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Sean Campbell

Chief Economist, Head of Policy Research

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Kevin Zambrowicz

Managing Director and Associate General Counsel, Office of General Counsel at SIFMA

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Joe Corcoran

Managing Director and Associate General Counsel in SIFMA’s Capital Markets Group

<h3>Introduction</h3>The COVID pandemic has undeniably injected a high degree of uncertainty into all of our lives.&nbsp; Basic questions around when our kids will go to school, where we will work, and when life will return to “normal” have occupied our collective conscience for the past few years.&nbsp; The Russian invasion of Ukraine has created additional uncertainty about our global economy and inflation, and has led to questions about how businesses will have to adjust.&nbsp; For financial institutions and financial markets, heightened uncertainty can stifle activities and use of resources, creating opportunity costs or other costs.&nbsp;Recently, the Securities and Exchange Commission (SEC) has embarked on a wide-ranging and ambitious agenda to significantly change existing market rules and practices over a short period of time across a variety of interrelated markets.&nbsp; At the same time, U.S. capital markets have performed extraordinarily well against recent global events. Changing the “rules of the road” across an array of connected markets represents an unwelcome source of uncertainty – regulatory uncertainty – that is likely to negatively impact markets and the economy.&nbsp; In this post, we highlight recent research on the impact of uncertainty on the economy and extend previous research to directly incorporate the impact of regulatory uncertainty.&nbsp; Consistent with previous findings, U.S. data indicate that increasing economic policy and regulatory uncertainty have important, negative consequences for the broad economy that can persist for an extended period of time.&nbsp; While added uncertainty should not be used as a blanket objection to all regulation, the negative impacts of heightened uncertainty should be directly considered by regulators as increasing regulatory uncertainty may compound other significant uncertainties and impede the ability of capital markets to continue to support the economy as they have over the past few years.<h3>Economic Policy Uncertainty</h3>The idea that rising uncertainty retards economic growth is well-accepted among economists.&nbsp; When households and businesses are uncertain about the future, they postpone investment and spending plans, which reduces growth.&nbsp; At the same time, empirically measuring the size of this effect is challenged by a lack of good and comprehensive data on “uncertainty.”&nbsp; Uncertainty is, by its very nature, hard to quantify and many simply claim that they can “feel” uncertainty.&nbsp; In economic analysis, “feelings” count for very little – hard data are needed.Recently, however, economists have made substantial progress in empirically measuring economic uncertainty in a rigorous fashion.&nbsp; More specifically, economists at Northwestern, Stanford and the University of Chicago have constructed indexes of economic policy uncertainty that analyze the amount of uncertainty implied by news stories appearing in over 2,000 U.S. newspapers.&nbsp; These <a href="https://www.policyuncertainty.com/categorical_epu.html">indexes</a> are sensible because “news” reflects a release of information that can create uncertainty about the future.&nbsp; These economists have also empirically <a href="https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/qje_bbd.pdf">evaluated</a> the information content of these indexes and compared them to alternative uncertainty measures.&nbsp; They find that these measures convey substantial information about economic uncertainty.&nbsp;Below, we present two measures of economic uncertainty resulting from this research.&nbsp; The first measure, economic policy uncertainty, is a broad measure of economic uncertainty that incorporates uncertainty over taxes, trade, regulation, and a variety of other sources of economic uncertainty.&nbsp; The second measure is more focused and measures financial regulatory uncertainty, which relates to uncertainty over bank capital, other financial regulatory standards, and related developments at key financial regulators, such as the SEC.As shown in the figures below, both broad economic policy uncertainty and financial regulatory uncertainty vary significantly over time.&nbsp; Both indexes experienced sharp rises during the financial crisis between 2008 and 2010 and the onset of the pandemic in 2020, which comports with common sense.&nbsp; Both periods were characterized by highly elevated uncertainty by any measure.&nbsp; The index of financial regulatory uncertainty is significantly more volatile than the broader uncertainty index and exhibited its greatest rise during the period of the financial crisis.&nbsp; Alternatively, the broader economic uncertainty index saw its greatest increase during the onset of the pandemic.&nbsp; More still, both uncertainty measures have exhibited a distinct increase since 2010.&nbsp; Since 2010, both broad policy uncertainty and regulatory uncertainty have increased by over 20 percent relative to their 1985-2010 levels.<figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-04-27-at-3.28.04-pm.png"><figcaption>Source: Policyuncertainty.org</figcaption></figure><figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-04-27-at-3.28.58-pm.png"><figcaption>Source: Policyuncertainty.org</figcaption></figure><h3>Economic Policy Uncertainty and the Economy</h3>With concrete and systematic measures of economic uncertainty in hand, we can assess the empirical impact of rising uncertainty on the economy.&nbsp; A broad set of economists from Stanford, the Federal Reserve, and a host of other institutions recently investigated the impact of heightened uncertainty during the COVID era.&nbsp; Specifically, they estimated the dynamic response of industrial production – a high frequency measure of economic output – to increases in uncertainty like those experienced during the COVID era.&nbsp; Their <a href="https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/jpube_altigetal.pdf">research</a> focuses on the broader economic policy uncertainty index shown above.The main findings of their research are reproduced below.&nbsp; The chart below shows the dynamic impact on industrial production from an increase in economic policy uncertainty.&nbsp; As shown in the chart, an increase in policy uncertainty immediately depresses output and the impact worsens and remains negative for nine months before leveling off to zero.&nbsp; Accordingly, rising uncertainty depresses output immediately, but also results in a “hangover” that persists for several months.<figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-04-27-at-3.30.02-pm.png"><figcaption>&nbsp;Source: FRED St. Louis, Policyuncertainty.org, and FSF Calculations</figcaption></figure>Describing the underlying rationale for the impact, the authors said, “elevated uncertainty generally makes firms and consumers cautious, retarding investment, hiring, and expenditures on consumer durables.”The authors’ analysis only considered the broadest measure of economic policy uncertainty.&nbsp; We now extend their analysis by conducting the same dynamic analysis described above, with the exception that we incorporate both the broad measure of economic policy uncertainty as well as the narrower measure of financial regulatory uncertainty.&nbsp; The chart below presents the dynamic impact of both uncertainty measures.<figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-04-27-at-3.31.01-pm.png"><figcaption>Source: FRED St. Louis, Policyuncertainty.org, and FSF Calculations</figcaption></figure>As in the previous chart, broad economic uncertainty depresses output and the pattern in the results is essentially identical to that shown before.&nbsp; The impact of financial regulatory uncertainty, however, is new and interesting.&nbsp; Like broad economic uncertainty, financial regulatory uncertainty depresses output with a maximum impact that is of similar magnitude to the maximum impact of broad economic uncertainty.&nbsp; The negative impact of financial regulatory uncertainty, however, abates much more slowly and continues to drag on the economy for at least two years.&nbsp; Accordingly, these results provide direct, data-based evidence that increasing financial regulatory uncertainty places an important drag on the economy that persists for a significant period of time.The underlying rationale for the identified negative impact of financial regulatory uncertainty is likely similar to that identified by the authors of the aforementioned research.&nbsp; Increasing uncertainty over financial regulation and the “rules of the road” make it difficult for financial intermediaries and end users alike to plan, invest, and engage in financial market activities that support the economy.&nbsp; The long-lived nature of the negative impact may also relate to the often-lengthy process by which financial rules are changed.&nbsp; Uncertainty that results from a spate of new rule proposals, for example, may hang in the air for years until new rules are finalized and implemented.&nbsp;&nbsp;<h3>Implications for the SEC Rulemaking Agenda</h3>Both previous research and the newer results presented here show that increasing economic and regulatory uncertainty places a measurable drag on the economy for up to two years.&nbsp; As we have recently <a href="https://fsforum.com/news/the-sec-s-current-far-ranging-and-aggressive-rulemaking-agenda-will-raise-regulatory-uncertainty-and-risks-unintended-negative-consequences">highlighted</a>, the SEC has engaged in a large number of rulemakings that simultaneously impact a number of interrelated markets.&nbsp; The sudden, rapid-fire slate of proposals represents a measurable increase in regulatory uncertainty that may not be fully resolved for a number of years.&nbsp; At the same time, these results should not be interpreted to imply that any change to financial rules is problematic.&nbsp; That is not the case. Over time, as markets and economies evolve, all regulation can benefit from being updated to account for new realities.&nbsp; These changes, however, must be approached methodically and systematically.&nbsp; Relatedly, and as discussed in our recent <a href="https://fsforum.com/a/media/importance-of-appropriate-length-of-comment-periods.pdf">comment</a> to the SEC, proposals should be subject to reasonable comment periods that give the public ample time to reflect and respond on how proposed changes affect the market under consideration, related markets, and the broader economy.&nbsp; More still, it may well be sensible to allow for the adoption of some new rules to mature and “settle out” before pursuing yet more changes to financial markets.&nbsp; A rushed “ready, fire, aim” approach to regulation may well do more harm than good as the negative consequences of increased uncertainty outweigh any other potential benefits.<h3>Conclusion</h3>Some amount of uncertainty and risk is a necessary part of life that can’t be avoided.&nbsp; At the same time, the evidence is clear that increasing uncertainty places a drag on the economy that can persist for years.&nbsp; The world now finds itself faced with a number of sources of significant uncertainty.&nbsp; We are still working our way through the pandemic and the latest virus variant.&nbsp; The macroeconomic picture is clouded by inflation that is at a 40-year high and rising.&nbsp; Geopolitical uncertainties are also at a high not seen in decades.&nbsp; In the midst of all this uncertainty, regulators should take great care in how they approach financial regulation that may cloud the picture even more.&nbsp; In addition, the U.S. capital markets have been a clear bright spot over the past few years as companies, municipalities, and the U.S. government have all made significant use of market-based finance to manage through the pandemic.&nbsp; Regulators should ensure that they successfully steward the capital markets that have been such a source of strength and resiliency through these highly uncertain times.&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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We advocate for sound policies that recognize the importance of ensuring that banks are able to support the economy, compete internationally, and remain strong. In particular, the Forum supports a review of the GSIB surcharge, a capital requirement that was agreed to internationally, but that U.S. regulators have implemented in a manner that places higher requirements on U.S. banks than that required of foreign competitors. 

The Forum has also weighed in on an international assessment of post-crisis reforms and the clear need to differentiate between jurisdictions and to acknowledge the progress made in the United States.


