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Financial Services Law Insights and Observations

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  • FDIC implements updated interagency forms

    Agency Rule-Making & Guidance

    On July 11, the FDIC issued Financial Institution Letter FIL-38-2018 announcing the implementation of revisions to several interagency forms. The updates, based upon recommendations from representatives from the FDIC, Federal Reserve, and the OCC, reflect new laws, regulations, capital requirements, and accounting rules. The changes are intended to improve the clarity of the requests, delete unnecessary information requests, and add transparency for filers concerning information required to consider a proposal.

    The following revised forms may be used going forward for all applicable applications filed with the FDIC and are effective immediately:

    Agency Rule-Making & Guidance FDIC Federal Reserve OCC Bank Regulatory

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  • Agencies issue statement on the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act

    Federal Issues

    On July 6, the Federal Reserve Board, FDIC, and OCC issued an interagency statement regarding the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/P.L. 115-174, which was signed into law by President Trump on May 24. The joint statement describes the interim positions the federal agencies will take with regard to amendments within the Act, including, among other things, (i) extending the deadline to November 25 for all regulatory requirements related to company-run stress testing for depository institutions with less than $100 billion in total consolidated assets; (ii) enforcing the Volcker Rule consistently with the Act’s narrowed definition of banking entity; and (iii) increasing the total asset threshold for well-capitalized insured depository institutions to be eligible for an 18-month examination cycle. The agencies intend to engage in rulemakings to implement certain provisions at a later date. The accompanying OCC and the FDIC releases are available here and here.

    The Federal Reserve Board also issued a separate statement describing how, in accordance with the Act, the Board will no longer subject certain smaller, less complex banking organizations to specified regulations, including stress test and liquidity coverage ratio rules. The Act raised the threshold from $50 billion to $100 billion in total consolidated assets for bank holding companies to be subject to Dodd-Frank enhanced prudential standards. The Board intends to collect assessments from all assessed companies for 2017 but will not collect assessments from newly exempt companies for 2018 and going forward. Additionally, the statement provides guidance on implementation of certain other changes in the Act, including reporting high volatility commercial real estate exposures.

    Federal Issues Federal Reserve FDIC OCC S. 2155 Volcker Rule Stress Test Trump

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  • Federal Reserve, FDIC extend resolution plan filing deadline for 14 domestic firms

    Federal Issues

    On July 2, the Federal Reserve Board and the FDIC announced that the deadline to file resolution plans, also known as living wills, for 14 domestic firms has been extended to December 31, 2019. This one-year extension provides more time for the agencies to provide feedback on the firms’ last round of resolution plan submissions, as well as for the firms to produce their next resolution plans as required by the Dodd-Frank Act. The agencies also issued a reminder that due to the recent passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, banks with less than $100 billion in total consolidated assets are no longer bound by resolution plan requirements.

    Federal Issues Federal Reserve FDIC Dodd-Frank Living Wills S. 2155

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  • Federal Reserve issues enforcement actions against former bank employees

    Federal Issues

    On June 26, the Federal Reserve released enforcement actions taken against two former bank employees for improper actions, including one employee who allegedly embezzled money from a bank’s customer on several occasions, and another who misappropriated funds through false representations and accounting entries to pay off personal and family members’ loans owed to the bank. The Federal Reserve issued consent prohibitions for both former employees, which prohibits them from, among other things, participating in any manner in the conduct of the affairs of any insured depository institution, or holding company or subsidiary of an insured depository institution.

    Federal Issues Federal Reserve Enforcement

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  • Federal Reserve releases Comprehensive Capital Analysis and Review results

    Federal Issues

    On June 28, the Federal Reserve released the results of the Comprehensive Capital Analysis and Review (CCAR) conducted for 35 firms. This is the eighth year the Fed has conducted the CCAR exercise for the largest U.S.-based bank holding companies. The Fed considers quantitative and qualitative factors in its evaluation, including projected capital ratios under hypothetical severe economic conditions and strength of the firm’s risk management, internal controls, and governance practices that support the capital planning process. This year, 18 firms were subject to both quantitative and qualitative assessments, and 17 firms were only subject to the quantitative assessment. The Fed objected to one firm’s capital plan based on qualitative concerns and issued conditional non-objections to two firms based on changes to the tax law that negatively affected capital levels. However, the one-time reductions are not considered a reflection of the firms’ performances under stress. Overall, U.S. firms have substantially increased their capital since 2009 when the first round of stress tests were conducted.

