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OCC’s Hsu discusses creating economic opportunity for “new Americans”
On April 10, Acting Comptroller of the Currency, Michael J. Hsu, delivered prepared remarks, during a public meeting of the Financial Literacy and Education Commission (FLEC). During his remarks, Hsu underscored the significance of financial literacy and inclusion for “new Americans,” drawing from his own experience as a child of immigrants. Acknowledging the substantial contributions of immigrant communities to the U.S. economy, including through entrepreneurship and innovation, Hsu urged financial institutions to support a system that is inclusive and equitable. Hsu called for banks to expand services offered in languages other than English and to explore innovative means of accepting diverse forms of identification within the regulatory framework to facilitate greater access to financial services for foreign-born individuals who are more likely to be unbanked. The speech also highlighted the need for mortgage financing options that cater to the unique requirements of immigrant populations, including extending access to credit for individuals without traditional credit scores. Hsu specifically emphasized special purpose credit programs and community partnerships as a means to extend credit to new Americans. Hsu concluded by pointing to the OCC's resources aimed at bolstering the efforts of banks and their community partners in enhancing financial capability among immigrant populations.
OCC extends comment period on proposed rules for the Bank Merger Act
On April 10, the OCC announced a notice published in the Federal Register extending the comment period for the OCC’s proposed rule on bank mergers. The NPRM titled, “Business Combinations under the Bank Merger Act,” was originally published on February 14. As previously covered by InfoBytes, the rule would amend procedures to include a policy statement that “summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the Bank Merger Act.” Under the typical 60-day comment period, the comment period for the original NPRM would have closed on April 15. The OCC extended the comment period in response to a request to do so, to allow interested parties additional time to prepare and submit their comments. The notice will not not indicate who made the request. The new deadline for parties to submit comments is June 15.
FSB report outlines eight recommendations for bank liquidity preparedness
On April 17, the Financial Stability Board (FSB) released a consultation report titled “Liquidity Preparedness for Margin and Collateral Calls,” which laid out eight policy recommendations intended to enhance the liquidity preparedness of nonbank market participants in certain markets. These policy recommendations came from several reviews by the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures, and the International Organization of Securities Commissions analyzing recent incidents of liquidity stress. The eight recommendations comprised liquidity risk management, liquidity stress testing, and collateral management practices.
The first three recommendations focused on liquidity risk management practices. The first recommendation would amend liquidity risk management and governance frameworks to protect against spikes in margin and collateral calls in liquidity risk management; the second recommendation would ensure liquidity needs by establishing liquidity risk appetites and a contingency funding plan; and the third recommendation outlined the need for regular reviews of liquidity risk frameworks.
The next two recommendations were on liquidity stress testing and scenario design. The fourth recommendation set out the need for conducting liquidity stress tests with respect to margin and collateral calls to identify the sources of liquidity strains. The fifth called for stress tests to cover a range of “extreme but plausible” scenarios.
The last three recommendations focused on collateral management practices. The sixth recommendation called for resilient and effective operational processes and collateral management practices; the seventh set out the need for sufficient cash and readily available diverse liquid assets and collateral arrangements; and the eighth called for active, transparent and regular interactions with counterparties and third-party service providers. The FSB will welcome comments on this report submitted before June 18.
Kentucky makes wholesale amendments to its financial services code
On April 9, the Governor of Kentucky signed into law HB 726 (the "Act"), an act that will make substantial amendments to the state’s regulation of financial services under Chapter 286 of the Kentucky Financial Services Code. Of note, the Act will update key definitions under the state’s financial services code, including “Bank,” “Company,” “Control,” and “Deposit.” Some of the changes will amend certain powers to the financial commissioner, an appointed position by the Governor, as well as the banking experience requirements for this position. The Act also, among other things, addresses in- and out-of-state trust company rules; banking activities rules for foreign and out-of-state financial companies; bank mergers and reviews by the commissioner; bank closures; bank loan compliance under 12 U.S.C. sec. 371c (prohibiting acceptance of a security from a bank’s affiliate); the commissioner’s rules to remove any officer, director, or employee of a bank via written notice; and mortgage loan license fees, including annual assessments.
FDIC wins dismissal as defendant in NSF fee challenge
On April 8, the U.S. District Court for the District of Minnesota granted the FDIC’s motion to dismiss in a case brought by a trade association and a commercial bank challenging the FDIC’s guidance related to insufficient fund fees (NSF fees). Specifically, the plaintiffs challenged the FDIC’s Financial Institution Letter 32 (FIL 32) as a “legislative rule promulgated without adherence to essential administrative procedures,” and asked the court to permanently enjoin FIL 32 and declare it invalid. As previously covered by InfoBytes, FIL 32 warned financial institutions against charging customers multiple NSF fees on the same unpaid transaction – something the FDIC stated could be an “unsafe or unsound practice.” The plaintiffs alleged four violations of the Administrative Procedure Act: (i) the FDIC allegedly implemented FIL 32 without the APA’s required notice and comment period; (ii) FIL 32 was an arbitrary and capricious agency action; (iii) the FDIC exceeded its statutory authority by attempting to define an unfair or deceptive act or practice under the FTC Act; and (iv) the FDIC violated its own regulations in releasing FIL 32 since “those regulations prohibit enforcement actions based on supervisory guidance.” The FDIC moved to dismiss all counts, arguing that FIL 32 was not arbitrary and capricious, and that the FDIC acted within its authority. The court agreed that FIL 32 was not a final agency action, that the plaintiffs lacked standing and dismissed the case without prejudice.