Capital and Financial Stability

The SEC Agenda and the Economic Costs of Heightened Regulatory Uncertainty

<h3>Introduction</h3>Just as the world is coming out of a 100-year pandemic, still uncertain what the “new normal” will be, we are now facing considerable economic headwinds. &nbsp;Inflation has climbed to a 40-year high. &nbsp;Interest rates are rising.&nbsp; Geopolitical events threaten to upend how the global economy has functioned for decades. &nbsp;Supply chain disruptions persist.&nbsp; Bottom line: while the worst of COVID appears behind us, there are a lot of unknowns in the world today.To get through this unpredictable and volatile time, the U.S. capital markets – and the businesses, workers, and families that depend on them – need certainty, stability, and prudence from Washington.&nbsp; Unfortunately, the Securities and Exchange Commission (SEC) is pursuing an unprecedented rulemaking agenda that could compound our current challenges and result in adverse consequences for the real economy in terms of output, employment, investment, and prices.&nbsp;<h3>The SEC’s Agenda is Unprecedented and Presents a Number of Risks&nbsp;&nbsp;</h3>As of last fall, the SEC had 54 separate items on its rulemaking agenda, according to the Office of Information and Regulatory Affairs’ (OIRA).&nbsp; This represents “one of the most ambitious agendas in the SEC’s 87-year history,” according to Bloomberg. &nbsp;In fact, in just the first quarter of 2022, the SEC issued 16 new rule proposals, which is only the third time in the 21st Century that it has put out more than 8 new rules in Q1.&nbsp; In the first quarter of 2004 and 2011, the SEC released, respectively, 16 new rules following the accounting and corporate scandals of Enron and WorldCom and 17 new rules following the global financial crisis and Dodd-Frank Act.&nbsp; Excluding 2004, 2011, and 2022, the SEC has issued an average of 3.3 new first-quarter rule proposals since 2000.&nbsp; Unlike those two previous periods, the 16 SEC rules that were released in Q1 2022 are not responding to a major crisis driven by financial institutions, markets or public companies.&nbsp; Rather, financial institutions and markets have been a helpful and important source of strength and stability during the challenge of the past few years.&nbsp;In addition to the sheer volume of changes being proposed, the SEC is limiting public comment in an unprecedented way.&nbsp; Historically, the SEC has given the public between 60 and 90 days to comment on most rule proposals after they are published in the Federal Register. &nbsp;During the tenure of Chair Mary Jo White (2013 – 2017), the public had 60 days to comment on rule proposals 82 percent of the time and 90 days 14 percent of the time.&nbsp; Similarly, under Chair Jay Clayton (2017 – 2020), the SEC used 60-day and 90-day public comment periods 76 percent and 9 percent of the time, respectively.&nbsp; By contrast, under the current Chair &nbsp;- Gary Gensler - &nbsp;the SEC has provided 60-day comment periods only 7 percent of the time, and on average the public has had only 38 days to review and comment on a rule proposal.The volume and velocity of SEC rulemaking (<a href="https://www.sec.gov/rules/proposed.shtml">https://www.sec.gov/rules/proposed.shtml</a>) are especially concerning given that many of the proposed rules include sweeping changes that could require significant shifts in industry operations and practices.&nbsp; Such large-scale changes to an array of markets entails significant risk.&nbsp; Anytime the underlying “rules of the road” are changed significantly there is an increase in uncertainty as markets and investors respond to the new “rules of the road”.&nbsp; Large scale changes to the “rules of the road” across many markets increases regulatory uncertainty and risks depressing economic activity.<h3>Rising Policy Uncertainty Presents Risk to the Economy</h3>In the past ten years, economists have rigorously measured economic policy uncertainty and its impact on the U.S. economy.&nbsp; The evidence clearly shows that policy uncertainty has been rising steadily for more than a decade, both when assessed by broad measures of overall economic policy uncertainty that include tax and trade policy, as well as by narrower measures of regulatory policy uncertainty.&nbsp; The table below shows the increase in broad economic policy uncertainty and regulatory policy uncertainty taken from research-based policy uncertainty <a href="https://www.policyuncertainty.com/index.html">indexes</a> constructed by economists from Northwestern University, Stanford University and the University of Chicago.&nbsp;<figure class="table" style="width:472.25pt;"><table style="border-bottom:none;border-left:none;border-right:none;border-top:none;"><tbody><tr><td style="border-bottom:1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-right:1.0pt solid windowtext;border-top:1.0pt solid windowtext;padding:0in 5.4pt;vertical-align:top;width:472.25pt;" colspan="3">U.S. Policy Uncertainty: 1985-2022</td></tr><tr><td style="border-bottom:1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-right:1.0pt solid windowtext;border-top:1.0pt none windowtext;padding:0in 5.4pt;vertical-align:top;width:155.8pt;">&nbsp;</td><td style="border-bottom:1.0pt solid windowtext;border-left:none;border-right:1.0pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:155.85pt;">Economic Policy Uncertainty</td><td style="border-bottom:1.0pt solid windowtext;border-left:none;border-right:1.0pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:160.6pt;">Regulatory Policy Uncertainty</td></tr><tr><td style="border-bottom:1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-right:1.0pt solid windowtext;border-top:1.0pt none windowtext;padding:0in 5.4pt;vertical-align:top;width:155.8pt;">1985-2009</td><td style="border-bottom:1.0pt solid windowtext;border-left:none;border-right:1.0pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:155.85pt;">100</td><td style="border-bottom:1.0pt solid windowtext;border-left:none;border-right:1.0pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:160.6pt;">100</td></tr><tr><td style="border-bottom:1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-right:1.0pt solid windowtext;border-top:1.0pt none windowtext;padding:0in 5.4pt;vertical-align:top;width:155.8pt;">2010-2022</td><td style="border-bottom:1.0pt solid windowtext;border-left:none;border-right:1.0pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:155.85pt;">119</td><td style="border-bottom:1.0pt solid windowtext;border-left:none;border-right:1.0pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:160.6pt;">133</td></tr><tr><td style="border-bottom:1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-right:1.0pt solid windowtext;border-top:1.0pt none windowtext;padding:0in 5.4pt;vertical-align:top;width:472.25pt;" colspan="3">Source: <a href="http://www.policyuncertainty.com">www.policyuncertainty.com</a></td></tr></tbody></table></figure>&nbsp;What is the impact of this policy uncertainty on the economy?&nbsp; Again, peer reviewed economic research has explored this question, and the findings are significant.&nbsp; Economists find that heightened uncertainty has a real and significant negative effect on economic performance.&nbsp; Specifically, in “<a href="https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/qje_bbd.pdf">Measuring Economic Policy Uncertainty</a>”, Scott R. Baker, Nicholas Bloom, and Steven J. Davis find “that policy uncertainty is associated with greater stock price volatility and reduced investment and employment in policy-sensitive sectors like defense, healthcare, finance and infrastructure construction.&nbsp; At the macro level, innovations in policy uncertainty foreshadow declines in investment, output, and employment in the United States.”&nbsp; These findings are important, especially given the considerable social, geopolitical, and economic uncertainties facing the world today.Injecting regulatory uncertainty into many aspects of the U.S. capital markets could result in adverse consequences.&nbsp; The process of implementing large-scale changes to federal regulations, like those issued by the SEC, can take several years and is often marked by deep uncertainty caused by litigation challenges and the need for further rulemaking to clarify inconsistencies or resolve problems in the original rule that surface during implementation. In such conditions, investors, securities firms, and other market participants might respond to heightened uncertainty over the “rules of the road” by pulling back from investing in securities and bonds, which could make it harder and more expensive for businesses to raise capital and, in turn, impact the employees and customers of business across every sector of the economy.&nbsp; Companies might be forced to wait to offer new products, invest in infrastructure, and generally be more cautious about their investment and hiring decisions.The harmful effects of rising policy uncertainty underscore the danger of simultaneously implementing a large number of interrelated, untested policy changes and point to the need for the SEC to streamline and prioritize its regulatory agenda.&nbsp; &nbsp;&nbsp;<h3>An Aggressive and Accelerated Regulatory Agenda Risks Market Stability and Investor Confidence</h3>SEC rulemaking does not occur in a vacuum.&nbsp; The capital markets have long been one of the most regulated sectors of our economy.&nbsp; Chart 1 shows the multitude of new regulations issued by the SEC and other federal agencies impacting participants in the capital markets. &nbsp;Implementing all these new rules on a compressed timeline has the potential to create risk by overtaxing technological, operational, and compliance resources of financial institutions of all sizes.Designing and implementing each of these proposals individually – let alone all at the same time – is a major regulatory undertaking that needs thoughtful consideration, especially given the state of the global economy today. &nbsp;Accelerating these rules through the regulatory process impairs the SEC’s ability to fully analyze the proposals and understand their possible adverse consequences.&nbsp;A case in point is proposed rule 10B-1, which sets forth security-based swap (SBS) position reporting requirements.&nbsp; As noted extensively in the public comments, the SEC’s cost-benefit analysis of 10B-1 does not account for several significant potential adverse impacts. &nbsp;For example, the Council for Investor Rights and Corporate Accountability <a href="https://www.sec.gov/comments/s7-32-10/s73210-20120747-272911.pdf">stated</a>, the SEC “fails to evaluate the chilling effect that the Proposed Rule will have on activist investors and the harmful collateral effects that a reduction of such corporate activism will have on retail investors and other stakeholders.” &nbsp;Other commenters noted that the SEC did not analyze the proposal’s impact in terms of curtailed market activity, reduced liquidity, and constrained capital formation for issuers and borrowers.But these comments, and many more like them, do not account for the “unknown unknowns” – the unintended consequences of new regulations that are impossible to foresee in advance.&nbsp; Will changing SPAC regulations hinder capital raising?&nbsp; Will changing aspects of reporting securities lending arrangements and short sale activity impact stock market liquidity?&nbsp; The number and potential impact of these unintended consequences increase with the interconnectedness of our financial system and the broader economy.<h3>SEC Rules Have Far-Reaching Effects Across Our Interconnected Financial System and Economy</h3>A central lesson of the 2008 financial crisis was that there are deep, complex, and often hard to anticipate interconnections within our financial system and across the broader economy.&nbsp; This interconnectedness increases the risk that the SEC’s current “everything rulemaking agenda” will lead to harmful unintended consequences. &nbsp; &nbsp;Consider the SEC’s money market mutual fund proposal.&nbsp; Money market funds are a key source of banks’ short-term wholesale funding, but this proposal could impede banks’ ability and willingness to utilize them, especially in the context of swing pricing.&nbsp; Banks, therefore, might be forced to rely more on longer term funding, which likely would increase funding costs.&nbsp; If this scenario materializes, banks will have to either pass on the higher funding cost to the real economy or risk lower earning ability which in turn could negatively impact capital ratios.<a href="https://www.sec.gov/oca/staff-accounting-bulletin-121">SEC Staff Accounting Bulletin No. 121</a>, though not a formal rulemaking, could also have unintended impacts.&nbsp; This staff-level guidance has the potential to force financial institutions that custody crypto-assets to bring these crypto-assets on balance sheet for accounting purposes.&nbsp; If these financial institutions also are bank affiliates subject to prudential regulations, the SEC’s SAB could have direct prudential capital consequences.As we learned in 2008, many interconnections within our financial system and across the economy only become visible in a stressed environment.&nbsp; And a significant body of economic research suggests that rushing through a multitude of sweeping regulatory changes simultaneously could contribute to such stressed conditions.<h3>A Well Thought-Out, Measured &amp; Prioritized Agenda Is the Most Prudent Approach</h3>We believe a more prudent approach to the “everything rulemaking agenda” is for the SEC to prioritize the most pressing regulatory issues that support market resilience and efficiency and to allow for more meaningful stakeholder input and evaluation of rule proposals’ cumulative impacts.&nbsp; In doing this the SEC should consider not only each individual issue, but also its possible connection with other issues and how any proposed changes might compound our current economic challenges like inflation.&nbsp; The SEC should also act in a deliberate manner that provides markets and investors with enough time to absorb the impact of new rules so as to moderate the total amount of uncertainty created through the regulatory process.&nbsp; There are certainly areas of our capital markets in need of reform, but any changes must be implemented with caution and care with an eye towards managing and improving the overall financial system.&nbsp;<h3>Chart 1: Implementation for Recently Proposed/Finalized Capital Markets’ Regulations</h3>The chart below illustrates the implementation timeline for a broad range of financial regulations in various stages of proposal or implementation. As shown, the simultaneous implementation of a multitude of rules on a compressed timeline could strain SIFMA members’ resources and has the potential to create risk by overtaxing industry technology, operational, and compliance resources. Financial institutions of all sizes and business models will be impacted by some or all these regulations to varying degrees.&nbsp;Additionally, the timelines are subject to change as the industry adopts new rules and amendments.&nbsp;<figure class="image"><img src="https://fsforum.com/a/media/chart-2.png"></figure>All timelines with relation to proposed rules are SIFMA staff estimates. Certain Banking Regulator deadlines may extend further than Fiscal Year 2025. *Amendments to Exchange Act Rule 3b-16 and Reg ATS Proposal are to be determined. It is too early to specify a timeline. Reg ATS includes U.S. Treasury and Agency Securities, NMS Stocks and Other Securities. **The FINRA Rule 4210 effective date may be significantly delayed by litigation. ***Updates to Short Selling Reporting Proposal are to be determined. It is too early to specify a timeline.

The SEC’s Current Far-Ranging & Aggressive Rulemaking Agenda Will Raise Regulatory Uncertainty and Risks Unintended, Negative Consequences

<h3>Introduction</h3>Policymakers are increasingly focusing on climate-related financial risks (CRFR) in the banking sector.&nbsp; Importantly, the <a href="https://www.fdic.gov/news/board-matters/2022/2022-03-29-notational-fr.pdf?source=govdelivery&amp;utm_medium=email&amp;utm_source=govdelivery">Federal Deposit Insurance Corporation</a> (FDIC), the <a href="https://www.occ.gov/news-issuances/bulletins/2021/bulletin-2021-62.html">Office of the Comptroller of the Currency</a> (OCC) and the <a href="https://www.bis.org/bcbs/publ/d530.pdf">Basel Committee on Banking Supervision</a> (BCBS) recently released draft guidance on managing climate-related financial risks.&nbsp; These policies apply only to large banks.&nbsp; In the case of the FDIC and OCC draft guidance, the proposed guidance only applies to banks with more than $100 billion in total assets.&nbsp; In light of this focus on large banks, we examine whether large banks are most exposed to CRFR.&nbsp; Using government data on the incidence of climate-related natural disasters and data on the geographic distribution of small business loans, we find that larger banks exhibit the least significant exposures to climate-related financial risks.&nbsp; More specifically, we find that among the 50 banks with the most exposure to CRFR, 46 of these banks have total assets less than $100 billion and have average total assets of roughly $16.5 billion.&nbsp; In a larger sample of over 600 banks, we find that the smallest 20 percent of banks account for over 50 percent of all estimated climate-related losses while the largest 20 percent of banks account for less than 20 percent of all such losses.&nbsp; As policymakers continue to consider CRFR, the lower risk of large banks relative to the rest of the banking sector should be considered.<h3>Data-Based Estimates of CRFR&nbsp;&nbsp;</h3>Despite the increased focus and interest in the topic, actual data-based measures of CRFR in the banking sector are few and far between.&nbsp; In this post, we consider two related, but distinct estimates of CRFR based on FEMA’s <a href="https://www.fema.gov/flood-maps/products-tools/national-risk-index">National Risk Index for Natural Hazards</a>.&nbsp; The FEMA index uses historical data on 18 natural hazards such as heat waves, hurricanes, lightning strikes, and wildfires to estimate the annual economic losses arising in each county across the United States.&nbsp; Each county is then assigned a score and an annual loss estimate associated with its total natural disaster risk.&nbsp; The table below shows the top five counties in the United States with the highest index scores.&nbsp;<figure class="table" style="text-align:center;"><table style="border-bottom:none;border-left:none;border-right:none;border-top:none;"><tbody><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:1pt solid windowtext;padding:0in 5.4pt;vertical-align:top;width:323.75pt;" colspan="4">National Risk Index for Natural Hazards: Riskiest U.S. Counties</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:116.85pt;">County</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:58.4pt;">State</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:63pt;">Risk Score</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:85.5pt;">Annual Loss ($)</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:116.85pt;">Los Angeles</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:58.4pt;">CA</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:63pt;">100</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:85.5pt;">1.4 billion</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:116.85pt;">Harris</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:58.4pt;">TX</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:63pt;">93.6</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:85.5pt;">1.2 billion</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:116.85pt;">Santa Clara</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:58.4pt;">CA</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:63pt;">66.1</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:85.5pt;">0.4 billion</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:116.85pt;">Riverside</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:58.4pt;">CA</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:63pt;">64.9</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:85.5pt;">0.4 billion</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:116.85pt;">Alameda</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:58.4pt;">CA</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:63pt;">64.8</td><td style="border-bottom:1pt solid windowtext;border-left:none;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:85.5pt;">0.4 billion</td></tr><tr><td style="border-bottom:1pt solid windowtext;border-left:1pt solid windowtext;border-right:1pt solid windowtext;border-top:none;padding:0in 5.4pt;vertical-align:top;width:323.75pt;" colspan="4">Source: FEMA</td></tr></tbody></table></figure>Natural disaster risk is not a perfect measure of climate risk.&nbsp; Indeed, some of the constituents of the index, such as volcanic activity, have no obvious relationship with climate change.&nbsp; Moreover, the precise relationship between climate change and natural disasters such as hurricanes and floods is itself a subject of ongoing and evolving climate research.&nbsp; At the same time, some have suggested that climate change may impact the severity and volatility of events such as hurricanes, wildfires and floods that are included in the index.&nbsp; Accordingly, as a first step, it is worth considering the FEMA index as one measure of climate risk.The FEMA index is one measure of climate risk, but it is not a measure of climate-related financial risk in the banking sector.&nbsp; To estimate CRFR in the banking sector, we need geographical data on bank assets.&nbsp; We make use of OCC data on the number and amount of small business loans (loans under $1 million) made by U.S. banks in 2020.&nbsp; In 2020, all banks with total assets above $1.3 billion were required to report the amount and number of small business loans made in each U.S. county they served.&nbsp; These data represent over 8 million loans that were made in over 3,000 U.S. counties with an aggregate value of over $448 billion, which accounts for roughly 20 percent of all commercial and industrial lending by banks.&nbsp; Of course, small business lending does not comprise all of a bank’s assets that are subject to CRFR, but there is likely a strong correlation in the geographic pattern of a bank’s small business lending and the rest of its assets.&nbsp; A bank that only makes small business loans in a few geographically proximate counties is also likely to have mortgage and consumer lending assets that are similarly geographically concentrated.&nbsp; Alternatively, a bank that makes small business loans all across the country is also more likely to engage in mortgage and consumer lending that is geographically diversified.&nbsp; Accordingly, combining the OCC small business data with the FEMA data results is a useful and credible measure of CRFR across the banking sector.In what follows we consider two specific measures of CRFR.<ol><li>Risk Score – this CRFR measure is the weighted average Risk Score among all counties in which the bank extends small business loans.&nbsp; A bank that made all of its loans in L.A. County would exhibit a score of 100.&nbsp; Banks with higher Risk Scores have borrowers located in areas more prone to natural disasters that may impact loan losses.</li><li>Annual Loss – this CRFR measure is the total amount of annual losses borne by each bank in the OCC small business loan sample.&nbsp; More specifically, for each county, we calculate the bank’s share of total small business lending in that county and then we apportion that share of FEMA’s estimated annual losses to that bank.&nbsp; We then sum each bank’s annual losses across each county in which it lends.&nbsp; As an example, if one bank made 20 percent of all the small business loans in L.A. County, it would be allocated $280 million in annual losses (0.2 x $1.4 billion) in L.A. County.&nbsp; Its overall annual loss would then be determined by the amount of annual losses it was allocated in every other county in which it made small business loans.</li></ol>Both the Risk Score metric and the Annual Loss metric provide related, but distinct measures of CRFR.&nbsp; Importantly, the Risk Score does not distinguish a smaller bank from a larger bank.&nbsp; A small bank that does 100 percent of its lending in L.A. County will have a higher risk score (100) than a larger bank that does 100 percent of its lending in Alameda County (64.8).&nbsp; The annual loss metric explicitly accounts for size so that a larger bank lending in more counties exhibits a higher annual loss.&nbsp; Both the score and the loss metric have relevance for measuring CRFR so we consider both.&nbsp;<h3>Risk Score – Top 50 Riskiest Banks</h3>The chart below shows the Risk Score (right-hand axis) and the total assets (left-hand axis) of the 50 banks with the highest Risk Score.&nbsp; The bank with the highest Risk Score has a score of 87 – as indicated by the left-most orange dot – and a total asset size of $9.3 billion – as indicated by the left-most blue bar.&nbsp; Moving to the right in the chart shows banks with progressively lower Risk Scores. &nbsp; &nbsp;<figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-03-30-at-10.47.23-am.png"></figure>As shown in the chart, most of the banks with a top 50 risk score have total assets far below $100 billion.&nbsp; Indeed, only 4 of the 50 banks have assets over $100 billion and none of the banks in the sample have total assets in excess of $250 billion.&nbsp; Of the 46 banks with total assets less than $100 billion, the average of total assets is only $16.5 billion.&nbsp; Moreover, while some large banks exhibit a top 50 risk score, the largest banks - those with total assets in excess of $500 billion or more - do not exhibit a top 50 risk score. These results are largely explained by the ability of large banks to diversify their lending across geographic boundaries.&nbsp; Unlike many smaller banks, large banks are able to diversify their lending all across the country and do not exhibit significant lending concentrations in areas with particularly high natural disaster risks.&nbsp; &nbsp;&nbsp;<h3>FEMA Annual Loss Lorenz Curve</h3>We now consider the Annual Loss metric and rather than considering only the top 50 banks, we consider all banks that report their small business lending – roughly 600 banks.&nbsp; Together, these banks account for $20 trillion in banking assets, or roughly 80 percent of all U.S. banking assets. &nbsp;The chart below shows the Lorenz curve associated with bank assets and annual losses.&nbsp; A Lorenz curve is a common graphical tool that is used to display how a variable is distributed across a population.&nbsp; The chart shows the 45-degree line that is the Lorenz curve that would result if annual losses were uniformly distributed throughout the banking sector.&nbsp; If annual losses were uniformly distributed across the banking sector (the $20 trillion of bank assets accounted for by these banks), the smallest 20 percent of banks would account for 20 percent of annual losses, the smallest 40 percent of banks by assets would account for 40 percent of annual losses and so on until 100 percent of bank assets account for 100 percent of annual losses.<figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-03-30-at-10.46.58-am.png"></figure>As can be seen in the chart, the Lorenz curve lies well above the 45-degree line.&nbsp; This means that smaller banks account for a relatively larger share of annual losses.&nbsp; More specifically, the smallest 20 percent of banks in the sample account for roughly 55 percent of all annual losses while the smallest 40 percent of banks account for roughly 75 percent of all annual losses.&nbsp; Accordingly, these data clearly show that smaller banks have more concentrated CRFR that result in a larger share of total annual losses in the United States.&nbsp;Again, this finding can be understood in terms of risk concentrations.&nbsp; Large banks maintain broad, well-diversified portfolios that are invested in a variety of communities all across the country.&nbsp; As a result, large banks are lending in both high- and low-risk areas that, across an entire portfolio, balance each other out.&nbsp;<h3>Conclusion</h3>Regulators have increased their focus on CRFR recently.&nbsp; The extent of CRFR in the banking sector is not well understood at the present time.&nbsp; In particular, data limitations make the assessment of CRFR challenging.&nbsp; Using government data on the risk of natural hazards and the location of small business lending, we construct two complementary measures of CRFR.&nbsp; We show that larger banks are less exposed to CRFR.&nbsp; This is driven by the ability of large banks to broadly diversify their lending all across the country.&nbsp; As regulators continue to consider CRFR as a safety and soundness matter, there should be a greater effort to empirically measure CRFR across the entire banking sector and take into consideration the relatively low exposure large banks have to climate-related financial risks.

