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  • House Democrats urge agencies to finalize Basel III Endgame rule

    Federal Issues

    On February 16, the Ranking Member for the House Committee on Financial Services, Maxine Waters (D-CA), and 41 other House Democrats sent a letter to the FDIC, Fed, and OCC regarding the Basel III Endgame and the proposed rule which would impose higher capital requirements. The letter urged the agencies to finalize the rule, highlighting the purpose of capital requirements “to shield banks from unexpected losses, preventing their failure, while serving as a source of funding that banks use…” The letter commended the agencies for providing the public with almost six months to comment and argued the endgame rule’s impact on access to credit is low. The letter also noted that the expected funding impact on a large bank’s average lending portfolio is expected to increase by just 0.03 percent, which it describes as “insignificant” compared to Fed interest rate increases. The letter specifically urged the heads of the agencies to finalize the rules this year “to ensure we have a banking system that will promote stable economic growth.”

    Federal Issues U.S. House Basel Capital Requirements OCC FDIC Federal Reserve

  • Fed, FDIC, and OCC release stress test scenarios for 2024

    On February 15, the Fed, OCC, and the FDIC released their annual stress test scenarios for 2024 to assist the agencies in evaluating their respective covered institution’s risk profile and capital adequacy. The Fed released its “2024 Stress Test Scenarios” to be used by banks and supervisors for the 2024 annual stress test. The scenarios include hypothetical sets of conditions to evaluate the banks under baseline and severely adverse scenarios. The OCC similarly released economic and financial market scenarios to be used by national banks and federal savings associations and include both baseline and severely adverse scenarios as mandated by the stress testing requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The FDIC also released its stress test scenarios for certain state nonmember banks and state savings associations in conjunction with the OCC and the Fed.

    Bank Regulatory Federal Issues Federal Reserve OCC Stress Test Bank Supervision

  • OCC’s Hsu discusses appraisal bias

    On February 13, Acting Comptroller of the Currency Michael Hsu discussed eliminating appraisal bias in the financial industry at a public hearing held by the Appraisal Subcommittee of the FFIEC. In his remarks, Hsu highlighted the importance of addressing bias in the existing standards for appraisal reports to aid in the OCC’s efforts to expand access to homeownership. Hsu noted that the OCC is taking steps to increase access to homeownership by improving supervisory methods used to identify potential discrimination in lending and housing valuations and encouraging banks to expand affordable housing financing and access to credit.

    Bank Regulatory Federal Issues OCC Appraisal FFIEC

  • Trade associations sue OCC, FDIC, and Federal Reserve on their Proposed Rules for the CRA

    Courts

    On February 5, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the OCC, Federal Reserve, and FDIC (the Agencies) for their enforcement of the new rulemaking (the Rule) implementing the Community Reinvestment Act of 1977 (CRA). The plaintiffs argued that the Rule creates a “wholesale and unlawful change” to a successful fifty-year-old statute. After listing several problems, the plaintiffs requested the Court to “enjoin, hold unlawful, vacate, and set aside” the Rule; additionally, plaintiffs requested the Court declare that the Rule violates the CRA and the Administrative Procedures Act. 

    As previously covered by InfoBytes, the Rule was approved by the Agencies on October 24, 2023, published in the Federal Register on February 1, 2024, and would take effect on April 1, 2024. The plaintiffs state that the new regulatory rules are “extraordinarily and unnecessarily complex” since they require a “staggering” 649 pages. (An FDIC Vice Chairman was quoted as labeling the rules as “by far the longest rulemaking the FDIC has ever issued.”) In detail, the plaintiffs support their claims by pointing out the Rule creates different performance tests that differ “radically” from the previous regulatory framework, e.g., the Retail Lending Test is a two-part test, and that each of these tests includes “multiple sub-parts and sub-parts of sub-parts” that create complexity in the Rule. Banks will be given two years (until January 1, 2026) to comply with the Rule. Plaintiffs argue that banks must act immediately, citing the OCC’s own words that the estimated compliance costs are over $90 million during the first year. 

