prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD) that insures private mortgage lenders against the possibility of borrowers defaulting on certain mortgage loans  If a mortgage borrower defaults on a mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure, FHA is to pay the lender the remaining amount that the borrower owes  FHA insurance protects the lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an FHA-insured mortgage will still experience the consequences of foreclosure  To be eligible for FHA insurance, the mortgage must be originated by a lender that has been approved by FHA, and the mortgage and the borrower must meet certain criteria  FHA is one of three government agencies that provide insurance or guarantees on certain home mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA)  Of these federal mortgage insurance programs, FHA is the most broadly targeted  Unlike VA- and USDA-insured mortgages, the availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or whether the property is located in a rural area  However, the availability or attractiveness of FHA-insured mortgages may be limited by other factors, such as the maximum mortgage amount that FHA will insure, the fees that it charges for insurance, and its eligibility standards  This report provides background on FHA's history and market role and an overview of the basic eligibility and underwriting criteria for FHA-insured home loans  It also provides data on the number and dollar volume of mortgages that FHA insures, along with data on FHA's market share in recent years  It does not go into detail on the financial status of the FHA mortgage insurance fund  For information on FHA's financial position, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund)   The Federal Housing Administration was created by the National Housing Act of 1934, during the Great Depression, to encourage lending for housing and to stimulate the construction industry  Prior to the creation of FHA, few mortgages exceeded 50% of the property's value and most mortgages were written for terms of five years or less  Furthermore, mortgages were typically not structured to be fully repaid by the end of the loan term; rather, at the end of the five-year term, the remaining loan balance had to be paid in a lump sum or the mortgage had to be renegotiated  During the Great Depression, lenders were unable or unwilling to refinance many of the loans that became due  Thus, many borrowers lost their homes through foreclosure, and lenders lost money because property values were falling  Lenders became wary of the mortgage market  FHA institutionalized a new idea: 20-year mortgages on which the loan would be completely repaid at the end of the loan term  If borrowers defaulted, FHA insured that the lender would be fully repaid  By standardizing mortgage instruments and setting certain standards for mortgages, the creation of FHA was meant to instill confidence in the mortgage market and, in turn, help to stimulate investment in housing and the overall economy  Eventually, lenders began to make long-term mortgages without FHA insurance if borrowers made significant down payments  Over time, 15- and 30-year mortgages have become standard mortgage products  When the Department of Housing and Urban Development (HUD) was created in 1965, FHA became part of HUD  Today, FHA is intended to facilitate access to affordable mortgages for some households who otherwise might not be well-served by the private market  Furthermore, it facilitates access to mortgages during economic or mortgage market downturns by continuing to insure mortgages when the availability of mortgage credit has otherwise tightened  For this reason, it is said to play a "countercyclical" role in the mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall economy is weak, and fewer mortgages when the economy is strong and other types of mortgages are more readily available  Some prospective homebuyers may have the income to sustain monthly mortgage payments but lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage  Borrowers with small down payments, weaker credit histories, or other characteristics that increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate or to qualify for a mortgage at all  This has raised a policy concern that some borrowers with the income to repay a mortgage might be unable to obtain affordable mortgages  FHA mortgage insurance is intended to make lenders more willing to offer affordable mortgages to these borrowers by insuring the lender against the possibility of borrower default  FHA-insured loans have lower down payment requirements than most conventional mortgages  (Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another government agency, such as VA or USDA  ) Because saving for a down payment is often the biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income homebuyers, the smaller down payment requirement for FHA-insured loans may allow some households to obtain a mortgage earlier than they otherwise could  (Borrowers with down payments of less than 20% could also obtain non-FHA mortgages with private mortgage insurance  See the nearby text box on "FHA and Private Mortgage Insurance ") FHA-insured mortgages also have less stringent requirements related to credit history than many conventional loans  This might make FHA-insured mortgages attractive to borrowers without traditional credit histories or with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA insurance or may find it more expensive to do so  FHA-insured mortgages play a particularly large role for first-time homebuyers, low- and moderate-income households, and minorities  For example, 83% of FHA-insured mortgages made to purchase a home (rather than to refinance an existing mortgage) in FY2018 were obtained by first-time homebuyers  Over one-third of all FHA loans (both purchase and refinance loans) were obtained by minority households, and FHA-insured mortgages accounted for about 57% of all forward mortgages made to low- or moderate-income borrowers during the year  Since FHA-insured mortgages are often obtained by borrowers who cannot make large down payments or those with weaker credit histories, some have questioned whether FHA-insured mortgages are similar to subprime mortgages  Like subprime mortgages, FHA-insured mortgages are often obtained by borrowers with lower credit scores, though some borrowers with higher credit scores also obtain FHA-insured mortgages  However, FHA-insured mortgages are prohibited from carrying the full range of features that many subprime mortgages could carry  For example, FHA-insured loans must be fully documented, and they cannot include features such as negative amortization  (FHA mortgages can include adjustable interest rates ) Some of these types of features appear to have contributed to high default and foreclosure rates on subprime mortgages  Nevertheless, some have suggested that FHA-insured mortgages are too risky, and that they can harm borrowers by providing mortgages that often have a higher likelihood of default than other mortgages due to combinations of risk factors such as low down payments and lower credit scores  Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to insure more mortgages when mortgage credit markets are tight and fewer mortgages when mortgage credit is more widely available  A major reason for this is that FHA continues to insure mortgages that meet its standards even during market downturns or in regions experiencing economic turmoil  When the economy is weak and lenders and private mortgage insurers tighten credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages available to some borrowers, or may have more favorable terms than mortgages that lenders are willing to make without FHA insurance  When the economy is strong and mortgage credit is more widely available, many borrowers may find it easier to qualify for affordable conventional mortgages  This section briefly describes some of the major features of FHA-insured mortgages for purchasing or refinancing a single-family home  Single-family homes are defined as properties with one to four separate dwelling units  FHA-insured loans are available to borrowers who intend to be owner-occupants and who can demonstrate the ability to repay the loan according to the terms of the contract  FHA-insured loans must be underwritten in accordance with accepted practices of prudent lending institutions and FHA requirements  Lenders must examine factors such as the applicant's credit, financial status, monthly shelter expenses, funds required for closing expenses, effective monthly income, and debts and obligations  In general, individuals who have previously been subject to a mortgage foreclosure are not eligible for FHA-insured loans for at least three years after the foreclosure  As a general rule, the applicant's prospective mortgage payment should not exceed 31% of gross effective monthly income  The applicant's total obligations, including the proposed housing expenses, should not exceed 43% of gross effective monthly income  If these ratios are not met, the borrower may be able to present the presence of certain compensating factors, such as cash reserves, in order to qualify for an FHA-insured loan  Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher down payments from borrowers with credit scores below 580 than from borrowers with credit scores above that threshold  See the " Down Payment " section for more information on down payment requirements for FHA-insured loans  In general, borrowers must intend to occupy the property as a principal residence  FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses, two- to four-unit buildings, manufactured homes and lots, and condominiums in developments approved by FHA  FHA-insured loans may also be obtained to build a home; to repair, alter, or improve a home; to refinance an existing home loan; to simultaneously purchase and improve a home; or to make certain energy efficiency or weatherization improvements in conjunction with a home purchase or mortgage refinance  FHA-insured mortgages may be obtained with loan terms of up to 30 years  The interest rate on an FHA-insured loan is negotiated between the borrower and lender  The borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan or one on which the rate may be adjusted annually  FHA requires a lower down payment than many other types of mortgages  Under changes made by the Housing and Economic Recovery Act of 2008 (HERA, P L  110-289 ), borrowers are required to contribute at least 3 5% in cash or its equivalent to the cost of acquiring a property with an FHA-insured mortgage  (Prior law had required borrowers to contribute at least 3% in cash or its equivalent ) Prohibited sources of the required funds include the home seller, any entity that financially benefits from the transaction, and any third party that is directly or indirectly reimbursed by the seller or by anyone that would financially benefit from the transaction  HUD has interpreted the 3 5% cash contribution as a down payment requirement and has specified that contributions toward closing costs cannot be counted toward it  Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit scores between 500 and 579, while borrowers with credit scores of 580 or above are still required to make a down payment of at least 3 5%  FHA no longer insures loans made to borrowers with credit scores below 500  There is no income limit for borrowers seeking FHA-insured loans  However, FHA-insured mortgages cannot exceed a maximum mortgage amount set by law  The maximum mortgage amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home prices  Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties  The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the ceiling  In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil in the housing and mortgage markets, with the intention of allowing more households to qualify for FHA-insured mortgages during a period of tighter credit availability  New permanent maximum mortgage amounts were later established by the Housing and Economic Recovery Act of 2008  The maximum mortgage amounts established by HERA were higher than the previous permanent limits, but in many cases lower than the temporarily increased limits  However, the higher temporary limits were extended for several years, until they expired at the end of calendar year 2013  Since January 1, 2014, the maximum mortgage amounts have been set at the permanent HERA levels  For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median home prices, with a floor set at 65% of the Freddie Mac conforming loan limit and a ceiling set at 150% of the Freddie Mac conforming loan limit  For calendar year 2019, the floor is $314,827 and the ceiling is $726,525  (That is, FHA will insure mortgages with principal balances up to $314,827 in all areas of the country  In higher-cost areas, it will insure mortgages with principal balances up to 115% of the area median home price, up to a cap of $726,525 in the highest-cost areas ) These maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are shown in Table 1   Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual mortgage insurance premiums in exchange for FHA insurance  These premiums are set as a percentage of the loan amount  The maximum amounts that FHA is allowed to charge for the annual and the upfront premiums are set in statute  However, since these are maximum amounts, HUD has the discretion to set the premiums at lower levels  The maximum up-front premium that FHA may charge is 3% of the mortgage amount, or 2 75% of the mortgage amount for a first-time homebuyer who has received homeownership counseling  Currently, FHA is charging the same up-front premiums to first-time homebuyers who receive homeownership counseling and all other borrowers  Since April 9, 2012, HUD has set the up-front premium at 1 75% of the loan amount, whether or not the borrower is a first-time homebuyer who received homeownership counseling  This premium applies to most single-family mortgages  The amount of the maximum annual premium varies based on the loan's initial loan-to-value ratio  For most loans, (1) if the loan-to-value ratio is above 95%, the maximum annual premium is 1 55% of the loan balance, and (2) if the loan-to-value ratio is 95% or below, the maximum annual premium is 1 5% of the loan balance  FHA increased the actual annual premiums that it charges several times in recent years in order to bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for defaulted loans  However, in January 2015, FHA announced a decrease in the annual premium for most single-family loans  For most FHA case numbers assigned on or after January 26, 2015, the annual premiums are 0 85% of the outstanding loan balance if the initial loan-to-value ratio is above 95% and 0 80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or below