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Forum members recognize that climate change poses risks to the world’s economy.
The transition to a low-carbon economy will occur over several decades and requires collaboration between a wide range of industries and government. The Forum advocates for appropriate policies and international cooperation to ensure that climate policies and regulations related to the financial industry are based on science, risk, and sound methodologies.


Climate Finance

Climate-Related Financial Risk and Bank Size: When Bigger is Smaller

BankNotes Blog

Dear reader,Welcome to the latest edition of The Forum File. In this edition, we are highlighting our firms’ work in helping diverse communities thrive through investments and targeted initiatives.We hope you enjoy reading this edition and please do not hesitate to share your feedback.&nbsp;Kevin Fromer, President and CEO, Financial Services Forum&nbsp;&nbsp;<h2>Penny For Your Thoughts</h2>“Goldman Sachs is committed to advancing diversity, equity and inclusion and we have seen the power of having clear and measurable goals. We continue to create programs that level the playing field and open up opportunities at the firm to an even greater array of talent while remaining transparent and holding ourselves accountable.” – Megan Hogan, Goldman Sachs Chief Diversity Officer&nbsp;&nbsp;<h3>Goldman Sachs launched&nbsp;One Million Black Women&nbsp;about a year ago – what are its latest initiatives or investments?&nbsp;</h3>In March 2021, we launched our landmark inclusive growth initiative, One Million Black Women, committing $10 billion in direct investment capital and $100 million in philanthropic support to address the dual disproportionate gender and racial biases that Black women have faced for generations, exacerbated by the pandemic. This first-of-its-kind investment is led by Black women, partnered with Black women and advised by Black women, and centered on the ultimate goal of radically transforming the futures of Black women and their communities.&nbsp;In January, in partnership with the&nbsp;One Million Black Women&nbsp;Advisory Council, we announced a series of new investments, partnerships and grants directed at 17 leading organizations and projects across the country.This month, we announced the Black Women Impact Grants program, funded by the Goldman Sachs Foundation, to create an open-access grants program for Black women-led and Black women-serving nonprofits. Through the $10 million initiative, 50 Black women-led nonprofits will be selected to receive general operating funding ranging from $50,000 - $250,000 over a two-year period.&nbsp;<h3>What are the firm’s goals around Diversity, Equity and Inclusion?&nbsp;</h3>Hiring, developing and promoting people with a broad and diverse set of experiences and world views are all central to being an employer of choice and serving our clients. We know that diversity and inclusion drive outperformance.In 2019, the firm set aspirational goals for representation when hiring analysts and entry-level associates of 50% women, 11% Black professionals and 14% Hispanic/Latinx in the U.S., and 9% Black professionals in the UK.&nbsp; We have seen strong results including more diverse representation for our 2020 campus analyst class, and the highest representation of Black talent in the Americas.&nbsp;In 2020, we doubled down on these goals by announcing two additional five-year goals to accelerate the recruitment of diverse candidates at all levels of the firm. These are specifically focused on our Vice Presidents and recruits from Historically Black Colleges and Universities (HBCUs).&nbsp;We were proud to announce in November 2021 the most diverse Managing Director class in the history of the firm. We are committed to investing in our people’s development and helping them grow in their careers. We recognize that we still have a long way to go and&nbsp;accountability is at the center of each and every one of these goals.&nbsp;<h3>Goldman Sachs was the first to launch a Returnship program 15 years ago – where is the program now? &nbsp;&nbsp;</h3>We search for talent in new places and always look for diverse backgrounds and experiences for all parts of our firm. We launched the first Returnship program in 2007 based off of our research entitled “Off-ramps and On-ramps,” which focused on challenges and concerns faced by individuals looking to re-enter the workforce.&nbsp;This year we have reimagined our program to support professionals looking to re-start their careers, including those displaced from the workforce due to the COVID-19 pandemic.Through the new direct-to-hire program, returnees will participate in a six-month paid fellowship that provides strong performing candidates with full-time jobs at Goldman Sachs upon successful completion of the program and includes enhanced leadership development and mentorship opportunities.We’re excited to kick off our first cohort of the program this month!&nbsp;<h2>Value Add</h2>Market Madness: HBCU Possibilities Program&nbsp;<figure class="image image_resized" style="width:75%;"><img src="https://fsforum.com/a/media/spelman_college_champions.jpg"></figure>&nbsp;Goldman Sachs believes that diversity is a business imperative.In direct response to our aspirational goal to double the number of campus analysts that the firm recruits from HBCUs by 2025, Goldman Sachs launched the Market Madness: HBCU Possibilities Program last year.The Market Madness: HBCU Possibilities Program is a $25 million, five-year commitment to Historically Black Colleges and Universities. In addition to supporting these institutions, the program provides a semester-long crash course for HBCU students, introducing them to key concepts and careers in finance. Students’ experiences are enriched through mentorship, networking, a financial stipend of $10,000 and the chance to compete in a case study competition with grand prizes ranging from $250,000 to $1 million in grants for their institutions. This year, we expanded the number of HBCUs involved in the program, and 125 students will be competing for the top prize in April in front of our executives.Goldman Sachs is proud to say we have several students who participated in the program last year who will be joining us this summer, and we are excited to continue growing the program in the years to come.&nbsp;<h2>Capital Gains</h2>What we’re doing in Washington&nbsp;&nbsp;After a measure to address “tough legacy” contracts that reference LIBOR was included in the Omnibus Appropriations Bill, the Forum last week issued a <a href="https://fsforum.com/news/financial-services-forum-applauds-inclusion-of-libor-measure-in-omnibus">statement</a> supporting the inclusion and commended senators Tester, Tillis, Brown, Toomey and Representative Sherman for their leadership on this measure.In response to proposals from the <a href="https://fsforum.com/a/media/fsf---occ-climate-principles-comment-letter.pdf">Office of the Comptroller of the Currency</a> and the <a href="https://fsforum.com/a/media/fsf---bcbs-climate-risk-principles-comment-letter.pdf">Basel Committee on Banking Supervision</a>, the Forum commented on efforts to establish guidance for banking organizations to manage climate-related financial risks and offered specific recommendations on how the proposals could be adjusted to further reflect the proposals’ goals.Following the Federal Reserve’s release of its annual bank stress test scenarios, the Forum issued a <a href="https://fsforum.com/news/financial-services-forum-statement-on-2022-stress-test-scenarios">statement</a> highlighting the strength and resiliency of the nation’s largest banks.&nbsp;<h2>Our Two Cents</h2>Research from the Forum&nbsp;The BankNotes Blog Spotlighted:<ul><li><a href="https://fsforum.com/news/focus-on-the-big-picture-addressing-climate-related-financial-risks-within-the-overall-risk-management-framework">Key principles</a> that will promote final principles on climate-related financial risks that are efficient, effective, and well integrated with existing risk-management frameworks, following the requested feedback from the Basel Committee on Banking Supervision and the Office of the Comptroller of the Currency on recently proposed principles for the management and supervision of climate-related financial risks.</li><li>Improving the risk-sensitivity of the <a href="https://fsforum.com/news/basel-iii-finalization-in-the-u-s-context-getting-it-right-trumps-getting-it-done">large bank capital framework</a> is a sensible goal, but reforms that primarily raise capital levels are unnecessary and inconsistent with the stated intent of the reforms.</li></ul>&nbsp;<h2>Checking the Balance</h2>Members in the news&nbsp;Bank of America Community Development Banking (CDB) <a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2022/02/bank-of-america-community-development-banking-provides-record--6.html">provided</a> $6.6 billion in loans, tax credit equity investments, and other real estate development solutions in 2021, resulting in more than 11,600 affordable housing units across the country. This was the fifth consecutive record year of financing, representing a total of $26.6 billion and 60,000 affordable housing units, making a meaningful impact in the firm’s effort to create safe, strong communities. CDB works to help create affordable housing for individuals, families, seniors, veterans, the formerly homeless, and those with special needs. .For the 15th consecutive year, BNY Mellon has&nbsp;<a href="https://www.bnymellon.com/us/en/about-us/newsroom/company-news/bny-mellon-recognized-for-championing-a-culture-of-inclusion-and-equity.html">received</a>&nbsp;a score of 100 on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index, the nation’s foremost benchmarking survey and report measuring corporate policies and practices related to LGBTQ+ workplace equality. BNY Mellon’s efforts and achievements also earned the designation as one of the&nbsp;<a href="https://urldefense.com/v3/__https:/www.hrc.org/resources/best-places-to-work-for-lgbtq-equality-2022__;!!OiWDNh-9Pw!olhtljFfXx5BofJRCgpey60fT96wNt-UZ3R-CB26nGPw2u-ZNVYnvd0fubqh0bk7oPs$">Best Places to Work for LGBTQ+ Equality</a>.Citi <a href="https://news.bloomberglaw.com/banking-law/citi-says-it-exceeded-goals-for-boosting-management-diversity">announced</a> that it met and exceeded its firm-wide, aspirational representation goals,&nbsp;increasing the percentage of women and Black executives at the firm. Citi set these targets in 2018 and said it will weigh future goals and publish new targets later this year.&nbsp;Goldman Sachs&nbsp;One Million Black Women&nbsp;and Grameen America&nbsp;<a href="https://www.goldmansachs.com/media-relations/press-releases/2022/ombw-announcement-20-jan-2022.html">announced</a>&nbsp;a new partnership to advance financial access and inclusion for low-income Black women entrepreneurs. Goldman Sachs will provide $20 million to accelerate Grameen America’s new racial equity initiative,&nbsp;<a href="https://www.prnewswire.com/news-releases/grameen-america-accelerates-efforts-to-achieve-racial-equity-with-goal-to-invest-1-3-billion-in-loans-to-80-000-black-women-entrepreneurs-over-10-years-301290257.html?tc=eml_cleartime">Elevating Black Women Entrepreneurs</a>, to bring affordable credit and capital to financially underserved Black women across the United States.JPMorgan Chase was&nbsp;<a href="https://www.bloomberg.com/company/press/bloombergs-2021-gender-equality-index-reveals-increased-disclosure-as-companies-reinforce-commitment-to-inclusive-workplaces/">named</a>&nbsp;to Bloomberg’s 2021 Gender-Equality Index (GEI). The GEI brings transparency to gender-related practices and policies, including initiatives aimed at closing gender and racial gaps, creating flexible work environments and fostering a culture of inclusion.&nbsp;Morgan Stanley&nbsp;<a href="https://www.morganstanley.com/press-releases/equity-in-education-and-career-outcomes-">announced</a>&nbsp;the launch of the&nbsp;<a href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.morganstanley.com%2Finstitute-for-inclusion&amp;esheet=52553555&amp;newsitemid=20211220005596&amp;lan=en-US&amp;anchor=Institute+for+Inclusion&amp;index=1&amp;md5=8a73682be4bd291a2e891ec794d46254">Institute for Inclusion</a>’s Equity in Education and Career Consortium.&nbsp;Through collaboration with partner organizations, this initiative will support high school and college students in achieving stronger career and financial outcomes. Funded by an initial commitment of $20 million, this initiative will help address systemic inequities for young adults from low- to moderate-income backgrounds with a focus on ethnically diverse students.State Street&nbsp;<a href="https://clicktime.symantec.com/3GYRhgMZj1AaQx2D5uegiAT6xU?u=https%3A%2F%2Fnewsroom.statestreet.com%2Fpress-releases%2Fpress-release-details%2F2022%2FState-Street-Partners-with-Black-Owned-Businesses-to-Underwrite-1.5-Billion-of-Senior-Unsecured-Debt%2Fdefault.aspx">announced</a>&nbsp;that it is partnering with Black-owned investment firms to underwrite $1.5 billion of senior unsecured debt. This action reinforces the firm’s strong commitment to strengthening Black-owned businesses and represents an ongoing effort by State Street to partner with Black and Latinx-owned investment firms, as well as firms owned by other underrepresented groups, as part of its debt offerings. The move complements a number of efforts within the firm’s&nbsp;<a href="https://clicktime.symantec.com/3H1yRmJer23Hea69drBUjXJ6xU?u=https%3A%2F%2Fwww.statestreet.com%2Fvalues%2Finclusion-diversity%2F10-actions-to-address-racism-and-inequality.html">10 Actions to Address Racism and Inequality</a>.Wells&nbsp;Fargo&nbsp;<a href="https://newsroom.wf.com/English/news-releases/news-release-details/2022/Wells-Fargo-Donates-20-Million-to-Strengthen-Small-Businesses-in-Atlanta-/default.aspx">announced</a>&nbsp;a number of grants in early 2022 from its&nbsp;<a href="https://stories.wf.com/meaningful-investments-and-support-keep-small-business-doors-open">Open for Business Fund</a>, a roughly $420 million&nbsp;fund that the company created in July 2020 to support small businesses during the pandemic. In February, $20 million was provided to The Miami Foundation to help historically disadvantaged small business owners own more of their businesses’ assets and improve technology to better serve customers. In addition, a $20&nbsp;million donation was provided to the United Way of Greater Atlanta, in collaboration with Invest Atlanta, which will distribute the funding as a mix of grants and loans in the city, with a focus on Black-owned and other diverse-owned businesses. The Open for Business fund has also made grants in&nbsp;<a href="https://newsroom.wf.com/English/news-releases/news-release-details/2022/Wells-Fargo-Donates-20-Million-to-Strengthen-Small-Businesses-in-Houston-/default.aspx">Houston</a>,&nbsp;<a href="https://newsroom.wf.com/English/news-releases/news-release-details/2022/Wells-Fargo-Donates-20-Million-to-Strengthen-Small-Businesses-in-Los-Angeles-/default.aspx">Los Angeles</a>, and&nbsp;<a href="https://newsroom.wf.com/English/news-releases/news-release-details/2021/Wells-Fargo-Donates-20-Million-to-Strengthen-Small-Businesses-in-Charlotte-/default.aspx">Charlotte</a>.

