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Financial Services Law Insights and Observations


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  • OCC’s Hsu speaks on recovery planning to avoid banking crises

    On May 27, the Acting Comptroller of the Currency, Michael J. Hsu, delivered a speech emphasizing the importance of recovery planning in mitigating the risks associated with bank crises. Hsu argued that while preventing crises through risk management, capital and liquidity requirements, and strong supervision was the primary goal, having a robust recovery plan was critical for stabilizing banks and restoring confidence in stressful times. He noted his comments came in light of recent bank failures in the U.S. and abroad.

    Acting Comptroller Hsu drew an analogy to the philosophical “trolley problem,” highlighting the difficult choices regulators face. Hsu emphasized how banks and their regulators need actionable recovery plans with options to sell certain portfolios or businesses, increase liquidity and capital, or reduce risk-weighted assets to avoid losses. The Acting Comptroller also detailed how effective recovery plans should incorporate timely triggers for action, thorough impact assessments, and clear communication with stakeholders. He concluded by calling for the application of recovery planning requirements to all large banks with at least $100 billion in assets (down from the current $250 billion in assets requirement) suggesting that applying recovery planning guidelines in this manner could have mitigated recent regional bank failures and limited losses to the Deposit Insurance Fund.


    Bank Regulatory OCC Liquidity Risk Management

  • FDIC Chairman Gruenberg to step down

    On May 20, Martin J. Gruenberg, Chairman of the FDIC, announced his intention to step down as Chairman of the FDIC – once a successor will be confirmed. Having served at the helm of the FDIC since August 2005, as Chairman, Vice Chairman, and Director, Gruenberg expressed pride in upholding the FDIC's mission to preserve public trust and ensure stability in the banking system. He pledged to continue his duties until a new chairman was appointed, with a focus on transforming the FDIC’s workplace culture.

    Bank Regulatory Federal Issues FDIC

  • Basel Committee reiterates full and fast position on implementation

    On May 13, the Basel Committee released a press release which reiterated its expectation to implement all aspects of the Basel framework, such as the Basel III “Endgame” proposal, in “full, consistently and as soon as possible.” The Basel III reforms were announced by the Basel Committee in 2017 and included liquidity requirements which brought much debate among U.S. legislators. The Committee’s statement contrasts some outstanding questions on the U.S.’s decision to implement the banking reforms. For instance, Congressional democrats penned a letter in February urging U.S. banking regulators to codify the final rule changes (covered by InfoBytes here), yet the House Financial Committee’s Chairman, Patrick McHenry (R-NC), urged banking regulators in March to reconsider the Basel Committee’s proposal (covered by InfoBytes here).

    Bank Regulatory Basel Committee Congress Liquidity

  • Bowman remarks on fine tuning supervisory and regulatory efforts

    On May 17, Fed Governor Michelle Bowman delivered a speech to the Pennsylvania Bankers Association focusing on bank regulatory reform, opportunities for engagement, bank mergers and acquisitions, third party risk management, regulations under the EGRPRA, and prioritization within bank regulation and supervision.

    Bowman highlighted the need for bank examiners and managers to concentrate on central banking concerns such as credit, interest rate, and liquidity risks, since she opined “[t]he current period of regulatory reform feels more contentious than in the past.” Bowman suggested bank stakeholders engaged in feedback regarding newer reform efforts, highlighting difficulties with keeping up with requirement changes, and the need to inform policymakers.

    Bowman stated reservations on proposals to change how banking agencies assess bank merger requests. She countered the notion that agencies give automatic approval to mergers, pointing out the extensive time and effort required by banks during the application process. Bowman conceded that there was room for improvement in achieving timely regulatory actions while still ensuring a thorough examination of applications.

    Bowman also commented on the importance of public comment in the Fed’s review of its regulations to identify outdated, unnecessary, or overly burdensome regulations in accordance with the EGRPRA. She also acknowledged the significance of climate risk but noted it did not pose a fundamental threat to the stability of financial institutions.

    Bank Regulatory Federal Reserve Climate-Related Financial Risks

  • Agencies issue NPRM on incentive-based compensation

    Agency Rule-Making & Guidance

    On May 6, the FDIC, OCC, NCUA and the FHFA issued a NPRM (proposed rule) on incentive-based compensation, pursuant to Dodd-Frank’s Section 956 (Section 956), which required federal regulators to prescribe regulations or guidelines regarding incentive-based compensation at covered financial institutions. Regulators first proposed a rule to implement Section 956 in 2011, and again in 2016. Now, regulators are reproposing the 2016 version without change, albeit with certain alternatives. The current proposal, however, will be published without involvement from the Fed or SEC.

    Section 956 defined “covered financial institutions” as institutions with at least $1 billion in assets and include the following: depository institutions or depository institution holding companies, registered broker-dealers, credit unions, investment advisers, Fannie Mae, and Freddie Mac (or any other financial institution that federal regulators determined should be treated as a covered financial institution). Dodd-Frank required regulators to prohibit incentive-based compensation arrangements that encouraged “inappropriate risks.” The proposed rule included prohibitions intended to make these compensation arrangements more sensitive to risk, such as a ban on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, or forfeiture and clawback provisions. In addition, the proposed rule set forth recordkeeping and disclosure requirements to help federal regulators monitor potential issues.