Report 2:  NCA’s Cost Estimates for Most of Its Rural Initiative Sites Have Increased Significantly We found that NCA’s cost estimates for seven rural initiative sites have increased significantly above what NCA officials had initially estimated  In its strategy, NCA had estimated that the construction cost estimate for each of the seven rural initiative sites would be approximately $1 million (totaling approximately $7 million)  However, NCA officials told us in August 2018 that the construction cost estimates for these sites had increased to more than $3 million each (totaling almost $24 million)  This amounts to a cost increase of more than 200 percent  Further, the information they provided was not always consistent  For example, in July 2018 NCA officials provided us the average land acquisition and construction costs for the urban and rural initiatives  According to the document they provided, the average construction cost for each urban initiative cemetery is $7 5 million  However, in August 2018 NCA stated in a written response that the construction cost estimates for each of the urban initiatives ranged from approximately $9 million to more than $22 million, reflecting an average cost of $13 6 million  NCA’s cost-estimating guidance used to prepare construction cost estimates does not fully incorporate the 12 steps identified in our Cost Guide that should result in reliable and valid estimates that management can use to make informed decisions, as shown in table 2  Appendix I provides a detailed summary of our assessment of NCA’s cost-estimating guidance  Specifically, NCA’s cost-estimating guidance fully met one step, substantially met four steps, partially met four steps, minimally met two steps, and did not meet one step  For example: NCA’s cost-estimating guidance fully met the step of “obtaining the data” in that it requires a market survey that explores all factors that will affect the bid cost and collects valid and useful historical data to develop a sound cost estimate  NCA’s cost-estimating guidance substantially met the step of “updating the estimate” in that it requires cost estimates to be regularly updated  For instance, it requires an updated cost-estimating report at each stage of the design of the construction project  NCA’s cost-estimating guidance minimally met the step of “conducting a risk and uncertainty analysis” in that, while it mentions the inclusion of a risk analysis, it does not describe what a risk analysis is and how it relates to cost  Additionally, none of the guidance we reviewed contains any discussion of risk management  NCA’s cost-estimating guidance did not meet the step of “conducting a sensitivity analysis ” According to our Cost Guide, a sensitivity analysis should be included in all cost estimates because it examines the effects of changing assumptions and ground rules  Because uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk, and cost estimators should if possible quantify the risk  NCA uses multiple guidance documents on cost estimation and requires that managers and contractors use all of these documents in implementing their projects  Specifically, NCA uses VA’s 2011 Manual for Preparation of Cost Estimates and Related Documents for VA Facilities (Manual); VA’s 2011 Architect/Engineer (A/E) Submission Requirements for National Cemetery Projects Program Guide PG 18-15 Volume D (Guide); and NCA’s Construction Program Conceptual Estimate Worksheet  We refer to these documents collectively as “NCA’s cost- estimating guidance ” We previously reported on VA’s management of minor construction projects and made several recommendations, including that the Veterans Health Administration revise its cost-estimating guidance to incorporate the 12 steps presented in the Cost Guide, to help VA have greater assurance that its cost estimates for minor construction projects are reliable  VA concurred and stated that it would ensure that the Veterans Health Administration update its cost-estimating guidance by incorporating the 12 steps outlined in the Cost Guide, as applicable  As of August 2019, VA had not taken any action to implement this recommendation  The guidance document it plans to update, the VA Manual, is also used by NCA  Further, NCA uses additional guidance documents to develop cost estimates for its cemetery construction projects—including the urban and rural initiatives—that do not fully incorporate the 12 steps presented in the Cost Guide  Without NCA’s revising its cost-estimating guidance to more fully reflect the 12 steps in the Cost Guide, including “conducting a risk and uncertainty analysis,” NCA will not be well-positioned to provide reliable cost estimates to VA and enable it to make informed decisions regarding the management of cemetery construction projects  As noted earlier, the Grants Program is part of NCA’s plan to increase veterans’ reasonable access to burial options  According to NCA officials, their plan to meet their strategic goal of 95 percent of veterans being served by burial options relies, in part, on the state and tribal government efforts funded by the Grants Program  The Grants Program, in turn, relies on states and tribal governments applying for funding to build new cemeteries or expand existing cemeteries  An NCA official told us that NCA does not have the authority to formally request that a state seek grant funding to expand access in an unserved area  However, according to VA officials, the Grants Program has had informal discussions with states that it believes have larger concentrations of unserved veterans, in order to encourage grant applications to provide increased burial access for unserved veteran populations  When reviewing grant applications, NCA considers a number of factors, including how the grant would enhance access for unserved veterans  NCA officials stated that they use the VA’s county-level population data to identify veteran population areas unserved by national, state, or tribal government veterans’ cemeteries  This analysis also allows NCA to project where additional state and tribal government veterans’ cemeteries may be most needed  Specifically, NCA has ranked what it identified as the 40 largest currently unserved veteran population areas  NCA performs this ranking at the county level, not the more precise census tract level, although as we have previously reported it has the technical ability to use census tract data  In September 2014, we reported that NCA was using population data at the county level to identify veterans not served by burial options, and that using population data at the census tract level would enhance NCA’s management of the national cemetery program  Specifically, we recommended that NCA use its existing capabilities to estimate the served and unserved veteran populations using census tract data  This would have allowed them to make better-informed decisions concerning where to locate new national cemeteries, as well as identify which state and tribal government cemetery grant applications would provide reasonable burial access to the greatest number of veterans  However, VA did not concur with that recommendation  In its comments on our draft report, VA agreed that census tract data may yield more precise information than county-level population data, but it disagreed with our conclusion that the use of census tract data would have helped VA to make better-informed decisions regarding the location of burial options  For this review, we performed an analysis using census tract data to examine the 40 prospective sites that NCA has identified as the currently largest unserved areas, using current veteran population data  Our analysis yielded estimates for veterans in the service areas for these prospective sites that differed substantially in some instances from the numbers used by NCA (see figure 5)  For example, NCA ranked Erie, Pennsylvania, as 4th on its list of prospective sites, based on its estimate that an additional 45,154 veterans could be served by a cemetery at this location  However, using census tract data we estimate that only about 10,000 veterans could be served there, resulting in a lower priority for Erie, Pennsylvania, on this list of prospective sites  Similarly, the county- based methodology used by NCA ranked Decatur, Alabama, as 25th on the list of prospective sites, while our methodology based upon nearby census tracts placed it 2nd on the list by estimated number of veterans in the service area  Thus, even though it could serve many additional veterans, Decatur, Alabama, would not be ranked highly on the list for funding using NCA’s methodology  By using the more precise census tract data to help inform its grant- making decisions, NCA could enhance its ability to implement its plan to provide burial options to unserved veterans  Comparing estimates of unserved veterans based on current census tract data with such estimates based on current county-level data can be a useful supplement to NCA’s current reliance on long-term projected county-level population data  Comparing census tract data with county-level data could also identify areas where the county-level projections might be overridden or require additional scrutiny  This could position NCA to better identify those areas of the country that will have the most significant unserved veteran populations  Additionally, this could help NCA refine its current plans or develop new ones, as it deems appropriate  We therefore continue to maintain the validity of our 2014 recommendation for VA to use census tract data to estimate the served and unserved veteran populations to help inform its plans for providing reasonable access to burial options  By NCA’s estimates, more than 2 1 million veterans—about 10 percent of the veterans in the United States—did not have reasonable access to burial options at the end of fiscal year 2013  According to NCA, its plan had helped increase the percentage served by burial options to about 92 percent of the veteran population by the end of fiscal year 2018  However, completion of some of the urban and rural sites that are part of NCA’s plan is currently estimated to take 5 years or longer than planned at significantly higher cost, in part because construction cost estimates for the remaining sites may be unreliable  Without NCA’s revising its cost- estimating guidance to more fully reflect the 12 steps in the Cost Guide, including “conducting a risk and uncertainty analysis,” NCA will not be well-positioned to provide reliable cost estimates to VA and enable it to make informed decisions regarding the funding and oversight of NCA’s ongoing minor construction projects to enhance veterans’ burial options  The Secretary of Veterans Affairs should ensure that the Under Secretary for Memorial Affairs update its cost-estimating procedures for cemetery construction projects to fully incorporate the 12 steps identified in the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs  We provided a draft of this report to VA for review and comment  In written comments, VA concurred with our recommendation  VA also provided technical comments, which we incorporated as appropriate  VA’s comments are printed in their entirety in appendix II  In its technical comments, VA disagreed with our finding that NCA had made limited progress implementing its plan for increasing burial access for veterans and stated that NCA had instead made significant progress  As we note in this report, in 2014, NCA planned to open 18 new sites by the end of fiscal year 2017 to better serve the burial needs of the veteran population  However, as of September 2019, only six of the planned sites were open, with NCA years behind its original schedule  For this reason, we characterized the progress as “limited ” While the progress has been limited, it is important to note that the opening of the six sites has increased accessibility of burial options to veterans  VA also stated that it continues to disagree with our 2014 recommendation that VA use census tract data to estimate the current served and unserved veteran populations to inform its plans for providing reasonable access to burial options  In its written response, VA stated that we recommended NCA use census tract rather than county-level data  However, that is not what we recommended  As we stated in this report, comparing estimates of unserved veterans based on current census tract data with estimates based on current county-level data would provide a useful supplement to NCA’s current reliance on long-term projected county-level population data  Specifically, NCA would be better positioned to identify those areas of the country that will have the most significant unserved veteran populations and refine its current plans or develop new ones, as it deems appropriate  We are sending copies of this report to interested congressional committees and the Secretary of Veterans Affairs  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-9627 or maurerd@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff members who made key contributions to this report are listed in appendix III  We compared NCA’s cost-estimating guidance with the 12 steps identified in the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (Cost Guide)  We found that NCA’s cost-estimating guidance on preparing cost estimates for cemetery construction projects—specifically Department of Veterans Affairs’ (VA) Manual for Preparation of Cost Estimates & Related Documents for VA Facilities (Manual), VA’s Architect/Engineer Submission Requirements for National Cemetery Projects, Program Guide 18-15 Volume D (Guide), and NCA’s Construction Program Conceptual Estimate Worksheet (Worksheet)—does not fully incorporate these 12 steps, as shown in table 3  The guidance incorporates some of the 12 steps to some degree, but not others, raising the possibility of unreliable cost estimates for NCA’s urban and rural initiatives  Specifically, NCA’s guidance on preparing cost estimates: fully or substantially met five of the 12 steps, partially met four of the 12 steps, and minimally met or did not meet three of the 12 steps  Diana Maurer, (202) 512-9627 or maurerd@gao gov  In addition to the contact named above, Brian Lepore, Director (Retired); Maria Storts, Assistant Director; Pamela Nicole Harris, Analyst-in-Charge; Brian Bothwell, Jennifer Echard, Alexandra Gonzalez, Jason Lee, Amie Lesser, Serena Lo, John Mingus, Brenda Mittelbuscher, Maria Staunton, Frank Todisco, Cheryl Weissman, and John Wren made significant contributions to this report 

ground_truth: Regulation of the banking industry has undergone substantial changes over the past decade. In response to the 2007-2009 financial crisis, many new bank regulations were implemented pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203) or under the existing authorities of bank regulators to address apparent weaknesses in the regulatory regime. While some observers view those changes as necessary and effective, others argued that certain regulations were unjustifiably burdensome. To address those concerns, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (P.L. 115-174) relaxed certain regulations. Opponents of that legislation argue it unnecessarily pared back important safeguards, but proponents of deregulation argue additional pare backs are needed. Meanwhile, a variety of economic and technological trends continue to affect banks. As a result, the 116th Congress faces many issues related to banking, including the following: Safety and Soundness. Banks are subject to regulations designed to reduce the likelihood of bank failures. Examples include requirements to hold a certain amount of capital (which enables a bank to absorb losses without failing) and the so-called Volcker Rule (a ban on banks' proprietary trading). In addition, anti-money laundering requirements aim to reduce the likelihood banks will execute transactions involving criminal proceeds. Banks are also required to take steps to avoid becoming victims of cyberattacks. The extent to which these regulations (i) are effective, and (ii) appropriately balance benefits and costs is a matter of debate. Consumer Protection, Fair Lending, and Access to Banking. Certain laws are designed to protect consumers and ensure that lenders use fair lending practices. The Consumer Financial Protection Bureau has authorities to regulate for consumer protection. No consensus exists on whether current regulations strike an appropriate balance between protecting consumers while ensuring access to credit and justifiable compliance costs. In addition, whether Community Reinvestment Act regulations as currently implemented effectively and efficiently encourage banks to provide services in their areas of operation is an open question. Large Banks and "Too Big To Fail." Regulators also regulate for systemic risks, such as those associated with very large and complex financial institutions that may contribute to systemic instability. Dodd-Frank Act provisions include enhanced prudential regulation for certain large banks and changes to resolution processes in the event one fails. In addition, bank regulators imposed additional capital requirements on certain large, complex banks. Subsequently, some argued that certain of these additional regulations were too broadly applied and overly stringent. In response, Congress reduced the applicability of the Dodd-Frank measures and regulators have proposed changes to the capital rules. Whether relaxing these rules will provide needed relief to these banks or unnecessarily pare back important safeguards is a debated issue. Community Banks. The number of small or "community" banks has declined substantially in recent decades. No consensus exists on the degree to which regulatory burden, market forces, and the removal of regulatory barriers to interstate branching and banking are causing the decline. What Companies Should Be Eligible for Bank Charters. To operate legally as a bank, an institution must hold a charter granted by a state or federal government. Traditionally, these are held by companies generally focused on and led by people with experience in finance. However, recently companies with a focus on technology are interested in having legal status as a bank, either through a charter from the Office of the Comptroller of the Currency or a state-level industrial loan company charter. Policymakers disagree over whether allowing these companies to operate as banks would create appropriately regulated providers of financial services or inappropriately extend government-backed bank safety nets and disadvantage existing banks. Recent Market and Economic Trends. Changing economic forces also pose issues for the banking industry. Some observers argue that increases in regulation could drive certain financial activities into a relatively lightly regulated "shadow banking" sector. Innovative financial technology may alter the way certain financial services are delivered. If interest rates rise, it could create opportunities and risks. Such trends could have implications for how the financial system performs and influence debates over appropriate banking regulations.