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The Forum File, 2022 Edition #1

Dear reader,Welcome to the eighth edition of The Forum File. In this edition, we are highlighting how our members are assisting&nbsp;small businesses through their pandemic recovery and creating networks of support for women entrepreneurs.Thank you for your readership throughout the year as we launched this newsletter. I wish you a wonderful holiday season and look forward to continue collaboration in 2022.&nbsp;Kevin Fromer, President and CEO, Financial Services Forum&nbsp;&nbsp;<h2>Penny for Your Thoughts&nbsp;</h2>Derek Ellington was recently named <a href="https://newsroom.wf.com/English/news-releases/news-release-details/2021/Wells-Fargo-Names-Derek-Ellington-Head-of-Small-Business-Banking/default.aspx">Head of Small Business Banking</a> for Wells Fargo.&nbsp;<h3>After spending 28 years in the financial industry with roles in retail banking, commercial banking, small business banking and credit, what’s ahead for small businesses and how is Wells Fargo helping them move from relief to recovery?</h3>When you think about the fact that small businesses employ about 46% of all Americans, small business is really big business, and entrepreneurs will be at the forefront of our country’s economic recovery.&nbsp; They pump life into our neighborhoods, making them vibrant places to live and work and raise families – and they are the key to millions of local jobs. We’re also seeing an explosion of small businesses owned by women and minorities despite the pandemic and barriers that have historically prevented their businesses from reaching full potential.&nbsp;There are some bright lights ahead, but small businesses are still very vulnerable and the public and private sector needs to continue making equity a priority. Banks like Wells Fargo need to continue being very intentional about investing in different solutions that can make entrepreneurship more accessible to more people.For both new and established small businesses that need to stabilize coming out of the pandemic, owning more of their businesses’ assets, such as property, equipment and technology can be a game changer. According to a 2021 survey conducted by Morning Consult, three out of four (74%) small business owners say owning their physical assets or improving equity in their assets is a top priority, and 57 percent believe owning all their physical assets debt-free would significantly improve the financial health of their business.&nbsp;As an example, in Charlotte we’ve kicked off a $20 million effort <a href="https://newsroom.wf.com/English/news-releases/news-release-details/2021/Wells-Fargo-Donates-20-Million-to-Strengthen-Small-Businesses-in-Charlotte-/default.aspx">through our </a>Open for Business Fund which will distribute funding in the form of grants that do not need to be repaid, in an effort to help entrepreneurs build wealth through their businesses without taking on additional debt.&nbsp; We’re looking forward to applying this type of thinking in other cities next year.<h3>Can you tell us more about the Open for Business Fund?</h3>Wells Fargo’s goal throughout the pandemic has been to help as many small businesses as we could. In the early days of the pandemic, the company moved quickly to implement accommodations, and we’ve been able to help more than 3 million small business customers across the country access the resources they needed to survive. We also played a key role in helping small businesses access loans through the Paycheck Protection Program (PPP), helping nearly 282,000 small businesses get the funding they needed to keep 1.7 million people at work.&nbsp;&nbsp;The PPP provided a lifeline to thousands of businesses, but we understood very early on that one program wasn’t enough to enable small business to bounce back from so much economic disruption. Wells&nbsp;Fargo created the Open for Business Fund in July 2020 by donating the gross processing fees it made from administering Paycheck Protection Program loans in 2020. Through this roughly $420 million small business recovery effort, we’ve collaborated with Community Development Financial Institutions (CDFIs) and local nonprofits to deploy low-cost capital, technical expertise and recovery resources to small businesses across the nation.What’s exciting about the Open for Business Fund is this philanthropic capital is strengthening the network of resources available to entrepreneurs and it is foundational to CDFIs being able to expand lending in their communities. Through October 31, the Open for Business Fund is projected to <a href="https://stories.wf.com/boosting-business-with-mucho-gusto">reach more than</a> 150,000 small business owners, enabling them to help protect an estimated 250,000 jobs.&nbsp;<h2>Value Add</h2>Member program spotlight&nbsp;<figure class="image image_resized" style="width:75%;"><img src="https://fsforum.com/a/media/wfva.jpg"></figure><h3>Giving small business founders a circle of support</h3>Healthy and growing women-owned businesses are vital to an inclusive economic recovery, yet women entrepreneurs face distinct challenges, including fewer resources and less access to professional networks, on top of having a greater share of caregiving duties. As part of the Open for Business Fund, a roughly $420 million national small business recovery effort, Wells Fargo is working with nonprofits such as Nasdaq Entrepreneurial Center to provide women and diverse entrepreneurs with greater access to experts, business coaching and mentors that can help them grow.&nbsp;&nbsp;With this funding, the Nasdaq Entrepreneurial Center started mentoring and providing peer support to women business owners from predominantly underrepresented communities through <a href="https://thecenter.nasdaq.org/milestone-circles/">Milestone Mapping Coaching Circles</a>. In small groups, women entrepreneurs participate in a 12-week-long coach-guided program, where they receive support with business planning, revenue generation, customer leads, marketing and more, helping founders anchor focus to their biggest vision and gain clarity on the key business priority for next quarter.Each Circle is open to all women-identifying business owners in the U.S. and provides a biweekly opportunity for women entrepreneurs to work through specific challenges, celebrate milestones, attend workshops and connect with small business experts and mentors. Interested participants&nbsp;<a href="https://thecenter.nasdaq.org/milestone-circles/">complete an application</a>&nbsp;and, upon acceptance, are placed in a Circle and matched to certain cohorts based on their challenges. Wells&nbsp;Fargo will offer Milestone Mapping Coaching Circles throughout the year and into 2022, with the goal of helping 500 women-owned small businesses.&nbsp;<h2>Capitol Gains</h2>What we’re doing in Washington&nbsp;The Forum joined other trade associations in authoring a <a href="https://fsforum.com/a/media/liborjointtradesletterforhouse.pdf">letter</a> to the House of Representatives urging the passage of H.R. 4616, the “Adjustable Interest Rate (LIBOR) Act,” to address “tough legacy” contracts that currently reference LIBOR. The Forum <a href="https://fsforum.com/news/financial-services-forum-welcomes-house-passage-of-libor-bill">encouraged</a> the U.S. Senate to act swiftly on the measure after it passed the House with strong bipartisan support on December 8.We <a href="https://fsforum.com/news/financial-services-forum-statement-on-overdraft-report">highlighted</a> Forum member leadership in offering low-cost checking accounts with no overdraft fees and ensuring banking services are transparent, accessible and understandable.The Forum <a href="https://fsforum.com/news/financial-services-forum-welcomes-nominees-for-federal-reserve-leadership">congratulated</a> Federal Reserve Chairman Jerome Powell on his renomination and Dr. Lael Brainard on her nomination for vice chair.The Forum and the Bank Policy Institute authored a joint <a href="https://fsforum.com/a/media/bpi-and-fsf-letter-to-hfsc-on-section-19.pdf">letter</a> to the House Financial Services Committee expressing support for the Fair Hiring in Banking Act, which would enable banks to offer more job opportunities to rehabilitated people with prior criminal offenses.&nbsp;<h2>Our Two Cents</h2>Research from the Forum&nbsp;The BankNotes blog spotlighted:<ul><li>The Fall 2021 Federal Reserve Financial Stability Report <a href="https://fsforum.com/news/federal-reserve-financial-stability-report-underscores-how-forum-members-support-financial-stability">highlighted</a> how banks, and Forum members in particular, have actively contributed to U.S. financial stability. The report in particular showed the high levels of capital and liquidity held by U.S. Global Systemically Important Banks.</li><li>U.S. regulators should <a href="https://fsforum.com/news/capital-regulation-may-unnecessarily-restrict-bank-credit-for-creditworthy-businesses">consider</a> a European proposal as they move forward with Basel III Finalization to ensure credit is not unnecessarily restricted for creditworthy companies that contribute to the U.S. economy.</li><li>The Federal Reserve should <a href="https://fsforum.com/news/from-backstop-to-frontstop-the-leverage-ratio-is-becoming-the-binding-capital-constraint">modify</a> the SLR to ensure that it remains in the background and does not serve as the binding capital constraint.</li></ul>&nbsp;<h2>Checking the Balance</h2>Members in the news&nbsp;Bank of America&nbsp;<a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2021/11/bank-of-america-invests--10-million-in-johnson-c--smith-universi.html">announced</a>&nbsp;a multi-year, $10 million commitment to Charlotte-based Johnson C. Smith University (JCSU), one of the leading private liberal arts Historically Black Colleges and Universities in the South. Bank of America’s pledge to JCSU is part of its&nbsp;<a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2021/03/bank-of-america-increases-commitment-to-advance-racial-equality-.html">$1.25 billion, five-year commitment</a>&nbsp;announced last year to help advance racial equality and economic opportunity in local communities.BNY Mellon&nbsp;<a href="https://www.bnymellon.com/us/en/about-us/newsroom/company-news/first-ever-bny-mellon-giving-tuesday-campaign-empowers-employees-to-double-their-impact.html?cid=CC_OSM_YB001375_GivingTuesday2021TW_ALLSEG_PUB_GL_TWT_____">hosted</a>&nbsp;its first-ever Global Giving Tuesday Campaign, double-matching employees’ contributions to select nonprofits from November 30 through December 7. BNY Mellon employees could select one of 14 high-impact charities to receive a 2:1 match, up to $10,000, or the local equivalent. This campaign supplemented the bank’s regular year-round matching program, in which BNY Mellon matches 1:1 up to $5,000.Citi and the Citi Foundation announced the&nbsp;<a href="https://www.citigroup.com/citi/racial-equity/">Action for Racial Equity</a>&nbsp;initiative has&nbsp;<a href="https://www.citigroup.com/citi/news/2021/211109a.htm">invested</a>&nbsp;$1 billion in strategic initiatives to help close the racial wealth gap and increase economic mobility in the United States in year one of a three-year commitment.&nbsp;Citi said it is on track to far exceed its original $1.1 billion commitment announced in September 2020.&nbsp;In particular, Citi has exceeded its $350 million procurement goal for its investments in Black-owned suppliers.Goldman Sachs was&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.forbes.com_green-2Dgrowth-2D50_-23220c1e096140&amp;d=DwMFAg&amp;c=7563p3e2zaQw0AB1wrFVgyagb2IE5rTZOYPxLxfZlX4&amp;r=b8iCANJjLlDzgmI1DhIxZS-McRP4R7RcWpchMfWzEiw&amp;m=tPYaWs9BprBoQFToxfoJZQKDSygzsNafTABhswDkkxs&amp;s=vEYu1O0CAQyH0KGgOrtwvUEUydJJh4z3orKkbl4zZK8&amp;e=">named</a>&nbsp;to the Forbes Inaugural Green Growth 50 list. Goldman Sachs was recognized as a leader in supporting long-term economic opportunity and prosperity while also reducing its greenhouse gas emissions and meeting sustainability goals.&nbsp;JPMorgan Chase and Youth Guidance announced an expansion of their respective programs,&nbsp;<a href="https://www.jpmorganchase.com/impact/people/mentoring-skilled-volunteerism/the-fellowship-initiative/the-fellowship-initiative-celebrates-10-years">The Fellowship Initiative</a>&nbsp;(TFI) and Becoming a Man (BAM), to Washington D.C. to help young men of color forge local pathways to graduation and post-secondary success. TFI and BAM will work with District of Columbia Public Schools to improve the economic and social outcomes for hundreds of young men of color. Through this intensive, multi-year school-based program high school students will receive academic coaching, college and career readiness services, social and mental health support, and leadership development that helps put them on a path toward greater economic mobility.Morgan Stanley&nbsp;<a href="https://www.morganstanley.com/press-releases/the-equity-collective---a-diversity-driven-collaboration-">announced</a>&nbsp;the launch of The Equity Collective, an industry leading group of Wealth Management and Asset Management businesses who have come together to educate, empower and develop the next generation of diverse leaders in the finance industry. The Equity Collective is composed of&nbsp;25&nbsp;members. Senior leaders across each member organization will participate in education and awareness events and initiatives in this multi-year commitment,&nbsp;which includes exclusive sponsorships with the Boys &amp; Girls Clubs of America, HIVE Diversity and Team IMPACT.State Street&nbsp;<a href="https://www.maconferenceforwomen.org/">presented</a>&nbsp;the 2021 Massachusetts Conference for Women, which focused on leadership, career advancement, equity and inclusion and personal development. The conference featured keynote speakers, networking opportunities and skills training to thousands of women and offered workshops dedicated to issues such as personal finance and entrepreneurship. State Street has sponsored the Massachusetts Conference for Women for over a decade.Wells Fargo&nbsp;<a href="https://newsroom.wf.com/English/news-releases/news-release-details/2021/Wells-Fargo-Helps-Revitalize-Local-Business-Districts-Across-America-This-Holiday-Season/default.aspx">announced</a>&nbsp;the launch of “Hope, USA,” an initiative to support small businesses nationwide. Through this effort, Wells Fargo will help beautify business districts in more than a dozen cities across the country and encourage shopping locally this holiday season. Hope, USA builds upon the firm’s roughly $420 million commitment to small businesses through its&nbsp;<a href="https://www.wellsfargo.com/biz/help/open-for-business-grants/">Open for Business Fund.</a>

