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Agencies propose new flood insurance Q&As
On March 11, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration issued a notice and request for public comment on 24 proposed interagency questions and answers regarding the 2019 private flood insurance rule (covered by InfoBytes here). The new Q&As supplement interagency questions and answers proposed last year (covered by InfoBytes here), which were intended to reduce compliance burdens for lenders related to flood insurance laws. The new Q&As are designed to help lenders comply with private flood insurance provisions found in the Biggert-Waters Flood Insurance Reform Act of 2012, and address mandatory and discretionary acceptance of private flood insurance policies by lenders if such insurance is required. Comments on the proposed additions to the interagency Q&As are due 60 days after publication in the Federal Register.
Fed issues LIBOR transition examination guidance
On March 9, the Federal Reserve Board issued supervisory letter SR 21-7 as a follow-up to a November 2020 interagency statement issued by the Fed, FDIC, and OCC that encouraged supervised institutions to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. (Covered by InfoBytes here.) However, the Fed’s SR 21-7 letter notes that the “extension of certain LIBOR tenors until June 30, 2023, will allow some existing LIBOR exposures to mature naturally.” SR 21-7 provides supervisory guidance for examiners to consider when assessing an institution’s plan to transition away from LIBOR, including the following six key aspects of a firm’s transition efforts: “(1) transition planning; (2) financial exposure measurement and risk assessment; (3) operational preparedness and controls; (4) legal contract preparedness; (5) communication; and (6) oversight.” SR 21-7 also includes specific guidance for assessing LIBOR transition efforts at institutions with less than $100 billion in total consolidated assets (which the Fed assumes “generally have less material and less complex LIBOR exposures”), as well as institutions with $100 billion or more in total consolidated assets.
Find continuing InfoBytes coverage on LIBOR here.
Fed clarifies MDI definition guidance
On March 5, the Federal Reserve Board issued clarifying guidance regarding definitions for minority depository institutions (MDIs), expanding the definition of an MDI to include women-owned financial institutions. In addition to statutory provisions—which define the term “minority” to mean any African American, Native American, Hispanic American, or Asian American, and “states that an MDI is any depository institution where a majority of the voting stock is owned by one or more socially and economically disadvantaged individuals”—the Federal Reserve System’s definition of an MDI will now recognize women’s depository institutions, and will provide these depository institutions with the same resources as other MDIs. According to the Board, the definition of a “women’s depository institution” is consistent with how the term is defined under the Community Reinvestment Act. Additionally, the Board highlighted resources available for MDIs through its Partnership for Progress program, which helps MDIs operate in a safe and sound manner and meet supervisory standards.
Treasury announces Emergency Capital Investment Program for CDFIs and MDIs
On March 4, the U.S. Treasury Department announced a new initiative to provide access to capital for communities traditionally excluded from the financial system that have significantly struggled during the Covid-19 pandemic. The Emergency Capital Investment Program (ECIP), established by the Consolidated Appropriations Act of 2021, will provide up to $9 billion in capital directly to Community Development Financial Institutions (CDFIs) and minority depository institutions (MDIs) to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities.” The ECIP will set aside $2 billion for CDFIs and MDIs with less than $500 million in assets, as well as $2 billion for CDFIs and MDIs with less than $2 billion in assets. Treasury notes that the program is intended to incentivize impactful lending, and states it is currently “developing additional ‘deep impact’ metrics to further incentivize targeted investments by participants in those communities most in need of capital.” Institutions seeking to participate in the ECIP can access application instructions and materials along with an application portal here.
To support the implementation of the ECIP, the FDIC, Federal Reserve Board, and the OCC issued an interim final rule to “revis[e] their capital rules to provide that Treasury’s investments under the program qualify as regulatory capital of insured depository institutions and holding companies.” The interim final rule is effective immediately upon publication in the Federal Register. Comments will be accepted for 60 days following publication.
Agencies update CRA Covid-19 FAQs
On March 8, the OCC, Federal Reserve Board, and the FDIC released updated Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs, first issued last May (covered by InfoBytes here), provide guidance for financial institutions and examiners regarding CRA consideration for activities taken in response to the pandemic. Highlights of the five new FAQs include:
- Banks cannot receive CRA service test consideration for Paycheck Protection Program (PPP)-related activities; however, the agencies recognize that because the PPP loan program responds to community credit needs, PPP activities will be considered under the CRA lending test when evaluating flexible or innovative lending programs offered by a bank.
- Banks should not report PPP loans that have been rescinded or returned under the SBA’s safe harbor on their CRA loan register. Moreover, examiners will not consider these loans in their CRA evaluations of banks during the applicable time period.
- PPP loans over $1 million in low- or moderate-income geographies or in distressed or underserved nonmetropolitan middle-income geographies “will be considered an eligible community development activity.”
