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On November 7, the OCC, FDIC, and Federal Reserve issued a proposal to streamline regulatory reporting for qualifying small institutions to implement Section 205 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Specifically, the joint proposal would permit depository institutions with less than $5 billion in assets—previously set at $1 billion—that do not engage in certain complex or international activities to file the FFIEC 051 Call Report, the most streamlined version of the Call Reports. Additionally, the proposal would reduce the existing reportable data items in the FFIEC 051 Call Report by approximately 37 percent for the first and third calendar quarters. The proposal also includes similar provisions for uninsured institutions with less than $5 billion in total consolidated assets that are supervised by the Federal Reserve and the OCC. Comments on the proposal must be received within 60 days of publication in the Federal Register.
On November 2, the Federal Reserve Board (Board) finalized a new supervisory rating system for large financial institutions that is aligned to the core areas supporting qualifying institutions’ safety and soundness and is effective February 1, 2019. Supervisors will use the new rating system to assign confidential ratings for “all domestic bank holding companies and non-insurance, non-commercial savings and loan holding companies with $100 billion or more in total consolidated assets”—an increase from the $50 billion threshold proposed originally. The Board stated that the new rating system “will also apply to U.S. intermediate holding companies of foreign banking organizations with $50 billion or more in total consolidated assets.” The new rating system is designed to (i) better align with current Board supervisory programs and practices; (ii) “[e]nhance the clarity and consistency of supervisory assessments and communications of supervisory findings and implications”; and (iii) “provide transparency related to the supervisory consequences of a given rating.”
According to the Board, supervisors will continue to apply the existing rating system to bank holding companies with less than $100 billion in total consolidated assets, as well as to non-insurance, non-commercial savings and loan holding companies who do not meet the $100 billion total consolidated asset minimum threshold.
On October 31, the Federal Reserve announced a proposed rulemaking to more closely match certain regulations for large banking organization with their risk profile. The proposal would establish four risk-based categories for applying the regulatory capital rule, the liquidity coverage ratio rule, and the proposed net stable funding ratio rule for banks with $100 billion or more in assets. Specifically, the Federal Reserve proposes to establish the four categories using risk-based indicators, such as size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure. According to the proposal, the most significant changes will be for banks are in the two lowest risk categories:
- Banks with $100 billion to $250 billion in total consolidated assets would generally fall into the lowest risk category and would (i) no longer be subject to the standardized liquidity requirements; (ii) no longer be required to conduct company-run stress tests, and (iii) be subject to supervised stress tests on a two-year cycle.
- Banks with $250 billion or more in total consolidated assets, or material levels of other risk factors, that are not global systemically important banking institutions (GSIBs), would (i) have reduced liquidity requirements; and (ii) only be required to perform company run stress tests on a two-year cycle. These banks would still be subject to annual supervised stress tests.
Banks in the highest two risk categories, including GSIBs, would not see any changes to capital or liquidity requirements. A chart of the proposed requirements for each risk category is available here.
Comments on the proposal must be received by January 22, 2019.
Additionally, the Federal Reserve released a joint proposal with the OCC and FDIC that would tailor requirements under the regulatory capital rule, the Liquidity Coverage Ratio and the proposed Net Stable Funding Ratio to be consistent with the prudential standard changes.
On October 25, the Federal Reserve Board announced the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2019 under Regulation D. For 2019, Regulation D is amended to set the reserve requirement exemption amount at $16.3 million (an increase from 2018’s $16 million) and the low reserve tranche at $124.2 million (an increase from 2018’s $122.3 million). The new low reserve tranche and reserve requirement exemption amount will apply to the fourteen-day reserve maintenance period that begins January 17, 2019. The final amendments are effective 30 days after publication in the Federal Register.
On October 22, the Federal Reserve Board (Board) entered into a written agreement with an Oklahoma state chartered bank, which outlines a compliance proposal to “maintain the financial soundness” of the bank. The agreement requires the bank to submit, within 60 days, written plans to improve various aspects of the bank’s functions including, but not limited to, (i) internal controls; (ii) credit risk management; (iii) liquidity and funds management; (iv) interest rate risk management; (v) information technology/cybersecurity; and (vi) BSA/AML compliance. The agreement also prevents the bank from extending, renewing, or restructuring any credit for any borrower whose loans or other extensions of credit were part of the Board’s examination critiques, without prior approval from the board of directors, who are required to document the reasons for the credit extension and certify its compliance with the terms of the agreement.