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The Forum File, Edition 8

Dear reader,&nbsp;Welcome to the seventh edition of The Forum File. In this edition, we are highlighting our members’ work in advancing financial opportunities for women and minority entrepreneurs and business owners, as well as their work in supporting children’s mental health.&nbsp;Thank you for reading and please do not hesitate to share your feedback.&nbsp;Kevin Fromer, President and CEO, Financial Services Forum&nbsp;&nbsp;<h2>Penny For Your Thoughts</h2>&nbsp;<h3>Can you give an overview of the funding gap problem for diverse entrepreneurs?</h3>It’s no secret that a very wide funding gap unfortunately exists for female and diverse founders. The average investment in a typical business startup is nearly $1 million, yet for women and minority-owned businesses that figure drops to just $213,000 and $185,000, respectively. Additionally, investors reported capitalizing multicultural and women-owned businesses at 80% less than businesses overall, and <a href="https://www.morganstanley.com/ideas/trillion-dollar-blind-spot-infographic">our research shows</a> this translates into roughly $4.4 trillion in missed opportunity.And it’s far from a “supply issue” – these diverse founders are out there, but the investment community has chosen to overlook the huge depth and size of this market. I talk through this issue in greater depth on my podcast, <a href="https://www.morganstanley.com/ideas/access-and-opportunity-with-carla-harris">Access &amp; Opportunity</a>, while also highlighting the leaders doing the work to provide solutions and diverse entrepreneurs changing the game.<h3>Tell us more about the Multicultural Innovation Lab.</h3>We at Morgan Stanley are working towards a more equitable funding landscape for women and entrepreneurs of color through our in-house accelerator program, the <a href="https://www.morganstanley.com/about-us/diversity/multicultural-innovation-lab">Multicultural Innovation Lab</a> (MCIL). The MCIL is a 5-month accelerator for technology and technology-enabled startups that targets companies with a multicultural or woman founder, co-founder, CTO or other C-suite in the post-seed to Series A funding rounds. Simply put, the Lab’s mission is nothing less than to transform the investing landscape to be more equitable for diverse founders.In addition to an investment of $250,000 and office space within Morgan Stanley, the founders receive support from a dedicated Morgan Stanley team delivering comprehensive programming across various topics and access to industry leading mentors and connections. The accelerator was launched in 2017 to close the funding gap for diverse entrepreneurs that investors claimed they “couldn’t find.” Since inception the program has expanded so that we now support up to 20 companies annually, with 2 cohorts per year.After four successful years with six cohorts under our belt, the program has proven to be successful as evidenced by resulting company acquisitions and additional funding rounds following participation in the program. And we are continuing to make strides in the fifth year, motivated by our mission of increasing access to capital for diverse entrepreneurs. Highlighting these great companies with diverse founders and leveraging our expansive and global networks and resources will hopefully widen their universe and attract the capital needed to scale.Carla Harris is a Vice Chairman at Morgan Stanley and Co-Head of the Multicultural Innovation Lab. Learn more <a href="https://www.morganstanley.com/what-we-do/inclusive-innovation-and-opportunity?cid=ppc-71700000055408865:700000001808142:58700005226325149:p46130816074&amp;gclid=EAIaIQobChMIprrpiZrr8wIVaHNvBB3_EQxaEAAYASAAEgLBMvD_BwE&amp;gclsrc=aw.ds">here.</a><h2>&nbsp;</h2><h2>Value Add</h2>&nbsp;Member program spotlight&nbsp;<figure class="image image-style-align-center"><img src="https://fsforum.com/a/media/screen-shot-2021-11-03-at-10.31.35-am.png"></figure>&nbsp;COVID-19 and its repercussions have taken a&nbsp;massive toll on children’s mental health, with depression and anxiety in youth already at a two-decade high in February of 2020,&nbsp;<a href="https://www.cdc.gov/childrensmentalhealth/features/anxiety-depression-children.html">according to the CDC</a>. To make matters worse, support for children’s mental health and wellbeing was already severely lacking, especially in vulnerable communities. Now more than ever, we need urgent, coordinated efforts to prevent the existing global crisis in children’s mental health from escalating.For more than 50 years, the&nbsp;<a href="https://www.morganstanley.com/about-us/giving-back">Morgan Stanley Foundation</a>&nbsp;has supported healthy starts and solid education for the children in our communities, and has continued to expand the reach of those initiatives globally for the past 20 years through the&nbsp;<a href="https://www.morganstanley.com/about-us/giving-back">Morgan Stanley International Foundation</a>. Our latest initiative, the&nbsp;<a href="https://www.morganstanley.com/about-us/giving-back/alliance-childrens-mental-health">Morgan Stanley Alliance for Children’s Mental Health</a>, combines the resources and reach of Morgan Stanley with the knowledge and experience of our distinguished nonprofit member organizations to help deliver positive, tangible impact on the critical challenges of stress, anxiety and depression in children, adolescents and young people.This year Morgan Stanley launched the&nbsp;<a href="https://www.morganstanley.com/about-us/giving-back/childrens-mental-health-awards">Morgan Stanley Alliance for Children's Mental Health Innovation Awards</a>, which aims to identify and fund mental healthcare solutions for children and young adults across the United States. The Innovation Awards program specifically addresses the lack of both private and public investment in children’s mental health and the dearth of effective ways to connect innovative ideas with capital. The resulting systemic funding gap has only increased with the deepening crisis in children’s mental health due to COVID-19 and ongoing social injustice issues.&nbsp;Five <a href="https://www.morganstanley.com/press-releases/children-s-mental-health-innovation-awards">winners</a> of the inaugural Innovation Awards were recently selected after a robust review of over 850 applications by mental health and grant-making experts from the Alliance for Children’s Mental Health. They address a diverse set of communities, geographies, and needs through their transformative and culturally responsive models.&nbsp;The selected winners now have the opportunity to showcase their innovative solutions to a broader audience, including other funders, during the Innovation Awards Showcase on November 11, 2021. Learn more about the winners by registering for the virtual Innovation Awards Showcase <a href="https://web.cvent.com/event/6bcf2299-2c6a-43aa-be27-5f14ef8e0c74/websitePage:cca8e178-7412-4c05-84df-d5a52faa76ba?rt=wu_GZCT5O0aT3umK16g1Dw">here</a>. &nbsp;&nbsp;<h2>Capital Gains</h2>What we're doing in WashingtonThe Forum <a href="https://fsforum.com/a/media/fsf-commentsonthird-partyriskmanagementproposal.pdf">submitted</a> a letter to the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) on the proposed interagency guidance on managing risks associated with third-party relationships.The Forum joined other organizations in <a href="https://fsforum.com/a/media/liborjointtradesletter-sbchearing.pdf">requesting</a> a meaningful solution that offers fair, equitable and consistent treatment for all tough legacy contracts in support of the LIBOR transition.Following the release of the Financial Stability Oversight Council’s (FSOC) report on climate-related financial risks and financial stability, the Forum <a href="https://fsforum.com/news/largest-u-s-banks-welcome-efforts-to-advance-climate-change-risk-management">welcomed</a> efforts to advance climate change risk management.<ul><li>Forum members recognize that climate change poses risks to the world’s economy and financial system, as well as offers opportunities to foster innovation and mobilize capital. U.S. GSIBs are undertaking significant efforts to assess and manage climate-related risks and have announced support of the Paris Agreement goals of limiting the increase in global average temperature to well below 2 degrees Celsius above preindustrial levels. Firms are analyzing and developing Paris-alignment strategies to support their clients and the global economy to meet this goal.</li></ul>Learn more about what Forum members are doing to assess and manage risks associated with climate change and their related commitments <a href="https://fsforum.com/our-impact/combatting-climate-change">here.</a>&nbsp;<h2>Our Two Cents</h2>Research from the Forum&nbsp;The BankNotes Blog Spotlighted:<ul><li>A <a href="https://fsforum.com/news/proceed-with-caution-measuring-climate-risks-in-the-banking-sector">review</a> of the Federal Reserve Bank of New York and New York University research paper that attempts to estimate climate risk in the banking sector and discussed some of the conceptual and empirical challenges that are highlighted by this work.</li><li><a href="https://fsforum.com/news/first-things-first-climate-risk-management-and-capital-for-large-banks">Climate change and its relation to large bank capital and risk-management policies.</a> As in the FSOC report, we find that a focus on risk-management, including scenario analysis, is important to address climate-related financial risk.</li><li><a href="https://fsforum.com/news/a-one-way-ratchet-buffers-and-the-covid-pandemic-experience">The large bank buffer regime</a>, the experience with buffers during COVID, the underlying problem with the buffer framework, and implications for the countercyclical capital buffer.</li></ul><h3>&nbsp;</h3><h2>Checking the Balance</h2>Members in the news&nbsp;&nbsp;Bank of America&nbsp;<a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2021/10/bank-of-america-s-community-development-financial-institution-lo.html">announced</a>&nbsp;its current portfolio of loans, deposits and investments to Community Development Financial Institutions (CDFIs) now exceeds $2 billion. This includes approximately $100 million in deposits to Minority Depository Institutions (MDIs) and investments of nearly $36 million of equity in 21 MDIs as part of the firms’ recent&nbsp;<a href="https://newsroom.bankofamerica.com/press-releases/community-development/bank-america-directs-300-million-its-1-billion-four-year">commitment</a>&nbsp;of up to $50 million. These investments build on 25 years of partnership through which Bank of America has provided capital to more than 250 CDFIs across all 50 states and DC.BNY Mellon’s Chief Financial Officer, Emily Portney, was named to American Banker’s annual&nbsp;<a href="https://urldefense.com/v3/__https:/www.americanbanker.com/list/most-powerful-women-in-finance-2021__;!!OiWDNh-9Pw!vbdt4hsvQQaeZ1__1N6vX-vM1NtZ_tDJ-vmikdshaXBBXumauz8Eb1fppjZLcMgqwKoM$">Most Powerful Women in Finance</a>&nbsp;list for the second year in a row, and Chief Audit Executive, Paulette Mullings, was named to its&nbsp;<a href="https://urldefense.com/v3/__https:/www.americanbanker.com/list/women-to-watch__;!!OiWDNh-9Pw!vbdt4hsvQQaeZ1__1N6vX-vM1NtZ_tDJ-vmikdshaXBBXumauz8Eb1fppjZLcB0DmRtb$">Most Powerful Women to Watch</a>&nbsp;list. Additionally, Global Head of Human Resources, Jolen Anderson, and Chief Operations and Technology Officer, Bridget Engle, were&nbsp;<a href="https://urldefense.com/v3/__https:/www.americanbanker.com/list/most-powerful-women-in-banking-standouts__;!!OiWDNh-9Pw!vbdt4hsvQQaeZ1__1N6vX-vM1NtZ_tDJ-vmikdshaXBBXumauz8Eb1fppjZLcMKZh1MZ$">highlighted</a>&nbsp;as standouts in their respective roles.Citi&nbsp;<a href="https://blog.citigroup.com/2021/10/expanding-citis-commitment-to-social-finance/">announced</a>&nbsp;the offering of the inaugural Citi Social Finance Bond, a $1 billion bond that supports social-focused developments in emerging markets around the world. The use of proceeds from the bond will finance a range of projects, including those that expand access to financial services, affordable housing, basic infrastructure, healthcare, and education in underserved and unbanked communities in emerging markets. The bond supports Citi’s $1 trillion&nbsp;<a href="https://blog.citigroup.com/2021/04/citi-commits-1-trillion-to-sustainable-finance-by-2030/">commitment</a>&nbsp;to sustainable finance announced earlier this year, which includes $500 billion for social finance and $500 billion for environmental finance by 2030.Goldman Sachs One Million Black Women&nbsp;<a href="https://www.goldmansachs.com/media-relations/press-releases/2021/ombw-announcement-18-oct-2021.html">announced</a>&nbsp;a partnership and a $1 million commitment to Echoing Green to accelerate the impact of Black women social entrepreneurs through its fellowship program. In partnership with Black women-led organizations, Goldman Sachs&nbsp;<a href="https://www.goldmansachs.com/our-commitments/sustainability/one-million-black-women/index.html">One Million Black Women</a>&nbsp;has committed $10 billion in direct investment capital and $100 million in philanthropic support to address the dual disproportionate gender and racial biases that Black women have faced for generations, which have been exacerbated by the pandemic.JPMorgan Chase&nbsp;<a href="https://www.jpmorganchase.com/ir/news/2021/jpmc-provides-update-on-30-billion-racial-equity-commitment">announced</a>&nbsp;it has deployed or committed more than $13 billion of its&nbsp;<a href="https://www.jpmorganchase.com/news-stories/jpmc-commits-30-billion-to-advance-racial-equity">$30 billion goal</a>&nbsp;to help close the racial wealth gap. The progress is largely driven by homeownership refinancing and affordable rental housing preservation, which were existing products and processes where the firm took immediate action to do more. While noting there is more work to do, the bank has hired more than 20 diverse senior business consultants to provide free one-on-one coaching for business owners in 13 U.S. cities and have mentored more than 900 small business owners so far. JPMorgan Chase has also invested more than $100 million of equity in 14 diverse-owned or -led MDIs and CDFIs that serve more than 87 communities in 18 states and the District of Columbia, among other steps.Morgan Stanley Wealth Management sponsored the&nbsp;<a href="https://blackwealthsummit.com/">Black Wealth Summit</a>&nbsp;with Andy Saperstein, Co-President of Morgan Stanley and Head of Wealth Management and Carla Harris, Vice Chairman and Managing Director, as featured speakers and over 50 Financial Advisors and managers participating.&nbsp;The mission of the summit was to offer the exposure, learning and encouragement needed to make prosperity accessible to Black people through wealth literacy, investment education, networking and mentoring. The summit shared a similar mission with Morgan Stanley’s launch of a&nbsp;<a href="https://www.morganstanley.com/press-releases/morgan-stanley-wealth-management-launches-racial-equity-investin">Racial Equity Investing Tool Kit</a>&nbsp;in May.State Street CEO Ronald O’Hanley and COO Lou Maiuri were named to the&nbsp;<a href="https://clicktime.symantec.com/3S5R175H9xeiXGBYS5tw9Mg6xU?u=https%3A%2F%2Fheroes.involverolemodels.org%2Fpoll%2F2021-top-35-advocates%2F">2021 HERoes Advocate Executives List</a>. This list features executives recognized as champions for women in business through initiatives they have implemented and company culture under their management. Additionally, Yvonne Garcia, Chief of Staff to State Street Chairman and CEO and Global Head of Internal Communications, was named to the&nbsp;<a href="https://clicktime.symantec.com/3LSn2UtYhA1vnbwBWy8LWwT6xU?u=https%3A%2F%2Fheroes.involverolemodels.org%2Fpoll%2F2021-top-100-women-executives%2F">HERoes Women Executives List</a>, and Marion Bentata, Vice President, Leveraged Loans Analyst, was named to the&nbsp;<a href="https://clicktime.symantec.com/33HtpJNc1RpLdjHFZFB2JZ26xU?u=https%3A%2F%2Fheroes.involverolemodels.org%2Fpoll%2F2021-top-100-women-future-leaders%2F">Women Futures Leader List.</a>Wells Fargo was&nbsp;<a href="https://urldefense.com/v3/__https:/climateleadershipconference.org/2021-climate-leadership-award-winners/__;!!F9svGWnIaVPGSwU!-Ye_HyjRKUD_eKuWMt0tzNFZB9ixH6b-ivxL2UqN_VRXLvcxx91cJVcPqWQth59yalrnzlCE7w$">recognized</a>&nbsp;at the 2021 Climate Leadership Awards as a Goal Achievement winner for Excellence in Greenhouse Gas Management. Wells Fargo received this award for its reduction in emissions, improved energy efficiency, and initiatives such as Green Teams that develop business plans for local and business environmental initiatives in line with company-wide goals.

