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Agencies provide regulatory relief to community banks
On November 20, the Federal Reserve Board, the OCC, and the FDIC issued an interim final rule providing temporary relief from certain regulation and reporting requirements for community banking organizations. Specifically, the interim final rule—which applies to community banking organizations and financial institutions with less than $10 billion in total assets as of December 31, 2019—gives community banks relief from expanded regulation and reporting requirements that may have been triggered due to participation in federal coronavirus response programs. The agencies note that programs, such as the Paycheck Protection Program and other lending facilities, may cause rapid and unexpected increases in the community bank’s size. The agencies expect these increases to be temporary and thus, the rule states that asset growth in 2020 or 2021 will not trigger new regulatory requirements for applicable community banking organizations until January 1, 2022, at the earliest. The rule is effective upon publication in the Federal Register.
Agencies finalize certain 2021 thresholds
On November 18, the CFPB, OCC, and the Federal Reserve Board announced a final rule, which increases the TILA smaller loan exemption threshold for the special appraisal requirements for higher-priced mortgage loans (HPMLs). TILA requires creditors to obtain a written appraisal before making a HPML unless the loan amount is at or below the threshold exemption. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2021 is $27,200, which remains at the same level it was in 2020.
Additionally, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of TILA (Regulation Z) and Consumer Leasing Act (Regulation M) (available here and here), as required by the Dodd-Frank Act. The exemption threshold for 2021, based on the annual percentage increase in the CPI-W, remains unchanged at $58,300 or less, except for private education loans and loans secured by real or personal property used or expected to be used as the principal dwelling of a consumer, which are subject to TILA regardless of the amount.
The final rules take effect on January 1, 2021.
Trump to nominate Brooks as Comptroller
On November 17, President Trump announced his intention to nominate Brian P. Brooks as Comptroller of the Currency. Brooks has been serving as acting Comptroller since the end of May 2020. Prior to serving as acting Comptroller, Brooks served as Senior Deputy Comptroller and Chief Operating Officer of the OCC. Prior to joining the OCC, Brooks was Chief Legal Officer of a digital currency exchange, and prior to that, he served as Executive Vice President, General Counsel, and Corporate Secretary of Fannie Mae. In a statement, Brooks called the intent to nominate a “great honor” and stated he “will work ceaselessly to ensure the agency continues to fulfill its critical mission.”
OCC’s final rule amends licensing requirements
On November 16, the OCC announced a final rule to update and clarify certain licensing policies and procedures for national banks and federal savings associations. (See also Bulletin 2020-100.) The final rule makes various changes to 12 CFR Part 5, “Rules, Policies, and Procedures for Corporate Activities,” to eliminate unnecessary requirements consistent with safe, sound, and fair operation of the federal banking system. The OCC originally proposed the changes in March (covered by InfoBytes here). The final rule’s changes will, among other things, (i) allow national and federal savings associations to follow the procedures applicable to state banks or state savings associations for certain business combinations; (ii) expand operating subsidiary notice and expedited review processes to include activities that are substantively the same as activities previously approved by the OCC; (iii) allow non-controlling investments and pass-through investments in non-OCC supervised entities and permit certain other investments without a filing; (iv) create procedures for citizenship and residency waivers for national bank directors; (v) redefine “troubled condition” in relation to director and senior executive officer changes “to specify that an enforcement action must require the national bank or savings association to improve its financial condition for it to be considered in ‘troubled condition’ solely as a result of the enforcement action”; and (vi) add chief risk officer to the list of positions for which a bank in troubled condition must provide notice when making a personnel change. The final rule will take effect January 1, 2021, with certain exceptions that becomes effective upon publication in the Federal Register.
