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56 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT A "Safe and Sound" Environment A Senate Banking Committee hearing gave insights into supervision of banking regulation and compliance. T he U.S. Senate Commit- tee on Banking, Housing, and Urban Affairs turned its eye toward supervi- sion recently. During a hearing, titled "Guidance, Supervisory Expectations, and the Rule of Law: How do the Banking Agencies Regulate and Supervise Institu- tions?" the committee heard from Greg Baer, President and CEO of the Bank Policy Institute, Margaret Tahyar, Partner, Davis Polk & Wardwell LLP, and Patricia McCoy, Professor of Law, Boston College Law School. "Banks receive significant forms of government support and benefits, including deposit insurance and access to the Fed's dis- count window," Committee Chair Mike Crapo said. "In exchange for these benefits, which ensure that American consumers have stable access to their deposits, banking agencies supervise banks and in return expect them to operate in a safe and sound manner." In her testimony, Tahyar discussed the "shadow" regula- tory systems, or oral principles, not made public nor written down. This includes the practice of regulation by negotiation in the application process. "An illustrative example, which can be used because it is one of the few to become public, comes from applications by Citicorp, JPMorgan, and Bankers Trust New York Corporation in 1987 to underwrite and deal in municipal revenue bonds, mortgage related securities and commercial paper," Tahyar said. "During negotiations with agency staff, each applicant 'voluntarily' consented to market share limitations while protesting that they saw no need for them. When considered for review by the Federal Reserve Board of Governors, the banks admitted that they agreed to the limitations only to 'expedite the applications.'" In addition to discussing the su- pervisory practices of the banks dur- ing this hearing, Crapo and the Senate Banking Committee discussed how they are working to reform hous- ing finance, and prevent another major crash. During a hearing earlier this year, the federal bank- ing agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency proposed a rule to "limit the interconnectedness of large banking organizations and reduce the impact from failure of the largest banking organizations." In yet another hearing this year, Crapo and the Committee discussed Crapo's housing finance reform outline. Under the outline, Crapo said that the new housing finance reforms would protect taxpayers by reducing the sys- temic, too-big-to-fail risk posed by the current duopoly of mortgage guarantors An Act of Equality Three senators have introduced legislation to ensure fair housing protections for the LGBTQ community. M aine Senators Susan Collins and Angus King joined with Vir- ginia Sen. Tim Kaine in promoting the Fair and Equal Housing Act of 2019. The senators are introducing legislation intended to add gender identity and sexual orientation to the classes that are protected from discrimination by the Fair Housing Act. "All Americans deserve a fair and equal opportunity in the sale, rental, or financing of housing," Sen. Collins said. "Throughout my Senate service, I have worked to end discrimination against Lesbian, Gay, Bisexual, Transgender, and Queer (LGBTQ) Americans, and it is time we ensure that all people have full access to housing regardless of their sexual orienta- tion or gender identity. I urge our colleagues to join us in supporting this important legislation." "Safe and affordable housing is the basic building block for all Americans seeking to achieve economic, educational, and personal success," Sen. King said. "No one should be denied access to this vital resource because of who they are— but unfortunately, under current law there are no protections from discrimination based on sexual orientation or gender identity. This is wrong, plain and simple. We need this legislation to make sure LGBTQ Americans have the same access to housing as anyone else." This is not the first time the Fair Housing Act has been applied to the LGBTQ community. In August 2018, the U.S. Court of Appeals for the Seventh Circuit ruled that landlords could be held liable for discrimination if they failed to respond to harassment faced by tenants who belong to a protected class. In its ruling, the three-member panel of judges said that not only did the Fair Housing Act create liability when a landlord inten- tionally discriminated against a tenant based on a protected characteristic, but "it also creates liability against a landlord that has actual notice of tenant‐on‐tenant harassment based on a protected status, yet chooses not to take any reasonable steps within its control to stop that harassment." Recognizing the need for the mortgage industry to conduct further outreach to the LGBTQ community for the purpose of educating on current opportuni- ties for homeownership and being educated on emerging issues and concerns, the American Mortgage Diversity Council (AMDC) con- ducted a series of four discussions in strategically selected locations across the country. Each meeting was attended by approximately 10 mortgage industry executives and 10 senior leaders from local advocacy or- ganizations that provide services for the LGBTQ communities within their respective communi- ties. These meetings provided an opportunity for leaders to have a frank discussion in an open set- ting regarding issues affecting the LGBTQ community, both from a homeownership and workplace inclusion perspective. A report on concerns that were brought to light within the series of meetings and proposed remedial measures addressing the current issues can be found here. In her testimony, Tahyar discussed the "shadow" regulatory systems, or oral principles, not made public nor written down. This includes the practice of regulation by negotiation in the application process.