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  • Bank regulators respond to bankers’ motion to enjoin CRA final rule

    Courts

    On March 8, the Fed, OCC, and FDIC (the federal banking agencies, or “FBAs”) submitted a brief opposing the plaintiffs’ motion for a preliminary injunction to stop the CRA final rule from going into effect. As previously covered by InfoBytes, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the bank regulators’ enforcement of the final rule to implement the CRA before it goes into effect on April 1. The FBAs assert that, in opposing the final rule, the plaintiffs are asking the court to “graft” two exclusions from the CRA’s purpose that are not actually in the statute: first, to exclude geographic areas where a bank conducts retail lending from the scope of the bank’s “entire community”; and second, to exclude a bank’s deposit activities from the assessment on whether a bank is meeting its entire community’s “credit needs.” The banking regulators also argued that the plaintiffs’ motion for preliminary relief should fail because the plaintiffs cannot show irreparable harm, in that they have failed to demonstrate that costs to comply with the CRA final rule, which would not apply until 2026 and 2027, were significant when considered in the context of the bank’s overall finances. Finally, the FBAs argued that the public interest and balance of equities favor allowing the final rule to proceed, as, among other factors, “the rule provides significant regulatory relief and lower compliance costs for smaller institutions by increasing the asset size thresholds that determine which performance tests apply to an institution.” 

    Courts Bank Regulatory CRA OCC FDIC Federal Reserve Agency Rule-Making & Guidance Litigation

  • Senator Warren pens letter to banking regulators to check on their regulatory commitments following 2023 bank failures

    On March 10, Senator Warren (D-MA) released a letter to Federal Reserve Vice Chair Michael Barr, FDIC Chairman Martin Gruenberg, and Acting Comptroller of the Currency Michael J. Hsu (the bank regulators) seeking information on any progress with their commitments to strengthen bank regulatory standards following the 2023 banking issues. Warren urged the bank regulators to reinstate the rules for banks with assets between $100 and $250 billion, including liquidity requirements and capital stress tests, that were rolled-back with the 2018 enactment of the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (EGRRCPA). She concluded her letter by posing several questions, including asking what efforts the bank regulators are taking to strengthen rules, when these rules are expected to be announced or implemented, how many banks will be subject to these rules, if the implementation process would include a comment period, and if lobbying by large banks against the Basel III capital rule has weakened the bank regulators’ resolve to strengthen rules for banks with more than $100 billion in assets. Sen. Warren has asked for a response by March 25.

    Bank Regulatory Basel FDIC OCC Federal Reserve EGRRCPA Dodd-Frank

  • OCC’s Hsu speaks on operational resilience framework as regulators consider non-financial disruptions

    Federal Issues

    On March 12, the Acting Director for the OCC, Michael J. Hsu, delivered a speech at a banking conference in Washington, D.C. on “operational resilience,” which he defined as a bank’s ability to “prepare for, and adapt to, and withstand or recover from disruptions.” Hsu stressed that the most concerning impacts on financial institutions are not financial, but often arise from natural disasters, pandemics, global conflicts, or weak internal governance management. The acting director noted an increase in the probability of disruptions occurring and the impacts of them. In response, the OCC will expect financial institutions to be operationally resilient, and Hsu stated that the federal banking agencies are considering making changes to their operational resilience framework for large banks and possibly third-party service providers.

    These principles were first laid out in a white paper following the September 11, 2001, attack on the World Trade Center whereby the paper promoted geographic diversity and the resiliency of data centers. During the Covid-19 Pandemic, the federal banking agencies issued a paper that integrated existing guidance and common industry practices in October 2020.

    Federal Issues OCC Operational Resilience

  • FDIC releases March CRA evaluations for 56 banks, three rated as “Needs to Improve”

    On March 4, the FDIC released a list of state nonmember banks evaluated for compliance with the Community Reinvestment Act (CRA) for March. The FDIC evaluated 56 banks with four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 56 evaluations reported by the FDIC, three banks hold the lowest given ratings as “Needs to Improve.” Most banks were rated “Satisfactory,” and seven banks were rated “Outstanding.” According to the FDIC’s release, a copy of a bank’s CRA evaluation is available directly from the bank, as required by law, or from the FDIC’s Public Information Center.

