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  • Agencies seek comments on proposed changes to CECL

    Agency Rule-Making & Guidance

    On October 17, the OCC, Federal Reserve Board, FDIC, and NCUA published a proposed interagency policy statement on allowances for credit losses and proposed interagency guidance on credit risk review systems.

    The proposed policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology for determining allowances for credit losses applicable to financial assets measured at amortized costs. It will apply to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The proposed policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. Once finalized, the proposed policy would be effective at the time of each institution’s adoption of CECL.

    The proposed credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—will update the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The proposed guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the proposed guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.

    Comments on both proposals are due December 16.

    Agency Rule-Making & Guidance OCC Department of Treasury Federal Reserve FDIC NCUA

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  • FDIC approves final stress-test revisions

    Agency Rule-Making & Guidance

    On October 15, the FDIC approved the final rule revising stress testing requirements for FDIC-supervised institutions, consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule remains unchanged from the proposed rule, which was issued by the FDIC in December 2018 (previously covered by InfoBytes here). The final rule (i) changes the minimum threshold for applicability from $10 billion to $250 billion; (ii) revises the frequency of required stress tests for most FDIC-supervised institutions from annual to biannual; and (iii) reduces the number of required stress testing scenarios from three to two.  FDIC-supervised institutions that are covered institutions will “be required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter.” The final rule also adds a new defined term, “reporting year,” which will be the year in which a covered bank must conduct, report, and publish its stress test. The final rule requires certain covered institutions to still conduct annual stress tests, but this is limited to covered institutions that are consolidated under holding companies required to conduct stress tests more frequently than once every other year. Lastly, the final rule removes the “adverse” scenario—which the FDIC states has provided “limited incremental information”—and requires stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. The final rule is effective thirty days after it is published in the Federal Register.

    As previously covered by InfoBytes, on October 4, the OCC issued its final rule incorporating the same revisions as the FDIC.

    Agency Rule-Making & Guidance FDIC OCC Stress Test EGRRCPA

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  • Federal Reserve finalizes capital and liquidity requirement rules for large firms; proposes changes to assessment fees

    Agency Rule-Making & Guidance

    On October 10, the Federal Reserve Board approved final rules, consistent with changes made by the Economic Growth, Regulatory Relief, and Consumer Protection Act, to establish a framework that revises the criteria for determining the applicability of regulatory capital and liquidity requirement for large U.S. banking organizations and U.S. intermediate holding companies (IHC) of certain foreign banking organizations with $100 billion or more in total assets. The framework—jointly developed with the FDIC and the OCC—establishes “four risk-based categories for determining the regulatory capital and liquidity requirements applicable to large U.S. banking organizations and the U.S. intermediate holding companies of foreign banking organizations, which apply generally based on indicators of size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure.” According to the Fed, while the framework is “generally similar” to proposals released for comment over the past year (see InfoBytes coverage here and here), the final rule further simplifies the proposals by applying liquidity standards to a foreign bank’s U.S. IHC that are based on the IHC’s risk profile instead of the combined U.S. operations of the foreign bank. For larger firms, the framework applies standardized liquidity requirements at the higher end of the range that was originally proposed for both domestic and foreign banks.

    The following categories are established under the framework: (i) Category I will be reserved for U.S.-based global systemically important banks; (ii) Category II will apply to U.S. and foreign banking organizations with total U.S. assets exceeding $700 billion or $75 billion in cross-border activity that do not meet Category I criteria; (iii) Category III will apply to U.S. and foreign banking organizations with more than $250 billion in U.S. assets or $75 billion in weighted short-term wholesale funding, nonbank assets, or off balance sheet exposure; and (iv) Category IV will apply to other banking organizations with total U.S. assets of more than $100 billion that do not otherwise meet the criteria of the other three categories.

    The framework will take effect 60 days after publication in the Federal Register.

