Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Treasury releases Orderly Liquidation Authority report

    Federal Issues

    On February 21, the U.S. Department of the Treasury released a report on the Orderly Liquidation Authority (OLA) and Bankruptcy Reform. The report is in response to the April 2017 Presidential Memorandum requiring the Treasury Department to review and provide recommendations for improving the OLA under the Dodd-Frank Act, previously covered by InfoBytes here. According to the Treasury Department’s announcement, the recommendations outlined in the report “ensure that taxpayers are protected by strengthening the bankruptcy procedure for a failed financial company and retaining OLA in very limited circumstances with significant reforms.” In addition to recommending a new Chapter 14 of the Bankruptcy Code for distressed financial companies, the report recommends significant reforms to the OLA process, such as (i) creating clear rules administered with impartiality, including restricting the FDIC’s ability to treat similarly situated creditors differently; (ii) ensuring market discipline and strengthening protection for taxpayers by, among other things, only allowing the FDIC to lend on a secured basis; and (iii) strengthening judicial review to provide a stronger check on the decision to invoke OLA.

    Federal Issues Department of Treasury Dodd-Frank Orderly Liquidation Authority Trump Bankruptcy

  • FDIC adopts final rule to remove references to external credit ratings from international banking regulations

    Agency Rule-Making & Guidance

    On February 15, the FDIC announced it adopted a final rule, which removes references to external credit ratings from its international banking regulations related to permissible investment activities and the pledging of assets. According to FIL-9-2018, among other things, the amended final rule (adopted February 14) modifies the FDIC’s definition of “investment grade” under FDIC Rules and Regulations Part 347 by replacing references to external credit ratings with standards of creditworthiness that conform to Section 939A of the Dodd-Frank Act. As FIL-9-2018 explains, the final rule defines “investment grade” as a security issued by an entity that has adequate capacity to meet financial commitments for the projected life of the exposure. And as the final rule itself explains, this revision was made to “encourage regular, in-depth analysis by the banking organization of credit risks of securities, which is a prudent practice already expected of banks.” The final rule takes effect on April 1.

    Agency Rule-Making & Guidance FDIC International Credit Ratings Dodd-Frank

  • FDIC Chairman discusses challenges associated with living wills

    Federal Issues

    On February 16, FDIC Chairman, Martin J. Gruenberg, spoke at an event hosted by The Wharton School in Philadelphia about the challenges associated with managing the orderly failure of a systemically important financial institution. In prepared remarks, Gruenberg discussed his views on how the FDIC’s Title II Orderly Liquidation Authority granted under Dodd-Frank—which allows the regulator “to manage the orderly failure of any financial institution whose failure in bankruptcy could pose a risk to the financial system”—is complementary to the Title I living will process. Title I requires firms to “make significant changes in their organizational structure and operations to facilitate orderly failure in bankruptcy.” Gruenberg outlined the evolution of the living will process from its inception under Dodd-Frank in 2010, to the efforts undertaken by the eight largest, most complex banks when assembling their mandated resolution plans, which are reviewed by the FDIC and the Federal Reserve (the agencies). While the banks have demonstrated “substantial” progress on their resolution plans, Gruenberg commented “there is still a great deal of work to do.” Specifically, Gruenberg noted that in 2016, the agencies determined that (i) five of the eight submitted plans “would not facilitate an orderly resolution of the firm under the Bankruptcy Code,” and (ii) all eight plans contained “shortcomings” that raised questions about the plans’ feasibility. All systematically important financial institutions were directed to address their shortcomings in their next submissions. During his remarks, Gruenberg cited examples of progress made in 2017, and highlighted the “structural and operational improvements” firms have made to improve resolvability. However, he closed his remarks by noting these resolutions have not yet been tested and emphasized the need to continue to address challenges as they arise.

    Federal Issues FDIC Federal Reserve Dodd-Frank Living Wills SIFIs

  • Buckley Sandler Special Alert: D.C. Circuit upholds CFPB’s constitutionality but rejects its interpretation of RESPA

    Courts

    On January 31, the U.S. Court of Appeals for the D.C. Circuit issued its long-awaited en banc decision in CFPB v. PHH Corporation. In a 7-3 decision, the court concluded that the CFPB’s single-director structure is constitutional, even though the president can only remove the director for cause. Importantly, however, the court also reinstated the portion of t he October 2016 panel opinion concluding that the CFPB misinterpreted the Real Estate Settlement Procedures Act (RESPA) and its statute of limitations. As a result, the $109 million penalty imposed on PHH is vacated and the case will go back to the CFPB, where new leadership must decide whether to pursue the action. PHH has 90 days to seek review by the Supreme Court.