    The plaintiffs argue the Rule violates the APA by exceeding the Agencies’ statutory authority by “assessing banks on their responsiveness to credit needs outside of their geographic deposit-taking footprint” (Count I), and by issuing a rule that is arbitrary and capricious by failing to give reasonable notice of the areas and products that will be assessed and the market benchmarks against which performance will be evaluated; failing to conduct an adequate cost benefit analysis; and failing to consider the implications of the Rule (Count II). 

    Courts OCC FDIC Federal Reserve CRA Administrative Procedure Act

  • OCC and FDIC announce their CRA evaluations

    On February 2, OCC and the FDIC released their Community Reinvestment Act (CRA) evaluations. The OCC disclosed a list of evaluations of national banks, federal savings associations, and insured federal branches of foreign banks that became public in January 2024. Out of the 18 evaluations, six were rated “outstanding,” nine were rated “satisfactory,” and three were rated as “needs to improve.” The evaluations can be accessed on the OCC’s website, including a searchable list of all public CRA evaluations. Simultaneously, the FDIC released its list of state nonmember banks that were evaluated for CRA compliance in November 2023. Out of 57 evaluations, 56 were rated as “satisfactory” and one bank was rated as “outstanding.”  

    Bank Regulatory CRA OCC FDIC Bank Supervision Federal Issues Compliance

  • Federal bank regulatory agencies seek comment on interagency effort to reduce regulatory burden

    Federal Issues

    On February 6, the FDIC, Fed, and OCC initiated a series of requests for public comment aimed at reducing regulatory burden on supervised institutions. This effort is mandated by the Economic Growth and Regulatory Paperwork Reduction Act of 1996, which required a review of regulations every 10 years. The agencies have divided regulations into 12 categories, with the first round focusing on three categories: Applications and Reporting, Powers and Activities, and International Operations. The public has 90 days to comment on the regulations in these categories. Over the next two years, the agencies will seek public feedback on more, remaining categories to identify regulations that are outdated, unnecessary, or unduly burdensome. Additionally, outreach meetings will be held to allow interested parties to provide direct input on regulatory requirements. Further details about these meetings will be shared as they are finalized. 

    Federal Issues FDIC OCC Federal Reserve

  • House Committee calls for new quantitative analysis from Basel III “Endgame” original proposal

    Federal Issues

    On January 31, the House Financial Services Committee issued a press release after holding its hearing on “Federal Banking Proposals Under the Biden Administration,” which invited two leaders from trade organizations, a lawyer, and a business school professor. The Committee’s main takeaway was that the Notice of Proposed Rulemaking from July 2023, as released by the OCC, Federal Reserve, and FDIC, provides “little quantitative analysis” of the potential economic impacts (covered by InfoBytes, here). This Notice initially opened the comment period for the Basel III “Endgame” meant to revise the capital requirements for large banking organizations.   

    The Committee took the position, through bipartisan agreement, that the Biden Administration “must withdraw” its Basel III “Endgame” implementing proposal and replace it with one that offers a sound and objective economic analysis that is not skewed by politics but supported by data. The Committee supports its position that the Notice provides a “paltry” economic and regulatory analysis by noting that it devotes only 17 out of 1087 pages to the analysis. The press release cited comments from various congressional members, some of whom raised concerns about the proposal’s potential impact on homebuyers and mortgage lending, and the proposal’s potential to disincentivize financing for renewable energy projects. Finally, the Committee linked several members’ comment letters over the past few months.  

    Federal Issues Basel FDIC OCC Federal Reserve Capital Requirements House Financial Services Committee

  • OCC issues proposed rule for bank merger approvals

    Agency Rule-Making & Guidance

    On January 29, the OCC announced a proposed rule for bank merger approvals under the Bank Merger Act (BMA). The OCC proposed changes to 12 CFR 5.33 to reflect its view that a business combination is a significant corporate transaction.