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: Banks play a central role in the financial system by connecting borrowers to savers and allocating available funds across the economy  As a result, banking is vital to the U S  economy's health and growth  Nevertheless, banking is an inherently risky activity involving extending credit and undertaking liabilities  Therefore, banking can generate tremendous societal and economic benefits, but banking panics and failures can create devastating losses  Over time, a regulatory system designed to foster the benefits of banking while limiting risks has developed, and both banks and regulatio n have coevolved as market conditions have changed and different risks have emerged  For these reasons, Congress often considers policies related to the banking industry  The last decade has been a transformative period for banking  The 2007-2009 financial crisis threatened the total collapse of the financial system and the real economy  Many assert only huge and unprecedented government interventions staved off this collapse  Others argue that government interventions were unnecessary or potentially exacerbated the crisis  In addition, many argue the crisis revealed that the financial system was excessively risky and the regulatory regime governing the financial system had serious weaknesses  Policymakers responded to the perceived weaknesses in the pre-crisis financial regulatory regime by implementing numerous changes to financial regulation, including to bank regulation  Most notably, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P L  111-203 ) in 2010 with the intention of strengthening regulation and addressing risks  In addition, U S  bank regulators have implemented changes under their existing authorities, many of which generally adhere to the Basel III Accords—an international framework for bank regulation agreed to by U S  and international bank regulators—that called for making certain bank regulations more stringent  In the ensuing years, some observers raised concerns that the potential benefits of those regulatory changes (e g , better-managed risks, increased consumer protection, greater systemic stability, potentially higher economic growth over the long term) were outweighed by the potential costs (e g , compliance costs incurred by banks, reduced credit availability for consumers and businesses, potentially slower economic growth)  In response to these concerns, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act; P L  115-174 )  Among other things, the law modified certain (1) regulations facing small banks; (2) regulations facing banks large enough to be subjected to Dodd-Frank enhanced regulation but still below the size thresholds exceeded by the very largest banks; and (3) mortgage regulations facing lenders including banks  In addition, federal banking regulatory agencies—the Federal Reserve (the Fed), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—have proposed further changes in regulation  Implementing the regulatory changes prescribed in the aftermath of the crisis and made pursuant to the Dodd-Frank Act occurred over the course of years  In recent years—a period in which the leadership of the regulators has transferred from Obama Administration to Trump Administration appointees—the banking regulators have expressed the belief that, after having viewed the effects of the regulations, they now have the necessary information to determine which regulations may be ineffective or inefficient as currently implemented  Recently, these regulators have made of number of proposals with the aim of reducing regulatory burden  A key issue surrounding regulatory relief made pursuant to the EGRRCP Act and regulator-initiated changes is whether regulatory burden can be reduced without undermining the goals and effectiveness of the regulations  Meanwhile, market trends and economic conditions continue to affect the banking industry coincident with the implementation of new regulation  Some of the more notable conditions include the development of new technologies used in financial services (known as "fintech") and a rising interest rate environment following an extraordinarily long period of very low rates  This report provides a broad overview of selected banking-related issues, including issues related to "safety and soundness" regulation, consumer protection, community banks, large banks, what type of companies should be able to establish banks, and recent market and economic trends  This report is not an exhaustive look at all bank policy issues, nor is it a detailed examination of any one issue  Rather, it provides concise background and analyses of certain prominent issues that have been the subject of recent discussion and debate  In addition, this report provides a list of Congressional Research Service reports that examine specific issues  Banks face a number of regulations intended to increase the likelihood that banks are profitable without being excessively risky and prone to failures; decrease the likelihood that bank services are used to conceal the proceeds of criminal activities; and to protect banks and their customers' data from cyberattacks  This section provides background on these "safety and soundness" regulations and analyzes selected issues related to them, including prudential regulation related to capital requirements and the Volcker Rule (which restricts proprietary trading); requirements facing banks related to anti-money laundering laws, such as the Bank Secrecy Act (P L  91-508); and challenges related to cybersecurity  Bank failures can inflict large losses on stakeholders, including taxpayers via government "safety nets" such as deposit insurance and Federal Reserve lending facilities  Failures can cause systemic stress and sharp contraction in economic activity if they are large or widespread  To make such failures less likely—and to reduce losses when they do occur—regulators use prudential regulation designed to ensure banks are safely profitable and to reduce the likelihood of bank failure  In addition, banks are subject to regulations intended to reduce the prevalence of crime  Some of those are anti-money laundering measures aimed at stopping criminals from using the banking system to conduct or hide illegal operations  Others are cybersecurity regulations aimed at protecting banks and their customers from becoming victims of cybercrime, such as denial-of-service attacks or data theft  Banks profit in part because their assets are generally riskier, longer term, and more illiquid than their liabilities, which allows the banks to earn more interest on their assets than they pay on their liabilities  The practice is usually profitable, but does expose banks to risks that can potentially lead to failure  Failures can be reduced if (1) banks are better able to absorb losses or (2) they are less likely to experience unsustainably large losses  One tool regulators use to increase a bank's ability to absorb losses is to require banks to hold a minimum level of capital  Another tool regulators use to reduce the likelihood and size of potential losses is to prohibit banks from engaging in activities that could create excessive risks  For example, the Volcker Rule prohibits banks from engaging in proprietary trading —the buying and selling of securities that the bank itself owns with the aim of profiting from price changes  The EGRRCP Act mandated certain changes to these prudential regulations, and regulators have proposed changes under existing authorities  Regulators are to promulgate these changes through the rulemaking process in the coming months and years  In addition, whether policymakers have calibrated these regulations such that their benefits and costs are appropriately balanced is likely to be an area of ongoing debate  For these reasons, prudential regulation issues will likely continue to draw congressional attention  A bank's balance sheet is composed of assets, liabilities, and capital  Assets are largely the value of loans owed to the bank and securities owned by the bank  To make loans and buy securities, a bank secures funding by either issuing liabilities or raising capital  A bank's liabilities are largely the value of deposits and borrowings the bank owes savers and creditors  Capital is raised through various methods, including issuing equity to shareholders or special types of bonds that can be converted into equity  Banking is an inherently risky activity, because banks may suffer losses on assets but face rigid obligations on the liabilities owed to depositors and creditors  In contrast to liabilities, capital generally does not obligate the bank to repay or distribute a specified amount of money at a specified time  This characteristic means that, in the event a bank suffers losses, capital gives the bank the ability to absorb some amount of losses while meeting its obligations  Thus, banks can avoid failures if they hold sufficient capital  Banks are required to satisfy several requirements to ensure they hold enough capital  In the United States, these requirements are generally aligned with the Basel III standards developed as part of a nonbinding agreement between international bank regulators  In general, these are expressed as minimum ratios between certain balance sheet items that banks must maintain  A detailed examination of how these ratios are calculated and what levels must be met is beyond the scope of this report  This examination of policy issues only requires noting that capital ratios fall into one of two main types—a leverage ratio or a risk-weighted ratio  A leverage ratio treats all assets the same, requiring banks to hold the same amount of capital against assets regardless of how risky each asset is  A risk-weighted ratio assigns a risk weight—a percentage based on the riskiness of the asset that the asset value is multiplied by—to account for the fact that some assets are more likely to lose value than others  Riskier assets receive a higher risk weight, which requires banks to hold more capital to meet the ratio requirement  Whether the benefits of capital requirements (e g , increased bank and financial system stability) are generally outweighed by the potential costs (e g , reduced credit availability) is an issue subject to debate  Capital is typically a more expensive source of funding for banks than liabilities  Thus, requiring banks to hold higher levels of capital may make funding more expensive, and so banks may choose to reduce the amount of credit available  Some studies indicate this could slow economic growth  However, no economic consensus exists on this issue, because a more stable banking system with fewer crises and failures may lead to higher long-run economic growth  In addition, estimating the value of regulatory costs and benefits is subject to considerable uncertainty, due to difficulties and assumptions involved in complex economic modeling and estimation  Lack of consensus also surrounds questions over whether or under what circumstances risk-weighted ratios are necessary, effective, and efficient  Proponents of risk-based measures assert that it is important to use both risk-weighted and leverage ratios because each addresses weaknesses of the other  For example, riskier assets generally offer a greater rate of return to compensate the investor for bearing more risk  Without risk weighting, banks would have an incentive to hold riskier assets because the same amount of capital must be held against risky and safe assets  However, the use of risk-weighted ratios could be problematic for a number of reasons  Risk weights assigned to particular classes of assets could potentially be an inaccurate estimation of some assets' true risk, which could incent banks to misallocate available resources across asset classes  For example, banks held a high level of seemingly low-risk, mortgage-backed securities (MBSs) before the crisis, in part because those assets offered a higher rate of return than other assets with the same risk weight  MBSs then suffered unexpectedly large losses during the crisis  Another criticism is that the risk-weighted requirements involve "needless complexity" and their use is an example of regulatory micromanagement  The complexity could benefit the largest banks that have the resources to absorb the added regulatory cost compared with small banks that could find compliance costs more burdensome  (Small or "community" bank compliance issues will be covered in more detail in the " Regulatory Burden on Community Banks " section later in the report ) Section 201 of the EGRRCP Act is aimed at addressing concerns over the complexity of risk-weighted ratios and the costs they impose on community banks  This provision created an option for banks with less than $10 billion in assets to meet a higher leverage ratio—the Community Bank Leverage Ratio (CBLR)—in order to be exempt from having to meet the risk-based ratios described above  Bank regulators have issued a proposal to implement this provision wherein banks (1) below the threshold that (2) meet at least a 9% leverage ratio measure of equity and certain retained earnings to assets and (3) had limited off-balance sheet exposures and limited securities trading activity (among other requirements) would qualify for the exemption  The FDIC estimates that more than 80% of community banks will be eligible for the CBLR  However, this new optional exemption does not entirely settle the issue  One bank industry group has argued that 9% is set higher than is necessary, excluding deserving banks from the exemption  In addition, bills in the 115 th Congress, notably H R  10 , proposed a high-leverage-ratio option be available to banks regardless of size that would exempt qualifying banks from a wider range of prudential regulations  There are also specific policy issues relating to capital requirements for large banks, which are discussed in the " Regulator Proposals Related to Large Bank Capital Requirements " section below  Section 619 of Dodd-Frank—often referred to as the Volcker Rule—generally prohibits depository banks from engaging in proprietary trading or sponsoring a hedge fund or private equity fund  Proprietary trading refers to owning and trading securities for a bank's own portfolio with the aim of profiting from price changes  Put simply, if a bank is engaged in proprietary trading, it is itself an investor in stocks, bonds, and derivatives, which is commonly characterized as "playing the market" or "speculating " The rule includes exceptions for when bank trading is deemed appropriate—such as (1) when a bank is hedging against risks the bank has assumed as a part of its traditional business and (2) market-making (i e , buying available securities with the intention of quickly selling them to meet market demand)  Proprietary trading is an inherently risky activity, and banks have faced varying degrees of restrictions over engaging in this activity for a number of decades  Sections 16, 20, 21, and 32 of the Banking Act of 1933 (P L  73-66)—commonly referred to as the Glass-Steagall Act—generally prohibited certain deposit-taking banks from engaging in certain securities markets activities  Over time, regulator interpretation of Glass-Steagall and legislative changes expanded permissible activities for certain banks, allowing them to make certain securities investments and authorizing bank-holding companies to own depositories and securities firms within the same organization  The financial crisis increased debate over whether banks were engaging in unnecessarily risky activities  Ultimately, certain provisions in Dodd-Frank placed restrictions on permissible activities to reduce banks' riskiness, and the Volcker Rule was designed to prohibit proprietary trading by depository banking organizations  One of the Volcker Rule's proponents' main rationales for the separation of deposit-taking and certain securities investments is that when banks analyze and assume risks, they may be subject to moral hazard —the willingness to take on excessive risk due to some outside protection from losses  Deposits are an important source of bank funding and insured (up to a limit on each account) by the government  This arguably reduces depositors' incentive to monitor their banks' riskiness  Thus, a bank could potentially take on excessive risk without concern about losing this funding because, in the event of large losses that lead to failure, at least part of the losses will be borne by the FDIC's Deposit Insurance Fund (which is backed by the full faith and credit of the U S  government and so ultimately the taxpayer)  Thus, supporters of the Volcker Rule have characterized it as preventing banks from "gambling" in securities markets with taxpayer-backed deposits  However, critics of the Volcker Rule doubt its necessity and efficiency  