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FDIC announces deposit insurance seminars
On October 7, the FDIC announced that it will conduct four identical seminars for bank employees and bank officers regarding FDIC deposit insurance coverage between October 21 and December 14. According to the FDIC, the seminars will: (i) provide an overview of FDIC-deposit insurance rules; (ii) cover topics such as the general principles of coverage, ownership categories, and requirements; (iii) provide information on additional deposit insurance resources; and (iv) include coverage examples and a live Q&A session. Registration will be required, but the seminars are free. Seminar participants must register at least two business days prior to the event, which can be accessed here.
FDIC updates brokered deposits FAQs
On October 5, the FDIC released an update to the Questions and Answers Related to the Brokered Deposits Rule document. The FDIC added an FAQ to expressly state that a broker-dealer that sweeps deposits to only one insured depository institution (IDI) does not need to file a notice to rely upon the 25 percent designated exception, because a third party that has an exclusive deposit placement arrangement with only one IDI does not meet the definition of “deposit broker.” The FAQs also specify that an individual “meets the first part of the ‘deposit broker’ definition when it is ‘engaged in the business of placing deposits’ on behalf of a third party (i.e., a depositor) at IDIs.” The FAQs further clarify that an individual “is ‘engaged in the business of placing deposits’ of third parties if that person, while engaged in business, receives third party funds and deposits those funds at more than one IDI.”
EU and U.S. release statement on Joint Financial Regulatory Forum
On September 29 and 30, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six different themes: “(1) market developments and current assessment of financial stability risks, (2) sustainable finance, (3) multilateral and bilateral engagement in banking and insurance, (4) regulatory and supervisory cooperation in capital markets, (5) financial innovation, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”
While acknowledging that both the EU and U.S. are experiencing “robust economic recoveries,” participants cautioned that the uncertainty around the Covid-19 pandemic and the economic outlook has not dissipated. “[C]ooperative international engagement to mitigate financial stability risks remains essential,” participants warned. Participants also explored issues concerning climate-related challenges for the financial sector and mandates for addressing climate-related financial risks, and touched upon the EU’s strategy for financing its transition to a sustainable economy. Regarding financial innovation, participants discussed potential central bank digital currencies and exchanged views on topics such as new types of digital payments, crypto-assets, and stablecoins, with all participants recognizing the “benefits of greater international supervisory cooperation” and “promot[ing] responsible innovation globally.” In addition, participants discussed progress made in strengthening their respective AML/CFT frameworks, “exchanged views on the opportunities and challenges arising from financial innovation in the AML/CFT area and explored potential areas for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].”
Fed governor discusses community-bank supervision
On September 29, Federal Reserve Governor Michelle W. Bowman spoke at the Community Banking in the 21st Century Research and Policy Conference held in St. Louis, Missouri on creating a new model for the future of supervision in banking. Bowman stated that the Fed has “actively explored ways to reduce regulatory burden and provide greater transparency into the work of bank supervisors,” including a reassessment of disproportionate regulatory burdens on small institutions. Bowman noted there was a systematic movement to FDIC-insured deposits in state or nationally chartered banks during the Covid-19 pandemic. For example, total deposits at all FDIC-insured institutions increased by 22 percent in comparison to deposit data from 2019 to 2020, and small business lending increased significantly. Bowman pointed out that community banks played a large role in allocating credit through the Paycheck Protection Program during the pandemic. She also discussed ways the Fed has evolved since the start of the pandemic, such as utilizing technology that enabled the opportunity to remotely supervise the safety and soundness of institutions and adjusting supervisory practices, among other things.
For the future of supervision, Bowman announced an initiative to investigate the implications of banking evolutions for the Fed’s supervision function, which will ensure the Fed’s supervisory approaches “accommodate a much broader range of activities” while also ensuring it does not “create an unlevel playing field with unfair advantages, or unfair disadvantages, for some types of firms versus others.” Bowman said that when there is significant uncertainty around a new regulation, supervisory expectation, or practice, the Fed “will look beyond [its] traditional communications tools to find innovative ways to reduce that uncertainty.” She also shared some underlying principles, among other things, that she believes will guide future supervisory approaches, such as (i) committing to preserving the stability, integrity, functionality, and diversity of the banking system; (ii) maintaining consumer protection and ensuring banks can safely offer financial products and services; (iii) avoiding adding new burdens on banks; (iv) enhancing transparency around supervisory expectations for safety and soundness and consumer compliance matters; (v) providing timelier feedback to banks; and (vi) having the ability to adjust supervisory expectations effectively and efficiently to enable banks to be more flexible in serving different communities.
