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OCC publishes Volcker Rule quantitative measurement instructions
On November 30, the OCC released instructions and technical specifications for preparing and submitting quantitative measurements relating to Section 13 of the Bank Holding Act, commonly known as the Volcker Rule. As previously covered by InfoBytes, in 2019, the OCC, FDIC, Federal Reserve Board, CFTC, and SEC published a final rule amending the regulations implementing the Volcker Rule. Under the amendments, “banking entities with significant trading assets and liabilities” are required to “submit certain quantitative measurements on a quarterly basis and in accordance with the XML schema posted on the OCC’s ‘Volcker Rule Implementation’ web page.” The compliance date for the final rule is January 1, 2021.
OCC finalizes regulatory requirements for covered institutions
On November 23, the OCC announced a final rule that updates and eliminates outdated regulatory requirements for national bank and federal savings association activities and operations. The final rule, originally proposed in June (covered by InfoBytes here), amends 12 CFR 7 to clarify and codify recent OCC interpretations related to the modern financial system. Among other things, the changes will (i) incorporate and streamline interpretations concerning permissible derivatives activities; (ii) codify interpretations which permit covered institutions to engage in certain tax equity finance transactions; (iii) “codify[] interpretations regarding national bank membership in payment systems and clarify[] that federal savings associations are subject to the same requirements as national banks; (iv) “expand[] the ability of national banks and federal savings associations to choose corporate governance provisions under state law; (v) clarify anti-takeover provisions; and (vi) codify National Bank Act interpretations concerning capital stock issuances and repurchases. The final rule takes effect April 1, 2021.
OCC proposes CRA performance standards
On November 24, the OCC released a notice of proposed rulemaking (and accompanying Bulletin 2020-103) covering evaluation measure benchmarks, retail lending distribution test thresholds, and community development (CD) minimums under the new general performance standards outlined in the Community Reinvestment Act’s (CRA) final rule issued earlier this year. 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 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. In the preamble to the final rule, the OCC noted a future proposal would provide details of the calibration process of the requirements for each of the three components (the CRA evaluation measure benchmarks, retail lending distribution test thresholds, and CD minimums) of the objective performance standards. Highlights of the proposal include:
- Requirements for each of the three components such that the proportion of banks that would have received presumptive ratings of outstanding and satisfactory would be no greater than the historical proportion of banks that received the same ratings under the previous CRA regulations.
- The OCC would issue an information survey to institutions subject to the general performance standards to obtain bank-specific information and would use this information to calculate CRA evaluation measures and CD minimum calculations for each bank’s assessment areas, as well as a bank-level CRA evaluation measure and CD minimum calculation for each bank.
- For each major retail lending product line, the OCC proposes to calculate the numerator used in determining each bank’s retail lending distribution test ratios for each bank’s assessment areas. Each bank’s numerators under the borrower and geographic distribution tests would be divided by the applicable demographic and peer comparators to calculate each bank’s retail lending distribution test ratios for each bank’s assessment areas.
- The retail lending distribution tests would yield up to 18 different threshold values. The CRA evaluation measure would involve six different benchmark values (one at the bank level and one at the assessment area level for needs to improve, satisfactory, and outstanding presumptive ratings, respectively), while the CD minimum would involve two values, one at the bank level and one at the assessment area level.
- The OCC would consider a decline of 10 percent or greater in a bank’s performance on the general performance standards that could not be explained by market conditions or other performance context factors, as “precipitous,” which may warrant a downward adjustment in the OCC’s determination of the bank’s assigned rating.
Once the proposal is finalized, the OCC stated that it will take the necessary steps to publicize the specific benchmarks, thresholds, and minimums, and will periodically review and adjust these benchmarks, thresholds, and minimums, as necessary.
Comments on the proposal are due within 60 days of publication in the Federal Register.
OCC’s proposed rule would ensure fair access to financial services
On November 20, the OCC announced a notice of proposed rulemaking (NPRM), which seeks to ensure that national banks, federal savings associations, and federal branches and agencies of foreign bank organizations offer and provide fair access to financial services “based on the risk assessment of individual customers, rather than broad-based decisions affecting whole categories or classes of customers.” The NPRM implements language included in Title III of Dodd-Frank—“which charged the OCC with ‘assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction’”—and builds upon the principle of nondiscrimination. The NPRM would apply to the largest banks in the country and would prevent such banks from denying or limiting services in an effort to (i) prevent a person from entering or competing in a particular market; or (ii) disadvantage a person in order to benefit another person in which the bank has a financial interest. The OCC emphasizes in its press release that “a covered bank’s decision to deny services based on an objective assessment of the person’s creditworthiness, ability to pay, or other quantitative, impartial, risk-based reasons would not violate the bank’s obligation to provide fair access.” Comments on the NPRM are due by January 4, 2021.
Fed’s final rule modifies assessment fees for large financial companies
On November 19, the Federal Reserve Board issued a final rule modifying the annual assessment fees for its supervision and regulation of large financial companies. The final rule is nearly identical to the proposal issued in November 2019, covered by InfoBytes here. The final rule raises the minimum threshold from $50 billion to $100 billion in total consolidated assets to be considered an assessed company and adjusts the amount charged to assessed companies, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule will be effective 30 days after 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.
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.
FHA proposes private flood insurance option
On November 10, the Federal Housing Administration (FHA) issued a proposed rule which would allow mortgagors the option to purchase private flood insurance on FHA-insured mortgages for properties located in Special Flood Hazard Areas (SFHAs). Under the Flood Disaster Protection Act of 1973, property owners located in an SFHA, and a community participating in the National Flood Insurance Program, are required to purchase flood insurance as a condition of receiving a mortgage backed by Fannie Mae or Freddie Mac, the Department of Veterans Affairs, the United States Department of Agriculture, or the FHA. The proposed rule would allow the purchase of private mortgage insurance for properties in SFHAs for the first time. Additionally, the proposed rule seeks comment on a compliance aid, which would “help mortgagees evaluate whether a flood insurance policy meets the definition of ‘private flood insurance.’” According to the FHA, between three and five percent of FHA borrowers could obtain a private flood insurance policy if the option becomes available.
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.”