InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Senate Republicans Announce Three New Banking Committee Members
On January 3, 2017, Senate Republican leadership released committee assignments for the 115th Congress, and in the process, announced the addition of three new Republican members of the Banking, Housing, and Urban Affairs Committee. Specifically, Sens. David Perdue (R-Ga.), Thom Tillis (R-N.C.) and John Kennedy (R-La.) have been assigned to the Committee, replacing Sens. Jerry Moran (R-Kan.), who was reassigned, David Vitter (R-La.), who retired last year, and Mark Kirk (R-Ill.), who lost his re-election bid. Looking ahead, committee chairs will be selected next week following a vote of the members of each respective committee and then ratified by the Senate Republican Conference.
Joint Final Rules on Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks
On January 4, 2017, the FDIC and the other federal financial institution regulatory agencies announced that they had adopted final rules permitting Insured Depository Institutions (“IDIs”) with up to $1 billion in total assets (and that meet certain other criteria) to qualify for an 18-month on-site examination cycle. The rule modification is aimed at allowing banking regulators to better focus supervisory resources on IDIs that present capital, managerial, or other issues of supervisory concern while reducing regulatory burden on small, well-capitalized and well-managed institutions.
Banking Agencies Approve Streamlined Call Report
The Fed, FDIC, and OCC, as members of the FFIEC, recently announced that the implementation of a streamlined Call Report Form (FFIEC 051) for eligible small institutions—financial institutions with only domestic offices and less than $1 billion in total assets—which is proposed to take effect March 31, 2017. The FFIEC’s action is the result of an ongoing initiative to reduce the burden associated with Call Report requirements for community banks. Among other things, the streamlined Call Report reduces the existing Call Report from 85 to 61 pages, resulting from the removal of approximately 950 (or about 40 percent) of the nearly 2,400 data items in the Call Report. Because the OMB must approve the revisions before they can be implemented, the above-referenced banking agencies have also issued a joint notice reflecting that they have submitted the information collection to OMB for review.
OCC Finalizes Rule Banning Industrial, Commercial Metal Dealing
Last week, on December 28, 2016, the OCC announced the release of its final rule to prohibit national banks and federal savings associations from dealing or investing in industrial or commercial metals. Under the new restrictions, banks will no longer be permitted to deal or invest in metals and alloys in forms primarily suited for industrial or commercial purposes, such as copper cathodes, aluminum T-bars and gold jewelry. The final rule is effective as of April 1, 2017, and includes a divestiture period, which provides for institutions that previously acquired industrial or commercial metal through dealing or investing to unwind their investments as soon as practicable, but not later than April 1, 2018. The OCC may also—on a case-by-case basis—grant up to four separate one-year extensions of the divestiture period if the bank has made a good faith effort to dispose of its existing investments and the bank’s retention of the metal is not inconsistent with safe and sound operation.
NYDFS to Revise Proposed Cybersecurity Regulation Following Public Hearing Before State Lawmakers
On December 19, the New York Assembly Standing Committee on Banks held a public hearing, receiving testimony about a recently proposed regulation intended to address cybersecurity risks to entities regulated by the New York Department of Financial Services (NYDFS). Previously covered by InfoBytes upon its initial release in September 2016, the proposed regulation has since been subject to a public comment period before final issuance.
The hearing before the NY State Assembly provided an opportunity for representatives from a variety of NYDFS-regulated entities to offer testimony and/or raise objections. Many of the witnesses cited the proposal’s “one-size-fits-all” approach as a source of concern, noting that the proposed regulation currently does not account for variations in the business models, IT system structures, or risk profiles of the institutions they affect. Other concerns raised by the witnesses included onerous reporting requirements, a lack of harmony between the proposal and federal regulations and guidance, high costs of compliance, and even reputational risk arising out of exposure through FOIA Laws. An archived video of the hearing can be accessed here.
Two days after the hearing in Albany, NYDFS indicated that it is now planning to release an updated version of the regulation on December 28—thereby pushing the effective date to March 1, 2017. InfoBytes will continue to monitor the status of the proposed regulation and will issue an update once NYDFS publishes its revised regulation.
Fed to Require Public Disclosure of Big Liquidity Risk Metrics
On December 19, the Fed announced its approval of a rule requiring large banks to publicly disclose certain quantitative liquidity-risk metrics on a quarterly basis. As previously covered in InfoBytes, in September 2014, the federal banking agencies had adopted a rule requiring banks with assets of $50 billion or more to hold “high-quality liquid assets” (HQLA) in an amount equal to or greater than the bank’s net cash outflows during a 30-day stress period; the ratio of HQLA to net cash outflows is the bank’s “liquidity coverage ratio” (LCR). The Fed’s new rule requires large banks to disclose their LCRs, HQLA amounts by category, and certain other metrics, including projected “net stressed cash outflow” amounts and derivatives inflows and outflows. Compliance deadlines range from April 2017 through October 2018.