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The Forum File, Edition 7

The Forum File

CONTACT: Brigid Richelieu(202) 660-2569brichelieu@fsforum.com&nbsp;&nbsp;Washington, D.C. – Financial Services Forum President and CEO Kevin Fromer issued the following statement today after President Biden announced his decision to nominate Michael Barr to serve as Vice Chair for Supervision of the Federal Reserve Board:“We congratulate Michael Barr on his nomination to serve on the Federal Reserve Board and as Vice Chair for Supervision.&nbsp;“We look forward to hearing Mr. Barr’s current views on the state of the banking system and to working with him if confirmed.&nbsp; The largest banks in the United States are strong, well-capitalized and committed to serving American households, businesses, and communities.&nbsp; We expect that these institutions will continue to meet the high regulatory and supervisory standards that have remained in place as part of a resilient and essential banking system.”&nbsp;&nbsp;###BackgroundU.S.-based Global Systemically Important Banks, or GSIBs, are subject to the highest regulatory and supervisory standards. These standards, which were put in place more than a decade ago, have been maintained or strengthened in recent years. Capital requirements for these banks more than doubled from 2015 to 2021. Liquidity requirements have increased. And the Federal Reserve continues to conduct rigorous stress tests – using hypothetical scenarios far worse than the financial crisis -- to ensure the largest banks hold enough capital to be able to continue to lend and remain strong even in the face of significant headwinds.Learn more about the robust regulatory and supervisory standards for U.S. GSIBs <a href="https://fsforum.com/a/media/regulatoryreality.pdf">here</a>.&nbsp;&nbsp;The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, financial inclusion, a competitive global marketplace, and a sound financial system. &nbsp;Visit our website: <a href="http://www.fsforum.com/">fsforum.com</a>Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>

Financial Services Forum Statement on Federal Reserve Nominee 

CONTACT: Brigid Richelieu(202) 660-2569brichelieu@fsforum.com&nbsp;Legislation would provide solution for “tough legacy” contracts impacted by transition from LIBORWashington, D.C. – Financial Services Forum President and CEO Kevin Fromer issued the following statement today after a measure to address “tough legacy” contracts that reference LIBOR was included in the Omnibus Appropriations Bill:“The Financial Services Forum applauds the inclusion of the LIBOR provision in the Omnibus Appropriations Agreement. The measure would enable a smooth transition away from LIBOR by addressing tough legacy contracts that reference LIBOR rates. This legislation provides an effective solution for the trillions of dollars of tough legacy contracts that cannot be easily modified under current regulations. We commend senators Tester, Tillis, Brown, and Toomey and Rep. Sherman for their leadership on this important measure to provide much-needed certainty during this important transition.”&nbsp;###&nbsp;BackgroundThe London Interbank Offer Rate, or LIBOR, is a reference rate that is the benchmark interest rate at which banks lend to each other. LIBOR is being phased out as a reference rate and will cease to be published entirely in June 2023.Because of the sheer number of financial contracts that are pegged to LIBOR, existing contracts need to be adjusted well before LIBOR rates are no longer published. But certain contracts are difficult to amend, and federal legislation is needed swiftly to reduce uncertainty and disruption and to ensure continued market liquidity.For more information, please read letters sent to <a href="https://fsforum.com/a/media/liborjointtradesletterforhouse.pdf">House</a> and <a href="https://fsforum.com/a/media/liborjointtradesletter-sbchearing.pdf">Senate</a> leaders by the Financial Services Forum and other trade organizations.&nbsp;&nbsp;The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, financial inclusion, a competitive global marketplace, and a sound financial system. &nbsp;Visit our website: <a href="http://www.fsforum.com/">fsforum.com</a>Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>

Financial Services Forum Applauds Inclusion of LIBOR Measure in Omnibus

CONTACT: Brigid Richelieu(202) 660-2569brichelieu@fsforum.com&nbsp;The Nation’s Largest Banks Are Taking Steps to Assess and Manage Climate-Related Financial Risks, Urge Principles- and Risk-Based ApproachWashington, D.C. – In response to proposals from the Office of the Comptroller of the Currency (OCC) and the Basel Committee on Banking Supervision (BCBS), the Forum commented on efforts to establish guidance for banking organizations to manage climate-related financial risks and offered specific recommendations on how the proposals could be adjusted to further reflect the proposals’ goals.“Our members have taken important steps to integrate climate-related financial risk into their governance, strategy, and risk management frameworks,” Forum President and CEO Kevin Fromer said. “Regulators and international standard setters should allow for flexibility and use a principles- and risk-based approach to support banks’ efforts to manage and mitigate climate-related financial risks.”The Forum’s comments offered several key observations and recommendations. The Forum supports the use of scenario analysis rather than traditional stress testing, which is used to assess banks’ near-term capital adequacy in the face of severe downturns. The Forum also endorsed regulators’ use of high-level, risk-based principles that enable flexibility for banks to incorporate climate-related financial risks into their existing risk-management frameworks. Such an approach is consistent with regulatory expectations that banks’ risk-management frameworks encompass all material risks and allows banks to more expeditiously address emerging climate-related financial risks, the Forum said.The Forum’s full comments to the Basel Committee can be found <a href="https://fsforum.com/a/media/fsf---bcbs-climate-risk-principles-comment-letter.pdf">here</a>. The Forum’s full comments to the OCC can be found <a href="https://fsforum.com/a/media/fsf---occ-climate-principles-comment-letter.pdf">here</a>, and an accompanying factsheet can be found <a href="https://fsforum.com/a/media/key-takeaways-from-the-financial-services-forum’s-responses-to-the-occ-on-climate-risk-principles.pdf">here</a>.&nbsp;###&nbsp;The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system. Visit our website: <a href="http://www.fsforum.com/">fsforum.com</a>Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>

Forum Promotes Principles- and Risk-Based Approach to Managing Climate-Related Financial Risks 

Press Releases

This op-ed was featured in <a href="https://morningconsult.com/opinions/strength-of-large-u-s-banks-means-its-time-to-rely-on-rigorous-capital-distribution-process/">Morning Consult</a>.&nbsp;<h3>By Kevin Fromer</h3><blockquote>Later this week, the Federal Reserve will issue results of its latest round of stress tests, offering an update on the health and safety of the largest banks in the country. This assessment marks the third round of stress tests the government has conducted in a year to measure the capital adequacy of large U.S. banks.</blockquote>These results will herald the full return to the government’s normal capital distribution oversight <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210325a.htm">process</a>, which was halted in 2020 due to the uncertain economic effects of the pandemic. Given the strength of the nation’s largest banks and the rapid improvement in the economy, it is clearly time to rely on the established and rigorous regulatory process, which allows banks to return excess capital to investors across the country. This return to regular order will support the economy as we build a strong, inclusive recovery.Capital distributions are expected by investors in any large corporation. Companies in a variety of&nbsp;<a href="https://www.wsj.com/articles/companies-are-flush-with-cashand-ready-to-pad-shareholder-pockets-11621157406">industries</a>&nbsp;routinely distribute portions of their earnings to investors — it is how American companies attract investment so that they can grow, create jobs, expand services and better support the economy.Despite what critics would have you believe, the capital distribution process is not a zero-sum game. Share distributions&nbsp;<a href="https://finance.yahoo.com/news/tax-cuts-fuel-stock-buyback-spike-130545937.html?acid=twitter_yfsocialtw_l1gbd0noiom&amp;ncid=twitter_yfsocialtw_l1gbd0noiom&amp;guccounter=1">complement</a> — not replace — the investments that banks make in their communities, workers, operations and businesses. Only safe and highly capitalized banking institutions can even consider buybacks or dividends.What’s more, unlike every other industry, large financial institutions face higher regulatory scrutiny and approval to buy back shares or to issue dividends.This year, large banks must pass a strenuous stress test to demonstrate they maintain a strong capital position and can support the economy, even during a significant downturn. They must further satisfy several different regulatory capital&nbsp;<a href="https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200304a2.pdf">requirements</a>&nbsp;each quarter to continue making planned buybacks and dividends. Then, and only then, are banks able to distribute capital.In the most recent test, which the Federal Reserve completed in&nbsp;<a href="https://www.federalreserve.gov/publications/files/2020-dec-stress-test-results-20201218.pdf">December</a>, the average post-stress capital ratio for the U.S. Global Systemically Important Banks was 9.7 percent, significantly larger than that of other U.S. banks subject to the stress tests and more than twice the minimum requirement of 4.5 percent.The largest U.S. banks entered the global pandemic in a strong position and they acted quickly to&nbsp;<a href="https://fsforum.com/our-impact/covid-19-response">support</a>&nbsp;customers, small businesses, employees and the communities in which they operate. They also&nbsp;<a href="https://fsforum.com/news/financial-services-forum-statement-on-share-buybacks">suspended</a>&nbsp;their share buybacks — which account for the majority of their capital distributions — and aggressively reserved for potential losses. Importantly, large banks’ strength and scale allowed them to significantly support the economy.In 2020, the nation’s largest banks increased their provision of&nbsp;<a href="https://fsforum.com/a/Credit_ad3853a06e/Credit_ad3853a06e.pdf">credit</a>&nbsp;by 10 percent, helping families, small businesses, large employers and the government. They accepted a massive surge in deposits and facilitated loans to nearly 850,000&nbsp;<a href="https://fsforum.com/a/COVID_19_Response_b55baf7fc3/COVID_19_Response_b55baf7fc3.pdf">small businesses</a>&nbsp;through the Paycheck Protection Program. They also committed significant resources to communities across the country, creating or preserving more than 158,000 affordable&nbsp;<a href="https://fsforum.com/a/Committed_to_Affordable_Housing_2021_4c59c48264/Committed_to_Affordable_Housing_2021_4c59c48264.pdf">housing</a>&nbsp;units, and supported their nearly 758,000 employees by giving them extra time off, paying for child and elder care and providing economic incentives.The largest banks have also been strong&nbsp;<a href="https://fsforum.com/our-impact/supporting-underserved-communities">supporters</a>&nbsp;of historically underserved communities. In addition to the work they are doing to promote lending in minority neighborhoods, they are investing in mission-driven financial institutions so that they can succeed and serve diverse and low- and moderate-income communities. From 2015 to 2020, the largest banks&nbsp;<a href="https://fsforum.com/a/cdfifactsheetfinal2021_861e28ce56/cdfifactsheetfinal2021_861e28ce56.jpeg">invested</a>&nbsp;$9 billion in Community Development Financial Institutions, and they have also&nbsp;<a href="https://fsforum.com/a/MDI_One_Pager_6a4a12345f/MDI_One_Pager_6a4a12345f.pdf">committed</a>&nbsp;more than $500 million to Minority Depository Institutions, in some cases investing directly in the MDIs to support their long-term wellbeing.The largest banks are committed to supporting their employees and the communities they serve. These institutions can and will continue to provide this support while distributing&nbsp;capital.It’s important to remember that the benefits of buybacks and dividends to the economy go far beyond the shareholders. More than half of all U.S. households own stocks, either directly&nbsp;or indirectly, according to the&nbsp;<a href="https://www.federalreserve.gov/econres/scfindex.htm">Federal Reserve</a>. Moreover, stock holdings are most concentrated among households headed by a retiree and dependent on dividends to meet their financial needs. Therefore, money returned to shareholders recirculates throughout the economy.&nbsp;It is our banks’ responsibility to those teachers, first responders, veterans and small businesses who invest in them to always use capital in the highest and most efficient way possible.As Federal Reserve Chairman Jerome Powell&nbsp;<a href="https://www.govinfo.gov/content/pkg/CHRG-115shrg32517/pdf/CHRG-115shrg32517.pdf">said</a>: “When a company buys back its shares or pays higher dividends, the resources do not disappear. Rather, they are redistributed to other uses in the economy. For instance, shareholders may decide to invest the windfall in another company, which may in turn make productivity-enhancing investments. Or they may decide to spend the windfall on goods and services that are produced by other companies, who may in turn hire new workers. In these ways, stock repurchases would also be likely to boost economic growth.”The nation’s largest banks are committed to serving our country and to building an economic recovery that supports everyone. They have been through a real-life stress test during the past year and have shown that they are safe, strong, and are a key source of support for the economy. Government oversight of share distributions by the largest U.S. banks is rigorous, and ensures the continued strength of the financial system. The fact that banks have such excess capital to reinvest in the form of buybacks and dividends is a promising sign for the economy. It is now time to rely upon a normal process of assessing our institutions, and ensuring that they may support a durable, inclusive recovery.&nbsp;Kevin Fromer is president and CEO of the Financial Services Forum, which represents the eight largest, most diversified U.S. banking institutions, and previously served as&nbsp;the Assistant Secretary of the Treasury for Legislative Affairs from 2005 to 2009.&nbsp;

Op-ed: Strength of Large U.S. Banks Means It’s Time to Rely on Rigorous Capital Distribution Process

This op-ed was featured in <a href="https://www.americanbanker.com/opinion/capital-relief-is-good-for-big-banks-and-the-economy">American Banker's BankThink</a>.&nbsp;<h3>By Sean Campbell</h3><blockquote>The nation’s largest banks have been instrumental in supporting the economy through the coronavirus pandemic, providing vital assistance to consumers and businesses and facilitating critical financing from government programs.To ensure the banking industry can be a key source of support during the crisis, regulators rightly made temporary and targeted adjustments to certain regulations.</blockquote>Yet, some critics including in a recent&nbsp;<a href="https://www.americanbanker.com/opinion/dont-weaken-the-g-sib-surcharge">BankThink</a>&nbsp;op-ed, have shown a clear misunderstanding of big bank capital levels and the objective of the Federal Reserve in navigating one of the most serious economic crises to ever hit the U.S. and global economy.The author argues that regulators “gutted” large bank capital by temporarily excluding deposits at the Federal Reserve and U.S. Treasuries from the supplementary leverage ratio’s (SLR) risk-insensitive measure of total exposure, which determines the amount of capital required by the SLR. A few points should be noted in response.First, regulators have long held that risk-insensitive leverage capital requirements are intended to be a backstop to risk-based capital requirements. Prior to the crisis, the minimum capital requirement for a risk-based capital measure, called Tier 1, was 4% of risk-weighted assets. Today, that minimum stands at 6%, a 50% increase.What’s more, over the past decade banks have significantly improved both the quality and quantity of capital maintained. Financial Services Forum members, for instance, have grown their capital base by&nbsp;<a href="https://fsforum.com/a/forum_value_and_resiliency_2020q1_1_f835ef3ee5/forum_value_and_resiliency_2020q1_1_f835ef3ee5.pdf">$260 billion</a>&nbsp;and substantially raised capital levels as a proportion of the risk-weighted asset base.Regulators rightly made a temporary change to the SLR standard in the pandemic to help ensure that risk-insensitive leverage requirements do not move to the fore and become the binding capital constraint. This would further distress capital markets and the ability of banks to provide credit to businesses and households during an unprecedented economic disruption.Second, large banks are currently bound by the Federal Reserve’s new capital policy announced in late June with this year’s stress test results. All large banks are prohibited from making any share repurchases through the third quarter and dividend payouts are frozen at previous levels.Accordingly, it is hard to understand how large bank capital will decline significantly as the Federal Reserve has actively taken steps requiring banks to conserve capital. These measures outweigh any potential impact that the temporary change to the SLR could have.Some critics also maintain that the finalization earlier this year of the&nbsp;<a href="https://www.americanbanker.com/news/fed-finalizes-new-capital-buffer-ahead-of-2020-stress-tests#:~:text=The%20final%20SCB%20%E2%80%94%20which%20the,severely%20adverse%E2%80%9D%20stress%20test%20scenario.">stress capital buffer (SCB) rule</a>&nbsp;— which was first introduced during the Obama administration and ties large bank capital requirements to stress testing — somehow represents a big bank giveaway.Yet the Federal Reserve’s&nbsp;<a href="https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200304a1.pdf">analysis</a>&nbsp;showed that the SCB will have the effect of raising capital for global-systemically important banks (G-SIBs) by roughly $46 billion on average, while at the same time lowering capital requirements for smaller banks. Given that the analysis shows the SCB final rule raises capital for G-SIBs, it is difficult to understand how one would assert that the SCB represents a weakening of the large bank capital regime.Also, this year the Fed opted not to set bank capital distribution policy with regard to the SCB. Rather, the Fed is using a new “sensitivity analysis” to determine bank capital distributions.This year’s sensitivity analysis found that 75% of all large banks subject to the stress tests — a universe that goes well beyond the G-SIBs — would maintain capital levels above the minimum requirement.In the parlance of the previous stress testing regime, most banks actually passed the stress tests, but are still being required to conserve capital per the Fed’s new capital distribution policy. Accordingly, the suggestion that somehow large banks are either not well-capitalized or are shedding capital simply does not add up.All of the capital modifications announced by the Fed are temporary and explicitly designed to deal with the coronavirus crisis to help ensure that banks of all sizes can continue to support the economy in this time of great need.<blockquote>Data and existing research convincingly show that large banks have been&nbsp;<a href="https://www.fsforum.com/types/press/unprecedented-increase-in-large-bank-lending-to-help-businesses-through-the-recovery/">playing an outsized role</a>&nbsp;in supporting the U.S. economy. Indeed,&nbsp;<a href="https://www.nber.org/papers/w27256">research</a>&nbsp;from Boston College and Federal Reserve staff further documents that the bulk of corporate lending during the pandemic has come from large banks, showing these institutions have risen to the occasion during such trying times.</blockquote>The Federal Reserve and other regulators are wisely and judiciously making temporary adjustments to certain capital rules to ensure that formulaic and risk-blind capital requirements do not unnecessarily cinch the flow of credit, which is so crucial to managing through this crisis. The Fed’s modification of the SLR in these exigent times is a shining example of what a good regulator should do in a crisis.It is not a “rollback” or “weakening” of anything. Rather, it illustrates the central bank’s resolve in putting the economy and people ahead of inflexible rules.As the economic and public health data clearly show, the nation is not out of this pandemic yet. Regulators should continue to prudently modify regulations that risk unnecessarily crimping private credit expansion, which would present even more challenges to an already unstable economic recovery.&nbsp;<a href="https://www.americanbanker.com/author/sean-campbell">Sean Campbell</a>Sean Campbell is chief economist and head of policy research at the Financial Services Forum.