    Additionally, the Fed separately issued a notice of proposed rulemaking to raise the minimum threshold for being considered an assessed company and to adjust the amount charged to assessed companies. The notice also announces the Fed’s intention to issue a capital plan proposal that will “align capital planning requirements with the two-year supervisory stress testing cycle and provide greater flexibility for Category IV firms.” Comments on the proposal are due December 9.

    Agency Rule-Making & Guidance Federal Reserve EGRRCPA Stress Test Of Interest to Non-US Persons

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  • CFPB temporarily extends threshold for open-end HMDA reporting

    Agency Rule-Making & Guidance

    On October 10, the CFPB issued a final rule extending the current temporary threshold of 500 open-end lines of credit under the HMDA rules for reporting data to January 1, 2022. As previously covered by InfoBytes, the CFPB temporarily increased the threshold for open-end lines of credit from 100 loans to 500 loans for calendar years 2018 and 2019. In May 2019, the Bureau proposed to extend that temporary threshold to January 1, 2022 and then permanently lower the threshold to 200 open-end lines of credit after that date (covered by InfoBytes here). The Bureau then reopened the comment period for the May 2019 proposed rule with respect to the permanent open-end and closed-end coverage thresholds (covered by InfoBytes here) and now intends to issue a final rule addressing the permanent threshold at a later date. The Bureau also intends to address the other closed-end aspects of the May 2019 proposed rule at a later date.

    The final rule adopts the temporary extension of the 500 open-end lines of credit until January 1, 2022, and incorporates, with minor adjustments, the interpretive and procedural rule issued in August 2018 (2018 Rule), which implemented and clarified that the HMDA amendments included in Section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here). The final rule is effective January 1, 2022.

    Agency Rule-Making & Guidance CFPB HMDA Mortgages

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  • Federal Reserve joins other regulators in approving final revisions to Volcker Rule

    Agency Rule-Making & Guidance

    On October 8, the Federal Reserve Board announced that all five federal financial regulators have signed off on final revisions to the Volker Rule (the Rule) to simplify and tailor compliance with Section 13 of the Bank Holding Company Act’s restrictions on a bank’s ability to engage in proprietary trading and own certain funds. As previously covered by InfoBytes, the other four regulators approved the revisions last month. The revisions, which take full effect on January 1, 2021, clarify prohibited activities and simplify compliance burdens by tailoring compliance obligations to reflect the size and scope of a bank’s trading activities, with more stringent requirements imposed on entities with greater activity. The Fed noted that community banks are generally exempt from the Rule by statute, and stressed that the “revisions continue to prohibit proprietary trading, while providing greater clarity and certainty for activities allowed under the law,” and that the regulators “expect that the universe of trades that are considered prohibited proprietary trading will remain generally the same as under the agencies’ 2013 rule.” However, Federal Reserve Governor Lael Brainard issued a dissenting statement, stressing that the revised Rule “weakens the core protections against speculative trading within the banking federal safety net,” and that the elimination without replacement of the “‘short-term intent’ test for firms engaged in higher levels of trading activities… materially narrows the scope of covered activities.” Brainard also expressed concern about “examiners’ ability to assess compliance with the final rule because it relies on firms’ internal self-policing to set limits to distinguish permissible market making from illegal proprietary trading, no longer requires firms to promptly report limit breaches and increases, and narrows the scope of the CEO attestation requirement.”

    Agency Rule-Making & Guidance Volcker Rule Federal Reserve Of Interest to Non-US Persons Bank Holding Company Act

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  • OCC issues final stress test revisions

    Agency Rule-Making & Guidance

    On October 2, the OCC issued the final rule revising the stress testing requirements for OCC-supervised institutions, consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule remains unchanged from the proposed rule, which was issued by the OCC in December 2018 (previously covered by InfoBytes here). The final rule (i) changes the minimum threshold for applicability from $10 billion to $250 billion; (ii) revises the frequency of required stress tests for most FDIC-supervised institutions from annual to biannual; and (iii) reduces the number of required stress testing scenarios from three to two. Specifically, OCC-supervised institutions that are covered institutions will “be required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter.” The final rule also adds a new defined term, “reporting year,” which will be the year in which a covered bank must conduct, report, and publish its stress test. The final rule requires certain covered institutions to still conduct annual stress tests, but this is limited to covered institutions that are consolidated under holding companies required to conduct stress tests more frequently than once every other year. Lastly, the final rule removes the “adverse” scenario—which the OCC states has provided “limited incremental information”—and requires stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. The final rule is effective November 24.