Fed Finalizes Debt-Minimum Rule to Help Banking System Weather Shocks
On December 15, the Fed finalized a rule requiring the biggest global banks to guard against potential collapse by holding minimum amounts of long-term debt and regulatory capital. The rule applies to bank holding companies, U.S. global systemically important banks (GSIB), as well as U.S. branches of foreign banks, and aims to shift the costs of bank failure to shareholders rather than taxpayers by requiring lenders to maintain sufficient amounts of long-term debt, which can be converted to equity to keep a failing bank’s key operations afloat. Specifically, the measure will establish minimum required levels for long-term debt and total loss-absorbing capacity, as well as restrictions on certain short-term debt financing arrangements by parents of GSIB-designated financial institutions. In prepared opening remarks, Fed Chair Janet Yellen explained that “[t]he rule is guided by common sense principles: bank shareholders and debt investors should place their own money at risk so depositors and taxpayers are well protected, and the biggest banks must bear the costs that come with their size.”
In a memorandum to the Board of Governors, the Fed’s staff noted that covered banks are currently about $70 billion short altogether of the new requirements. The Fed staff estimated that the aggregate increased funding of approximately $680 million to $2 billion annually would be required to make up the shortfall.
Prudential Regulators Issue Guidance on New Accounting Standards Governing Credit Loss Allowances
On December 19, the Prudential Regulators have issued guidance in the form of a cover letter (OCC 2016-45; SR 16-19; FIL-79-2016) and FAQs to assist financial institutions and bank examiners interpret and apply new accounting standards applicable to estimated allowances for credit losses. Though applicable to all financial institutions, regardless of size, there are different effective dates for the new standard depending on the institutions status as a public entity and/or SEC filer. The above-referenced FAQs summarize key elements of the new accounting standard, such as effective dates, scope, and transition, while also highlighting the specific GAAP accounting provisions affected by the new standard, including: (i) purchased credit-deteriorated financial assets; (ii) held-to-maturity debt securities; (iii) available-for-sale debt securities; (iv) troubled debt restructuring; and (v) off-balance-sheet credit exposures. The guidance also outlines steps regulators have encourage financial institutions to take to prepare for the transition to the new accounting standard, including: (i) initial supervisory views on measurement methods, (ii) the use of vendors, (iii) scalability, (iv) data needs, and (v) allowance processes.
FSB Releases Status Report Addressing Decline in Correspondence Banking
On December 19, the Financial Stability Board (FSB) announced the release of a progress report and 2017 workplan to assess and address the decline in correspondent banking. According to the FSB, a decline in the number of correspondent banking relationships is a source of concern for the international financial system because, among other reasons, “it may affect the ability to send and receive international payments, or drive some payment flows underground.” The FSB’s report discusses the FSB’s November 2015 four-point action plan to “assess and address” this concern and highlights actions taken by the FSB over the last five months, including:
- FSB efforts to collect both bank-level and aggregate country-level data on the number of correspondent banking relationships and aggregated transaction amounts by country and currency for approximately 300 banks in some 50 jurisdictions in order to understand in more detail the scale of withdrawal from correspondent banking, its causes and effects.
- The Financial Action Task Force (FATF’s) publication of guidance on correspondent banking, which clarifies that the FATF Recommendations do not require financial institutions to conduct customer due diligence on the customers of their respondent bank clients.
- The Basel Committee on Banking Supervision’s (BCBS’s) publication of a revised version of its guidance on correspondent banking.
- The hosting of a roundtable discussion amongst the FSB, International Monetary Fund, the World Bank, and officials from central banks, private banks and finance ministries around the world to discuss steps that need to be taken to address this issue.
The report also includes a discussion of deliverables for 2017, along with general time estimates as to when it expects to complete various tasks. Among other things, the FSB expects to publish the findings from its survey on correspondent banking in April of 2017, the BCBS expects to publish its revised guidance on correspondent banking in June, and FATF expects to release best practices on private sector information sharing and finalize its work on customer due diligence and financial inclusion in July.
NYDFS Fines Italian Bank $235 Million for Repeated Violations of BSA/AML Laws
On December 14 the New York State Department of Financial Services (NYDFS) announced the imposition of a $235 million fine against an Italian bank and its New York branch as part of a consent order addressing “significant violations of New York Bank Secrecy Act and anti-money laundering (BSA/AML) laws.” According to the consent order, a NYDFS investigation identified “compliance failures . . . arising from deficiencies in the implementation and oversight of the transaction monitoring system located at the New York Branch,” as well as “non-transparent practices to process payments on behalf of Iranian clients” and “shell company activity indicative of potentially suspicious transactions” and a general “breakdown in audit and management oversight.” The consent order findings stipulate that the wrongdoing dated back to 2002, but also acknowledge that the Bank made the decision to discontinue certain of its non-transparent practices in 2006. In addition to a civil monetary penalty, the consent order also requires that the bank continue to engage an independent consultant to help “remediate the identified shortcomings,” “audit the Bank’s transaction review efforts”, and submit a report of its findings, conclusions and recommendations within 60 days. Thereafter, the Bank must submit, in writing for NYDFS review, across-the-board enhancements to its internal control policies and procedures.