    Ten judges issued seven separate opinions in this case, totaling 250 pages. The following is a summary of the key holdings.

    * * *

    Click here to read the full special alert.

    If you have questions about the decision or other related issues, please visit our Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.

    Courts Federal Issues CFPB PHH v. CFPB Dodd-Frank CFPB Succession Single-Director Structure

  • Federal Reserve Publishes Stress Test, CCAR FAQs

    Agency Rule-Making & Guidance

    On January 8, the Federal Reserve Board (Fed) published an updated set of questions and answers to assist financial institutions in complying with the Dodd-Frank Act-mandated stress tests (DFAST) and Comprehensive Capital Analysis and Review (CCAR). According to the Fed, the FAQs are designed to provide answers concerning DFAST and CCAR reporting requirements and related guidance, and generally cover applicable questions that have been asked by covered financial institutions since August 1, 2017. The Fed instructs financial institutions that CCAR projections should only reflect new accounting standards if the standards were implemented prior to December 31 of the previous calendar year. For material business changes occurring in the fourth quarter of a year, financial institutions should discuss any changes that may materially impact the institution’s capital adequacy and funding profile in their CCAR filings. The Fed will review the information when making modelling projections and may request additional information. The Fed also explains the circumstances in which a bank is required to issue replacement capital to stay in compliance with its capital plan.

    Agency Rule-Making & Guidance Federal Reserve Stress Test CCAR Dodd-Frank

  • House Passes Legislation Modifying Systemic Risk Designation Requirements

    Federal Issues

    The House voted 288-130 on December 19 to pass legislation modifying Dodd-Frank Act asset requirements for systemic risk designations of bank holding companies. Under H.R. 3312, the Systemic Risk Designation Improvement Act of 2017, bank holding companies that are subject to increased capital requirements and heightened supervision by the Federal Reserve (Fed) will no longer be automatically designated as systemically important financial institutions (SIFIs) if their asset threshold is $50 billion or greater. Instead, the Fed will review a bank holding company’s size, interconnectedness, infrastructure, “global cross-jurisdictional activity,” and complexity to determine whether it should be designated as a SIFI. Relatedly, the Senate Banking Committee is currently considering a separate measure, S. 2155, which would, among other things, increase the SIFI asset threshold to $250 billion.

    Federal Issues Federal Legislation Dodd-Frank SIFIs Bank Regulatory S. 2155

  • Senate Banking Committee Approves Financial Regulatory Relief Bill

    Federal Issues

    On December 5, the Senate Banking Committee approved bill S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, which would alter certain financial regulations under the Dodd-Frank Act of 2010. While not as sweeping as previous legislative relief proposals (see previous InfoBytes coverage on House Financial CHOICE Act of 2017), the bill was introduced and passed the Committee with bipartisan support. The bill’s highlights include, among other things:

    • Consumer Access to Credit. The bill deems mortgage loans held in portfolios by insured institutions with less than $10 billion in assets to be “qualified mortgages” under TILA, and removes the three-day waiting period for TILA-RESPA Integrated Disclosures if the second credit offer is a lower rate. The bill also instructs the CFPB to provide “clearer, authoritative guidance” on certain issues such as the applicability of TRID to mortgage assumptions and construction-to-permanent loans. Additionally, the bill eases appraisal requirements on certain mortgage loans and exempts small depository institutions with low mortgage originations from certain HMDA disclosure requirements.
    • Regulatory Relief for Certain Institutions. The bill exempts community banks from Section 13 of the Bank Holding Company Act if they have, “[i] less than $10 billion in total consolidated assets, and [ii] total trading assets and trading liabilities that are not more than five percent of total consolidated assets” – effectively allowing for exempt banks to engage in the trading of, or holding ownership interests in, hedge funds or private equity funds. Additionally, the bill raises the threshold of the Federal Reserve’s Small Bank Holding Company Policy Statement and the qualification for certain banks to have an 18-month examination cycle from $1 billion to $3 billion.
    • Protections for Consumers. Included in an adopted “manager’s amendment,” the bill requires credit bureaus to provide consumers unlimited free security freezes and unfreezes. The bill also limits certain medical debt information that can be included on veterans’ credit reports.
    • Changes for Bank Holding Companies. The bill raises the threshold for applying enhanced prudential standards from $50 billion to $250 billion.

    The bill now moves to the Senate, which is not expected to take up the package before the end of this year.