On October 17, Federal Reserve Governor Lael Brainard spoke at the “FinTech, Financial Inclusion—and the Potential to Transform Financial Services” conference hosted by the Federal Reserve Bank of Boston and the Aspen Institute Financial Security Program to discuss ways in which fintech can improve financial access for underserved families and small businesses. Brainard argued that, although new technologies can lower transaction costs, access to accounts and credit—while beneficial—does not, by itself, overcome the barriers to financial inclusion. Brainard stressed that continued progress toward financial inclusion is likely to require solutions designed with an understanding of issues the underserved face, such as examining why many unbanked or underbanked people intentionally choose not to maintain a bank account and recognizing the need to support faster payment systems for those living paycheck to paycheck. Brainard cautioned, however, that new fintech products may create consumer data security and privacy issues, and that fintech may struggle to reach communities lacking the infrastructure for digital service delivery. The challenge as regulators, she stated, “is to ensure trust in financial products and services by maintaining the focus on consumer protection, while supporting responsible innovation that provides social benefits.”
On October 17, the Federal Reserve Board issued CA 18-8, which announces revised interagency examination procedures for Regulation CC, the implementing regulation to the Expedited Funds Availability Act. The revised procedures reflect amendments to Regulation CC that were effective on July 1, which, among other things (i) creates a framework for electronic check collection and return; (ii) establishes certain indemnities for electronically-created checks; (iii) applies traditional-check-equivalent warranties to electronic checks; and (iv) modifies the requirements for the expeditious return of checks and expeditious-return liability. The revised procedures also incorporate amendments from the Economic Growth, Regulatory Relief, and Consumer Protection Act. CA 18-8 supersedes the examination procedures referenced in CA 04-9, “Revised Regulation CC Examination Procedures - Check Clearing for the 21st Century.”
On October 16, the FDIC, Federal Reserve Board, and the OCC issued FAQs to offer additional clarification concerning appraisal and evaluation functions set out in the 2010 Interagency Appraisal and Evaluation Guidelines, the 2016 Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions, and other related regulations, guidance, and advisories. (See FDIC FIL-62-2018 and OCC Bulletin 2018-39.) The FAQs—which do not introduce new policy or guidance—address a range of topics including (i) regulatory and statutory requirements applicable to appraisal and evaluation programs; (ii) financial institutions’ review of appraisal and evaluation programs; (iii) appraisal exemptions; (iv) development of appraisals and evaluations, including relevant policies and procedures; and (v) appraisal independence.
On October 15, Federal Reserve Governor Lael Brainard spoke during a community investment meeting hosted by the Federal Reserve Bank of Kansas City’s Denver Branch to discuss the role of the Community Reinvestment Act (CRA) in strengthening community investment. She noted that the OCC recently published an Advance Notice of Proposed Rulemaking (ANPR), and encouraged the public to submit comments by November 19. As previously covered by InfoBytes, the ANPR seeks input from stakeholders on ways to modernize the CRA regulatory framework. Brainard noted there was confusion about commenting on the ANPR because it was not published on an interagency basis. She clarified that although the Federal Reserve did not join in the publication of the ANPR, the Federal Reserve will read comment letters in anticipation of working with the OCC and FDIC on a joint proposal. Brainard emphasized that the “CRA is too important to the financial well-being of communities across this country for banks and community members to disengage in any part of this process.”
Federal, state financial regulatory agencies issue guidance for institutions affected by Hurricane Michael
On October 10, the OCC, Federal Reserve Board, FDIC, NCUA, and the Conference of State Bank Supervisors (collectively, the “agencies”) issued a joint statement providing guidance to financial institutions impacted by Hurricane Michael. The agencies encouraged lenders to work with borrowers in impacted communities to modify loans as appropriate based on the facts and circumstances of each borrower and loan. In addition, the agencies assured lenders that they would (i) expedite any request to operate temporary facilities to provide more convenient services to those affected by Hurricane Michael; (ii) not generally assess penalties for institutions who take prudent steps to satisfy any publishing or reporting requirements, including by contacting their state or federal regulator to discuss satisfaction of such requirements; and (iii) consider granting institutions favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.
On the same day the joint statement was issued, the FDIC issued a statement encouraging depository institutions to assist affected customers (see FIL-59-2018), which may include “waiving fees, increasing ATM cash limits, easing credit card limits, allowing loan customers to defer or skip payments, and delaying the submission of delinquency notices to credit bureaus.” The FDIC also encouraged depository institutions to use Bank Secrecy Act-permitted “non-documentary verification methods” for customers unable to provide standard identification documents and stated that prudent efforts taken to meet customers’ cash and financial needs “generally will not be subject to examiner criticism.”
Find continuing InfoBytes coverage on disaster relief here.
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Jeffrey P. Naimon and Jonice Gray Tucker to discuss "Enforcement and litigation trends" at the American Bankers Association General Counsel Meeting
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- David S. Krakoff to discuss "The DOJ corporate enforcement policy and your disclosure calculus one year in: Are companies benefitting?" at the American Conference Institute International Conference on the Foreign Corrupt Practices Act
- Moorari K. Shah to discuss "Legal & regulatory issues" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Jonice Gray Tucker to discuss "Hot topics in consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss "Anti-money laundering/OFAC compliance" at the Institute of International Bankers U.S. Regulatory/Compliance Orientation Program