InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OCC seeks comments on notice of proposed rulemaking to enhance business flexibility for federal savings associations
On September 10, the OCC issued a notice of proposed rulemaking to implement section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S. 2155), which amended the Home Owners’ Loan Act to permit federal savings associations (covered savings associations) with total consolidated assets of $20 billion or less, as of December 31, 2017, to elect to operate with national bank powers. Among other things, the proposed rule would require covered savings associations to divest, conform, or discontinue nonconforming subsidiaries, assets, and activities so as not operate in a manner that would be impermissible for national banks. Covered savings associations would also be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to a similarly located national bank without requiring a charter conversion. The OCC further noted that even if a covered savings association’s assets exceed $20 billion after it makes the election, it will continue to receive covered savings association treatment. In addition, to reduce unnecessary burdens, covered savings associations are able to using federal savings association procedures, as opposed to national bank procedures, if the application of those procedures would not result in substantively different outcomes. Comments will be accepted for 60 days following publication in the Federal Register.
OCC notifies banks of 18-month on-site examination qualifications
On September 10, the OCC notified national banks, federal savings associations, and federal branches and agencies of the interim final rule issued jointly by the OCC, Federal Reserve, and FDIC allowing qualified insured depository institutions with less than $3 billion in total assets to be eligible for an 18-month on-site examination cycle. (See previous InfoBytes coverage here.) In addition to meeting the asset threshold, qualifying banks must also (i) have a rating of one or two; (ii) be well capitalized and well managed; (iii) not be subject to a federal banking agency’s formal enforcement proceeding or order; and (iv) not have experienced a change of control within the previous 12 months. The OCC further noted that it reserves the authority to maintain more frequent examinations for banks if necessary or appropriate. The interim final rule, issued pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S. 2155), took effect August 29. Comments on the interim final rule must be received by October 29.
FDIC issues summer 2018 Supervisory Insights
On September 5, the FDIC released its summer 2018 issue of Supervisory Insights (see FIL-44-2018), which contains articles discussing bank lending to the oil and gas sector and an overview of bank credit risk grading systems. Information and analysis from examiner observations is presented in the article, “Credit Risk Grading Systems: Observations from a Horizontal Assessment.” Sixteen large state nonmember banks’ credit risk grading programs are analyzed for (i) their use of expert judgment based systems and/or quantitative scorecards and models to assign credit grades; (ii) data usage and retention needs; and (iii) governance and risk management frameworks established by grade definitions. The article advises that “a bank’s credit risk grading system should align with the bank’s size and complexity to facilitate accurate risk identification, measurement, monitoring, and reporting,” and should include internal systems to allow for effective risk assessment, timely and accurate reporting, and procedures for safeguarding and managing assets. In addition, the issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
OCC updates Comptroller’s Handbook, issues guidance on “other real estate owned”
On August 31, the OCC issued Bulletin 2018-26, which updates the “Other Real Estate Owned” booklet of the Comptroller’s Handbook and provides guidance for examiners on the acquisition, reporting, management, and disposition of other real estate owned (OREO) held by supervised banks and federal savings associations. The OCC commented that while the booklet’s focus is on foreclosed real property, the guidance may also “apply to other types of foreclosed (repossessed) property, such as consumer and commercial goods, financial instruments, and intangible assets.” Foreclosed assets for reporting purposes include “loans where a bank has received physical possession of a borrower’s assets, regardless of whether formal proceedings take place.” Additional updates include (i) accounting changes for OREO sales by public and non-public business entities; (ii) interim guidance for federal savings associations on the OREO holding period; and (iii) clarifications concerning supervisory guidance and risk management practices, including third-party risk management guidance issued since the booklet was last published in 2013.