In regard to necessity, they assert that proprietary trading at commercial banks did not play a substantive role in the financial crisis  They note the rule would not have prevented a number of the major events that played a direct role in the crisis—including failures or bailouts of large investment banks and insurers and losses on loans held by commercial banks  On this point, they also argue that proprietary trading risks are no greater than those posed by "traditional" banking activities, such as mortgage lending, and allowing banks to take on risks in different markets might diversify their risk profiles, making them less likely to fail  Debates relating to the efficiency of the Volcker Rule involve its complexity, compliance burden, and potential to lead banks to reduce their engagement in beneficial market activities  Recall that the Volcker Rule is not a ban on all trading, as banks are still allowed to trade to hedge risks or make markets  This poses practical supervisory problems  For example, how can regulators determine whether a broker-dealer is holding a security for market-making, as a hedge against another risk, or as a speculative investment? Differentiating among these motives creates the aforementioned complexity and compliance costs that could affect banks' trading behavior, and so could reduce financial market efficiency  Another criticism of the Volcker Rule in its original form was that it unnecessarily subjected all banks to the rule and their associated compliance costs  Critics of this aspect asserted that the vast majority of community banks are not involved in complex trading activity, but nevertheless must incur costs in evaluating the rule to ensure they are in compliance  Both Congress and regulators have recently taken actions in response to concerns over the complexity of the Volcker Rule and its compliance burden for small banks  Section 203 of the EGRRCP Act exempted banks with less than $10 billion in assets that fell below certain trading activity limits from the rule  Independent of that mandate, the agencies that implemented and enforced the Volcker Rule released and called for public comment on a proposal to simplify the rule in May 2018  Under the proposal, the agencies would clarify certain of the rule's definitions and criteria in an effort to reduce or eliminate uncertainties related to how certain trading activity can qualify for exemption  The proposal would also further tailor the compliance requirements facing banks based on the size of an institution's trading activity  Proponents of the Volcker Rule are generally wary of size-based exemptions  They contend that community banks typically do not face compliance obligations under the rule and do not face an excessive burden by being subject to it  They argue that community banks that are subject to compliance requirements can comply by having clear policies and procedures in place for review during the normal examination process  In addition, Volcker Rule supporters are generally critical of the regulators' proposal, asserting that the changes would undermine "the effective supervision and enforcement" of the rule  Anti-money laundering (AML) regulation refers to efforts to prevent criminal exploitation of financial systems to conceal the location, ownership, source, nature, or control of illicit proceeds  The U S  Department of the Treasury estimates domestic financial crime, excluding tax evasion, generates $300 billion in illicit proceeds that might involve money laundering  Despite robust AML efforts in the United States, the ability to counter money laundering effectively remains challenged by factors including (1) the diversity of illicit methods to move and store ill-gotten proceeds through the international financial system; (2) the introduction of new and emerging threats such as cyber-related financial crimes; (3) gaps in legal, regulatory, and enforcement regimes; and (4) the costs associated with financial institution compliance with global AML guidance and national laws  In the United States, the statutory foundation for domestic AML originated in 1970 with the Bank Secrecy Act (BSA; P L  91-508) and its major component, the Currency and Foreign Transaction Reporting Act  Amendments to the BSA and related provisions in the 1980s and 1990s expanded AML policy tools available to combat crime, particularly drug trafficking, and prevent criminals from laundering their illicitly derived profits  Key elements to the BSA/AML legal framework include requirements for customer identification, recordkeeping, reporting, and compliance programs intended to identify and prevent money laundering abuses  In general, banking regulators examine institutions for compliance with BSA/AML  When a regulator finds BSA violations or deficiencies in AML compliance programs, it may take informal or formal enforcement action, including possible civil fines  The BSA/AML policy framework is premised on banks and other covered financial entities filing a range of reports with the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), when their clients either engage in suspicious financial transactions, large cash transactions, or certain other transactions  For example, a bank generally must file a Suspicious Activity Report (SAR) if, among other reasons, it conducts a transaction of $5,000 or more that the bank suspects involves money laundering or other criminal activity  A bank must file a Currency Transaction Report (CTR) if it conducts a currency (i e , cash) transaction of $10,000 or more as to which it has the same suspicions  The accurate, timely, and complete reporting of such activity to FinCEN flags situations that may warrant further investigation for law enforcement  Whether this regulatory framework adequately hinders criminals from using the banking system to launder their criminal proceeds and whether it does so efficiently without unduly burdening banks are debated issues  One aspect of this debate is whether current reporting requirements are inefficient and overly costly to the banking industry  Some industry observers—including officials from the OCC—have indicated that they believe certain areas of the current framework could be reformed in a way that reduces compliance costs without unduly weakening the ability to prevent money laundering  In contrast, officials from other agencies involved in AML and law enforcement—including FinCEN and the FBI—have stressed the importance of the information gathered under the current reporting requirements in combating money laundering  Another area of concern involves beneficial owners —that is, the natural person(s) who own or control a legal entity, such as a corporation or limited liability company  When such entities are set up without physical operations or assets, they are often referred to as shell companies   Shell companies can be used to conceal beneficial ownership and facilitate anonymous financial transactions  In recent years, policymakers have become increasingly concerned regarding potential risks posed by shell companies whose beneficial ownership is not transparent  This is due in part to a series of leaks to the media regarding the use of shell companies to facilitate criminal activity (such as "the Panama Papers") and sustained multilateral criticism of current U S  practices by the Financial Action Task Force, an international standard-setting body  In May 2018, a new FinCEN regulation came into effect that increased the requirements for banks to conduct customer due diligence (CDD) and ascertain the identity of beneficial owners in certain cases  Central to the CDD rule is a requirement for financial institutions to establish and maintain procedures to identify and verify beneficial owners of a legal entity opening a new account  If Congress decides that reporting requirements facing banks are not appropriately calibrated, it could pass legislation amending those requirements  For example, Congress could change the CTR or SAR reporting threshold or index the threshold levels to inflation  Certain bills introduced in the 115 th Congress would have increased financial transparency and reporting requirements for beneficial owners in other nonbank fields, such as real estate, but could potentially indirectly impact the banking industry as well  Cybersecurity is a major concern of banks, other financial services providers, and federal regulators  In many ways, it is an important extension of physical security  For example, banks are concerned about both physical and electronic theft of money and other assets, and they do not want their businesses shut down by weather events or electronic denial-of-service attacks  Maintaining the confidentiality, security, and integrity of physical records and electronic data held by banks is critical to sustaining the level of trust that allows businesses and consumers to rely on the banking industry to supply services on which they depend  The federal government has increasingly recognized the importance of cybersecurity in the financial services industry, as evidenced by the inclusion of financial services in the government's list of critical infrastructure sectors  The basic authority that federal regulators use to establish cybersecurity standards emanates from the organic legislation that established the agencies and delineated the scope of their authority and functions  As previously discussed, federal banking regulators are required to promulgate safety and soundness standards for all federally insured depository institutions to protect the stability of the nation's banking system  Some of these standards pertain to cybersecurity issues, including information security, data breaches, and destruction or theft of business records  In addition, certain laws (at both the state and federal levels) have provisions related to cybersecurity of financial services that are often performed by banks, including the Dodd-Frank Act, the Gramm-Leach-Bliley Act of 1999 (GLBA; P L  106-102 ), and the Sarbanes-Oxley Act of 2002 ( P L  107-204 )  For example, Section 501 of GLBA imposes obligations on financial institutions to "respect the privacy of     [their] customers and to protect the security and confidentiality of those customers' nonpublic personal information " Federal banking regulators require the entities that they regulate to protect customer privacy of physical and electronic records as mandated by the privacy title of GLBA  Federal bank regulators also issue guidance in a variety of forms designed to help banks evaluate their risks and comply with cybersecurity regulations  Regulators bring adjudicatory enforcement actions on a case-by-case basis related to banks' violations of cybersecurity protocols  Banks often view these actions as signaling how an agency interprets aspects of its regulatory authority  For example, a number of recent consent orders issued by the FDIC have directed banks to perform assessments or audits of information technology programs and management to identify risks and ensure compliance with cybersecurity requirements  Thus, oversight of financial services and bank cybersecurity reflects a complex and sometimes overlapping array of state and federal laws, regulators, regulations, and guidance  However, whether this framework is effective and efficient, resulting in adequate protection against cyberattacks without imposing undue cost burdens on banks, is an open question  The occurrence of successful hacks of banks and other financial institutions, wherein huge amounts of individuals' personal information are stolen or compromised, highlights the importance of ensuring bank cybersecurity  For example, in 2014, JPMorgan Chase, the largest U S  bank, experienced a data breach that exposed financial records of 76 million households  However, no consensus exists on how best to reduce the occurrence of such incidents  Financial products can be complex and potentially difficult for consumers to fully understand  Consumers seeking loans or financial services could be vulnerable to deceptive or unfair practices  To reduce the occurrence of bad outcomes, laws and regulations have been put in place to protect consumers  This section provides background on consumer financial protection and the Bureau of Consumer Financial Protection's (CFPB) authority  The section also analyzes related issues, including whether the CFPB has used its authorities and regulations of banking institutions appropriately; concerns relating to the lack of consumer access to banking services; and whether the Community Reinvestment Act as currently implemented is effectively and efficiently meeting its goal of ensuring banks provide credit to the areas in which they operate  Banks are subject to consumer compliance regulation, intended to ensure that banks are in compliance with relevant consumer-protection and fair-lending laws  Federal laws and regulations in this area take a variety of approaches and address different areas of concern  Certain laws provide disclosure requirements intended to ensure consumers adequately understand the costs and other features and terms of financial products  Other laws prohibit unfair, deceptive, or abusive acts and practices  Fair lending laws prohibit discrimination in credit transactions based upon certain borrower characteristics, including sex, race, religion, or age, among others  The financial crisis raised concerns among policymakers that regulators' mandates lacked sufficient focus on consumer protection  In response, the Dodd-Frank Act established the CFPB with the single mandate to implement and enforce federal consumer financial law, while ensuring consumers can access financial products and services  The CFPB also seeks to ensure the markets for consumer financial services and products are fair, transparent, and competitive  For banks with more than $10 billion in assets, the CFPB is the primary regulator for consumer compliance, whereas safety and soundness regulation continues to be performed by the prudential regulator  As a regulator of larger banks, the CFPB has rulemaking, supervisory, and enforcement authorities  A large bank, therefore, has different regulators for consumer protection and safety and soundness  For banks with $10 billion or less in assets, the rulemaking, supervisory, and enforcement authorities for consumer protection are divided between the CFPB and a prudential regulator  The CFPB may issue rules that apply to smaller banks, but the prudential regulators maintain primary supervisory and enforcement authority for consumer protection  The CFPB has limited supervisory and enforcement powers over small banks  Consumer protection and fair lending compliance continue to be important issues for banks for numerous reasons  Noncompliance can result in regulators taking enforcement actions that may involve substantial penalties  In addition, even in the absence of enforcement actions, an institution faces reputational risks if it comes to be perceived as dealing badly with customers  For example, the CFPB maintains a consumer complaints database that makes public consumer complaints against individual companies readily available, potentially affecting prospective customers' decisions on which companies to use for financial services  The recent public reaction to and enforcement actions pertaining to Wells Fargo's unauthorized opening of customer accounts show the importance of strong consumer protection compliance  Recently, banks and other nonbank financial institutions that provide financial products to consumers (e g , mortgages, credit cards, and deposit accounts) have been affected by the implementation of new CFPB regulations  For example, banks and other lenders have begun to comply with major new mortgage rules such as the Ability-to-Repay and Qualified Mortgage Standards Rule (ATR/QM) and Truth in Lending Act/Real Estate Settlement Act Integrated Disclosure Rule (TRID)  The ATR/QM encourages lenders to gather more information on prospective borrowers than they otherwise might have in order to reduce the likelihood that a borrower would receive an inappropriate loan  TRID requires lenders to provide borrowers with certain information about the mortgages for which they are applying  In addition to these and other new regulations, the CFPB also provides information on its supervisory activities related to banks, such as instances where its examiners found that certain financial institutions misrepresented service fees associated with deposit and checking accounts  Compliance with these new rules has increased banks' operational costs, which some argue potentially leads to higher costs for consumers in certain markets or a reduction in the availability of credit  Others stress that CFPB's regulatory, supervisory, and enforcement efforts reduce the likelihood of consumer harm in financial markets  Debates about how best to achieve the appropriate balance between consumer protection, credit access, and industry costs are