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Financial Services Law Insights and Observations

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  • OCC issues Comptroller’s Handbook booklet updating interest rate risk

    Agency Rule-Making & Guidance

    On March 26, the OCC issued Bulletin 2020-26 announcing the revision of the Interest Rate Risk booklet of the Comptroller’s Handbook, which replaces the June 1997 version of the same name. The revised booklet “incorporates and reflects applicable statutes and regulations, guidance, and examination procedures,” and expands model risk and model risk management discussions, “including developing, reviewing, and stress testing model assumptions.” The revised booklet also provides guidelines “consistent with the Pillar 2 supervisory approach outlined in the Basel Committee on Banking Supervision’s Interest Rate Risk in the Banking Book.”

    Agency Rule-Making & Guidance OCC Comptroller's Handbook Interest Rate Basel Risk Management

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  • Federal agencies announce measures to encourage consumer and business lending

    Federal Issues

    On March 27, the Federal Reserve Board (Fed), the FDIC and the OCC jointly announced two measures the agencies have put in place to “support lending to households and businesses” during the Covid-19 pandemic. First, effective immediately, the agencies will “[a]llow[] early adoption of a new methodology on how certain banking organizations are required to measure counterparty credit risk derivatives contracts.” Second, the agencies will “[p]rovid[e] an optional extension of the regulatory capital transition for the new credit loss accounting standard.”

    The first measure deals with the Standardized Approach for Calculating the Exposure Amount of Derivative Contracts (SA-CCR), which had an effective date of April 1. Allowing early adoption for the quarter ending on March 31 may “improve current market liquidity and smooth disruptions” caused by the Covid-19 pandemic. Further, the interim final rule for Current Expected Credit Losses (CECL)—the second measure—was released to minimize the effect of the “CECL accounting standard [on] regulatory capital.” In addition to the transition period of three years already available, the interim final rule—Regulatory Capital Rule: Revised Transition of the Current Expected Credit Losses Methodology for Allowances—provides up to two more years to “mitigate the estimated cumulative regulatory capital effects” of CECL. Comments on the interim final rule must be submitted by May 11. (See OCC News Release 2020-42 here and FDIC press release here.)

    Federal Issues FDIC Federal Reserve OCC CECL Agency Rule-Making & Guidance Covid-19

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  • Federal agencies permit early adoption of standardized approach for counterparty credit risk

    Federal Issues

    On March 26, the OCC, Federal Reserve System, and FDIC issued a notice permitting depository institutions and depository institution holding companies to implement the final rule titled Standardized Approach for Calculating the Exposure Amount of Derivative Contracts (SA-CCR rule) for the first quarter of 2020, on a best efforts basis. A banking organization that elects to adopt the SA-CCR methodology must adopt the methodology for all derivative contracts; a banking organization cannot implement the SA-CCR methodology for a subset of its derivative contracts. A banking organization may adopt some of the technical amendments described in the rule regardless of whether the banking organization chooses to early adopt the SA-CCR methodology. The SA-CCR rule effective date remains April 1, 2020, and the mandatory compliance date remains January 1, 2022.

    Federal Issues Covid-19 OCC FDIC Federal Reserve System

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  • FDIC, OCC, NCUA identify essential critical infrastructure workers during Covid-19

    Federal Issues

    On March 26, the FDIC issued FIL-25-2020 stating that the financial services sector is a “critical infrastructure” during the Covid-19 pandemic pursuant to the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency’s (CISA) March 19 guidance. The guidance is intended to help state, local, and industry partners identify critical infrastructure sectors and essential workers in order to ensure continuity of critical functions. The FIL advises company leadership to provide workers with documentation identifying them as critical infrastructure workers who need “to travel inside restricted areas in order to support critical infrastructure.”

    On March 25, the OCC issued similar guidance pursuant to CISA’s guidance. Bulletin 2020-23 encourages essential critical infrastructure workers to maintain normal work schedules during the Covid-19 pandemic, and offers guidance for banks concerning workers who may need to move within and between restricted areas. Essential critical infrastructure workers include those who are needed to: (i) “process and maintain systems for processing financial transactions and services (e.g., payment, clearing and settlement; wholesale funding; insurance services; and capital markets activities)”; (ii) “provide consumer access to banking and lending services,” such as ATMs and armored cash carriers; and (iii) support financial institutions (e.g., staffing data and security operations centers). The workers also include key third party providers who deliver core services. The OCC advises banks to, among other things, update business continuity plans and provide documentation to workers detailing work-related travel.

    The NCUA also sent a letter to member boards of directors, chief executive officers, chief information officers, and chief information security officers identifying essential critical infrastructure workers pursuant to CISA’s guidance. Updates to Covid-19 NCUA resources are available here.