    Bank Regulatory CRA Banking OCC Bank Supervision

  • OCC releases February CRA evaluations for 31 banks, one “Needs to Improve”

    On March 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last February. The OCC evaluated 31 national banks and federal savings associations under four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 31 evaluations reported by the OCC, only one entity holds the lowest rating, a small bank in Indiana, which was rated “Needs to Improve.” Most entities were rated “Satisfactory,” and six entities were rated “Outstanding.” In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluates and rates financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution it serves (such as its demographics, economic data, lending, investment, and service opportunities). 

    Bank Regulatory Supervision CRA OCC FAQs

  • OCC names Ted Dowd as Acting Senior Deputy Comptroller and Chief Counsel

    On February 23, the OCC announced that Ted Dowd will serve as the Acting Senior Deputy Comptroller and Chief Counsel for the agency while the OCC searches for a successor to Ben McDonough. Dowd is currently the Deputy Chief Counsel, a position he has fulfilled since 2018 where he oversaw the operations of all OCC district counsel offices. Under the new position, Dowd will oversee all legal aspects of the OCC, as well as support the agency’s activities in bank chartering, supervision, enforcement, and rulemaking, among others. This positional change will go into effect on April 8 when the current OCC Chief Counsel Ben McDonough begins a new position at another agency.

    Bank Regulatory OCC Bank Supervision Enforcement

  • FFIEC highlights the importance of property valuation practices

    On February 12, the Federal Financial Institutions Examination Council (FFIEC) released a statement on examination principles related to ensuring fair and creditable residential property valuation practices among supervised institutions. The FFIEC underscored the necessity for institutions to comply with anti-discrimination laws and regulations, such as the ECOA and the Fair Housing Act, while also adhering to safety and soundness regulations outlined in statutes like the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. According to the statement, effective valuation review programs are essential for identifying and addressing deficiencies, ensuring compliance with appraisal regulations, and promoting fair lending practices. Through examination processes, both in consumer compliance and safety and soundness assessments, the FFIEC aimed to mitigate risks associated with valuation discrimination or bias.

    Bank Regulatory FFIEC Fair Housing ECOA OCC Fair Housing Act

  • Agencies issue 2023 Shared National Credit Program Report

    Federal Issues

    On February 16, the FDIC, Fed, and OCC issued the 2023 Shared National Credit (SNC) Report, which found that while large, syndicated bank loans generally have moderate credit quality, there appears to be a trend of declining credit quality stemming from higher interest rates and tighter profit margins in certain industries. The report found that credit risk remains high in leveraged loans and specific sectors like technology, telecom, healthcare, and transportation. Also, the real estate and construction sector showed mixed trends. 

    Federal Issues OCC FDIC Federal Reserve Loans

  • Hsu notes a “trip wire approach” for FSOC review of payments, private equity systemic risk

    On February 21, Acting Comptroller of the Currency Michael Hsu delivered remarks at Vanderbilt University, discussing banking and commerce, regulatory effectiveness, and financial stability. Hsu further discussed the “blurring of the line” between banking and private credit/equity, its relevance to different market crashes, and how it can create risk. Hsu mentioned the potential to fill a regulatory gap regarding payments.

    Hsu highlighted that the FSOC’s recent analytic framework indicated vulnerable points that can commonly contribute to financial stability risks and discussed how FSOC may address the risks. The framework also established how the council determines whether a given nonbank should be under the Fed’s supervision and prudential standards (covered by InfoBytes here). In his speech, Hsu defines banking as “institutions that take deposits, make loans, and facilitate payments” and commerce as “everything else” including nonbank finance. 

    He added that the FSOC should use its macro-prudential tools to address risk and develop metrics and thresholds to identify when a payments or private equity firm may need an assessment of systemic risk. This “trip wire approach” would leverage the FSOC’s framework, moving a firm from the identification phase to the assessment phase of the FSOC’s analytic framework, and the assessment would inform if there was a need for FSOC response. Because of the rise in cash managed by nonbanks on behalf of consumers, Hsu said that could serve as a metric for the trip wire for payments-focused fintechs and other nonbank companies. “The standardization, scalars, and level at which an FSOC assessment would be triggered would be informed by public comment,” he added. Finally, Hsu highlighted how the trip wire approach offered a transparent and proactive method for identifying and addressing systemic risks before they escalate. 

    Bank Regulatory Federal Issues FSOC OCC Payments Nonbank Risk Management

  • 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

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