Representatives question the OCC’s cryptocurrency and stablecoin efforts
On November 10, six members of the U.S. House of Representatives wrote to Acting Comptroller of the Currency Brian Brooks raising concerns about the OCC’s recent unilateral actions to regulate cryptocurrencies. In the letter, the members question the OCC’s regulatory priorities. For example, the members highlight that, through recent actions, such as its advance notice of proposed rulemaking on digital activities (covered by InfoBytes here), the OCC has sought “to serve those ‘already-banked’ with better payments options” while potentially “overlooking opportunities for assisting the unbanked and underbanked to participate in the economy and the banking system.” Additionally, the members note that the OCC’s interpretive decisions, which authorize financial institutions to hold cryptocurrency and stablecoins for customers (covered by InfoBytes here and here), may have “broad implications for the future of banking” and “are best made in collaboration with your fellow regulators and with Congress to ensure we avoid potential harms to institutional safety and soundness and equity and inclusion.” In closing, the members ask the OCC to answer a number of questions, including (i) whether stablecoin reserves will be segregated from calculating the capital requirements of large banks; (ii) what consumer protections the agency will impose on stablecoin providers; and (iii) whether the OCC has collaborated with other federal regulators on their recent decisions.
Regulators update Senate on Covid-19
On November 10, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of Financial Regulators,” which primarily focused on Covid-19-related actions taken by the Federal Reserve Board (Fed), OCC, FDIC, and NCUA since the federal financial regulators last testified in May (covered by InfoBytes here). Committee Chairman Mike Crapo (R-ID) opened the hearing by applauding the actions taken by the regulators after the passage of the CARES Act to help mitigate the economic impact of the pandemic. Crapo cautioned, however, that the regulators should continue to review and adjust their regulatory and supervisory frameworks to support economic recovery, including by “alleviat[ing] the regulatory burdens associated with a variety of asset-based regulatory thresholds on [] banks and credit unions temporarily experiencing growth from participation in recovery-orientated programs” such as the Paycheck Protection Program (PPP).
In his written statement, Fed Vice Chair for Supervision Randal K. Quarles discussed actions taken by the Fed, such as (i) issuing a set of key principles concerning Covid-related credit accommodations; (ii) updating guidance on bank examinations to “consider the unique, evolving, and potentially long-term issues that institutions face”; (iii) clarifying the Fed’s approach to Covid-related activity under the Community Reinvestment Act; and (iv) supporting the ability of banks to meet customer needs by issuing PPP loans, underwriting loans in the Main Street Lending Program, and acting as counterparties in several other facilities.
OCC Acting Comptroller Brian Brooks also discussed activities undertaken by the agency, and noted that the regulators are working on an interagency basis “on a set of rule[s] that would relieve for a period of time certain asset thresholds being tripped that trigger heightened scrutiny and heightened compliance requirements at different levels.” According to Brooks, this relief would “cap out at $10 billion, most likely, based on current conversations.” Brooks agreed with Quarles that while larger banks are “fully capable of managing those risks,” smaller banks will face difficulties.
FDIC Chairman Jelena McWilliams also provided an update on actions undertaken to provide banks flexibility while maintaining safety and soundness. McWilliams discussed five key areas: (i) responding to Covid-19 economic risks; (ii) “enhancing [] resolution readiness”; (iii) supporting communities; (iv) “fostering technology solutions and encouraging innovation”; and (v) “finalizing outstanding rulemakings,” including approving an interim final rule to provide regulatory relief to insured depository institutions that have experienced significant, but temporary, asset growth due to government stimulus efforts (covered by InfoBytes here).
NCUA Chairman Rodney E. Hood also discussed updated agency measures in response to the pandemic, such as adjusting supervision priorities to ensure that credit unions’ good-faith efforts to comply with the CARES Act are reviewed. Hood further emphasized in his written statement that “NCUA’s examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight.” Hood also discussed, among other things, NCUA’s cybersecurity efforts in response to the pandemic and significant rulemaking actions, including an interim final rule that provides relief to credit unions that temporarily fall below the well-capitalized level.
The House Financial Services Committee also held a hearing later in the week to discuss the regulators' responses to the pandemic.
OCC addresses CRA provisions and FAQs
On November 9, the OCC released Bulletin 2020-99, which discusses key provisions of the June 2020 Community Reinvestment Act (CRA) Rule and includes FAQs. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. The final rule was technically effective on October 1, but the final rule provides for at least a 27-month transition period for compliance based on a bank’s size and business model. Large banks and wholesale and limited purpose banks will have until January 1, 2023 to comply, and small and intermediate banks that opt-in to the final rule’s performance standards will have until January 1, 2024. The Bulletin details the key provisions of the final rule, including the (i) new criteria for designating bank assessment areas, and (ii) varying performance standards by bank type. The Bulletin’s FAQs cover a range of topics including (i) the transition period; (ii) qualifying activities; (iii) activities outside bank assessment areas; (iv) examination administration; and (v) data collection and reporting.