FDIC issues QBP for 2Q 2021
On September 24, the FDIC released the second quarter 2021 Quarterly Banking Profile for FDIC-insured institutions, reporting an aggregate net income of $70.4 billion in the second quarter 2021, which is an increase of $51.9 billion (281 percent) from the same quarter a year ago. The FDIC emphasized, among other things, that community banks reported year-over-year quarterly net income growth of $1.9 billion (28.7 percent) in second quarter 2021, despite a narrower net interest margin. In addition, the FDIC noted that the Deposit Insurance Fund totaled $120.5 billion at the end of second quarter 2021, an increase of $1.2 billion from the previous quarter. The featured article, The Importance of Technology Investments for Community Bank Lending and Deposit Taking During the Pandemic, reported that community banks that invested more in technology generally noted quicker loan and deposit growth in 2020 than banks with less technology investment did. Faster loan growth for community banks with greater technology investment stemmed from participation in the Paycheck Protection Program, according to the article.
FDIC releases August enforcement actions
On September 24, the FDIC released a list of administrative enforcement actions taken against banks and individuals in August. During the month, the FDIC issued eight orders consisting of “one Consent Order, three terminations of Consent Orders, two Orders to Pay Civil Money Penalty, one Removal/Prohibition Order, and two Section 19 Orders.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The bank also allegedly “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $3,000 civil money penalty.
FDIC announces Pennsylvania disaster relief
On September 16, the FDIC issued FIL-67-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Pennsylvania affected by Hurricane Ida. The FDIC acknowledged the unusual circumstances faced by institutions in affected areas, and suggested institutions take certain steps to meet the needs of their communities and keep the FDIC informed of business impacts. These steps include (i) working with borrowers to adjust or alter loan terms in a safe and sound manner; (ii) identifying potential community development activities to revitalize or stabilize the disaster area (which the FDIC noted may receive favorable CRA consideration); (iii) monitoring potentially impacted municipal securities and loans; (iv) notifying the FDIC of delays in meeting filing and publishing requirements, or in the event temporary banking facilities are needed; and (v) processing consumer requests under Regulation Z for a waiver or modification of the three-day rescission period for dwelling-secured loans in the event of a “bona fide personal financial emergency.”
FDIC launches investment vehicle to support MDIs and CDFIs
On September 16, the FDIC announced the launch of a new capital investment vehicle to support insured Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) that provide capital and financial services to low- and moderate-income, minority, and rural communities. The Mission-Driven Bank Fund supports the FDIC’s commitment to preserving and promoting mission-driven institutions, and provides investors with an opportunity to support these institutions, enabling MDIs and CDFIs to provide affordable financial products and services, stimulate economic and community development, and build opportunity and prosperity. Among other things, the fund’s collaborative investment framework will channel private capital and other resources to allow institutions to (i) raise the necessary capital to better serve their communities; (ii) weather economic downturns and recover faster; (iii) attract technical expertise to grow operations and expand services; (iv) “acquire, deploy, and maintain technology solutions”; and (v) “build capacity and scale.” The FDIC notes that it “will retain an advisory role to support the fund’s mission, but will not contribute capital to, manage, or be involved in investment decisions of, the fund.”
Agencies extend comment period on proposed third-party relationship risk management guidance
On September 10, the OCC, Federal Reserve Board, and FDIC extended the comment period on the regulators’ proposed interagency guidance designed to aid banking organizations in managing risks related to third-party relationships, including relationships with fintech-focused entities. The deadline has been extended to October 18 and interested parties may submit comments until the deadline.
As previously covered by InfoBytes, the proposed guidance addresses key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Coupled with the release of a Federal Reserve Board paper describing community bank and fintech partnerships, as well as interagency guidance to help community banks evaluate fintech relationships (covered by InfoBytes here), the federal bank regulators are demonstrating continued and increased focus on third-party risk management issues.
FDIC updates brokered deposit resources
On September 8, the FDIC updated its brokered deposits FAQs by adding an FAQ to illustrate an example of when a broker is “proposing deposit allocations” under the “matchmaking” definition. According to the FAQ, if an individual identifies at which banks to place the funds of individual customers of a broker dealer as part of a broker dealer sweep program, the person is “proposing deposit allocations” for purposes of the “matchmaking” definition. The new FAQ explains that this is true even if the broker dealer determines the group of banks, or the order of banks, at which the person can propose placing individual depositor's funds or the maximum amount that can be placed at each bank. In addition, the guidance explains that a person that is “proposing deposit allocations” at, or between, more than one bank, also satisfies the other criteria in the matchmaking definition.
The FDIC also provided a public list of all entities that have submitted public notices for the primary purpose exception as of August 31, 2021. Of the two exceptions that require notice filing, the majority of the filers so far claimed an exception based on “enabling transactions” business relationships whereby 100 percent of depositors’ funds that an agent or nominee places, or assists in placing, at depository institutions are placed into transactional accounts that do not pay any fees, interest, or other remuneration to the depositor.