- As noted in a joint statement released by the agencies last year (covered by InfoBytes here), favorable CRA consideration will be given to banks providing retail banking services and retail lending activities that respond to the needs of affected low- and moderate-income (LMI) individuals, small businesses, and small farms consistent with safe and sound banking practices. These activities may include waiving ATM fees, overdraft fees, and early withdrawal penalties on certificates of deposit (CDs), or allowing LMI consumers to make draws from a HELOC during the repayment period. The agencies note that allowing LMI consumers “to make a withdrawal from an IRA as allowed under the CARES Act, or to draw on a HELOC during the draw period are routine banking services and, as such, are not eligible for CRA consideration.”
- The agencies will consider community development services provided virtually by bank representatives on an individual level based on the event and the benefitted assessment area.
Fed extends PPP Liquidity Facility through June 30
On March 8, the Federal Reserve Board announced the extension of the Paycheck Protection Program Liquidity Facility (PPPLF) through June 30. The PPPLF was rolled out last year to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s Paycheck Protection Program at the start of the Covid-19 pandemic (covered by InfoBytes here). The Board noted, however, that the remaining Covid-19 lending facilities—the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility—will terminate March 31 as planned.
FFIEC updates BSA/AML examination manual
On February 25, the FFIEC published updated versions of four sections of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual), which provides examiners with instructions for assessing a bank’s or credit union’s BSA/AML compliance program and compliance with BSA regulatory requirements. The revisions can be identified by a 2021 date on the FFIEC BSA/AML InfoBase and include the following updated sections: Assessing Compliance with Bank Secrecy Act Regulatory Requirements, Customer Identification Program, Currency Transaction Reporting, and Transactions of Exempt Persons. The FFIEC notes that the “updates should not be interpreted as new instructions or as a new or increased focus on certain areas,” but are intended to “offer further transparency into the examination process and support risk-focused examination work.” In addition, the Manual itself does not establish requirements for financial institutions as these requirements are found in applicable statutes and regulations. (See also FDIC FIL-12-2021 and OCC Bulletin 2021-10.)
Agencies provide Texas winter storm guidance
On February 22, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors issued a joint statement covering supervisory practices for financial institutions affected by winter storms in Texas. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by the winter storms.
Additionally, HUD announced it will make disaster assistance available to Texas by providing foreclosure relief and other assistance to homeowners living in counties affected by the severe winter storms. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties in the affected counties and is making mortgage insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.
Agencies propose Call Report asset threshold relief
On February 18, the FDIC, Federal Reserve Board, and the OCC published a joint notice and request for comments on changes to three versions of the Call Report—FFIEC 031, FFIEC 041, and FFIEC 051. The reporting changes, first proposed by the agencies last year, will provide relief to financial institutions with under $10 billion in total assets as of December 31, 2019, by allowing them “to use the lesser of the total consolidated assets reported in its Call Report as of December 31, 2019, or June 30, 2020, when determining whether the institution has crossed certain total asset thresholds to report additional data items in its Call Reports for report dates in calendar year 2021.” The agencies also outline specific thresholds that limit certain eligibility for streamlined Call Reports or that require the reporting of certain additional data items. This relief will only be allowed for calendar year 2021. The agencies will also allow financial institutions that temporarily exceed the $10 billion total asset threshold to use the community bank leverage ratio framework in Call Report Schedule RC R from December 31, 2020, through December 31, 2021, provided the institution meets the other qualifying criteria for this framework. Comments on the proposed changes are due March 22.
Brainard addresses financial institutions’ role in tackling climate change
On February 18, Federal Reserve Governor Lael Brainard spoke before the 2021 Institute of International Finance U.S. Climate Finance Summit to discuss the role financial institutions play in addressing the challenges of climate change. Noting that both physical risks from climate shifts and transition risks resulting from a shift to a low-carbon economy “create both risks and opportunities for the financial sector,” Brainard stressed that “[f]inancial institutions that do not put in place frameworks to measure, monitor, and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy, or by a combination of both.” She emphasized that financial institutions should engage in robust risk management, scenario analyses, and forward planning to ensure they can withstand such climate-related risks and support the transition to a low-carbon economy.
Brainard also emphasized that given the uncertainty in estimating climate risks, a scenario analysis that takes into account climate-related physical and transition risks and their potential effects on individual firms and the financial system as a whole “may be a helpful tool to assess the microprudential and macroprudential implications of climate-related risks under a wide range of assumptions.” However, Brainard clarified that a scenario analysis is distinct from a regulatory stress test, adding that “[i]t will be important to. . .consider how stress testing and scenario analysis may complement one another.” While acknowledging that a highly prescriptive approach to model development and scenario analysis may not be the most effective way to ensure financial institutions are prepared for the possible impacts of climate change and that “leverag[ing] a range of complementary approaches being developed in both the private and the public sectors” may produce more robust outcomes, Brainard noted that “we should strive for an appropriate balance that allows for innovation and learning across the public and private sectors, iterating in the most effective way possible.”