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Fed solicits comments on insurance supervision guidance
On January 28, the Federal Reserve Board announced it is soliciting comments on proposed guidance, which would implement a framework for the supervision of certain insurance organizations overseen by the Board. According to the Fed, the proposed framework for depository institution holding companies significantly engaged in insurance activities would apply guidance and allocate supervisory resources based on the risk of a firm and would “formalize a supervisory rating system for these companies and describe how examiners work with state insurance regulators.” Comments are due 60 days after publication in the Federal Register.
OCC announces SASS deputy comptroller
On January 25, the OCC announced that Mark Pocock will serve as the Deputy Comptroller for Supervisory Systems & Analytical Support (SSAS) staring in February. Previously, Mr. Pocock was a Lead Expert in Systemic Risk Identification Support & Specialty Supervision, where he was an advisor to the Deputy Comptroller for special projects. According to the OCC, as Deputy Comptroller for SSAS, “Mr. Pocock will oversee a team that identifies, monitors, develops, and presents reports on existing and emerging risks and serves as a centralized risk analysis unit,” in addition to “oversee[ing] supervision data and information systems, business intelligence and reporting, and analysis teams who perform assessments of supervision and systemic risk.”
FDIC joins Operation HOPE to promote financial education
On January 24, the FDIC announced a collaboration with Operation HOPE, Inc. to promote financial education. The collaboration will utilize the FDIC’s Money Smart curriculum and other resources to help educate minority- and/or women-owned businesses on how to do business with the agency. According to the FDIC, in 2001, the agency recognized “the importance of financial education, particularly for persons with little or no banking experience,” and created Money Smart. According to the FDIC and Operation Hope Collaboration Arrangement, the FDIC, among other things, will provide training for Operation Hope’s staff on how to teach the Money Smart curriculum and will help the nonprofit identify outreach initiatives to educate minority- and women-owned businesses on how to conduct business with the FDIC. According to FDIC Chairman Jelena McWilliams, the organization and the FDIC “share a common purpose to help every person belong to our nation’s financial system,” and together, “make certain our nation’s economy works for everyone.”
FDIC approves final rule for trust, mortgage servicing accounts
On January 21, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is “intended to make the deposit insurance rules easier to understand for depositors and bankers, facilitate more timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits.” The final rule, among other things: (i) establishes a formula to calculate deposit insurance coverage for all revocable and irrevocable trust accounts; (ii) “provides a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits”; and (iii) establishes that “a deposit owner’s trust deposits will be insured in an amount up to $250,000 per beneficiary, not to exceed five beneficiaries, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries.” Additionally, the final rule allows principal and interest funds advanced by a mortgage servicer to be included in the deposit insurance calculation. The rule is effective April 1, 2024. In addition, the FDIC released a fact sheet on the final rule.
Fed examines ramifications of U.S. central bank digital currency
On January 20, the Federal Reserve Board published a discussion paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, which calls for public comments on questions related to the possibility of a U.S. central bank digital currency, or CBDC. “The introduction of a CBDC would represent a highly significant innovation in American money,” the Fed said, although the agency noted that it “does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” The paper examines the pros and cons of a potential CBDC and outlines a series of potential benefits, including faster payment options between countries. Among the various CBDC structures the Fed is considering is an intermediated model through which the private sector would facilitate the management of CBDC holdings and payments through accounts or digital wallets. Potential intermediaries could include commercial banks and regulated nonbank financial service providers. Such a model “would facilitate the use of the private sector’s existing privacy and identity-management frameworks; leverage the private sector’s ability to innovate; and reduce the prospects for destabilizing disruptions to the well-functioning U.S. financial system,” the Fed said. Additionally, a potential CBDC would also need to be readily transferable between customers of different intermediaries and must be designed to comply with rules regulating money laundering and the financing of terrorism (including the identification of persons accessing CBDC).
While a CBDC could improve cross-border payments and increase financial inclusion, the Fed warned that a CBDC may also yield potential negative effects, including affecting monetary policy implementation and interest rate control, as well as illicit finance controls and operational resilience. Consumer privacy could also be a concern, the Fed stated, noting that “any CBDC would need to strike an appropriate balance between safeguarding consumer privacy rights and affording the transparency necessary to deter criminal activity,” as the infrastructure of a CBDC could create opportunities for hackers since it would “potentially have more entry points than existing payment services.” The CBDC model under consideration would have intermediaries leverage exiting tools to address privacy concerns.
Feedback on the paper will be received through May 20.
FFIEC issues final update for Examination Modernization Project
On January 21, the Federal Financial Institutions Examination Council (FFIEC) issued a statement presenting the results of the final phase of its Examination Modernization Project. The project, which was initiated to identify and assess measures to improve the community bank safety and soundness examination process, sought feedback on examination processes from select supervised institutions and examiners. FFIEC released previous project updates, which focused on meaningful supervisory burden reduction and tailoring examination plans and procedures based on risk (covered by InfoBytes here). The final phase addressed feedback related to examination requests and authentication requirements for FFIEC members’ supervision systems. Identified best practices include that: (i) information requests should be risk-focused and relevant to an examination; (ii) supervised institutions should be allowed sufficient time to produce requested information; (iii) examiners should coordinate information requests among the exam team to avoid duplication and redundancy; (iv) requests should be made through an institution’s designated regulatory examination point-of-contact; and (v) requests should be clearly articulated in writing. With respect to feedback received related to authentication requirements, FFIEC noted that its Task Force on Supervision has approved a common authentication solution to allow member agencies and supervised institutions “to securely authenticate to supervision systems, while eliminating the need for multiple credentials to access regulator systems.”
