2023.”

Under the bill, reciprocal deposits would be eligible for non-brokered status based on the following thresholds:

• 50% of a bank’s first $1 billion of liabilities
• 40% of a bank’s liabilities above $1 billion but not above $10 billion
• 30% of a bank’s liabilities above $10 billion but not above $250 billion
• 20% of a bank’s liabilities above $250 billion but not above $1 trillion
• 2% of a bank’s liabilities above $1 trillion

The bill would also stipulate that CAMELS 3-rated banks are eligible for full use of non-brokered treatment for reciprocal deposits as long as they are well-capitalized.

This legislation is supported by the National Bankers Association (NBA), the Community Development Bankers Association (CDBA) and the Independent Community Bankers of America (ICBA).

Read the full text of the bill here.

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VIDEO OF SEN. WARNER’S REMARKS AT THE COMMITTEE MARKUP IS AVAILABLE HERE 

WASHINGTON – Today, the U.S. Senate Committee on Banking, Housing, and Urban Affairs unanimously voted to advance the Bipartisan ROAD to Housing Act. This legislation, which includes several provisions authored and championed by Sen. Mark R. Warner (D-VA), will take important steps to boost the nation’s housing supply, improve housing affordability, help reduce homelessness, expand access to homeownership, and increase oversight and efficiency of federal regulators and housing programs.

“Everywhere I go in Virginia, I hear from families and local leaders who are struggling with the high cost of housing. I’m proud to see several key proposals that I have authored and championed included in this bipartisan legislation, which will help get more housing built, expand access to homeownership, and make sure federal programs are doing their job effectively. This is a strong step forward in addressing the housing crisis, and I’m glad to see it move out of committee with unanimous support,” said Sen. Warner. 

The legislation includes several Warner-authored or championed provisions, including:

• The RESIDE Act, legislation drafted by Sen. Warner and Sen. Jim Banks (R-IN) to create a new pilot program to help communities convert vacant buildings – such as abandoned hotels, warehouses, and strip malls – into affordable homes. The program would operate within the U.S. Department of Housing and Urban Development (HUD)’s HOME Investment Partnerships Program, the nation’s largest federal block grant dedicated to affordable housing. It would provide grants to local governments for acquisition, site prep, and rehabilitation of vacant properties, with priority given to communities that reduce regulatory barriers to housing conversion. Since its inception in 1992, the HOME program has invested over $788 million into communities across Virginia – helping build and preserve over 31,000 homes, create over 37,000 jobs and generate $2.4 billion in local income. The RESIDE pilot will allow communities to scale new housing development and test innovative strategies that could ultimately be adopted more broadly within the HOME program. 
• The Housing Supply Frameworks Act, which directs HUD to develop best-practice zoning and land-use frameworks to help localities overcome barriers to new housing development.
• The Whole-Home Repairs Act, which establishes a five-year pilot program offering grants and forgivable loans to help low- and moderate-income homeowners and qualifying small landlords address critical home repairs and health hazards, preserving affordable units and stabilizing aging housing stock.
• The Innovation Fund, which would authorize $800 million to support locally-driven initiatives that expand housing supply and reduce costs.
• The HOME Investment Partnerships Reauthorization and Improvement Act, which reauthorizes and modernizes HUD’s HOME Investments Partnerships Program and makes critical updates to improve the program and facilitate the construction of more affordable housing. 
• The Housing Supply Expansion Act and Modular Housing Production Act, which would expand access to manufactured and modular housing by reducing barriers to construction and financing.
• The Streamlining Rural Housing Act, which directs HUD and the U.S. Department of Agriculture (USDA) to coordinate on joint environmental reviews for housing projects funded by both agencies – helping reduce delays and improve efficiency for rural housing development.
• The Rural Housing Service Reform Act, which enacts critical reforms to the USDA’s Rural Housing Service, including decoupling rental assistance from maturing mortgages to preserve affordable housing in rural areas. If fully implemented, this reform would preserve 243 affordable properties serving more than 10,000 low-income Virginians.
• The Build More Housing Near Transit Act, which amends the Federal Transit Administration’s Capital Investment Grants (CIG) program to allow the agency to give transit projects a higher rating if they are located in areas that adopt policies to encourage more housing construction near public transportation hubs.
• The VA Home Loan Awareness Act and Veterans Affairs Loan Informed Disclosure (VALID) Act to improve financing transparency for veteran homebuyers and help them access potentially more affordable mortgage options.
• The Community Investment and Prosperity Act, which makes some regulatory changes to give banks greater flexibility to invest in affordable housing and community development projects.
• The Reforming Disaster Recovery Act, which permanently authorizes the Community Development Block Grant – Disaster Recovery (CDBG-DR) program and establishes a dedicated Office of Disaster Management and Resiliency within HUD to oversee and streamline disaster housing recovery efforts. 