FDIC releases comprehensive report on international, systemically important banks
On April 10, the FDIC released a report on the FDIC’s plans and readiness to step in as a receiver for a financial company under Title II of the Dodd-Frank Act. The FDIC Chairman said this report was the “most detailed description to date of the FDIC’s preparedness to use its Title II resolution authority.”
The report provided background on resolution-related authorities under Dodd-Frank, highlighted key measures that provided readiness of resolution under Title II authority, reviewed strategic decision-making for the use of such authority, and explained how the Commission expects to undertake a Title II resolution of a Global Systematically Important U.S. Bank (GSIB) using a Single Point of Entry (SPOE) resolution strategy. FDIC Chairman Martin Gruenberg said that such a resolution “will be a challenging process under any circumstance, with a number of steps that need to be taken quickly and in close coordination with a range of stakeholders.”
Under the SPOE resolution strategy, the FDIC would place only the holding company of the GSIB into receivership. The FDIC then would establish a bridge financial company under its control and would transfer the operating subsidiaries to the bridge institution. The bridge institution and its subsidiaries would remain operating while the FDIC performed its receivership duties, including the claims process. The final stage of GSIB receivership would be the implementation of a restructuring and wind-down plan that would aim to maintain value, address the causes of the failure, and transition operations. Chairman Gruenberg also noted that orderly resolution of a GSIB has not been executed before, “so there will be questions on whether it can be done.”
FDIC releases report on bank's past discriminatory lending practices
On April 3, the FDIC made public for the first time its Community Reinvestment Act Performance Evaluation for a bank from September 2022. The bank focused on residential and commercial lending and had $1.15 billion in assets at the time of the review. During its supervision window from 2019 to 2022, the FDIC rated the bank’s CRA rating as “Needs to Improve,” which was a downgrade from its previous rating of “Satisfactory.” Although the FDIC found that the bank “demonstrated satisfactory performance” under the Lending and Community Development Tests, it was found to have violated ECOA and FHFA. Specifically, the FDIC found that the bank engaged in discriminatory lending through alleged redlining practices, the FDIC deemed. The FDIC noted that these violations occurred due to a lack of sufficient oversight and appropriate policies and procedures.
Fed releases enforcement action against Wyoming-based bank holding company
On April 4, the Federal Reserve released an enforcement action against a Wyoming-based bank holding company as part of a September 2023 inspection that found alleged deficiencies related to the “fintech business strategy, board oversight, capital, earnings, liquidity, risk management, and compliance.” The consent order with the bank holding company requires the holding company to: (i) serve as a source of strength to its bank subsidiary; (ii) submit a written plan to strengthen board oversight, including a staffing assessment and succession plan; (iii) submit a written plan to strengthen its risk management program, including adopting written policies and procedures to manage compliance and fraud risks; (iv) submit an enhanced liquidity risk management program, a capital plan, and a written business plan to improve earnings; and (v) ensure compliance with regulations governing affiliate transactions. The consent order additionally placed limits on the holding company’s fintech activities and required the holding company to submit a wind-down plan for fintech-related business. According to the consent order, following the September 2023 inspection, the holding company had voluntarily stopped pursuing its fintech business strategy and had been winding down all related activities.
FDIC’s Gruenberg speaks on plans for economic inclusion
On April 4, Federal Deposit Insurance Corp. Chairman, Martin J. Gruenberg, delivered a speech on the FDIC’s economic inclusion strategy. The speech highlighted the FDIC’s commitment to economic inclusion, efforts to understand the size and characteristics of the unbanked market, and past FDIC economic inclusion efforts.
When Chairman Gruenberg highlighted previous FDIC inclusion efforts, he noted that the unbanked rate fell from 8.2 to 4.5 percent during the decade ending in 2021, with even steeper decreases for some minority populations. He also announced a new economic inclusion strategic plan to expand customers’ participation in the banking system and help households achieve greater financial security. The plan would intend to help customers build credit, including through small-dollar lending programs with affordable rates, and calls for specific steps to encourage bank lending and investments in low- and moderate-income neighborhoods.
Fed’s Bowman speaks on bank liquidity a year after banking crises
On April 3, Fed member Michelle Bowman delivered a speech on “Bank Liquidity, Regulation, and the Fed’s Role as Lender of Last Resort.” Her speech highlighted three points: first, she discussed how the Fed supported liquidity in the banking system; second, she discussed the broader framework that supported bank liquidity, including regulatory requirements, bank supervision, and deposit insurance; and third, she discussed the challenges the Fed faced in implementing liquidity tools. On the Fed’s role in banking system liquidity, Bowman mentioned how the banking system was stronger today than before the 2008 financial crisis due to having more capital and more liquidity, as well as new stress testing requirements. The Fed’s emergency lending authority also changed to be broad-based, as opposed to having designed it for individual companies, and now required approval by the Secretary of the Treasury. On challenges, Bowman highlighted how to reduce the stigma associated with discount window borrowing by mandating that banks “pre-position collateral” and “periodically borrow from the discount window.”