unlikely to be resolved easily, and thus may continue to be an area of congressional interest  The banking sector provides valuable financial services for households that allow them to save, make payments, and access credit  Safe and affordable financial services allow households to avoid financial hardship, build assets, and achieve financial security  However, many U S  households (often those with low incomes, lack of credit histories, or credit histories marked with missed debt payments) do not use banking services  According to the FDIC's National Survey of Unbanked and Underbanked Households, in 2017, 6 5% of households in the United States were unbanked (i e , did not have an account at an insured institution) and 18 7% of households were underbanked (i e , obtained financial products and services outside of the banking system in the past year)  Lack of bank access leads some households to rely on alternative financial service providers and consumer credit products outside of the formal banking sector, such as payday or auto title loans  According to an FDIC estimate, 12 9% of households had unmet demand for mainstream small-dollar credit  Certain observers believe that financial outcomes for the unbanked and underbanked would be improved if banks—which may be more likely to be a stable source of relatively inexpensive financial services relative to certain alternatives—were more active in meeting this demand  For this reason, prudential regulators, like the OCC and the FDIC, are currently exploring ways to encourage banks to offer small-dollar credit products to consumers, and other policymakers and observers will likely continue to explore ways to make banking more accessible to a greater portion of the population  The Community Reinvestment Act of 1977 (CRA; P L  95-128 ) addresses how banking institutions meet the credit needs of the areas they serve, notably in low- and moderate-income (LMI) neighborhoods  The federal prudential banking regulators (the Fed, the OCC, and the FDIC) conduct examinations to evaluate how banks are fulfilling the objectives of the CRA  The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur within an assigned assessment area   These credits are then used to issue each bank a performance rating, from Outstanding to Substantial Noncompliance  The CRA requires regulators to take these ratings into account when banks request to merge with other banking institutions or otherwise expand their operations into new areas  Whether regulations as currently implemented are effectively and efficiently meeting the CRA's goals has been the subject of debate  The banking industry and other observers assert that CRA regulations can be altered in a way that would reduce regulatory burden while still meeting the law's goals  Recently, the OCC and Treasury have made proposals to address those concerns  However, consumer and community advocates argue that efforts to provide relief to banks may potentially be at the expense of communities that the CRA is intended to help  Treasury made a number of recommendations to the bank regulators for changes to CRA regulations in a memorandum it sent to those agencies in April 2018  Regarding the need for modernization, the memorandum recommends revisiting the approach for determining banks' assessment areas, given that geographically defined areas arguably may not fully reflect the community served by a bank because of technology developments  Treasury also recommends establishing clearer standards for CRA-eligible activities that provide flexibility and expand the types of loans, investments, and services that are eligible for CRA credit  Regarding aspects of CRA compliance that may be unnecessarily burdensome, Treasury recommends increasing the timeliness of the CRA performance examination process  Regarding improving the outcomes that the CRA was intended to encourage, such as increasing the availability of credit to LMI neighborhoods, Treasury recommendations include incorporating performance incentives that might result in more efficient lending activities  In September 2018, the OCC published an advance notice of proposed rulemaking (ANPR) seeking public comment on 31 questions pertaining to issues to consider and possible changes to CRA regulation  The OCC's ANPR does not propose specific changes, but its content and the questions posed suggest that the OCC is exploring the possibility of adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity, ambiguity, and burden of the regulations on the bank industry  The OCC received more than 1,300 comment letters in response to the ANPR that were alternatively supportive or critical of the various possible alterations to CRA regulation  Although some banks hold a very large amount of assets, are complex, and operate on a national or international scale, the vast majority of U S  banks are relatively small, have simple business models, and operate within a local area  This section provides background on these simpler banks—often called community bank s —and analyzes issues related to them, including regulatory relief for community banks and the long-term decline in the number of community banks  Although there is no official definition of a community bank, policymakers and the public generally recognize that the vast majority of U S  banks differ substantially from a relatively small number of very large and complex banking organizations in a number of ways  Community banks tend to hold a relatively small amount of assets (although asset size alone need not be a determining factor); be more concentrated in core bank businesses of making loans and taking deposits and less involved in other, more complex activities; and operate within a smaller geographic area, making them generally more likely to practice relationship lending wherein loan officers and other bank employees have a longer standing and perhaps more personal relationship with borrowers  Therefore, community banks may serve as particularly important credit sources for local communities and underserved groups of which large banks may have little familiarity  In addition, relative to large banks, community banks generally have fewer employees, less resources to dedicate to regulatory compliance, and individually pose less of a systemic risk to the broader financial system  Congress often faces policy issue questions related to community banks  Community bank advocates often assert the tailoring of regulations currently in place does not adequately balance the benefits and costs of the regulations when applied to community banks  Concerns have also been raised about the three-decade decline in the number and market presence of these institutions, and the predominant cause of that decline is a matter of debate  In recent decades, community banks, under almost any common definition, have seen their numbers decline and their collective share of banking industry assets fall in the United States  Overall, the number of FDIC-insured institutions fell from a peak of 18,083 in 1986 to 5,477 in 2018  The number of institutions with less than $1 billion in assets fell from 17,514 to 4,704 during that time period, and the share of industry assets held by those banks fell from 37% to 7%  Meanwhile, the number of banks with more than $10 billion in assets rose from 38 to 138, and the share of total banking industry assets held by those banks increased from 28% to 84%  The decrease in the number of community banks occurred mainly through three methods: mergers, failures, and lack of new banks  Most of the decline in the number of institutions in the past 30 years was due to mergers, which averaged more than 400 a year from 1990 to 2016  Failures were minimal from 1999 to 2007, but played a larger role in the decline during the late 1980s and following the 2007-2009 financial crisis and subsequent recession  As economic conditions have improved, failures have declined, but the number of n ew r eporters —new chartered institutions providing information to the FDIC for the first time—has been extraordinarily small in recent years  For example, in the 1990s, an average of 130 new banks reported data to the FDIC per year  Through September 30, five new banks reported data to the FDIC in 2018  Observers have cited several possible causes for this industry consolidation  Some observers argue the decline indicates that the regulatory burden on community banks is too onerous, driving smaller banks to merge to create or join larger institutions, an argument covered in more detail in the following section, " Regulatory Burden on Community Banks  " However, mergers—the largest factor in consolidation—could occur for a variety of reasons  For example, a bank that is struggling financially may look to merge with a stronger bank to stay in business  Alternatively, a community bank that has been outperforming its peers may be bought by a larger bank that wants to benefit from its success  In addition, other fundamental changes besides regulatory burden in the banking system could be driving consolidation, making it difficult to isolate the effects of regulation  Through much of the 20 th century, federal and state laws restricted banks' ability to open new branches and banking across state lines was restricted  Thus, many more banks were needed to serve every community  Branching and banking across state lines was not substantially deregulated at the federal level until 1997 through the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ( P L  103-328 )  When these restrictions were relaxed, it became easier for community banks to consolidate or for mid-size and large banks to spread operations to other markets  In addition, there may be economies of scale, not only in compliance, but in the business of banking in general  Furthermore, the economies of scale may be growing over time, which would also drive industry consolidation  For example, information technology has become more important in banking (e g , cybersecurity and mobile banking), and certain information technology systems may be subject to economies of scale  Finally, the slow growth coming out of the most recent recession, and macroeconomic conditions more generally (such as low interest rates), may make it less appealing for new firms to enter the banking market  Community banks receive special regulatory consideration to minimize their regulatory burden  For example, many regulations—including a number of regulations implemented pursuant to the Dodd-Frank Act—include exemptions for community banks or are otherwise tailored to reduce compliance costs for community banks  Title I and Title II of the EGRRCP Act contained numerous provisions that provided new exemptions to community banks or raised the thresholds for existing exemptions, such as the Community Bank Leverage Ratio and Volcker Rule exemptions discussed above in the " Prudential Regulation " section  In addition, bank regulators are required to consider the effect of rules on community banks during the rulemaking process pursuant to provisions in the Regulatory Flexibility Act ( P L  96-354 ) and the Riegle Community Development and Regulatory Improvement Act ( P L  103-325 )  Supervision is also structured to pose less of a burden on small banks than larger banks, such as by requiring less-frequent bank examinations for certain small banks and less intensive reporting requirements  However, Congress often faces questions related to whether tailoring in general or tailoring provided in specific regulations is sufficient to ensure that an appropriate trade-off has been struck between the benefits and costs of regulations facing community banks  Advocates for further regulatory relief argue that certain realized benefits are likely to be relatively small, whereas certain realized costs are likely to be relatively large  One area where the benefits of regulation may be relatively small for community banks relative to large banks is regulations aimed at improving systemic stability, because community banks individually pose less of a risk to the financial system as a whole than a large, complex, interconnected bank  Many recent banking regulations were implemented at least in part in response to the systemic nature of the 2007-2009 crisis  Some community bank proponents argue that because small banks did not cause the crisis and pose less systemic risk, they need not be subject to new regulations made in response to the crisis  Opponents of these arguments note that systemic risk is only one of the goals of regulation, along with prudential regulation and consumer protection, and that community banks are exempted from many of the regulations aimed at systemic risk  They note that hundreds of small banks failed during and after the crisis, suggesting the prudential regulation in place prior to the crisis was not stringent enough  Another potential rationale for easing regulations on community banks would be if there are economies of scale to regulatory compliance costs, meaning that regulatory compliance costs may increase as bank size does but decrease as a percentage of overall costs or revenues  Put another way, as regulatory complexity increases, compliance may become relatively more costly for small institutions  Empirical evidence on whether compliance costs are subject to economies of scale is mixed, thus consider this illustrative example to show the logic behind the argument  Imagine a bank with $100 million in assets and 25 employees and a bank with $10 billion in assets and 1,250 employees each determine they must hire an extra employee to ensure compliance with new regulations  The relative burden is larger on the small institution that expands its workforce by 4% than on the large bank that expands by less than 0 1%  From a cost-benefit perspective, if regulatory compliance costs are subject to economies of scale, then the balance of costs and benefits of a particular regulation will differ depending on the size of the bank  For the same regulatory proposal, economies of scale could potentially result in costs outweighing benefits for smaller banks  Due to a lack of empirical evidence of the exact benefits and costs of each individual regulation at each individual bank (and even lack of consensus over which banks should qualify as community banks), debates over the appropriate level of tailoring of regulations is a debate over calibration involving qualitative assessments  Where should the lines be drawn? Should exemption thresholds be set high so that regulations apply only to the very largest, most complex banks? Should thresholds be set relatively low, so that only very small banks are exempt? At what point does a bank cease to have the characteristics associated with community banks? Often at issue in this debate are the so-called regional banks —banks that are larger and operate across a greater geographic market than the community banks but are also smaller and less complex than the largest, most complex organizations with hundreds of billions or trillions of dollars in assets  Should regulators provide regional banks the same exemptions as those provided to community banks? Policymakers, in the 116 th Congress, continue to face these and other questions concerning community banks  Along with the thousands of relatively small banks operating in the United States, there are a handful of banks with hundreds of billions of dollars of assets  The 2007-2009 financial crisis highlighted the problem of "too big to fail" (TBTF) financial institutions—the concept that the failure of a large financial firm could trigger financial instability, which in several cases prompted extraordinary federal assistance to prevent the failure of certain of these institutions  In response to the crisis, policymakers took a number of steps through the Dodd-Frank Act and the Basel III Accords to eliminate the TBTF problem, including subjecting the largest banks to enhanced prudential regulations, a new resolution regime to unwind these banks in the event of failure, and higher capital requirements  This section provides background on these large banks and examines issues related to them, including reductions in the application of enhanced prudential regulations facing certain large banks made pursuant to P L  115-174 and changes to capital requirements proposed by regulators that would reduce the amount of capital certain large banks would have to hold  As regulators implement these statutory changes and their proposed rules move forward, Congress faces questions about whether relaxing these regulations appropriately eases overly stringent requirements or unnecessarily increases the likelihood that large banks take on excessive risks  Some bank holding companies (BHCs) have hundreds of billions or trillions of dollars in assets and are deeply interconnected with other financial institutions  A bank may be so large that its leadership and market participants may believe that the government would save it if it became distressed  