    The OCC suggested two key changes to its business combination regulation (12 CFR 5.33). First, it proposed removing the expedited review procedures outlined in § 5.33(i). Currently, this provision automatically approves certain filings after the 15th day following the close of the comment period, but the OCC believes that no business combinations subject to § 5.33 should be approved solely based on elapsed time. Additionally, the OCC suggests removing paragraph (d)(3), as it pertains to defining applications eligible for expedited review. Second, the OCC proposes the removal of § 5.33(j), which outlines four scenarios allowing an applicant to use the OCC's streamlined business combination application instead of the full Interagency Bank Merger Act Application. The streamlined application seeks information on similar topics, but only requires detailed information if the applicant answers affirmatively to specific yes-or-no questions. Currently, a transaction eligible for the streamlined application also qualifies for expedited review, a feature the OCC is proposing to eliminate. Additionally, a new policy statement (proposed as Appendix A to 12 CFR part 5, subpart C) is introduced to provide clarity and guidance on general principles used by the OCC in reviewing applications under the BMA. The policy statement also covers considerations for financial stability, resources, prospects, and convenience and needs factors. Criteria for deciding whether to hold a public meeting on a BMA application were also outlined.

    Comments from the public are due 60 days from the date of publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues Bank Regulatory OCC Bank Mergers Bank Merger Act

  • FFIEC publishes proposed extension of reporting obligations

    Agency Rule-Making & Guidance

    On January 26, the Federal Financial Institutions Examination Council (FFIEC) approved the OCC, Fed, and FDIC’s publication for public comment of a proposal to extend several information collection items for three years. As previously covered by InfoBytes, the FFIEC last month put forth a similar three-year proposal on FFIEC 002 which affected the three Call Reports (FFIEC 031, 041, and 051). While this proposal includes those same four items, it adds two more: the Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101), and the Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule (FFIEC 102). The proposed changes include a new confidential report (FFIEC 102a) titled the Market Risk Regulatory Report that would “collect information necessary for the agencies to evaluate [an]… institution’s implementation of the market risk rule and validate a [bank’s] internal models used in preparing the FFIEC 102.” The revisions are related to the agencies’ capital rule proposal published on September 18, 2023. Comments are requested by March 25, 2024, and the revisions are planned to be effective as of September 30, 2025.

    Agency Rule-Making & Guidance Federal Issues FFIEC OCC Federal Reserve Call Report FDIC

  • Acting Comptroller discusses bank liquidity risk

    On January 18, OCC Acting Comptroller of the Currency, Michael J. Hsu, delivered remarks at an event held by Columbia University Law School on bank liquidity risk. Hsu highlighted the evolving nature of bank runs and urged banks and regulators to adapt. While individual bank supervision has seen some adjustments, Hsu stressed the need for targeted regulatory enhancements to ensure the systematic implementation of updated liquidity risk management practices, particularly among midsize and large banks. Hsu’s remarks emphasized three themes:

    Recognizing the speed and severity of certain outflows. The liquidity risk for banks with uninsured deposits significantly increased. Hsu said that anticipating potential herding scenarios in liquidity risk management is crucial;

    Ensuring the ability to monetize. Hsu said banks and regulators need to adapt to the faster pace of bank runs, where large outflows happen more quickly than in the past. Having enough liquid assets is not sufficient; banks must quickly convert assets into cash, Hsu said. Utilizing the Fed’s discount window is an option, but it faces stigma. Hsu also mentioned that there is a proposal for a targeted regulatory requirement for banks to have enough liquidity to cover short-term outflows, up to five days, using pre-positioned collateral to de-stigmatize discount window usage while preventing over-reliance; and

    Limiting guilt by association. To combat the fear that uninsured depositors across banks could be at risk upon bank failures, Hsu said a long-term solution involves distinguishing between operational and non-operational deposits, requiring standardized classification systems and ongoing research efforts to effectively mitigate contagion risks.

    Bank Regulatory OCC Liquidity Risk Management

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