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On January 10, the FDIC released its Winter 2017 Supervisory Insights (see FIL-5-2018), which contains articles discussing credit management information systems and underwriting trends. The first article, “Credit Management Information Systems: A Forward-Looking Approach,” discusses, among other things, how financial institutions can incorporate forward-looking metrics to assist in identifying future issues. The article also emphasizes the importance of effective risk management programs which contain policies and procedures that support strategic decision making by senior management and board members responsible for overseeing lending activities. The second article, “Underwriting Trends and Other Highlights from the FDIC’s Credit and Consumer Products/Services Survey,” shares the recent credit survey results from examinations of FDIC-supervised financial institutions. The survey indicates that risk may be increasing in the industry based on reports of credit concentrations, increases in potentially volatile funding sources, and more “out-of-area lending.” In addition, the winter issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
On December 1, the OCC issued Bulletin 2017-60 (Bulletin), which informs all national banks, federal savings associations, and federal branches and agencies of foreign banks that the agency’s 2018 fees and assessment rates remain unchanged from last year. The Bulletin provides details concerning, among other things, the assessment schedule, surcharges designed to ensure fees accurately reflect the increased cost of supervision, and general assessment fees. The Bulletin takes effect January 1, 2018.
On November 8, Acting Comptroller of the Currency Keith A. Noreika addressed The Clearing House Annual Conference in New York, New York and called for an end to the separation between banking and commerce. Noreika noted that the topic may be considered “taboo” to banking regulators but nonetheless offered “an alternative to the popular narrative.” In his speech, Noreika acknowledged that the premise of the separation is to avoid the risks associated with entangling federally insured deposits with unreliable commercial enterprises. However, he argued, “the recent financial crisis actually demonstrated that there is nothing inherently safer about separating banking and commerce or traditional banking and investment banking,” and further noted that allowing for commingling could generate efficiencies and improve banking economic performance.
On October 19, OCC Acting Comptroller of the Currency Keith A. Noreika spoke at Georgetown University’s Institute of International Economic Law’s Fintech Week to discuss innovation within the financial technology sector and its impact on the evolution of the financial services marketplace. “[W]hat has allowed the business of banking to evolve so successfully is that we have remained open to change and created a framework of laws and regulation over time that allows banking activities to evolve,” Noreika remarked. “[W]e have to be careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from taking advantage of responsible advances in technology and commerce.”
Noreika spoke about the OCC’s Office of Innovation (Office), which was created earlier this year to facilitate discussions related to fintech and financial innovation. A pilot framework is currently being developed by the Office to create a “controlled environment” for banks to develop and test products to provide insight into a “proposed product’s controls and risks” and how it might possibly impact OCC policies in the future.
Noreika also discussed the OCC’s position on issuing special purpose national bank charters to non-depository fintech companies seeking to expand into the banking sector—a concept currently being contested by both the Conference of State Bank Supervisors (CSBS) and the New York Department of Financial Services (NYDFS), and one which the OCC has not yet made a decision (See previous InfoBytes coverage of CSBS’ and NYDFS’ challenges here and here.) Addressing claims that fintech charters would inappropriately mix banking and commerce, Noreika refuted the argument and stated that his suggestion was to “talk to any company interested in becoming a bank and that commercial companies should not be prohibited from applying—if they meet the criteria for doing so.” Further, a “chartered entity, regulated by the OCC, would be a bank, engaged in at least one of the core activities of banking” as defined by the Bank Holding Company Act.
OCC Bulletin 2012-28. The OCC bulletin rescinds and replaces previously issued natural disaster guidance and encourages banks serving affected customers to consider the following: (i) “waiving or reducing ATM fees”; (ii) “temporarily waiving late payment fees or penalties for early withdrawal of savings”; (iii) assisting borrowers based on individual situations, when appropriate, by restructuring debt obligations or adjusting payment terms—not to generally exceed 90 days; (iv) “expediting lending decisions when possible”; (v) “originating or participating in sound loans to rebuild damaged property”; and (vi) communicating with state and federal agencies to help mitigate the effects. “Examiners will not criticize these types of responses as long as the actions are taken in a manner consistent with sound banking practices,” the OCC announced. The bulletin also provides additional resources on accounting and reporting issues and Qualified Thrift Lender requirements, among other things.