BankThink Op-ed: Forum Head of Research Explains Why Targeted Capital Relief Makes Sense for Large Banks & an Economy in Crisis

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<ul><li>We hold more than $4.2 trillion in loans, accounting for 40% of total lending to businesses and households.</li><li>We provide more than $679 billion, or nearly half, of all consumer loans by banks in the U.S., supporting everything from the purchase of a new car to furnishing a new home.</li><li>Lending by our institutions accounts for 34% of total commercial and industrial (C&amp;I) lending by banks, helping businesses grow and contribute to the economy.</li><li>We represent a major source of lending to small businesses in communities across the country, holding $126 billion in small business loans&nbsp;and allowing the economy to grow at both a local and national level.</li><li>We also collectively meet nearly three-quarters of the bank funding needs of other financial institutions, supporting community banks, insurance companies and mortgage finance companies, for example, which then provide important services to businesses and households.</li></ul>

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Lending

Our institutions lend to consumers, businesses and other financial institutions, promoting savings and investment that positions individuals and entities at all layers of the U.S. economy for resiliency and success. At the same time, we are supporting consumers, governments, and businesses of all sizes in growing and creating American jobs.

<ul><li>We underwrite nearly three-quarters of debt and equity transactions – such as initial public offerings – among large institutions in the U.S., providing a critical service that other U.S. institutions cannot offer on a similar scale.</li><li>With $4.2 trillion of mutual funds and annuities under management, we support the retirement and other savings needs of many Americans.</li><li>We finance a significant portion of state and local government expenditures for vital projects, like hospitals, roads, bridges, and schools, through $120 billion in municipal securities holdings. Additionally, we support a large portion of federal government expenditures through $1.1 trillion in U.S. Treasury securities holdings.</li></ul>

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Liquid Capital Markets

Our institutions help foster deep and liquid capital markets, ensuring the U.S. government and private institutions are able to effectively finance public spending and investments in the real economy. 

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Our Employees

Our institutions collectively employ more than 750,000 people, offering a variety of benefits and opportunities to help our employees achieve their personal and professional goals.

Forum members increased credit to businesses and households by 10%
to nearly $8.3 trillion in 2020.


Essential to the U.S. Economy

This op-ed was featured in <a href="https://www.americanbanker.com/opinion/easing-derivatives-trading-rule-would-help-the-system-not-hurt-it?utm_source=twitter&amp;utm_content=socialflow&amp;utm_campaign=bankthink-tw&amp;utm_medium=social">American Banker's BankThink</a>.&nbsp;<h3>By Kevin Fromer and Kenneth E. Bentsen</h3>&nbsp;<blockquote>Recent attempts by policymakers to eliminate an initial margin requirement for certain trading swaps between affiliates of the same financial institution would reduce costs for consumers and businesses.Such an action would also remove a competitive disadvantage for U.S. banks while promoting safety and soundness in the financial system. This is counter to a&nbsp;<a href="https://www.americanbanker.com/opinion/the-40-billion-gift-that-wall-street-doesnt-deserve">recent BankThink</a>&nbsp;in the July 16 issue of American Banker that made a number of incorrect assertions around both the need for continuing the margins requirement, and the rationale for ending it.</blockquote>However, it is important to first address the hyperbolic characterization of swaps, or derivatives. Swaps are an important and heavily regulated tool that banks and other institutions use to help manage their exposure, and that of American businesses and consumers, to risk and market fluctuations.The requirement that banks post an initial margin based on swaps between their own affiliates is one that should be revisited and ultimately removed. And there is good reason why.First, it yields no benefit. There are two regulatory margin requirements: initial margin and variation margin.Initial margin is exchanged at the time a swap transaction is established — and adjusted during the life of the transaction as needed — to minimize losses if a counterparty defaults on its obligations.This is sound policy for third-party contracts. But in the case of two affiliates or legal entities under the same corporate holding company, the exchange of interaffiliate initial margin serves no purpose in ensuring contract performance.Variation margin, however, does properly mitigate risk between affiliates. That’s because variation margin requires the exchange of collateral between affiliates based on the current value of the swaps, and accounts for changes in market value. The amount being collected through variation margin is also quite sizable.In 2018, the top 20 firms collected&nbsp;<a href="https://www.isda.org/2019/04/09/top-20-firms-collected-nearly-160-billion-in-initial-margin-at-year-end-2018-survey-finds/">more than $850 billion</a>&nbsp;in variation margin, or more than 20 times the amount of initial margin for interaffiliate swaps.&nbsp;In addition, banks also post initial margin on all trades with covered true third parties, amounting to approximately $158 billion.The technical fix policymakers are considering would only apply to the initial margin between affiliates. It would not change the variation margin requirement between affiliates, nor the initial and variation margin requirements for external counterparties.Second, if the initial margin requirement for interaffiliate swaps is maintained, the cost will ultimately be borne by customers and hurt American competitiveness.Indeed, swaps are an important tool utilized by pension funds for teachers, firefighters, manufacturers and many other kinds of businesses — big and small — to help manage risk. The collection of initial margin on transactions between affiliates increases costs for swaps for these end-users and subsequent customers.Given that U.S. bank regulators are the only major G-20 authorities to impose these requirements, the nation’s banks are left on an uneven playing field when competing both against foreign banks and other U.S. nonbanks. European and Japanese regulators, as well as the Commodity Futures Trading Commission and Securities and Exchange Commission, do not require initial margin collection between affiliates.Further, the assertion of lax regulation outside the U.S. is a red herring. It does not support the fact that all major jurisdictions have implemented substantial and similar rules regarding swaps and margin requirements, as per the G-20 Pittsburgh accords then led by the Obama administration.The current initial margin requirement also puts the safety and soundness of banks at risk. Initial margin requirements on interaffiliate swaps perversely act as a disincentive to better, centralized risk management of an institution.The associated costs discourage interaffiliate swaps in favor of hedging with third parties. Removing the requirement would help broaden a bank’s view of its overall risk exposure, and enhance the safety and soundness of the financial system.Finally, the recent BankThink piece oddly mentioned a proposal to revise the enhanced supplementary leverage ratio — a wholly unrelated issue — and repeated an inaccurate assertion that the change would lead to a large decrease in the amount of required capital at banks.Margin is not the same as capital. And importantly, the Federal Reserve’s own analysis showed that the proposal would not result in a material change in capital at the eight U.S.-based global systemically important banks.The eight global systemically important banks have&nbsp;<a href="https://www.fsforum.com/research/">increased their capital</a>&nbsp;to roughly $925 billion, or more than 40% during the past 10 years.Regulators worldwide and institutions have taken other important steps to greatly enhance the safety and resiliency of the global financial system. CFTC leadership of both political parties have supported the revision.<blockquote>After a decade of rapid regulatory change, we agree with the domestic and foreign regulators who have said it is imperative to review the rules to ensure its effectiveness and efficiency.Elimination of the interaffiliate initial margin requirement has bipartisan support because it would enhance the ability of banks to serve the economy without sacrificing regulatory improvements made in the past decade. Such a move is smart policy that would benefit consumers and businesses alike.</blockquote>Kevin Fromer Kevin Fromer is president and CEO of the Financial Services Forum, which represents the eight largest, most diversified U.S. banking institutions.Kenneth E. Bentsen Kenneth E. Bentsen, Jr., is president and CEO of the Securities Industry and Financial Markets Association.

BankThink Op-ed: Easing derivatives trading rule would help the system, not hurt it

Opinion

Letters

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The Forum supports proposals that would require public companies to annually disclose the gender, race, ethnic, and veteran status of their boards of directors, nominees, and senior executives. Diversity of corporate boards is an area of focus for our institutions and is critically important to investors and other stakeholders.

Board diversity ensures representation of differing experiences and perspectives and allows for unique approaches to solve complex problems. Our members recognize that board diversity bolsters competitiveness around the world, helps foster a sustainable and inclusive economy, and leads to better results for consumers, clients, and communities.


Diversity, Equity and Inclusion

Letter to House in Support of Fair Hiring in Banking Act

Importance of Appropriate Length of Comment Periods

Proposed Principles for the Effective Management and Supervision of Climate-Related Financial Risks

Morgan Stanley

External Link

The Morgan Stanley Equity in Education and Career Consortium Launches Multi-Year Program Supporting Community College Students from Underserved Communities in Partnership with College Possible and CUNY ASAP

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<ul><li>Bank of America exceeded its original $250 million commitment to support PPP lending through CDFI loan funds and CDFI and minority-owned banks, providing $254 million in new credit facilities and $10 million in grants to CDFIs in 2020. Additionally, as part of its $1 billion commitment to closing the racial wealth gap, the bank has committed $50 million to support MDIs.</li><li>Citi has provided $173 million in capital, administered over $886 million in financing, and committed more than $79 million in philanthropic funding to more than 80 CDFIs across the country since 2015. The bank has also made its ATM network available free of charge to clients of nearly 30 MDIs and CDFIs – providing their customers with convenience and nearly $1 million in savings.</li><li>Goldman Sachs&nbsp;provided $774.5 million to eight different CDFIs between 2016 and 2020.</li><li>JPMorgan Chase&nbsp;has made 64 loans totaling more than $870 million to CDFIs and invested more than $1.4 billion in 49 different CDFIs through the New Markets Tax Credit program since 2015. Additionally, from 2015 to 2019 the firm provided 1,001 grants to 145 CDFIs totaling $194 million and continues to mentor and advise select MDIs and CDFIs to help them achieve their future success.</li><li>Morgan Stanley&nbsp;has provided $3.6 billion in investment in 41 CDFIs and $30.5 million in investment in three MDIs between 2016 and 2020. Additionally, the firm has <a href="https://www.morganstanley.com/press-releases/morgan-stanley-announces--10-million-to-support-minority-deposit">committed</a> $10 million in grants supporting MDIs.</li><li>Wells Fargo&nbsp;has invested $847 million in 305 unique CDFIs through grant and debt capital since 2015. Additionally, the bank has <a href="https://stories.wf.com/wells-fargo-announces-seeking-commit-50-million-capital-minority-depository-institutions/">committed</a> to investing up to $50 million in capital for MDIs.</li></ul>

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Supporting CDFIs and MDIs

We are supporting hundreds of Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) by providing over $8.5 billion in capital and financing between 2016 and 2020.

<ul><li>Bank of America&nbsp;in 2020&nbsp;<a href="https://newsroom.bankofamerica.com/press-releases/bank-america-announces-four-year-1-billion-commitment-supporting-economic">committed</a> $1 billion over four years to help local communities address economic and racial inequality. The firm has also <a href="https://newsroom.bankofamerica.com/press-releases/community-development/smithsonian-announces-race-community-and-our-shared-future#:~:text=Bank%20of%20America's%20%2425%20million,economic%20opportunity%20in%20minority%20communities.">committed</a> an additional $25 million to the Smithsonian to fund its Race, Community and Our Shared Future initiative, <a href="https://newsroom.bankofamerica.com/press-releases/corporate-philanthropy/bank-america-expands-support-boys-girls-clubs-america-1">provided</a> a $1 million grant to the Boys &amp; Girls Clubs of America, and made a $22.1 million <a href="https://newsroom.bankofamerica.com/press-releases/corporate-philanthropy/bank-america-expands-support-boys-girls-clubs-america-1">investment</a> in 2020 Neighborhood Builders and Neighborhood Champions in Support of Local Organizations.&nbsp; &nbsp;&nbsp;</li><li>BNY Mellon&nbsp;has <a href="https://www.bnymellon.com/us/en/about-us/newsroom/company-news/bny-mellon-commits-20-million-to-fund-the-future-workforce.html">committed</a> $20 million to community colleges and a select group of local and national organizations to support workforce training programs in traditionally underrepresented minority groups and communities. Additionally, the bank made an initial pledge of $1.5 million to organizations including My Brother’s Keeper, the NAACP Legal Defense and Education Fund, the Southern Poverty Law Center, the National Network for Safe Communities and the Vera Institute of Justice.</li><li>Citi <a href="https://www.citigroup.com/citi/news/2020/200923a.htm">launched</a> more than $1 billion in strategic initiatives in 2020 aimed at closing the racial wealth gap. The bank also <a href="https://www.citigroup.com/citi/news/2020/200117a.htm">launched</a> the $150 million Citi Impact Fund to make equity investments in ‘double bottom line’ private sector companies, with a focus on women and minority owned businesses.</li><li>Goldman Sachs&nbsp;has launched the One Million Black Women <a href="https://www.goldmansachs.com/our-commitments/sustainability/one-million-black-women/index.html">initiative</a>, a $10 billion investment initiative to advance racial equity and economic opportunity by investing in Black women with the goal of impacting the lives of at least 1 million Black women by 2030. It has also <a href="https://www.goldmansachs.com/media-relations/press-releases/current/gs-fund-for-racial-equity.html">created</a> the Goldman Sachs Fund for Racial Equity, which launched with $10 million – building on the more than $200 million the firm has granted over the past decade to organizations serving communities of color – and aims to support organizations addressing racial injustice, structural inequity and economic prosperity.</li><li>JPMorgan Chase&nbsp;in 2020 <a href="https://www.jpmorganchase.com/news-stories/jpmc-commits-30-billion-to-advance-racial-equity">committed</a> $30 billion to advance racial equity over the next five years through growing Black- and Latinx-owned businesses, improving financial health and access to banking in Black and Latinx communities and accelerating investment to build a more diverse and inclusive workforce.</li><li>Morgan Stanley&nbsp;<a href="https://www.morganstanley.com/press-releases/morgan-stanley-announces-10-million-to-support-national-urban-le">announced</a> $10 million in grants to support the National Urban League, aimed at supporting financial literacy, homeowner counseling and workforce development programs. The firm also <a href="https://www.morganstanley.com/press-releases/morgan-stanley-commits--5-million-to-naacp-legal-defense-and-edu">committed</a> $5 million on top of matching employee contributions to the NAACP Legal Defense and Education Fund to support its work in fighting for racial justice.</li><li>State Street&nbsp;in 2020 <a href="https://www.statestreet.com/content/dam/statestreet/documents/New_Commonwealth_Racial_Equity_and_Social_Justice_Fund_Press_Release.pdf">announced</a> a five year, $5 million commitment to the New Commonwealth Racial Equity and Social Justice Fund, which supports Black- and brown-led organizations that are working on economic empowerment, youth civic engagement, healthcare equity and criminal justice reform.</li></ul>

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Combatting Inequality

We are dedicated to combatting inequality through a series of important initiatives. These initiatives support minority owned small businesses and provide funding for community organizations that are dedicated to closing the racial wealth gap.