This belief could arise from the determination that the institution is so important to the country's financial system—and that its failure would be so costly to the economy and society—that the government would feel compelled to avoid that outcome  An institution of this size and complexity is said to be TBTF  In addition to fairness issues, economic theory suggests that expectations that a firm will not be allowed to fail creates moral hazard —if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm's riskiness because they are shielded from the negative consequences of those risks  As a result, TBTF institutions may have incentives to be excessively risky, gain unfair advantages in the market for funding, and expose taxpayers to losses  Several market forces likely drive banks and other financial institutions to grow in size and complexity, thereby potentially increasing efficiency and improving financial and economic outcomes  For example, marginal costs can be reduced through economies of scale; risk can be diversified by spreading exposures over multiple business lines and geographic markets; and a greater array of financial products could be offered to customers allowing a bank to potentially attract new customers or strengthen relationships with existing ones  These market forces and the relaxation of certain interstate banking and branching regulations described in the " Reduction in Community Banks " section may have driven some banks to become very large and complex in the years preceding the crisis  At the end of 1997, two insured depository institutions held more than $250 billion in assets, and together accounted for about 9 3% of total industry assets  By the end of 2007, six banks held more than $250 billion in assets, accounting for 40 9% of industry assets  The trend has generally continued, and as of the third quarter of 2018, nine banks held more than $250 billion in assets, accounting for 49 5% of industry assets  Many assert that the worsening of the financial crisis in fall 2008 was a demonstration of TBTF-related problems  Large institutions had taken on risks that resulted in large losses, causing the institutions to come under threat of failure  In some cases, the U S  government took actions to stabilize the financial system and individual institutions  Wachovia and Washington Mutual were large institutions that were acquired by other institutions to avoid their failure during the crisis  Bank of America and Citigroup received extraordinary assistance through the Troubled Asset Relief Program (TARP) to address financial difficulties  Other large (and small) banks participated in emergency government programs offered by the Treasury (TARP), the Federal Reserve, and the FDIC  In response, the Dodd-Frank Act attempted to end TBTF through (1) a new regulatory regime to reduce the likelihood that large banks would fail; (2) a new resolution regime to make it easier to safely wind down large bank holding companies that are at risk of failing; and (3) new restrictions on regulators' use of emergency authority to prevent "bail outs" of failing large banks  In addition, the Federal Reserve imposed additional capital requirements on the largest banks that largely aligned with proposed standards set out by the Basel III Accords, with some exceptions  To make it less likely that large banks would fail, certain large banks are now subject to an enhanced prudential regulatory regime administered by the Federal Reserve  Under this regime, large banks are subject to more stringent safety and soundness standards than other banks  They must comply with higher capital and liquidity requirements, undergo stress tests, produce living wills and capital plans, and comply with counterparty limits and risk management requirements  To make it easier to wind down complex BHCs with nonbank subsidiaries, the Dodd-Frank Act created the Orderly Liquidation Authority (OLA), a resolution regime administered by the FDIC that is similar to how the FDIC resolves bank subsidiaries  This replaced the bankruptcy process, focused on the rights of creditors, with an administrative process, focused on financial stability, for winding down such firms  To date, OLA has never been used  The Dodd-Frank Act initially applied enhanced prudential regulation requirements to all BHCs with more than $50 billion in assets, although more stringent standards were limited to banks with more than $250 billion in assets or $10 billion in foreign exposure, and the most stringent standards were limited to U S  globally systemically important banks (G-SIBs), the eight most complex U S  banks  Subsequent to the enactment of Dodd-Frank, critics of the $50 billion asset threshold argued that many banks above that size are not systemically important and that Congress should raise the threshold  In particular, critics distinguished between regional banks (which tend to be at the lower end of the asset range and, some claim, have a traditional banking business model comparable to community banks) and Wall Street banks ( a term applied to the largest, most complex organizations that tend to have significant nonbank financial activities)  Opponents of raising the threshold disputed this characterization, arguing that some regional banks are involved in sophisticated activities, such as being swap dealers, and have large off-balance-sheet exposures  In response to concerns that the enhanced prudential regulation threshold was set too low, P L  115-174 exempted banks with between $50 billion and $100 billion in assets from enhanced prudential regulation, leaving them to be regulated in general like any other bank  Under the proposed rule implementing the P L  115-174 changes, the Fed has increased the tiering of enhanced regulation for banks with more than $100 billion in assets  The proposed rule would create four categories of banks based on size and complexity, and impose increasingly stringent requirements on each category  From most to least stringent, Category I would currently include the eight G-SIBs, Category II would include one bank, Category III would include four banks, and Category IV would include 11 banks  Compared with current policy, banks in all categories would face reduced regulatory requirements under this rule, other proposed rules, and forthcoming rules required by Section 402 of P L  115-174 , if finalized  In addition, P L  115-174 created new size-based exemptions from various regulations, increasing the tendency to subject larger banks to more stringent requirements than smaller banks  These changes include exemptions from the Volcker Rule and risk-weighted capital requirements for banks with less than $10 billion in assets (meeting certain criteria)  Proponents of the changes assert they provide necessary and targeted regulatory relief  Opponents argue they needlessly pare back important Dodd-Frank protections to the benefit of large and profitable banks  As discussed in the " Capital Requirements " section, all banks must hold enough capital to meet certain capital ratio requirements  Broadly, those requirements take two forms—risk-weighted requirements and unweighted leverage requirements  In addition, a small subset of very large and very complex banks also face additional capital ratio requirements implemented by the U S  federal bank regulators  The Federal Reserve has made two proposals to simplify and relax certain aspects of these additional requirements, and these proposals are subject to debate  All banks must hold additional high-quality capital on top of the minimum required levels—called the capital conservation buffer (CCB)—to avoid limitations on their capital distributions, such as dividend payments  In addition, certain large banks are subject to the Federal Reserve's stress tests, the results of which can lead to restrictions on the bank's capital distributions  Stress tests are intended to ensure that banks hold enough capital to withstand a hypothetical market stress scenario, but arguably have the effect of acting as additional capital requirements with which banks must comply  Advanced approaches banks must maintain a fixed minimum supplementary leverage ratio (SLR), an unweighted capital requirement that is more stringent than the leverage ratio facing smaller banks because it incorporates off-balance sheet exposures  A Congressional Research Service (CRS) analysis of large holding companies' regulatory filings indicates that, currently, 19 large and complex U S  bank or thrift holding companies are classified as advanced approaches banks  G-SIBs must meet fixed enhanced SLR (eSLR) requirements, which sets the SLR higher for these banks  In addition, the G-SIBs are subject to an additional risk-weighted capital surcharge (on top of other risk-weighted capital requirements that all banks must meet) of between 1% and 4 5% based on the systemic importance of the institution  Whether these requirements are appropriately calibrated is a debated issue  Proponents of recalibrating some of these capital requirements argue that those requirements set at a fixed number—including the CCB and eSLR—are inefficient, because they do not reflect varying levels of risk posed by individual banks  Recalibration proponents also argue that compiling with these requirements in addition to stress test requirements is unnecessarily burdensome for banks  Opponents of proposals to relax current capital requirements facing large and profitable banks assert that doing so needlessly pares back important safeguards against bank failures and systemic instability  In response to concerns that fixed requirements do not adequately account for risk differences between institutions, the Fed has issued two proposals for public comment that would link individual large banks' requirements with other risk measures  One proposal would make bank CCB requirements a function of their stress tests results, and the other proposal would link large banks' eSLR requirements with individual G-SIB systemic importance scores  The Fed estimates that the new CCB requirement would generally reduce the amount of capital large banks would have to hold, but that some G-SIBs would see their required capital levels increase  The Fed estimates that the new eSLR requirement would generally reduce the amount of capital held by G-SIB parent companies by $400 million and the amount held by insured depository subsidiaries by $121 billion  To legally operate as a bank and perform the relevant activities, an institution generally must have a charter granted by either the OCC at the federal level or a state-level authority  In addition, to engage in certain activities, the institution must have federal deposit insurance granted by the FDIC  Currently, these requirements raise a number of policy questions, including whether companies established primarily as financial technology companies should be able to receive a national bank charter, as has been offered by the OCC; and whether the application process and determinations made by the FDIC as they relate to institutions seeking a specific type of state charter, called an industrial loan company (ILC) charter, is overly restrictive  An institution that makes loans and takes deposits—the core activities of traditional commercial banking—must have a government issued charter  Numerous types of charters exist, including national bank charters; state bank charters; federal savings association charters, and state savings association charters (saving associations are also referred to as thrifts )  Each charter type determines what activities are permissible for the institution, what activities are restricted, and which agency will be the institution's primary federal regulator (see Table 1 )  One of the main rationales for this system is that it gives institutions with different business models and ownership arrangements the ability to choose a regulatory regime appropriately suited to the institution's business needs and risks  The differences between institution business models and the attendant regulations are numerous, varied, and beyond the scope of this report  The issues examined in this section arise from each charter's granting an institution the right to engage in certain banking related activities, and thus generating the potential benefits and risks of those activities  Broadly, these issues relate to questions over whether companies that differ from traditional banks should be allowed to engage in traditional banking activities given the types and magnitudes of benefits and risks the companies might present  Recent advances in technology, including the proliferation of available data and internet access, have altered the way financial activities are performed in many ways  These innovations in financial technology, or fintech, have created the opportunity for certain activities that have traditionally been the business of banks to instead be performed by technology-focused, nonbank companies  Lending and payment processing are prominent examples  This development has raised questions over how these fintech companies should be regulated, and the appropriate federal and state roles in that regulation  One possible, though contested, proposal for addressing a number of these questions would be to make an OCC national bank charter available to certain fintech companies  Many nonbank fintech companies performing bank-like activities are regulated largely at the state level  They may have to obtain lending licenses or register as money transmitters in every state they operate and may be subject to the consumer protection laws of that state, such as interest rate limits  Proponents of fintech companies argue that subjecting certain technology companies to 50 different state level regulatory regimes is unnecessarily burdensome and hinders companies that hope to achieve nationwide operations quickly using the internet  In addition, a degree of uncertainty surrounding the applicability of certain laws and regulations to certain fintech firms and activities has arisen  For example, whether federal preemption of state interest rate limits apply to loans made through a marketplace lender —that is, online-only lenders that exclusively use automated, algorithmic underwriting—but originated by a bank faces legal uncertainty due to certain court decisions, including Madden v Midlands   One possible avenue to ease the state-by-state regulatory burdens and resolve the uncertainties facing some fintech firms would be to allow those firms that perform bank-like activities to apply for and (provided they meet necessary requirements) to grant them national bank charters  First proposed in 2016 by then-Comptroller of the Currency Thomas Curry, and following subsequent examination of the issue and review of public comments, the OCC announced in July 2018 that it would consider "applications for special purpose bank charters from financial technology (fintech) companies that are engaged in the business of banking but do not take deposits " OCC argues that companies with such a charter would be explicitly subject to all laws and regulations (including those that preempt state law, a contentious issue addressed below) applicable to national banks  The OCC stated that fintech firms granted the charter "will be subject to the same high standards of safety and soundness and fairness that all federally chartered banks must meet," and also that the OCC "may need to account for differences in business models and activities, risks, and the inapplicability of certain laws resulting from the uninsured status of the bank " Thus, the argument goes, establishing a fintech charter would mean a new set of innovative companies would no longer face regulatory uncertainty and could safely and efficiently provide beneficial financial services, perhaps to populations and market-niches that banks with traditional cost structures do not find cost-effective to serve  Until the OCC actually grants such charters and fintech firms operate under the national bank regime for some amount of time, how well this policy fosters potential innovations and benefits while guarding against risks is the subject of debate  Proponents of the idea generally view the charter as a mechanism for freeing companies from what they assert is the unnecessarily onerous regulatory burden of being subject to numerous state regulatory regimes  They further argue that this would be achieved without overly relaxing regulations, as the companies would become subject to the OCC's national bank regulatory regime and its rulemaking, supervisory, and enforcement authorities  Opponents generally assert both that the OCC does not have the authority to charter these types of companies, as discussed below, and that doing so would inappropriately allow marketplace lenders to circumvent important state-level consumer protections  The OCC's assertion that it has the authority to grant such charters has been challenged  Shortly after the initial 2016 announcements