    The agencies will review both new comments and those received in 2016 for the prior proposed rule. The agencies invited those who previously submitted comments and resubmit their comments to explain how their viewpoint may have changed from their prior comments. The agencies also requested comments on the compliance date and disclosures, like the recordkeeping and clawback requirements. Comments will be due no later than 60 days following publication in the Federal Register.

    Agency Rule-Making & Guidance Bank Regulatory OCC FDIC FHFA Dodd-Frank SEC Federal Reserve

  • GAO calls for the FDIC to address outstanding recommendations

    On April 30, GAO sent a letter to the FDIC on its outstanding recommendations, emphasizing the importance of two priority recommendations, which pertained to blockchain technology and fintech. Regarding blockchain technology, the letter stressed the need for the FDIC and other financial regulators to establish a formal mechanism to identify and address blockchain-related risks. Despite the regulator's coordination, the response to crypto-asset risks had been criticized as untimely. With respect to fintech, this recommendation would have the FDIC and relevant agencies clarify the appropriate use of alternative data in loan underwriting for banks that partner with fintech lenders. The letter also called for the FDIC's attention to additional high-risk areas, including IT management, human capital, federal real property, cybersecurity, and the personnel security clearance process.

    Bank Regulatory Federal Issues GAO FDIC Bank Supervision Congress Fintech Blockchain

  • Fed releases April SLOOS on bank lending practices from Q1 2024

    On May 6, the Fed released its quarterly survey of the Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices for the first quarter of the year which revealed tightened lending standards and a decrease in demand across loans. Regarding business lending, the survey asked banks about commercial and industrial lending (C&I) and commercial real estate lending (CRE). For C&I loans, banks reported stricter standards and a decline in demand from firms of all sizes. Banks reported tightening due to a less favorable economic outlook, reduced tolerance for risk, and a worsening of industry-specific problems. For CRE loans, banks reported a tightening of standards for all types of loans. A significant share of banks reported weaker demand for nonfarm nonresidential and multifamily residential lending. For household lending, banks also tightened residential real estate (RRE) loan standards, while demand for all RRE loan types declined. Home equity lines of credit also faced stricter standards. Banks also tightened consumer lending standards for credit card, auto, and other consumer loans. Demand for these loans decreased as well, with a significant drop in auto loan inquiries.

    Bank Regulatory Federal Issues Federal Reserve Loans CRE Lending

  • OCC and FDIC release CRA evaluations on 69 banks

    On May 2, the OCC released its CRA performance evaluations for April and the FDIC released its evaluations for February. The OCC evaluated 13 national banks, federal savings associations, and insured federal branches of foreign banks. Of the 13 evaluations, most entities were rated “Satisfactory,” one entity was rated “Outstanding,” and one entity was rated as “Needs to Improve.” The FDIC released its May list of state nonmember banks of assigned CRA ratings in February. Out of 56 evaluations, two banks were rated “Outstanding,” 52 were rated as “Satisfactory,” one bank was rated as “Needs to Improve,” and one bank was rated as “Substantial Noncompliance.”

    Bank Regulatory OCC CRA Bank Supervision FDIC

  • FDIC closes Philadelphia-based bank and receives it for another bank

    On April 26, the FDIC announced that the Pennsylvania Department of Banking and Securities had closed a Philadelphia-based bank and appointed the FDIC as receiver, noting that this is the first bank to “fail” this year and the first closure of a bank since November 2023. The FDIC reported that as of the end of January, the closed bank had $6 billion in total assets and $4 billion in total deposits. The FDIC entered into an agreement with a different bank from Lancaster, Pennsylvania whereby that bank will assume substantially all deposits and assets of the closed bank. All 32 branches of the failed bank became branches of the assuming bank, and customers of the failed bank became customers of the assuming bank. The FDIC estimated that the bank failure will cost the Deposit Insurance Fund $667 million.

    Bank Regulatory FDIC Pennsylvania

  • OIG releases CFPB and Fed list of open recommendations

    Federal Issues

    On April 22, the OIG, which oversees the CFPB and the Fed, released two audit and evaluation reports that noted previously identified recommendations to improve or correct issues that remain open as of March 31, including some recommendations that have been open for more than six months. With respect to the CFPB, the OIG identified 18 recommendations that remain open; with respect to the Fed, the OIG identified 65 open recommendations. The open recommendations made to the CFPB stem from OIG reports on strengthening its offboarding process in 2018, auditing the Bureau’s information security program in 2018, 2022, and 2023, and technical testing results for the Bureau’s legal enclave in 2020. The open recommendations to the Fed stem from OIG reports relating to, among others (i) information security; (ii) cybersecurity; (iii) security control of the Fed’s public website; (iv) the Fed’s Financial Market Utility Supervision Program; and (v) enterprise risk management. Notably, a small subset of the recommendations that remain open are nonpublic.

    Federal Issues Bank Regulatory Privacy, Cyber Risk & Data Security CFPB Federal Reserve


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