<ul><li>Bank of America in 2020 provided $5.9 billion to build sustainable communities, creating more than <a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2021/02/bank-of-america-community-development-banking-provided-record--5.html">13,000 affordable housing units</a>, including 1,650 units developed by minority and women- owned businesses. This year, the bank tripled its affordable homeownership initiative to $15 billion through 2025, giving homebuyers as much as $10,000 for down payments and as much as $7,500 for closing costs. In May the bank and NACA <a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2021/05/bank-of-america-and-naca-expand-mortgage-program-to--15-billion-.html">expanded their program</a> to provide $15 billion in mortgages to low-to-moderate income homebuyers through May 2027.</li><li>Citi in 2020 issued the first <a href="https://www.citigroup.com/citi/news/2020/201030a.htm">affordable housing bond</a> with a notional value of $2.5 billion. Proceeds will finance the construction, rehabilitation and preservation of quality affordable housing for low- and moderate- income populations in the U.S. Citi is also investing more than $200 million, out of a $550 million three- year commitment to affordable housing, in five equity funds co- managed by Black investment managers to preserve multi-family rental housing.</li><li>Goldman Sachs promotes affordable housing through its <a href="https://www.goldmansachs.com/what-we-do/asset-management/impact-investing/">Urban Investment Group</a>, a domestic, multi-asset class investing and lending business deploying over $1 billion annually in community and economic development through real estate and other projects. In Utah, the bank’s work has led to the development of 4,700 affordable housing units, while in Newark and neighboring East Orange, N.J., investments by Goldman Sachs have led to over 2,000 units of mixed- income housing.</li><li>JPMorgan Chase in 2020 announced a five-year <a href="https://www.jpmorgan.com/commercial-banking/insights/breaking-down-barriers-to-affordable-housing---jpmorgan-chase">commitment</a> to finance 100,000 affordable housing units in underserved communities, originate 40,000 home loans for Black and Latinx households, and help 20,000 Black and Latinx households lower their mortgage payments through refinancing. The bank also expanded its Homebuyer <a href="https://media.chase.com/news/chase-homebuyer-grant">grant program</a> to up to $5,500 to help cover closing costs and down payments in 6,700 minority neighborhoods nationwide.</li><li>Morgan Stanley <a href="https://www.morganstanley.com/press-releases/morgan-stanley-continues-commitment-to-sustainable-investing-wit">last year</a> issued its inaugural social bond for $1 billion to support affordable housing projects, the latest step in the bank’s work to advance market-based solutions to address sustainability challenges. Morgan Stanley intends to allocate an amount equal to the net proceeds of the social bond to affordable housing projects, which aim to provide housing at affordable rates to low- or moderate-income individuals and/or families in the United States.</li><li>State Street in 2020 invested over $240 million in <a href="https://www.statestreet.com/values/economic-responsibilities.html">affordable housing</a> communities throughout the U.S., through the Low-Income Housing Tax Credit (LIHTC) program. This investment resulted in the creation or preservation of approximately 9,500 affordable units in 25 states. Since 2010, State Street has invested over $1.7 billion in affordable housing, reaching nearly 100,000 households, including $85 million in the first few months of 2021.</li><li>Wells Fargo works with NeighborWorks® America <a href="https://www.wellsfargo.com/mortgage/lift/">to provide</a> down payment assistance and homebuyer education for low- and moderate- income families. Last year, the bank facilitated over $1.2 billion in bond offerings that provided critical funding to preserve and develop more than 10,400 homes intended for underserved communities. The bank also has made a $1 billion philanthropic commitment to address housing affordability solutions by 2025 and&nbsp; <a href="https://stories.wf.com/60-billion-plan-aims-to-boost-african-american-homeownership/">launched</a> a ten-year initiative with the National Urban League and the National Association of Real Estate Brokers to provide $60 billion in home loans to 250,000 African American homeowners and to invest $15 million in homeowner education and counseling.</li></ul>

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Commitment to Affordable Housing

Forum members are playing a leading role in promoting affordable housing throughout the country. In 2020 alone, Forum banks created or preserved more than 158,000 affordable housing units.

<ul><li>Recognizing the importance of a banking relationship to help narrow the wealth gap, Forum members were founding lenders in a pilot program with CFE to offer&nbsp;<a href="https://cfefund.org/project/bank-on/">BankOn accounts</a> to people across the country. More than <a href="https://2wvkof1mfraz2etgea1p8kiy-wpengine.netdna-ssl.com/wp-content/uploads/2021/07/CFE-Fund_-2021-Bank-On-100-Accts-Press-Release.pdf">100 lenders</a> big and small now offer BankOn accounts, <a href="https://www.stlouisfed.org/~/media/files/pdfs/community-development/bank-on/bankon_data.pdf?la=en">successfully</a> bringing people into the banking system.</li><li>Forum members have worked with CFE Fund and others to launch Financial Empowerment Centers in cities across the country. These centers offer free financial counseling, helping clients navigate complex financial situations and plan for the future. Additionally, the program supports strategic research projects to enhance the success of financial counseling.&nbsp;<a href="https://cfefund.org/project/financial-empowerment-centers/">Learn more</a>.</li><li>Bank of America, Citi, JPMorgan Chase, and Wells Fargo have long partnered with Cities for Financial Empowerment (CFE) to provide low-cost, low-fee checking accounts to help bring more people into the banking system.</li><li>The Citi Foundation <a href="https://www.prnewswire.com/news-releases/the-citi-foundation-and-cities-for-financial-empowerment-fund-to-increase-summer-job-opportunities-financial-education-and-banking-access-to-an-additional-140-000-young-people-301316128.html">announced</a> an additional $3.66 million in support to the CFE&nbsp;to increase summer job opportunities, financial education, and banking access to an additional 140,000 young people.</li><li>Forum members are working with the OCC on&nbsp;<a href="https://www.occ.treas.gov/topics/consumers-and-communities/minority-outreach/project-reach-fact-sheet.pdf">Project REACh</a>, a program to promote financial inclusion.&nbsp;Led by JPMorgan Chase, banks have worked to find ways to help people without traditional credit histories access credit. The banks have created a tool to import non-traditional data sources, such as deposit account activity, to allow lenders to have greater options to assess creditworthiness.</li><li>The Wells Fargo Foundation <a href="applewebdata://9AC3D0AC-44A3-42B2-AAA0-A73664A505E0/%E2%80%A2%09https:/cfefund.org/cfe-fund-and-wells-fargo-announce-third-cohort-of-bank-on-fellowship/">announced</a> a $1 million grant to CFE to increase the size of the BankOn Fellowship Program, which funds a full-time BankOn coalition leader focused on improving banking access for residents.</li></ul>

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Bringing Those Outside of Banking In

Forum members have long been on the frontlines in the effort to bring unbanked and underbanked Americans into the financial mainstream.

<ul><li>Bank of America&nbsp;has committed to spending nearly $2 billion annually with diverse businesses through its <a href="https://about.bankofamerica.com/en-us/what-guides-us/vendor-management.html#fbid=tlM4qFkwCad">Supplier Diversity program</a>.</li><li>BNY Mellon&nbsp;has established a dedicated <a href="https://www.bnymellon.com/us/en/supply-chain-responsibility-program/supply-chain-responsibility-program-statement.html">Supply Chain Responsibility program</a> to build and maintain a diverse supplier base, as well as host workshops and expos to support diverse vendor development.</li><li>Citi actively seeks diverse suppliers through minority and women business development organizations and participation in various trade show activities while utilizing diverse suppliers and consultants through their <a href="https://www.citigroup.com/citi/suppliers/who.htm">Supplier Diversity program</a>.</li><li>Goldman Sachs&nbsp;has <a href="https://www.goldmansachs.com/our-commitments/sustainability/our-vendor-program/vendor-diversity/">committed</a> to increasing spending with diverse vendors by 50 percent by 2025.</li><li>JPMorgan Chase&nbsp;has set a goal of continually exceeding $1 billion in spending with <a href="https://www.jpmorganchase.com/about/suppliers/supplier-diversity">diverse suppliers</a> each year.</li><li>Morgan Stanley&nbsp;<a href="https://www.morganstanley.com/about-us/supplier-diversity">partners</a> with supplier diversity organizations like the Women’s Business Enterprise National Council and the National Minority Supplier Development Council.</li><li>State Street&nbsp;has committed to increasing its spending with diverse suppliers over the next three years in order to strengthen Black- and Latinx-owned businesses.</li><li>Wells Fargo&nbsp;aims to spend 15 percent of its procurement budget with diverse suppliers through the bank’s <a href="https://www.wellsfargo.com/about/diversity/supplier-diversity/commitment/">Supplier Diversity program</a>.</li></ul>

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Supporting Diverse Suppliers

Our institutions are committing to partner with diverse vendors and suppliers to support minority and women-owned businesses.

We invested nearly $9 billion in Community Development Financial Institutions between 2016 and 2020.

Supporting Historically Underserved Communities

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Bank of America

Collaboration Between Leading Health Organizations Aims to Improve Health Outcomes in Communities of Color

LinkedIn

Celebrating Asian American and Pacific Islander Heritage Month

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<ul><li>BNY Mellon&nbsp;started the <a href="https://www.bnymellon.com/us/en/about-us/diversity-inclusion.html">IMPACT</a> network to help cultivate a diverse and inclusive workplace by promoting the recruitment, retention, professional development and advancement of multicultural employees.</li><li>Morgan Stanley&nbsp;has established an ‘<a href="https://www.morganstanley.com/articles/diversity-hiring-black-banking-professionals">Experienced Professionals Program</a>’ to recruit Black professionals with two or more years of post-graduate or work experience for full-time positions to help expand the talent pool of Black financial professionals.</li><li>State Street&nbsp;helps create a diverse workforce through its <a href="https://www.statestreet.com/values/social-consciousness.html">Global Inclusion program</a>, which offers mentoring, events and performance goals focused on diversity and inclusion, and employee networks.</li></ul>

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Diverse Talent

We are building a pipeline of diverse talent by expanding the pool of diverse managers and ensuring an inclusive workplace.

<ul><li>Bank of America&nbsp;has a Global Diversity &amp; Inclusion Council chaired by CEO Brian Moynihan, which leads D&amp;I efforts and works with the management team setting related goals for the company.</li><li>Citi&nbsp;has named members of the CEO’s leadership team as co-chairs of its affinity groups, which set and reinforce the company’s diversity priorities and goals.</li><li>JPMorgan Chase&nbsp;<a href="https://www.jpmorganchase.com/news-stories/jpmc-announces-brian-lamb-as-global-head-of-diversity-inclusion">named</a> a new Global Head of Diversity &amp; Inclusion in April 2020, a newly created position that reports directly to the firm’s co-presidents.</li><li>Wells Fargo has created a new expanded diversity role reporting directly to the CEO, with a broad mandate to drive diversity and inclusion in both the firm’s workplace and business.</li></ul>

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Leadership Roles

Our institutions are establishing and empowering Diversity & Inclusion leadership roles dedicated to advancing diversity, inclusion and equity in the workplace in partnership with chief executives.

<ul><li>Bank of America&nbsp;offers Employee Networks that provide teammates from diverse backgrounds opportunities to connect with each other, develop leadership skills, and build strong ties with the communities they serve.</li><li>JPMorgan Chase&nbsp;has multiple <a href="https://careers.jpmorgan.com/us/en/about-us/diversity">Business Resource Groups</a> (BRGs) that help foster networks of employees and connect women and minority employees with each other to provide mutual support and sharing.</li><li>Morgan Stanley&nbsp;has multiple <a href="https://www.morganstanley.com/people-opportunities/enetworking">Employee Networks</a> designed to enhance employee engagement, deliver substantive content, create a framework for cross-business unit connectivity and idea-sharing, and advance the firm’s overall culture of inclusion.</li></ul>

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Employee Resource Groups

We have launched and expanded our Employee Resource Groups (ERGs) and other affinity groups to support employees and create conditions for them to succeed.

<ul><li>Bank of America&nbsp;has created unconscious bias trainings and offers diversity &amp; inclusion training.</li><li>Citi trains all hiring managers and Human Resources employees on unconscious bias.&nbsp;</li><li>JPMorgan Chase&nbsp;requires all employees to participate in unconscious bias and diversity &amp; inclusion training.</li><li>Wells Fargo&nbsp;requires live anti-racism manager training and has developed a series of educational sessions in which employees can share with their colleagues their personal stories and perspectives on the realities of racism in the U.S.</li></ul>

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Employee Trainings

We are creating and offering training focused on concepts like anti-racism, unconscious bias, and social justice.

<ul><li>Bank of America&nbsp;has committed to hiring 10,000 individuals from low- and moderate-income communities by 2023.</li><li>Citi has set a goal of having 30% Black and Hispanic/Latinx colleagues in its U.S. analyst and associate programs.</li><li>Goldman Sachs&nbsp;<a href="https://www.goldmansachs.com/media-relations/press-releases/current/update-on-inclusion-and-diversity.html">announced</a> a plan to, by 2025, achieve a representation among its vice presidents that equates to 40 percent women globally, 7 percent Black professionals in the Americas and UK, and 9 percent Hispanic/Latinx professionals in the Americas.</li><li>JPMorgan Chase&nbsp;has committed to hiring 4,000 Black students in full-time positions, apprenticeships and internships over the next five years.</li><li>State Street&nbsp;has <a href="https://www.statestreet.com/values/inclusion-diversity/diversity-goals.html">set</a> three- and five-year goals for achieving higher percentages of employees of color in SVP, MD, and VP positions across the firm.</li><li>Wells Fargo&nbsp;has committed to doubling the number of Black employees in leadership positions over the next five years.</li></ul>

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Hiring Commitments 

Our institutions have established hiring commitments to diversify our workforces.

**Our commitment to diversity, equity and inclusion**

Promoting Diversity, Equity and Inclusion

Citi

Strengthening Community Leadership Through Trust-Based Funding

Global Custodian

Global Custodian Announces Winners of Leaders in Custody Awards 2022

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The Goldman Sachs Group, Inc.

David Solomon is Chairman and Chief Executive Officer and a member of the Board of Directors of The Goldman Sachs Group, Inc.

Previously, he was President and Chief Operating Officer and prior to that, he served as Co-Head of the Investment Banking Division from 2006 to 2016. Before that, Mr. Solomon was Global Head of the Financing Group, which includes all capital markets and derivative products for the firm’s corporate clients. He joined Goldman Sachs as a Partner in 1999.

Mr. Solomon is a member of the Board of Trustees of Hamilton College and serves on the board of The Robin Hood Foundation.

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