that the OCC was examining the possibility of granting the charters, the Conference of State Bank Supervisors and the New York State Department of Financial Services sued the OCC to prevent it from issuing the charters on the grounds that it lacked the authority to do so  A federal district court dismissed the case after concluding that because the OCC had not yet issued charters to nonbanks, the plaintiffs (1) lacked standing to challenge the OCC's purported decision to move forward with chartering nonbanks, and (2) had alleged claims that were not ripe for adjudication  Subsequent to the OCC's July 2018 announcement, state regulators have again filed lawsuits  Industrial loan companies (ILCs) hold a particular type of charter offered by some states that generally allows ILCs to engage in certain banking activities  Depending on the state, those activities can include deposit-taking, but only if they are granted deposit insurance by the FDIC  Thus, ILCs that take deposits are state regulated with the FDIC acting as the primary federal regulator  Importantly, a parent company that owns an ILC that meets certain criteria is not necessarily considered a BHC for legal and regulatory purposes  This means ILC charters create an avenue for commercial firms (i e , companies not primarily focused on the financial industry, such as manufacturers, retailers, or possibly technology companies) to own a bank  Nonfinancial parent companies of ILCs generally are not subject to Fed supervision and other regulations pursuant to the Bank Holding Company Act of 1956 (P L  84-511)  A commercial firm may want to own a bank for a number of economic reasons  For example, an ILC can provide financing to the parent company's customers and clients and thus increase sales for the parent  In recent decades, household-name manufacturers have owned ILCs, including but not limited to General Motors, Toyota, Harley Davidson, and General Electric  However, while they can generate profits and potentially increase credit availability, ILCs pose a number of potential risks  The United States has historically adopted policies to generally separate commerce and banking, because allowing a single company to be involved in both activities could potentially result in a number of bad outcomes  A mixed organization's banking subsidiary could make decisions based on the interests of the larger organization, such as making overly risky loans to customers of a commerce subsidiary or providing funding to save a failing commerce subsidiary  Such conflicts of interest could threaten the safety and soundness of the bank  Relatedly, some have argued that having a federally insured bank within a commercial organization is an inappropriate expansion of federal banking safety nets (such as deposit insurance)  Certain observers, including community banks, have concerns over whether purely commercial or purely banking organizations would be able to compete with combined organizations that could potentially use economies of scale and funding advantages to exercise market power  These arguments played a prominent role in the public debate that was sparked when Walmart and Home Depot made unsuccessful efforts to secure an ILC charter between 2005 and 2008  Amid this debate, the FDIC imposed a moratorium in 2006 on the acceptance, approval, or denial of ILC applications for deposit insurance while the agency reexamined its policies related to these companies  That moratorium ended in January 2008  Subsequently, concerns over ILCs led Congress to mandate another moratorium (this one lasting three years, ending in July 2013) on granting new ILCs deposit insurance in the Dodd-Frank Act  No consensus has been reached on the magnitude of these risks and validity of the concerns surrounding deposit-taking ILCs  Recently, two financial technology companies, Square and SoFi, have applied for ILC charters and renewed debates over ILCs  Even though the moratoriums on granting ILCs deposit insurance have expired, the FDIC has not approved any new ILC applications since the 2013 expiration  However, since becoming FDIC chairman in June 2018, Jelena McWilliams has made statements indicating that under her leadership the FDIC will again consider ILC applications  Given the interest in and debate surrounding this charter type, policymakers will likely examine questions over the extent to which ILCs create innovative sources of credit and financial services subject to appropriate safeguards or inadvisably allow commercial organizations to act as banks with federal safety nets while exempting them from certain bank regulation and supervision  In addition to regulation issues, market and economic conditions and trends continually affect the banking industry  This section analyzes such trends that may affect banks, including migration of financial activity from banks into nonbanks or the "shadow banking" system; increasing capabilities and market presence of financial technology or fintech; and a higher interest rate environment following a long period of extraordinarily low rates  Credit intermediation is a core banking activity and involves transforming short-term, liquid, safe liabilities into relatively long-term, illiquid, higher-risk assets  In the context of traditional banking, credit intermediation is performed by taking deposits from savers and using them to fund loans to borrowers  Nonbank institutions can also perform similar credit intermediation to banks—sometimes called shadow banking —using certain instruments such as money market mutual funds, short-term debt instruments, and securitized pools of loans  When illiquid assets are funded by liquid liabilities, an otherwise-solvent bank or nonbank might experience difficulty meeting short-term obligations without having to sell assets, possibly at "fire sale" prices  If depositors or other funding providers feel their money is not safe with an institution, many of them may withdraw their funds at the same time  Such a "run" could cause an institution to fail  Long-established government programs mitigate liquidity- and run-risk in the banking industry  The Federal Reserve is authorized to act as a "lender of last resort" for a bank experiencing liquidity problems, and the FDIC insures depositors against losses  Banks are also subject to prudential regulation—as discussed in the " Prudential Regulation " section  However, nonbank intermediation is performed without the government safety nets available to banks or the prudential regulation required of them  The lack of an explicit government safety net in shadow banking means that taxpayers are less explicitly or directly exposed to risk, but it also means that shadow banking may be more vulnerable to a panic that could trigger a financial crisis  Some argue that the increased regulatory burden placed on banks in response to the financial crisis—such as the changes in bank regulation mandated by Dodd-Frank or agreed to in Basel III—could result in a decreased role for banks in credit intermediation and an increased role for relatively lightly regulated nonbanks  Many contend the financial crisis demonstrated how risks to deposit-like financial instruments in the shadow banking sector—such as money market mutual funds and repurchase agreements—can create or exacerbate systemic distress  Money market mutual funds are deposit-like instruments that are managed with the goal of never losing principal and that investors can convert to cash on demand  Institutions can also access deposit-like funding by borrowing through short-term funding markets—such as by issuing commercial paper and entering repurchase agreements  These instruments can be continually rolled over as long as funding providers have confidence in the borrowers' solvency  During the crisis, all these instruments—which investors had previously viewed as safe and unlikely to suffer losses—experienced run-like events as funding providers withdrew from markets  Moreover, nonbanks can take on exposure to long-term loans through investing in mortgage-backed securities (MBS) or other asset-backed securities (ABS)  During the crisis, as firms faced liquidity problems, the value of these assets decreased quickly, possibly in part as a result of fire sales  Since the crisis, many regulatory changes have been made related to certain money market, commercial paper, and repurchase agreement markets and practices  For example, in the United States, certain money market mutual funds now must have a floating net asset value   Among other benefits, this may signal to fund investors that a loss of principal is possible and thus reduce the likelihood that investors would "run" at the first sign of possible small losses  However, some observers are still concerned that shadow banking poses risks, because the funding of relatively long-term assets with relatively short-term liabilities will inherently introduce run-risk absent certain safeguards  As discussed above, f intech usually refers to technologies with the potential to alter the way certain financial services are performed  Banks are affected by technological developments in two ways: (1) they face choices over how much to invest in emerging technologies and to what extent they want to alter their business models in adopting technologies, and (2) they potentially face new competition from new technology-focused companies  Such technologies include online marketplace lending, crowdfunding, blockchain and distributed ledgers, and robo-advising, among many others  Certain financial innovations may create opportunities to improve social and economic outcomes, but there is also potential to create risks or unexpected financial losses  Potential benefits from fintech are greater efficiency in financial markets that creates lower prices and increased customer and small business access to financial services  These can be achieved if innovative technology replaces traditional processes that are outdated or inefficient  For example, automation may be able to replace employees, and digital technology can replace physical systems and infrastructure  Cost savings from removing inefficiencies may lead to reduced prices, making certain services affordable to new customers  Some customers who previously did not have access to services—due to such things as the lack of information about creditworthiness or geographic remoteness—could also potentially gain access  Increased accessibility may be especially beneficial to traditionally underserved groups, such as low-income, minority, and rural populations  Fintech could also create or increase risks  Many fintech products have only a brief history of operation, so it can be difficult to predict outcomes and assess risk  It is possible certain technologies may not in the end function as efficiently and accurately as intended  Also, the stated aim of a new technology is often to bring a product directly to consumers and eliminate a "middle-man " However, that middle-man could be an experienced financial institution or professional that can advise consumers on financial products and their risks  In these ways, fintech could increase the likelihood that consumers engage in a financial activity and take on risks that they do not fully understand  Policymakers debate whether (and which) innovations can be integrated into the financial system without additional regulatory or policy action  Technology in finance largely involves reducing the costs or time involved in providing existing products and services, and the existing regulatory structure was developed to address risks from these financial products and activities  Existing regulation may be able to accommodate new technologies while adequately protecting against risks  However, there are two other possibilities  One is that some regulations may be stifling beneficial innovation  Another is that existing regulation does not adequately address risks created by new technologies  Some observers argue that regulation could potentially impede the development and introduction of beneficial innovation  For example, companies incur costs to comply with regulations  In addition, companies are sometimes unsure how regulators will treat the innovation once it is brought to market  A potential solution being used in other countries is to establish a regulatory "sandbox" or "greenhouse" wherein companies that meet certain requirements work with regulators as products are brought to market under a less onerous regulatory framework  In the United States, the CFPB has recently introduced a sandbox wherein companies can experiment with disclosure forms  Some are concerned that existing regulations may not adequately address certain risks posed by new technologies  Regulatory arbitrage—conducting business in a way that circumvents unfavorable regulations—may be a concern in this area  Fintech potentially could provide an opportunity for companies to claim they are not subject to certain regulations because of a superficial difference between how they operate compared with traditional banks  Another group of issues posed by fintech relates to cybersecurity (for general issues related to cybersecurity, see the " Cybersecurity " section above)  As financial activity increasingly uses digital technology, sensitive data are generated  Data can be used to accurately assess risks and ensure customers receive the best products and services  However, data can be stolen and used inappropriately, and there are concerns over privacy issues  This raises questions over ownership and control of the data—including the rights of consumers and the responsibilities of companies in accessing and using data—and whether companies that use and collect data face appropriate cybersecurity requirements  The Federal Reserve's monetary policy response to the financial crisis, the ensuing recession, and subsequent slow economic growth was to keep interest rates unusually low for an extraordinarily long time  It accomplished this in part using unprecedented monetary policy tools such as quantitative easing —large-scale asset purchases that significantly increased the size of the Federal Reserve's balance sheet  Recently, as economic conditions improved, the Federal Reserve took steps to normalize monetary policy such as raising its target interest rate and reducing the size of its balance sheet  A rising interest rate environment—especially following an extended period of unusually low rates achieved with unprecedented monetary policy tools—is an issue for banks because they are exposed to interest rate risk   A portion of bank assets have fixed interest rates with long terms until maturity, such as mortgages, and the rates of return on these assets do not increase as current market rates do  However, many bank liabilities are short term, such as deposits, and can be repriced quickly  So although certain interest revenue being collected by banks is slow to rise, the interest costs paid out by banks can rise quickly  In addition to putting stress on net income, rising interest rates can cause the market value of fixed-rate assets to fall  Finally, banks incur an opportunity cost when resources are tied up in long-term assets with low interest rates rather than being used to make new loans at higher interest rates  The magnitude of interest rate risks should not be overstated, as rising rates can potentially increase bank profitability if they result in a greater difference between long-term rates banks receive and short-term rates they pay—referred to as net interest margin   However, thus far into the Federal Reserve interest rate normalization process, this has not materialized  During 2018, the difference between long-term rates and short-term rates has generally decreased (known as a flattening of the yield curve )  Whatever changes may occur to various interest rates in the coming months and years, banks and regulators typically recognize the importance of managing interest rate risk, carefully examine the composition of bank balance sheets, and plan for different interest rate change scenarios  While banks are well-practiced at interest rate risk management through normal economic and monetary policy cycles, managing bank risk through a period of interest rate growth could be more challenging because rates have been so low for so long and achieved through unprecedented monetary policy tools  Because rates have been low for so long, many loans made in different interest rate environments that preceded the crisis have matured  Meanwhile, all new loans made in the past 10 years were made in a low interest rate environment  This presents challenges to banks seeking to hold a mix of loans with different rates  In addition, because the Federal Reserve has used new monetary policy tools and grown its balance sheet to unprecedented levels, accurately controlling the pace of interest rate growth may be challenging  