FDIC FIL-38-2017. The FDIC financial institution letter (FIL) provides similar guidance for depository institutions assisting affected customers. FIL guidance includes the following suggestions: (i) “waiving ATM fees for customers and non-customers”; (ii) “increasing ATM daily cash withdrawal limits”; (iii) waiving items such as overdraft fees, time deposit early withdrawal penalties, availability restrictions on insurance checks, and credit card/loan balance late fees; (iv) “easing restrictions on cashing out-of-state and non-customer checks” as well as “easing credit card limits and credit terms for new loans”; (v) allowing borrowers to defer or skip some loan payments; and (vi) “delaying the submission of delinquency notices to the credit bureaus.” “Prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism,” the FIL noted. Also, the FDIC “encourages depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.”
On August 30, the FDIC released its Summer 2017 Supervisory Insights (see FIL-39-2017), which contains articles discussing community bank liquidity risks and developments and changes to the Bank Secrecy Act. The first article, “Community Bank Liquidity Risk: Trends and Observations from Recent Examinations,” discusses, among other things, (i) an overview of trends in liquidity risk; (ii) the importance of liquidity risk management and contingency funding plans as bank management navigate funding, mitigate liquidity stress, and plan for the future; and (iii) “principles outlined in existing supervisory guidance.” The first article is “intended as a resource for bankers who wish to heighten awareness of prudent liquidity and funds management.” The second article, “The Bank Secrecy Act: A Supervisory Update,” emphasizes the role information collected through Bank Secrecy Act/Anti-Money Laundering (BSA/AML) programs plays in the U.S. government’s counter terrorist financing initiatives and other financial system protection measures. The article also provides an overview of the financial regulatory agency examination process, compliance program monitoring, recent trends in BSA/AML examination findings, and examples of significant deficiencies in BSA/AML compliance programs that necessitated formal remediation. In addition, the summer issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
On August 22, the FDIC released its latest Quarterly Banking Profile. The profile indicates that commercial banks and savings institutions reported an aggregate net income of $48.3 billion in the second quarter of 2017—a 10.7 percent increase from the previous year. The FDIC primarily attributed the rise in second quarter income to an increase in net interest income and noninterest income. Average return on assets rose to 1.14 percent, which is the highest in 10 years. Community bank net income increased 8.5 percent from a year earlier to $5.7 billion in the second quarter and community banks “continue[d] to report higher net interest margins than the overall industry,” although, the gap is narrowing. However, FDIC Chairman Martin J. Gruenberg noted in a statement released that same day that the annual rate of loan growth has slowed for three consecutive quarters and that “an extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield,” which created “heightened exposure to interest-rate risk, liquidity risk, and credit risk.”
On August 15, the Office of the Comptroller of the Currency (OCC) released the annual update to its long-running Bank Accounting Advisory Series (BAAS). Intended to “promote consistent application of accounting standards among OCC-supervised banks and federal savings associations,” the BAAS “represents the OCC’s Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance.” The 2017 edition of the BAAS updates guidance on a range of accounting standards issued by the Financial Accounting Standards Board (FASB), and “includes recent answers to frequently asked questions from the industry and examiners.” Several FAQs are updated or deleted, and new FAQs cover the following topics: investments in debt and equity securities; lessee classification and accounting; and transfers of financial assets and servicing.
This edition of the BAAS also introduces a new approach to recently issued accounting standards. Previous editions covered new accounting standards only after they became effective. But since many FASB Accounting Standard Updates (ASUs) now have different effective dates for public business entities (PBEs) and private companies, this edition also covers ASUs issued through March 31, 2017 that (i) “while not yet effective for all institutions, must be adopted by PBEs beginning in 2018 and may be adopted early by other institutions”; or (ii) “are not yet effective for any institutions but early adoption is allowed.” Accordingly, lavender text boxes include alternative content for both PBEs and early adopters, and gold text boxes include alternative content for early adopters only.
On August 4, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in May 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Monthly lists of all state nonmember banks and their evaluations that have been made publically available can be accessed through the FDIC’s website. Of the 68 banks evaluated, four were rated “Outstanding,” 62 received a “Satisfactory” rating, and two were rated “Needs to Improve.”
On July 28, the FDIC released its list of 23 orders in administrative enforcement actions taken against banks and individuals in June. Civil money penalties were assessed against two banks, including one citing violations of the National Flood Insurance Act for (i) failing to obtain flood insurance before loan origination, and (ii) failing to follow force placed flood insurance procedures.
Also on the list are 13 Section 19 orders allowing applicants to participate in the affairs of an insured depository institution and four orders for removal and prohibition for bank employees breaching fiduciary duties and participating in “unsafe or unsound banking practices” leading to financial losses.
There are no administrative hearings scheduled for August 2017.
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program