Agencies extend comment deadline for Volcker Rule revisions
On September 4, the OCC, Federal Reserve Board, FDIC, SEC, and CFTC (the Agencies) announced a 30-day extension to the public comment period for the Agencies’ joint revisions to the Volcker Rule. The comment period, which was previously scheduled to end on September 17, is now extended until October 17. The joint release notes that the extension will give interested parties “approximately four and a half months from the date the proposal was released to the public to submit comments,” as the Agencies’ first released the text of the proposal on May 30 (it was not published in the Federal Register until July 17). As previously covered by InfoBytes, the Agencies’ joint revisions are designed to simplify and tailor obligations for compliance with Section 13 of the Bank Holding Company Act, known as the Volcker Rule, which restricts a bank’s ability to engage in proprietary trading and own certain funds. Specifically, according to a Federal Reserve Board memo, the proposed amendments will better align Volcker rule requirements with a bank’s level of trading activity and risks.
CFPB issues HMDA interpretive rule to implement EGRRCPA amendments
On August 31, the CFPB issued an interpretive and procedural rule to implement and clarify the HMDA amendments included in Section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) (previously Senate bill S. 2155). Section 104(a) of the Act amends section 304(i) of HMDA by adding partial exemptions from some of HMDA’s reporting requirements for certain insured depository institutions and insured credit unions. Specifically, banks and credit unions that originate fewer than 500 open-end lines of credit in each of the two preceding calendar years and/or 500 closed-end mortgages in each of the two preceding calendar years are exempt from HMDA’s expanded data disclosures. The exemption does not apply to nonbanks and does not exempt institutions from HMDA reporting altogether. Notwithstanding the new partial exemptions, the insured institution must comply with HMDA’s expanded data disclosures if it received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent CRA examinations or a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination. These partial exemptions to HMDA took effect when the Act became law on May 24, 2018.
In response to industry questions on the application of the exemptions, the Bureau released an interpretive and procedural rule. The following are key highlights of the rule:
- Institutions exempt from certain reporting requirements may still report exempt data fields so long as they “report all data fields within any exempt data point for which they report data.” For example, if a partially exempt institution reports a data field that is part of the property address, the institution must report all other data fields that are part of the property address (e.g., city, state, zip code). The Bureau notes that institution may be particularly inclined to report exempt data fields with their 2019 submissions, as 2018 data collection was already in process when the Act took effect;
- To count towards the 500 loan or line of credit threshold, loans and lines of credit must be otherwise HMDA-reportable loans;
- The partial exemption applies to new data points that were implemented by the Bureau’s 2015 HMDA Final Rule, but institutions covered by the partial exemption are still required to report the 22 data points previously established by the Federal Reserve Board;
- The rule provides requirements for a non-universal loan identifier for any partially exempt loan or application; and
- The CRA ratings used to determine whether the CRA reporting exception applies are the two most recent CRA ratings as of December 31 of the preceding calendar year.
The Bureau notes that it intends to initiate a notice-and-comment rulemaking to incorporate these interpretations and procedures into Regulation C at a later date.
Additionally, the Bureau also released updates to the Filing Instructions Guide (FIG) for HMDA data collected in 2018 to incorporate the Act as implemented and clarified by the interpretive rule.
Federal Reserve issues interim final rule providing relief for small bank holding companies
On August 28, the Federal Reserve Board issued an interim final rule to raise the asset threshold from $1 billion to $3 billion under the agency’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement. The interim final rule implements a provision in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S.2155), and applies to savings and loan holding companies with total consolidated assets of less than $3 billion. Under the interim final rule, small bank holding companies will be permitted to operate with higher levels of debt, making it easier to facilitate ownership transfers. However, the Fed noted that exempt holding companies’ depository institutions will still be required to meet minimum capital requirements. Comments are due by October 29.