    Federal Issues Federal Reserve CCAR Stress Test

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  • FDIC, Federal Reserve seek comment on proposed 2019 resolution plan

    Federal Issues

    On June 29, the FDIC and Federal Reserve issued (here and here) a joint request for public comment on proposed revisions to resolution plan guidance for the eight largest and most complex U.S. banks. Resolution plans, also known as living wills, outline a bank’s strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company, and help to reduce the risk that a bank’s failure will cause serious adverse effects on the financial stability of the U.S. The proposed guidance would apply beginning with the July 1, 2019 resolution plan submissions. The proposed guidance also would incorporate agency expectations for addressing derivatives, trading, payment, clearing, and settlement activities. The FDIC and Federal Reserve will accept comments on the proposed guidance for 60 days following publication in the Federal Register.

    Federal Issues FDIC Federal Reserve Living Wills

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  • Agencies release 2018 list of distressed, underserved communities

    Federal Issues

    On June 25, the OCC, together with the Federal Reserve and the FDIC, released the 2018 list of distressed or underserved communities where revitalization or stabilization efforts by financial institutions are eligible for Community Reinvestment Act (CRA) consideration. According to the joint release from the agencies, the list of distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies pursuant to their CRA regulations and reflect local economic conditions, including changes in unemployment, poverty, and population. For any geographies that were designated by the agencies in 2017 but not in 2018, the agencies apply a one-year lag period, so such geographies remain eligible for CRA consideration for another 12 months.

    Similar announcements from the Federal Reserve and the FDIC are available here and here.

    Federal Issues OCC FDIC Federal Reserve CRA

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  • Federal Reserve releases stress test results

    Federal Issues

    On June 21, the Federal Reserve Board released the results of stress tests conducted on 35 financial institutions, representing 80 percent of the assets of all banks operating in the U.S. The results are from the eighth round of stress tests led by the Fed since 2009 and the sixth round under the Dodd-Frank Act. Under the most severe scenario tested by the Fed, consisting of a severe global recession with unemployment rising to 10 percent and a steepening Treasury yield curve, the Fed projected losses at the 35 institutions would total $578 billion and the aggregate common equity tier 1 capital ratio would fall from an actual 12.3 percent in the fourth quarter of 2017 to 7.9 percent. The Fed also noted that several factors, including higher credit card balances and changes to the tax code, affected the post-stress capital ratios this year.

    Federal Issues Stress Test Dodd-Frank Federal Reserve

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  • Federal Reserve issues final rules reflecting credit and interest rate increases

    Agency Rule-Making & Guidance

    On June 20, the Federal Reserve issued a final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) to reflect its June 14 approval of a one-quarter percent increase in the primary credit rate at each Federal Reserve Bank. Because the formula for the secondary credit rate references the primary rate, the secondary credit rate also increased by one-quarter percentage point.

    The same day, the Federal Reserve also issued a final rule amending Regulation D (Reserve Requirements of Depository Institutions) to reflect its June 14 approval of a one-quarter percent increase to the “rate of interest paid on balances maintained to satisfy reserve balance requirements (IORR) and the rate of interest paid on excess balances (IOER) maintained at Federal Reserve Banks by or on behalf of eligible institutions.”

    Agency Rule-Making & Guidance Federal Reserve Federal Register Regulation A Regulation D

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  • Federal Reserve Board approves final rule setting single counterparty credit limit

    Agency Rule-Making & Guidance

    On June 14, the Federal Reserve Board approved a rule to establish single-counterparty credit limits for U.S. bank holding companies with at least $250 billion in total consolidated assets, foreign banking organizations operating in the U.S. with at least $250 billion in total global consolidated assets (as well as their intermediate holding companies with $50 billion or more in total U.S. consolidated assets), and global systemically important bank holding companies (GSIBs).

    The rule, which implements section 165(e) of the Dodd-Frank Act, requires the Board to limit a bank holding company’s or foreign banking organization’s credit exposure to an unaffiliated company. Under the rule, a GSIB’s credit exposure is limited to 15 percent of its tier 1 capital to another systemically important firm.  A U.S. bank holding company and other applicable foreign institution is limited to a credit exposure of 25% of its tier 1 capital to a counterparty.

    GSIBs will be required to comply with the final rule on January 1, 2020, while other covered entities will have through July 1, 2020 to comply. The final rule will take effect 60 days after its publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve GSIBs Dodd-Frank

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