    Agency Rule-Making & Guidance OCC Stress Test EGRRCPA

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  • OCC outlines fiscal year 2020 supervision priorities

    Agency Rule-Making & Guidance

    On October 1, the OCC’s Committee on Bank Supervision released its bank supervision operation plan (Plan) for fiscal year 2020. The Plan outlines the agency’s supervision priorities and specifically highlights the following supervisory focus areas: (i) cybersecurity and operational resiliency; (ii) Bank Secrecy Act/anti-money laundering compliance; (iii) commercial and retail credit loan underwriting; (iv) effects of changing interest rates on bank activities and risk exposures; (v) preparation necessary for the current expected credit losses accounting standard, as well the potential phase-out of the London Interbank Offering Rate; and (vi) technological innovation and implementation.

    The annual plan guides the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, service providers, and agencies of foreign banking organizations. Updates about these priorities will be provided in the OCC’s Semiannual Risk Perspective.

    Agency Rule-Making & Guidance OCC Supervision Of Interest to Non-US Persons

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  • OCC updates four booklets in Comptroller’s Handbook

    Agency Rule-Making & Guidance

    On September 30, the OCC issued updates to four booklets of the Comptroller’s Handbook: Bank Supervision Process, Community Bank Supervision, Federal Branches and Agencies Supervision, and Large Bank Supervision. Among other things, the updates include (i) the interim final rule for the expanded 18-month supervisory cycle for certain institutions (covered by InfoBytes here); (ii) a revised OCC report of examination policy based on the revised Federal Financial Institutions Examination Council report of examination policy; (iii) the revisions to the OCC’s enforcement action policies (covered by InfoBytes here); and (iv) changes to the OCC’s credit underwriting assessment.

    Agency Rule-Making & Guidance OCC Bank Supervision Examination Enforcement Comptroller's Handbook

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  • Agencies raise residential appraisal requirement to $400,000

    Agency Rule-Making & Guidance

    On September 27, the OCC, the Federal Reserve Board, and the FDIC announced a final rule increasing the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. As previously covered by InfoBytes, in November 2018, the agencies proposed the threshold increase in response to feedback that the exemption threshold had not increased to keep pace with the price appreciation in the residential real estate market. The final rule also includes the rural residential appraisal exemption included in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here), and implements the Dodd-Frank Act mandate that institutions appropriately review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice. The final rule is effective the first day after publication in the Federal Register, except for the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the requirement to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice, which are effective January 1, 2020.

    The FDIC press release is available here, the Federal Reserve Board press release is available here, and the concurrence letter from the CFPB is available here.

    Agency Rule-Making & Guidance Mortgages Appraisal OCC Federal Register Federal Reserve FDIC EGRRCPA CFPB Dodd-Frank

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  • CFPB issues filing guides for 2020 HMDA data

    Agency Rule-Making & Guidance

    On September 25, the CFPB released the Filing Instructions Guide for HMDA data collected in 2020 that must be reported in 2021. The guide references changes to the submission process, and includes a reminder that, starting in 2020, “covered institutions that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year are required to report HMDA data quarterly. Instructions for quarterly reporting can be found in the Supplemental Quarterly Reporting Guide, which was issued the same day. The file format for submitting the HMDA data, along with the required data fields to be collected and reported, have not changed. 

    Agency Rule-Making & Guidance CFPB HMDA FFIEC Mortgages

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