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House Committee calls for new quantitative analysis from Basel III “Endgame” original proposal
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.
OCC issues proposed rule for bank merger approvals
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.
FFIEC publishes proposed extension of reporting obligations
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.
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.
OCC publishes bank guidance on shortening the standard settlement cycle following SEC final rule
On January 17, the OCC issued its OCC Bulletin 2024-3 which highlighted the actions banks should take to prepare for the upcoming changes to the standard settlement cycle. These new changes are designed to “reduce the credit, market, and liquidity risks” in securities transactions. According to the OCC Bulletin, these banking rules follow the SEC’s final rule that shortened the standard settlement cycle from the second business day after the trade (T+2) to the first business day after the trade (T+1). As previously covered in InfoBytes, the settlement cycle was last shortened from (T+3) days to (T+2) days in 2018. The OCC encouraged banks to prepare for the T+1 change since it will affect many banking activities; accordingly, the OCC listed many factors that a bank’s management should consider when identifying systems and changes to enhance.
This Bulletin replaces and rescinds OCC Bulletin 2017-22 and OCC Bulletin 2018-05, both related to the shortening of the settlement cycle. The rules will go into effect on May 28, 2024, and the OCC expects banks to be prepared by then.
OCC releases January enforcement actions
On January 17, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included is a notice of charges seeking cease and desist orders against three subsidiary banks of the same bank holding company (see here, here, and here), which alleged that each bank engaged in unsafe or unsound practices relating to an investment strategy concentrated in long-term securities. The unsafe practices, the OCC explained, exposed each bank to excessive interest rate risk without adequate sources of contingency funding and contingency capital. The OCC further alleged that each bank failed to mitigate such risk in a timely manner.
OCC issues State Small Business Credit Initiative 2.0 FAQs
On January 8, the OCC issued Bulletin 2024-1, which provides responses to frequently asked questions regarding the state small business credit initiative (SSBCI). The SSBCI, run by the U.S. Department of the Treasury, facilitates access to capital for small businesses, supports credit and investment programs, and offers technical assistance for applying to SSBCI funding and other government programs. The FAQs address a variety of topics, including the types of credit and investment programs states may set up, including collateral support programs, capital access programs, and loan guarantee programs, among others; criteria to qualify as “underserved” for access to the credit; treatment of certain funds; program descriptions; and whether loans made through the program could be considered for Community Reinvestment Act purposes.
Agencies adjust civil money penalties for 2024
Recently, the CFPB, NCUA, FDIC, FTC, and OCC provided notice in the Federal Register of adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, FDIC here, OCC here, FTC here, and NCUA here) adjusts the maximum civil money penalties available and documents the inflation-adjusted maximum amounts associated with the penalty tiers for each type of violation within a regulator’s jurisdiction. For violations occurring on or after November 2, 2015, the OCC’s adjusted maximum penalties go into effect as of January 8; the CFPB and FDIC’s adjustments go into effect January 15; and the FTC and NCUA’s adjustments go into effect January 10.
Agencies update the Uniform Rules of Practice and Procedure
On December 28, 2023, the Fed, OCC, FDIC, and NCUA published a final rule amending the Uniform Rules of Practice and Procedure to recognize the use of electronic communications and enhance the efficiency and equity of administrative hearings. The agencies have implemented measures recognizing the role of electronic communications across all facets of administrative proceedings. Among other things, the final rule (i) defines “electronic signature” in the Uniform Rules; (ii) codifies permitting electronic service and filings for administrative actions; (iii) allows for remote depositions; (iv) includes Equal Access to Justice Act procedures based on the 2019 Administrative Conference of the United States Model Rule; (v) adds provisions on when parties must pay civil money penalties; (vi) adds specific provisions pertaining to the forfeiture of a national bank, federal savings association, or federal branch or agency charter or franchise due to certain money laundering or cash transaction violations; (vii) modifies the discovery rules to recognize electronic documents and allow for electronic production; (viii) establishes new rules for expert and hybrid fact-expert witnesses; and (ix) consolidates the Uniform Rules and Local Rules for national banks and federal savings associations.
Additionally, the OCC has revised its specific administrative practice and procedure regulations to harmonize rules for national banks and federal savings associations. Furthermore, adjustments were made to the OCC’s regulations on organization and operations to encompass service of process considerations.
The rule is effective April 1, 2024.
OCC announces CRA bank asset-size threshold adjustments for 2024
On December 26, 2023, the OCC announced revisions to the asset-size thresholds used to define small and intermediate small banks and savings associations under the Community Reinvestment Act (CRA). Effective January 1, 2024, a small bank or savings association will mean an institution that, as of December 31 of either of the past two years, had assets of less than $1.564 billion. An intermediate small bank or savings association will mean an institution with assets of at least $391 million as of December 31 of both of the prior two years, and less than $1.564 billion as of December 31 of either of the prior two years. As previously covered by InfoBytes, the Fed and the FDIC also announced joint annual adjustments to the CRA asset-size thresholds used to define “small bank” and “intermediate small bank.”