Today’s committee action builds on Sen. Warner’s longstanding commitment to expanding access to affordable housing and homeownership. In recent months, he has introduced and supported a range of bipartisan bills to spur new housing construction and redevelopment, including theNeighborhood Homes Investment Act, Preserving Rural Housing Investments Act, Affordable Housing Credit Improvement Act, New Markets Tax Credit Extension Act, the Rural Historic Tax Credit Improvement Act, and the Historic Tax Credit Growth and Opportunity Act. He is also the lead author of the Low-Income First Time Homebuyers (LIFT) Act, which would help qualified first-generation homebuyers build equity in their homes by offering a 20-year mortgage with monthly payments comparable to a traditional 30-year loan. Additionally, Sen. Warner is a cosponsor of theDownpayment Toward Equity Act, which would provide federal grants to help first-generation homebuyers cover down payments, closing costs, and other upfront expenses.

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WASHINGTON – Today, U.S. Sen. Mark R. Warner (D-VA), joined by U.S. Sens. Mike Rounds (R-SD) and Cynthia Lummis (R-WY), introduced the China Financial Threat Mitigation Act, legislation aimed at shoring up America’s response to financial threats stemming from the Chinese Communist Party (CCP).

The China Financial Threat Mitigation Act would require deeper analysis of potential financial threats from the CCP that may have substantial impacts on the U.S. economy.

“We continue to see increased aggression from the Chinese Communist Party towards the United States, including in the financial sector. This increased action requires us to take meaningful steps to protect U.S. institutions and interests. That’s why I’m proud to introduce this bipartisan legislation that will help to shore up our financial systems and ensure that the U.S. is prepared to counter the CCP’s attacks,” said Sen. Warner.

“The Chinese Communist Party has the ability to intervene in China’s banking system to achieve outcomes that benefit them the most, which has potential to harm American businesses,” said Sen. Rounds. “We must gain a clearer understanding of how China’s financial sector affects the U.S. economy and other global financial systems. Our legislation tasks the Treasury Department, working with other federal agencies, to assess and report on U.S. exposure to China's financial activities, providing a clearer picture of the threat."

“The Chinese Communist Party is a serious threat to our national and economic security,” said Sen. Lummis. “I am partnering with my colleagues to protect U.S. financial interests and hold the CCP accountable, and I look forward to getting this bipartisan legislation across the finish line.”

The legislation would also require the Department of the Treasury, in consultation with the Federal Reserve, U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and State Department, to issue a report on the exposure of the United States to the threats posed by China's financial sector. Specifically, the required report must include:

• Effects the reforms to China's financial sector have on U.S. and global financial systems;
• Description of the policies the United States is adopting to protect U.S. interests;
• Description and analysis of any risks presented by China to the financial stability of the United States and the global economy; and
• Recommendations for additional actions to strengthen international cooperation to mitigate risks and protect U.S. interests.

As Vice Chairman of the Senate Select Committee on Intelligence, Sen. Warner has worked to ensure the U.S. is prepared to counter threats posed by foreign adversaries including the CCP across various sectors. Sen. Warner spearheaded the push to force CCP-based Bytedance to divest from TikTok in order to allow the app to continue operations in the United States. Last year, Sen. Warner introduced the Countering CCP Drones and Supporting Drones for Law Enforcement Act, legislation to cut off dangerous CCP drone companies from the U.S. telecommunication infrastructure. Sen. Warner also introduced bipartisan and bicameral legislation to improve information sharing between private companies and the Intelligence Community in order to mitigate the threat that foreign adversaries including the CCP pose to United States companies in foreign jurisdictions on projects relating to energy generation and storage, including in the critical minerals industry. This legislation is the latest step in his efforts to safeguard American interests.

The legislation was introduced in the House of Representatives by U.S. Reps. Josh Gottheimer (D-NJ) and Roger Williams (R-TX).

Full text of the legislation is available here. 

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WASHINGTON — U.S. Sen. Mark R. Warner (D-VA), a member of the Senate Committee on Banking, Housing, and Urban Affairs, introduced the Discount Window Enhancement Act of 2024, legislation to improve the effectiveness of the Federal Reserve Discount Window, a liquidity tool that provides short-term loans to depository institutions, such as commercial and community banks in order to help reduce the fallout of bank failures fueled by panic-induced bank runs.   

In the wake of multiple bank failures in 2023, including the collapse of Silicon Valley Bank, Sen. Warner voiced the need for legislation to improve the function of the Fed’s Discount Window.

“The failures of Silicon Valley Bank and Signature Bank last year highlighted the urgent need to reform the Federal Reserve’s discount window for the 21^st century economy, where bank runs can occur over hours, rather than days. My legislation will implement key reforms to make sure that banks can actually use the discount window, reduce the unnecessary stigma associated with that use, and improve the window’s operations to meet the challenges of the digital age. We need to modernize the window and return this important liquidity tool to its intended role,” said Sen. Warner.