    Federal Issues Agency Rule-Making & Guidance FDIC OCC NCUA Covid-19 Department of Homeland Security

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  • Banking regulators urge small-dollar lending during Covid-19 crisis

    Federal Issues

    On March 26, the FDIC, Federal Reserve Board, CFPB, NCUA, and OCC issued a joint statement encouraging banks, savings associations, and credit unions to offer responsible, small-dollar loans to consumers and small businesses affected by Covid-19. The agencies recognize that small-dollar lending can play an important role in meeting credit needs during this time period, and recommend that financial institutions offer loans “through a variety of structures including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.” For borrowers experiencing unexpected circumstances who cannot repay a loan as structured, financial institutions are “further encouraged to consider workout strategies designed to help borrowers to repay the principal of the loan while mitigating the need to re-borrow.” All loans, however, should be offered in a manner “consistent with safe and sound practices” that “provides fair treatment of consumers, and complies with applicable statutes and regulations, including consumer protection laws.”

    Federal Issues Agency Rule-Making & Guidance FDIC Federal Reserve CFPB OCC NCUA Small Dollar Lending Small Business Lending Covid-19

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  • OCC issues bulletin to community banks on filing of Call Reports

    Federal Issues

    On March 25, the OCC issued Bulletin 2020-24, which encourages institutions to file March 31 call reports by the filing deadline, but recognizes that Covid-19-related disruptions may cause filing delays. As such the OCC will not take action against institutions affected by Covid-19 for submitting in good faith the March 31 call report within 30 days of the filing deadline.  Further, institutions may amend the filing to correct for unintentional and incidental reporting errors within 30 days of the filing deadline without penalty. Institutions affected by Covid-19 that expect a delay in their March 31 call report submission or anticipate challenges in obtaining director attestations before submission of the call report are encouraged to contact their supervisory office.

    Federal Issues Covid-19 OCC Community Banks Call Report

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  • OCC issues bulletin on use of electronic methods for submission of licensing filings

    Federal Issues

    On March 20, the OCC issued Bulletin 2020-20, which strongly recommends the use of electronic methods for submitting licensing filings to the OCC during the Covid-19 pandemic through either through the Central Application Tracking System (CATS) or through the agency’s secure email system. The bulletin notes that submission of a licensing filing in paper form may result in delays in the processing.

    Federal Issues Covid-19 OCC

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  • Fed agencies discuss CRA considerations in response to Covid-19

    Federal Issues

    On March 19, the FDIC, Federal Reserve Board, and the OCC issued a joint statement encouraging financial institutions to work with low and moderate-income customers and communities who may be adversely affected by Covid-19. The agencies state that they will provide favorable CRA consideration for financial institution’s retail banking services and retail lending activities in their assessment areas that respond to the needs of affected low and moderate-income individuals, small businesses, and small farms consistent with safe and sound banking practices. These activities may include: (i) waiving certain fees; (ii) easing check-cashing restrictions; (iii) expanding the availability of short-term, unsecured credit and increasing credit card limits for creditworthy borrowers; (iv) providing alternative service options; and (v) offering payment accommodations, such as permitting deferred or skipped payments or extending payment due dates to avoid delinquencies and negative credit bureau reporting. Financial institutions that engage in qualifying community development (CD) activities will also receive favorable CRA consideration, including but not limited to loans, investments, or services that support digital access for low and moderate-income individuals or communities, as well as economic development activities that sustain small business operations. In addition, favorable consideration will also be given to CD activities that help to stabilize communities affected by Covid-19 located in a broader statewide or regional area that encompasses a financial institution’s CRA assessment area, “provided that such institutions are responsive to the CD needs and opportunities that exist in their own assessment area(s).” The joint statement is effective until six months after the national emergency declaration is lifted, unless extended by the agencies.

    Federal Issues FDIC OCC Federal Reserve Covid-19 CRA

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  • Fed agencies issue capital and liquidity buffers FAQs

    Federal Issues

    On March 19, the FDIC, the Fed, and the OCC released FAQs regarding the use of capital and liquidity buffers. (See OCC Bulletin 2020-17, “Pandemic Planning: Joint Questions and Answers Regarding Statement About the Use of Capital and Liquidity Buffers.”) The joint questions and answers follow a joint statement issued by the agencies on March 17 to encourage banks to utilize capital and liquidity buffers in order to continue lending activities. The FAQs were created in response to questions provided by banking organizations. Topics covered in the FAQs include (i) liquidity buffers; (ii) capital buffers; (iii) triggers for recovery and resolution plans; and (iv) “total loss-absorbing capacity rule.” See the FDIC announcement here and FIL-20-2020 here.

    Federal Issues Agency Rule-Making & Guidance OCC Federal Reserve FDIC Covid-19

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  • Fed agencies issue regulatory capital interim rule

    Federal Issues

    On March 19, the OCC, the Fed, and the FDIC announced the release of an interim final rule for the Money Market Mutual Fund Liquidity Facility (MMLF) which revises capital rules for activities with the MMLF. The agencies issued the rule to enable financial institutions to “effectively use” the MMLF following its launch by the Fed on March 18. Pursuant to the Federal Reserve Act, the Fed granted authority to establish the MMLF to the Federal Reserve Bank of Boston, allowing it to provide “non-recourse loans to eligible institutions” secured by assets those institutions buy from money market mutual funds. The rule will allow financial institutions to participate because activities with the MMLF will “neutralize the regulatory capital effects of participating in the program” on the institution. The rule is effective immediately and there will be a 45-day comment period.

    Federal Issues Agency Rule-Making & Guidance OCC Federal Reserve FDIC Mutual Fund Covid-19

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