OCC seeks stakeholder feedback on modernizing the Community Reinvestment Act
On August 28, the OCC issued an advance notice of proposed rulemaking (ANPR) seeking input from stakeholders on ways to transform or modernize the Community Reinvestment Act (CRA) regulatory framework. According to OCC Bulletin 2018-24, the ANPR seeks comments on several issues including:
- encouraging more lending and services in areas where there is the most need, such as low- and moderate-income areas;
- clarifying and expanding the types of activities eligible for CRA consideration;
- reviewing and updating how assessment areas are delineated and used;
- establishing measurable CRA rating metric-based thresholds;
- increasing the transparency of a bank’s CRA performance;
- improving the timeliness of CRA regulatory decisions; and
- reducing the cost and regulatory burden associated with CRA evaluations.
In its press release, the OCC stated that modernizing CRA regulations will “better achieve the statute’s original purpose, increase lending and investment where it is needed most, and reduce the burden associated with reporting and assessing CRA performance.” Additionally, the OCC noted in the ANPR that many stakeholders believe that aspects of current CRA regulations may only be “sufficient for certain locally focused and less complex banks,” as banking practices and the financial services industry continue to evolve.
As previously covered by InfoBytes, in April the Treasury Department released a memorandum of recommendations addressing findings from Treasury’s comprehensive assessment of the CRA framework. The memorandum focused on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. According to the OCC, comments on the ANPR “may inform the development of more specific policy proposals or future rulemakings.” The OCC will accept comments for 75 days following publication in the Federal Register.
OCC issues guidance regarding implied sovereign support and credit risk ratings
On August 28, the OCC issued Bulletin 2018-25, which provides guidance regarding the role of informal or implied expressions of support from foreign governments (implied sovereign support) in determining a borrower’s obligor and facility credit risk ratings. The Bulletin expands on Appendix E of the “Rating Credit Risk” booklet of the Comptroller’s Handbook and encourages banks to analyze, among other things, the sovereign’s legal and financial obligations and the relationship between the obligor and the sovereign. The OCC notes that the obligor’s importance to the sovereign’s local economy does not necessarily demonstrate “willingness to provide an obligor with financial support.” Additionally, the Bulletin provides guidance regarding bank policies regarding the use and application of implied sovereign support to determine a final regulatory risk rating. The OCC states that a sound policy would incorporate the following three elements: (i) defined criteria on how a risk rating may be changed for an obligor due to recognition of implied sovereign support; (ii) methods for determining whether implied sovereign support will be considered in the risk rating decision, including periodic reevaluations of the assessment; and (iii) appropriate documentation standards, including a tracking process that promotes “consistent and appropriate” application of the defined criteria.
Agencies issue interim final rules to comply with EGRRCPA
On August 22 and 23, the OCC, Federal Reserve, and FDIC (Agencies) jointly issued two interim final rules to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) (previously Senate bill S.2155).
On August 22, the Agencies issued an interim final rule amending the liquidity coverage ratio (LCR) rule to treat certain eligible municipal securities as high-quality liquid assets. The LCR rule applies to banking organizations that have $250 billion or more in total assets or that have $10 billion or more in foreign exposures, and to their subsidiaries that have assets of $10 billion, as required by Section 403 of EGRRCPA. According to the FDIC’s Financial Institution Letter, FIL-43-2018, the interim final rule amends the LCR rule to (i) add liquid, readily-marketable, and investment grade municipal obligations to the list of assets eligible for treatment as level 2B liquid assets; (ii) include a definition for “municipal obligations”; and (iii) add a reference to the Federal Reserve’s definition of “liquid and readily-marketable.” The rule takes effect upon publication in the Federal Register and comments are due within 30 days of publication.
On August 23, the Agencies issued an additional interim final rule allowing a lengthened examination cycle for an expanded number of qualifying insured depository institutions and U.S. branches and agencies of foreign banks. Specifically, as authorized by EGRRCPA, the interim final rule would allow qualifying insured depository institutions with less than $3 billion in total assets (an increase from the previous threshold of $1 billion) to be eligible for an 18-month on-site examination cycle. The rule takes effect upon publication in the Federal Register and comments are due within 60 days of publication.