The Discount Window Enhancement Act of 2024 will:

• Mandate Testing of the Discount Window: Mandates that eligible depository institutions operating in the United States engage in test borrowing at the Federal Reserve’s Discount Window:
  • Large Institutions (> $100 Billion): Quarterly.
  • Smaller and Larger Institutions ($10 Billion – $100 Billion): Semi-annual.
  • Small Institutions (Under $10 Billion): Not in scope.
• Require Regulators to Reflect Banks’ Ability to Use the Discount Window in Liquidity Evaluations: Regulators must “give credit” in their evaluations of bank liquidity preparedness to depositories that can use the discount window successfully – “positive consideration” must be given to successful testing and pre-pledged collateral;
• Require Financial Institution Risk Committees or Equivalent to Review and Approve Liquidity Contingency Plans: Depositories’ liquidity contingency plans are to include detailed policies and procedures for seeking advances and be submitted to Federal Reserve Board, Regional Federal Reserve Bank of membership, and primary supervisor;
• Require the Federal Reserve Board to Modernize Discount Window Operations;
• Require the Federal Reserve System to Simplify and Harmonize Collateral Processes with Federal Home Loan Bank System: The Federal Reserve Board must work with the FHFA and the FHLB system to simplify and harmonize policies and procedures for pledging and transferring collateral among FHLBs and Federal Reserve Banks.
• Require Review of Weekly Federal Reserve Balance Sheet Reporting: The Federal Reserve Board must comprehensively review the weekly reporting of its balance sheet activities, and consider changes to avoid market distortions that could inadvertently place individual financial institutions at a disadvantage.
• Require Federal Reserve Study and Report to Congress on Discount Window Stigma: Requires the Federal Reserve Board to conduct a study and submit a report to Congress about additional measures that could be taken to reduce discount window stigma and improve the process for obtaining advances on behalf of depository institutions.

Sen. Warner has also led efforts to hold those responsible for bank failures accountable. In the aftermath of the Silicon Valley Bank collapse, Sen. Warner cosponsored the DEPOSIT Act, the Bank Management Accountability Act, and the Failed Bank Executives Clawback Act, efforts to ensure that bank executives do not profit in the wake of bank failures.

“The Federal Reserve Discount Window is a critical tool that gives financial institutions of all sizes access to liquidity and prevents panic in the broader financial system. Stigma associated with accessing the window and some legacy operational issues have limited the power of this tool and forced the Fed to take dramatic steps to meet recent needs. This legislation would help modernize the window to ensure immediate access by all eligible institutions in today’s lightning-fast financial system,” said Betsy Duke, Former Federal Reserve Board Governor.

“As evident from events in March 2023, it is clear that the current discount window mechanism at the Federal Reserve has deficiencies that have led to severe stigma, increasing the risk of banking panics and deposit runs. This bill will provide a good basis for regulators to implement operational improvements and reduce frictions that hinder the effectiveness of discount window,” said William C. Dudley, Former President of the Federal Reserve Bank of New York.

“Senator Warner and other supporters of this bill should be commended. De-stigmatizing the Fed’s Discount Window so that it can be a more effective liquidity tool for banks is a major step forward. This bill is thoughtful and important, and one that makes U.S. banking safer and sounder,” said Eugene A. Ludwig, Former U.S. Comptroller of the Currency.

“We thank Senator Warner for introducing this bill that will ensure banks are operationally ready to borrow from the discount window to meet liquidity needs while also reflecting that readiness in corresponding liquidity regulations and requirements.  This is a sensible piece of legislation that seeks to actually respond to the regional banking crisis of March 2023 and help make our financial system work as it is intended,” said Greg Baer, President and CEO of the Bank Policy Institute.

“The 2023 banking crisis and the 2020 COVID crisis each revealed vulnerabilities in the current design of the discount window. The events of March 2023 in particular showed that bank runs can occur faster than they did in the past. To illustrate this point: SVB experienced a total outflow of 25% of deposits in one day. Given this, what is needed is an operational system that allows the transfer of collateral and funds at the push of a button.  At the same time, it is also imperative that the Federal Reserve maintain its independence as a liquidity provider to banks, given its clear mandate under Section 10B to act independently. This bill is a foundation in which regulators can build off of to bring the discount window into the 21st century,” said Hal S. Scott, Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School; Director of the Committee on Capital Markets Regulation.

“This bill raises the bar on discount window effectiveness for bank, regulator, and (importantly) supervisor alike; it addresses several operational issues and sources of stigma. The bill makes clear that the default supervisory assumption should no longer be to assign zero value to the approximately $3 trillion of collateral already prepositioned at the Federal Reserve—an amount set to continue to grow, particularly under the direction of this bill. Importantly, the bill also calls for examination of the Fed’s current practice of publishing district-by-district activity, which risks ‘outing’ a bank’s discount window borrowing on a weekly basis—as opposed to only after a two-year lag as legislated under the Dodd-Frank Act,” said Steven Kelly, Associate Director of Research at the Yale Program on Financial Stability.

A copy of the legislation is available here. A one-pager of the legislation is available here.

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