The Bulletin notes that the OCC is conducting outreach to provide banks with more information regarding how the agency will administer the transition to the final rule. Additionally, the Bulletin notes the OCC will issue guidance addressing how the July 2016 Interagency Questions and Answers Regarding Community Reinvestment will apply to activities conducted under the final rule.
Lastly, the Bulletin rescinds OCC Bulletin 2020-3, “Community Reinvestment Act: Notice of Proposed Rulemaking,” and OCC Bulletin 2020-4, “Community Reinvestment Act: Request for Public Input.”
OCC’s Director’s Toolkit updates corporate governance responsibilities
On November 5, the OCC released updates to its Director’s Toolkit to assist directors of national banks and federal savings associations fulfill their corporate governance responsibilities. (See also OCC Bulletin 2020-97.) The revised Director’s Book: Role of Directors for National Banks and Federal Savings Associations (Director’s Book), as well as the new Director’s Reference Guide to Board Reports and Information (Director’s Reference Guide), replace and rescind previously issued OCC publications. In addition to including revisions from the “Corporate and Risk Governance” booklet of the Comptroller’s Handbook (covered by InfoBytes here), the Director’s Book also (i) provides an overview of the agency; (ii) outlines responsibilities for directors as well as management’s role; (iii) “explains basic concepts and standards for safe and sound operation of banks”; and (iv) “delineates laws and regulations that apply to banks.” The Director’s Reference Guide focuses on key areas related to planning, operations, and risk management, and is structured to “provide examples of sources of information, measures, questions to consider, red flags, and references to directors.” The OCC notes that the “types, amount, and frequency of information that directors should receive to effectively perform their duties vary at each bank and continually evolve.”
Agencies issue joint statement on LIBOR transition
On November 6, the OCC, the Federal Reserve Board, and the FDIC issued a statement reiterating that the agencies do not intend to recommend a specific credit-sensitive rate for use in place of LIBOR. The agencies recommend that financial institutions “use any reference rate for its loans that the bank determines to be appropriate for its funding model and customer needs” and emphasize the need for fallback language in lending contracts that provide for the “use of a robust fallback rate if the initial reference rate is discontinued.” The agencies note that examiners will not criticize banks solely regarding their choice of reference rate, including a credit-sensitive rate other than Secured Overnight Financing Rate (SOFR) (the rate recommended by the Alternative Reference Rates Committee). Additionally, the agencies encourage financial institutions to reach out to lending customers to ensure they are prepared for the transition and to consider any technical changes to internal systems that might be needed to accommodate a new reference rate.
As previously covered by InfoBytes, in July, the member agencies of the Federal Financial Institutions Examinations Council (FFIEC) issued a joint statement highlighting several risks that will result from the anticipated cessation of LIBOR at the end of 2021 and discussing the supervisory impacts of the LIBOR transition.
OCC warns of key banking risks
On November 9, the OCC released its Semiannual Risk Perspective for Fall 2020, which reports on key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. In particular, the OCC noted the financial impacts of the Covid-19 pandemic on the federal banking industry, emphasizing that while economic activity rebounded in the third quarter, there is significant ongoing risk. The report discusses, as a special topic in emerging risks, growing trends in payment products and services. The report also highlights several key risk areas for banks: credit, strategic, operational, and compliance. Specifically, the report notes that credit risk is increasing as government assistance programs expire and the economic downturn has led to elevated unemployment levels. The report further notes that strategic risks affecting profitability is an emerging issue due to low interest rates, which historically have negatively affected profitability when low for a long period of time. Moreover, the report notes elevated operational risks due to complex operating environments with cybersecurity being a key concern. The increase in large-scale telework has created unique security and internal control challenges. Lastly, the report discusses elevated compliance risks due to the expedited implementation of a number of Covid-19-related assistance programs.