FDIC announces Tennessee disaster relief
On January 19, the FDIC issued FIL-06-2022 to provide regulatory relief to financial institutions and facilitate recovery in areas of Tennessee affected by severe storms, straight-line winds, and tornadoes. The FDIC acknowledged the unusual circumstances faced by institutions and their customers affected by the weather and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, so long as these measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
Fed issues cease and desist order against California bank
On January 18, the Federal Reserve Board issued a cease and desist order against two California-based bank holding companies (companies) and their jointly-owned bank, due to “additional safety and soundness deficiencies at the Bank, including with respect to unsecured loans,” following the termination of a February 2021 written agreement. According to the Fed’s order, “the Bank is currently operating without a permanent Chief Executive Officer, and Chief Financial Officer, and a sufficient number of board members, which are vital to the safe and sound operations of the Bank in light of the numerous remedial requirements of the Written Agreement.” The order requires, among other things, that the bank, within 60 days, submit written lending and credit administration policies and procedures and retain an independent third party to assess the adequacy of the bank’s compensation governance, policies, procedures, and internal controls. The order imposes no financial penalty.
OCC’s Hsu discusses bank cryptocurrency regulation
On January 13, acting Comptroller of the Currency Michael J. Hsu spoke before the British American Business Transatlantic Finance Forum’s Executive Roundtable to discuss stablecoins and other crypto-assets regulations. In his remarks, Hsu described stablecoins as “the oxygen of the crypto ecosystem,” noting that they help link cryptocurrencies to fiat currencies. Hsu noted that crypto has “gone mainstream,” providing the example that “[s]ixteen percent of U.S. adults say that they have owned, traded or used some form of cryptocurrency.” In discussing the underbanked and minorities interested in crypto, Hsu quoted a survey finding that “37 percent of the underbanked indicated that they own cryptocurrency, compared to 10 percent of the fully banked.” Hsu argued that banking regulations are designed to mitigate run risks for stablecoins, stating that “[s]tablecoin issuers subject to bank regulation would give holders of those stablecoins confidence that those coins were as reliable and ‘money good’ as bank deposits,” and that “[s]trong, targeted federal regulation of money and banking can help establish a solid foundation for the economy enabling healthy innovation and growth.” While Hsu expressed his excitement for “the pace of innovation in crypto,” he warned that “a careful approach is warranted,” as a result of the “lack of standards and controls in the crypto space.” Hsu also expressed that “bank regulation would give credibility to the ‘stable’ part of stablecoins,” and stressed the need for a coordinated and collaborative regulatory approach “with regards to large crypto intermediaries, which are increasingly operating globally and across a wide range of activities.”
Biden nominates three for Fed
On January 14, President Biden nominated Sarah Bloom Raskin to serve as Vice Chair for Supervision for the Federal Reserve Board, and Lisa Cook and Philip Jefferson to serve as Board Governors. Earlier on January 4, Biden also submitted new nominations for Jerome Powell to serve a second term as Chair of the Federal Reserve Board and for Fed Governor Lael Brainard to serve as Vice Chair of the Board of Governors, replacing current Vice Chair Richard H. Clarida. (Covered by InfoBytes here.) If all the nominees are confirmed by the Senate, the Board will include the first Black woman and the fourth Black man and will be majority women. Previously, Raskin served as the Deputy Secretary of the U.S. Department of the Treasury where she pursued innovative solutions related to climate risk, cybersecurity, and consumer safeguards in the financial marketplace. Raskin also served as a Fed Governor where she helped conduct the nation’s monetary policy and promoted financial stability. Additionally, Raskin served as the Commissioner of Financial Regulation for the State of Maryland where she and her agency regulated Maryland’s financial institutions, including all state-chartered depository institutions, banks, credit unions, mortgage lenders, mortgage servicers, and trust companies, among others.
Earlier on January 10, Clarida announced his intention to resign from the Federal Reserve Board effective January 14. Clarida has been a member of the Board since September 2018, and his statutory term was set to expire on January 31. Clarida’s announcement follows key regulatory nominations sent to the Senate by Biden on January 4 and 7 (see here and here). Among the recent nominations was a resubmission of Alvara Bedoya to serve as a Democratic commissioner at the FTC after the Senate Committee on Commerce, Science, and Transportation failed to report favorably on Bedoya’s 2021 nomination and it expired at the end of the December session of Congress. If confirmed, Bedoya would fill the FTC commissioner seat vacated by current CFPB Director Rohit Chopra. (Covered by InfoBytes here.)