    Federal Issues Senate Banking Committee Dodd-Frank Federal Legislation TILA RESPA TRID Federal Reserve OCC FDIC Mortgages HMDA Credit Reporting Agency S. 2155 EGRRCPA Mortgage Origination

  • Legal Battle Begins Over Mulvaney Appointment as Acting Director of CFPB

    Federal Issues

    On November 26, the newly appointed Deputy Director of the CFPB, Leandra English, filed a lawsuit in U.S. District Court for the District of Columbia against President Trump and Mick Mulvaney, the Director of the Office of Management and Budget (OMB), seeking declaratory judgments that English is the Acting Director of the CFPB – and Mulvaney is not – as well as emergency temporary restraining orders preventing the President from appointing anyone other than English as Acting Director and preventing Mulvaney from acting as the Acting Director.

    The legal action results from the November 24 resignation of Richard Cordray as the Director of the CFPB and his naming of English as the Bureau’s Deputy Director (previously covered by a Buckley Sandler Special Alert) citing to section 1011(b)(5) of the Dodd-Frank Act (DFA), which provides that the CFPB’s Director may appoint the Deputy Director who “shall…serve as acting Director in the absence or unavailability of the Director.” Following Cordray’s official resignation, the White House issued an announcement appointing Mulvaney as Acting Director under the Federal Vacancies Reform Act of 1998 (FVRA).

    On November 25, the Department of Justice (DOJ) Office of Legal Counsel released a memorandum in support of the President’s authority to designate Mulvaney as the Acting Director of the Bureau under the FVRA. According to the DOJ, while Congress recognized there would be cases in which FVRA was not the “exclusive means” for succession, Congress did not intend for the FVRA to be “unavailable” when another statute provides an alternative for succession. Accordingly, the DOJ asserts that, notwithstanding the succession provision in the DFA, FVRA gives the President the authority to, “rely upon it in designating an acting official in a manner that differs from the order of succession otherwise provided by an office-specific statute.” In her complaint, English argues that the succession provision in the DFA controls over the FVRA and that the appointment of a White House official is inconsistent with the CFPB’s independent structure.

    Similarly, on November 25, the General Counsel for the CFPB, Mary Mcleod, issued a statement to the senior leaders of the Bureau concurring with the DOJ’s conclusion that “the President may use the [FVRA] to designate an acting official, even when there is a succession statute under which another official may serve as acting.” Mcleod concluded that Mulvaney is the Acting Director of the CFPB and encouraged all Bureau staff to act consistently with that conclusion.

    Oral arguments on English’s emergency motion were held on November 27 by Judge Timothy Kelly, a Trump appointee. Judge Kelly did not rule on the motion and granted the government’s request to file papers responding to English’s arguments.

    Federal Issues Courts CFPB Trump Dodd-Frank DOJ OMB CFPB Succession English v. Trump

  • Buckley Special Alert: CFPB director Cordray resigns, attempts to name successor

    Federal Issues

    Today, CFPB Director Richard Cordray named the agency’s chief of staff, Leandra English, as the bureau’s deputy director, and submitted his resignation to President Trump.  The moves follow media reports that President Trump planned to appoint OMB Director Mick Mulvaney as the acting director of the CFPB under the Federal Vacancies Reform Act and may signal a confrontation between current bureau leadership and the White House over succession at the agency. 

     


     ***
    Click here to read full special alert.

    If you have questions about the announcement or other related issues, please visit our Consumer Financial Protection Bureau practice page, or contact a Buckley attorney with whom you have worked in the past.

    Federal Issues CFPB Succession CFPB Dodd-Frank

  • OCC Proposes Changes to Annual Stress Test Rule

    Agency Rule-Making & Guidance

    On October 27, the Office of the Comptroller of Currency (OCC) issued proposed changes to its “stress test” rules for covered financial institutions required by the Dodd-Frank Act. Specifically, the proposal would, (i) extend the window by three months to allow the OCC to choose an appropriate “as-of” date in the trading and counterparty default component of the stress test (intended to conform with recent rule changes by the Federal Reserve); and (ii) extend the transition process for certain banks and savings associations that cross the $50 billion asset threshold before stress testing requirements are applicable. 

    Comments for the proposed changes must be received on or before December 26.

    In addition to this proposal, on October 6, the Fed, FDIC, and the OCC, issued a joint notice and request for comment, which proposes to combine the agencies’ three separate, identical stress test report forms into a single new Federal Financial Institutional Examination Council (FFIEC) report (FFIEC 016) under the Dodd-Frank Act (previously covered by InfoBytes here).

    Agency Rule-Making & Guidance OCC CCAR Stress Test Federal Reserve Dodd-Frank

Pages

Upcoming Events