Report 2:  This is a decrease from 1 35% and 1 30%, respectively, which is what FHA had been charging from April 1, 2013, until January 26, 2015  These premiums apply to most single-family mortgages; FHA charges different annual premiums in certain circumstances, including for loans with shorter loan terms or higher principal balances  Table 2 shows the up-front and annual mortgage insurance premiums that have been in effect for most loans since January 26, 2015  In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-front insurance premium that was not "earned" by FHA  The refund amount depended on when the mortgage closed and declined as the loan matured  The Consolidated Appropriations Act 2005 ( P L  108-447 ) amended the National Housing Act to provide that, for mortgages insured on or after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-insured loans  After three years, the entire up-front insurance premium paid by borrowers who refinance existing FHA-insured loans with new FHA-insured loans is considered "earned" by FHA, and these borrowers are not eligible for any refunds  The annual mortgage insurance premiums are not refundable  However, beginning with loans closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the annual mortgage insurance premium when, based on the initial amortization schedule, the loan balance reached 78% of the initial property value  However, for loans with FHA case numbers assigned on or after June 3, 2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan for most mortgages  This change responded to concerns about the financial status of the FHA insurance fund  FHA has stated that, since it continues to insure the entire remaining mortgage amount for the life of the loan, and since premiums were cancelled on the basis of the loan amortizing to a percentage of the initial property value rather than the current value of the home, FHA has at times had to pay insurance claims on defaulted mortgages where the borrowers were no longer paying annual mortgage insurance premiums  An FHA-insured mortgage is considered delinquent any time a payment is due and not paid  Once the borrower is 30 days late in making a payment, the mortgage is considered to be in default  In general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly installments are due and unpaid, and they must initiate foreclosure when six monthly installments are due and unpaid, except when prohibited by law  A program of loss mitigation strategies was authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure, and has since been revised and expanded to include additional loss mitigation options  Prior to initiating foreclosure, mortgage servicers must attempt to make contact with borrowers and evaluate whether they qualify for any of these loss mitigation options  The options must be considered in a specific order, and specific eligibility criteria apply to each option  Some loss mitigation options, referred to as home retention options, are intended to help borrowers remain in their homes  Other loss mitigation options, referred to as home disposition options, will result in the borrower losing his or her home, but avoiding some of the costs of foreclosure  The loss mitigation options that servicers are instructed to pursue on FHA-insured loans are summarized in Table 3   Additional loss mitigation options are available for certain populations of borrowers  For example, defaulted borrowers in military service may be eligible to suspend the principal portion of monthly payments and pay only interest for the period of military service, plus three months  On resumption of payment, loan payments are adjusted so that the loan will be paid in full according to the original amortization  Certain loss mitigation options are also available in areas affected by presidentially declared major disasters  FHA's single-family mortgage insurance program is funded through FHA's Mutual Mortgage Insurance Fund (MMI Fund)  Cash flows into the MMI Fund primarily from insurance premiums and proceeds from the sale of foreclosed homes  Cash flows out of the MMI Fund primarily to pay claims to lenders for mortgages that have defaulted  This section provides a brief overview of (1) how the FHA-insured mortgages insured under the MMI Fund are accounted for in the federal budget and (2) the MMI Fund's compliance with a statutory capital ratio requirement  For more detailed information on the financial status of the MMI Fund, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund)   The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget  The FCRA requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be recorded in the federal budget in the year that the loans are insured  When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in more money coming into the account than flowing out of it, the program is said to generate negative credit subsidy  When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in less money coming into the account than flowing out of it, the program is said to generate positive credit subsidy  Programs that generate negative credit subsidy result in offsetting receipts for the federal government, while programs that generate positive credit subsidy require an appropriation to cover the cost of new loan guarantees  The MMI Fund has historically been estimated to generate negative credit subsidy in the year that the loans are insured and therefore has not required appropriations to cover the expected costs of loans to be insured  The MMI Fund does receive appropriations to cover salaries and administrative contract expenses  The amount of money that loans insured in a given year actually earn for or cost the government over the course of their lifetime is likely to be different from the original credit subsidy estimates  Therefore, each year as part of the annual budget process, each prior year's credit subsidy rates are re-estimated based on the actual performance of the loans and other factors, such as updated economic projections  These re-estimates affect the way in which funds are held in the MMI Fund's two primary accounts: the Financing Account and the Capital Reserve Account  The Financing Account holds funds to cover  expected  future costs of FHA-insured loans  The Capital Reserve Account holds additional funds to cover any additional unexpected future costs  Funds are transferred between the two accounts each year on the basis of the re-estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover updated projections of expected costs of insured loans   If FHA ever needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account, it can receive funds from Treasury to make this transfer under existing authority and without any additional congressional action  This occurred for the first time at the end of FY2013, when FHA received $1 7 billion from Treasury to make a required transfer of funds between the accounts  The funds that FHA received from Treasury did not need to be spent immediately, but were to be held in the Financing Account and used to pay insurance claims, if necessary, only after the remaining funds in the Financing Account were spent  The MMI Fund has not needed any additional funds from Treasury to make required transfers of funds between the two accounts since that time  The MMI Fund is also required by statute to maintain a capital ratio of at least 2%, which is intended to ensure that the fund is able to withstand some increases in the costs of loans guaranteed under the insurance fund  The capital ratio measures the amount of funds that the MMI Fund currently has on hand, plus the net present value of the expected future cash flows associated with the mortgages that FHA currently insures (e g , the amounts it expects to earn through premiums and lose through claims paid)  It then expresses this amount as a percentage of the total dollar volume of mortgages that FHA currently insures  In other words, the capital ratio is a measure of the amount of funds that would remain in the MMI Fund after all expected future cash flows on the loans that it currently insures have been realized, assuming that FHA did not insure any more loans going forward  Beginning in FY2009, and for several years thereafter, the capital ratio was estimated to be below this mandated 2% level  The capital ratio again exceeded the 2% threshold in FY2015, when it was estimated to be 2 07%  This represented an improvement from an estimated capital ratio of 0 41% at the end of FY2014, and from negative estimated capital ratios at the ends of FY2013 and FY2012  The capital ratio has remained above 2% since that time, and was estimated to be 2 76% in FY2018  A low or negative capital ratio does not in itself trigger any special assistance from Treasury, but it raises concerns that FHA could need assistance in order to continue to hold enough funds in the Financing Account to cover expected future losses  In the years since the housing market turmoil that began around 2007, FHA has taken a number of steps designed to strengthen the insurance fund  These steps have included increasing the mortgage insurance premiums charged to borrowers; strengthening underwriting requirements, such as by instituting higher down payment requirements for borrowers with the lowest credit scores; and increasing oversight of FHA-approved lenders  The number of new mortgages insured by FHA in a given year depends on a variety of factors  In general, the number of new mortgages insured by FHA increased during the housing market turmoil (and resulting contraction of mortgage credit) that began around 2007, reaching a peak of 1 8 million mortgages in FY2009 before beginning to decrease somewhat  FY2014 was the only year since FY2007 that FHA insured fewer than 1 million new mortgages  As shown in Table 4 , FHA insured just over 1 million new single-family purchase and refinance mortgages in FY2018  Together, these mortgages had an initial loan balance of $209 billion  About 77% (776,284) of the mortgages were for home purchases, while about 23% (238,325) were for refinancing an existing mortgage  The overall number of mortgages insured by FHA in FY2018 represented a decrease from FY2017, when it insured 1 25 million mortgages  Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-income homebuyers, and minority homebuyers  Of the home purchase mortgages insured by FHA in FY2018, about 83% were made to first-time homebuyers  Over a third of all mortgages (both for home purchases and refinances) insured by FHA in FY2018 were made to minority borrowers  As shown in Table 5 , at the end of FY2018 FHA was insuring a total of over 8 million single-family loans that together had an outstanding balance of nearly $1 2 trillion  Since it was first established in 1934, FHA has insured a total of over 47 5 million home loans  FHA's share of the mortgage market is the amount of mortgages that are insured by FHA compared to the total amount of mortgages originated or outstanding in a given time period  FHA's market share can be measured in a number of different ways  Therefore, when evaluating FHA's market share, it is important to recognize which of several different figures is being reported  First, FHA's share of the mortgage market can be computed as the number of FHA-insured mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured mortgages divided by the total dollar volume of mortgages  Furthermore, FHA's market share is sometimes reported as a share of all mortgages , and sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to purchase a home and mortgages made to refinance an existing mortgage)  A market share figure can be reported as a share of all mortgages originated within a specific time period , such as a given year, or as a share of all mortgages outstanding at a point in time , regardless of when they were originated  Finally, FHA's market share is sometimes also reported as a share of the total number of mortgages that have some kind of mortgage insurance (including mortgages with private mortgage insurance and mortgages insured by another government agency) rather than as a share of all mortgages regardless of whether or not they have mortgage insurance  FHA's market share tends to fluctuate in response to economic conditions and other factors  Between calendar years 1996 and 2002, FHA's market share averaged about 14% of the home purchase mortgage market and about 11% of the overall mortgage market (both home purchase mortgages and refinance mortgages), as measured by number of mortgages  However, by 2005 FHA's market share had fallen to less than 5% of home-purchase mortgages and about 3% of the overall mortgage market  Subsequently, as economic conditions worsened and mortgage credit tightened in response to housing market turmoil that began around 2007, FHA's market share rose sharply, peaking at over 30% of home-purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home purchases and refinances) in 2009  In 2017, FHA insured 19 5% of new home purchase mortgages and about 16 7% of new mortgages overall, a small decrease compared to its market share in 2016  Figure 1 shows FHA's market share as a percentage of the total number of new mortgages originated for each calendar year between 1996 and 2017  As described, FHA's market share can be measured in a number of different ways  The figure shows FHA's share of (1) all newly originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated refinance mortgages  FHA's share of home purchase mortgages tends to be the highest, largely because borrowers who refinance are more likely to have built up a greater amount of equity in their homes and, therefore, might be more likely to obtain conventional mortgages  For the number of mortgages insured by FHA in each year calendar since 1996, see the Appendix   The increase in FHA's market share after 2007 was due to a variety of factors related to the housing market turmoil and broader economic instability that was taking place at the time  Housing and economic conditions led many banks to limit their lending activities, including lending for mortgages  Similarly, private mortgage insurance companies, facing steep losses from past mortgages, began tightening the underwriting criteria for mortgages that they would insure  Furthermore, in 2008 Congress increased the maximum mortgage amounts that FHA can insure, which may have made FHA-insured mortgages a more viable option for some borrowers in certain areas  More recently, FHA's market share has decreased somewhat from its peak during the housing market turmoil, although it generally remains somewhat higher than it was in the late 1990s and early 2000s  A number of factors may have contributed to this decrease, including lower loan limits in some high-cost areas, higher mortgage insurance premiums, and greater availability of non-FHA-insured mortgages  While not the focus of this report, the appropriate market share for FHA has been a subject of ongoing debate among policymakers  It is likely to continue to be a topic of debate, both in the context of policies specifically related to FHA as well as part of broader debate about the future of the U S  housing finance system  Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since 1996, along with FHA's overall market share in each calendar year 

ground_truth: The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934. FHA insures private lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. If the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed. A household that obtains an FHA-insured mortgage must meet FHA's eligibility and underwriting standards, including showing that it has sufficient income to repay a mortgage. FHA requires a minimum down payment of 3.5% from most borrowers, which is lower than the down payment required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory maximum mortgage amount, which varies by area and is based on area median house prices but cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in exchange for the insurance. In FY2018, FHA insured over 1 million new mortgages (including both home purchase and refinance mortgages) with a combined principal balance of $209 billion. FHA's share of the mortgage market tends to vary with economic conditions and other factors. In the aftermath of the housing market turmoil that began around 2007 and a related contraction of mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of 21% in 2009. Since that time, FHA's share of the mortgage market has decreased somewhat, though it remains higher than it was in the early 2000s. In calendar year 2017, FHA's overall share of the mortgage market was about 17%. FHA-insured mortgages, like all mortgages, experienced increased default rates during the housing downturn that began around 2007, leading to concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund). In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk to the MMI Fund. These changes have included raising the fees that it charges and making changes to certain eligibility criteria for FHA-insured loans.