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  • Agencies seek comments on proposed changes to CECL

    Agency Rule-Making & Guidance

    On October 17, the OCC, Federal Reserve Board, FDIC, and NCUA published a proposed interagency policy statement on allowances for credit losses and proposed interagency guidance on credit risk review systems.

    The proposed policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology for determining allowances for credit losses applicable to financial assets measured at amortized costs. It will apply to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The proposed policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. Once finalized, the proposed policy would be effective at the time of each institution’s adoption of CECL.

    The proposed credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—will update the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The proposed guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the proposed guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.

    Comments on both proposals are due December 16.

    Agency Rule-Making & Guidance OCC Department of Treasury Federal Reserve FDIC NCUA

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  • FDIC approves final stress-test revisions

    Agency Rule-Making & Guidance

    On October 15, the FDIC approved the final rule revising stress testing requirements for FDIC-supervised institutions, consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule remains unchanged from the proposed rule, which was issued by the FDIC in December 2018 (previously covered by InfoBytes here). The final rule (i) changes the minimum threshold for applicability from $10 billion to $250 billion; (ii) revises the frequency of required stress tests for most FDIC-supervised institutions from annual to biannual; and (iii) reduces the number of required stress testing scenarios from three to two.  FDIC-supervised institutions that are covered institutions will “be required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter.” The final rule also adds a new defined term, “reporting year,” which will be the year in which a covered bank must conduct, report, and publish its stress test. The final rule requires certain covered institutions to still conduct annual stress tests, but this is limited to covered institutions that are consolidated under holding companies required to conduct stress tests more frequently than once every other year. Lastly, the final rule removes the “adverse” scenario—which the FDIC states has provided “limited incremental information”—and requires stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. The final rule is effective thirty days after it is published in the Federal Register.

    As previously covered by InfoBytes, on October 4, the OCC issued its final rule incorporating the same revisions as the FDIC.

    Agency Rule-Making & Guidance FDIC OCC Stress Test EGRRCPA

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  • OCC fines national bank $30 million for OREO violations

    Federal Issues

    On October 11, the OCC announced that a national bank has agreed to pay a $30 million civil money penalty to resolve allegations relating to the holding period of other real estate owned (OREO). According to the OCC’s consent order, the bank violated the statutory holding period for OREO. (See previous InfoBytes coverage on OCC OREO regulations here.) The OCC asserted that the bank’s processes and controls for identifying and monitoring the OREO holding period were deficient, and following an investigation it determined the bank allegedly “failed to meet its commitment to implement corrective actions, resulting in additional violations.” While the OCC noted that it will continue to monitor the bank’s corrective actions, it determined that the bank’s implementation of effective policies and procedures to ensure OREO compliance over the last 12 months has “significantly reduced its inventory of OREO assets.”

    Federal Issues OCC Enforcement OREO Foreclosure

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  • OCC issues final stress test revisions

    Agency Rule-Making & Guidance

    On October 2, the OCC issued the final rule revising the stress testing requirements for OCC-supervised institutions, consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule remains unchanged from the proposed rule, which was issued by the OCC in December 2018 (previously covered by InfoBytes here). The final rule (i) changes the minimum threshold for applicability from $10 billion to $250 billion; (ii) revises the frequency of required stress tests for most FDIC-supervised institutions from annual to biannual; and (iii) reduces the number of required stress testing scenarios from three to two. Specifically, OCC-supervised institutions that are covered institutions will “be required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter.” The final rule also adds a new defined term, “reporting year,” which will be the year in which a covered bank must conduct, report, and publish its stress test. The final rule requires certain covered institutions to still conduct annual stress tests, but this is limited to covered institutions that are consolidated under holding companies required to conduct stress tests more frequently than once every other year. Lastly, the final rule removes the “adverse” scenario—which the OCC states has provided “limited incremental information”—and requires stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. The final rule is effective November 24.

    Agency Rule-Making & Guidance OCC Stress Test EGRRCPA

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  • OCC outlines fiscal year 2020 supervision priorities

    Agency Rule-Making & Guidance

    On October 1, the OCC’s Committee on Bank Supervision released its bank supervision operation plan (Plan) for fiscal year 2020. The Plan outlines the agency’s supervision priorities and specifically highlights the following supervisory focus areas: (i) cybersecurity and operational resiliency; (ii) Bank Secrecy Act/anti-money laundering compliance; (iii) commercial and retail credit loan underwriting; (iv) effects of changing interest rates on bank activities and risk exposures; (v) preparation necessary for the current expected credit losses accounting standard, as well the potential phase-out of the London Interbank Offering Rate; and (vi) technological innovation and implementation.

    The annual plan guides the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, service providers, and agencies of foreign banking organizations. Updates about these priorities will be provided in the OCC’s Semiannual Risk Perspective.

    Agency Rule-Making & Guidance OCC Supervision Of Interest to Non-US Persons

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  • OCC updates four booklets in Comptroller’s Handbook

    Agency Rule-Making & Guidance

    On September 30, the OCC issued updates to four booklets of the Comptroller’s Handbook: Bank Supervision Process, Community Bank Supervision, Federal Branches and Agencies Supervision, and Large Bank Supervision. Among other things, the updates include (i) the interim final rule for the expanded 18-month supervisory cycle for certain institutions (covered by InfoBytes here); (ii) a revised OCC report of examination policy based on the revised Federal Financial Institutions Examination Council report of examination policy; (iii) the revisions to the OCC’s enforcement action policies (covered by InfoBytes here); and (iv) changes to the OCC’s credit underwriting assessment.

    Agency Rule-Making & Guidance OCC Bank Supervision Examination Enforcement Comptroller's Handbook

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  • Agencies raise residential appraisal requirement to $400,000

    Agency Rule-Making & Guidance

    On September 27, the OCC, the Federal Reserve Board, and the FDIC announced a final rule increasing the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. As previously covered by InfoBytes, in November 2018, the agencies proposed the threshold increase in response to feedback that the exemption threshold had not increased to keep pace with the price appreciation in the residential real estate market. The final rule also includes the rural residential appraisal exemption included in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here), and implements the Dodd-Frank Act mandate that institutions appropriately review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice. The final rule is effective the first day after publication in the Federal Register, except for the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the requirement to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice, which are effective January 1, 2020.

    The FDIC press release is available here, the Federal Reserve Board press release is available here, and the concurrence letter from the CFPB is available here.

    Agency Rule-Making & Guidance Mortgages Appraisal OCC Federal Register Federal Reserve FDIC EGRRCPA CFPB Dodd-Frank

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  • House Republicans push OCC for Madden regulatory fix

    Federal Issues

    On September 19, 26 Republican members of the House Financial Services Committee wrote to the OCC, urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The letter argues that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” Specifically, the letter asserts that the decision “threatens bank-fintech partnerships” that may provide better access to capital and financing to small business and consumers. The letter acknowledges the recently filed amicus brief in the U.S. District Court for the District of Colorado by the OCC and the FDIC, which criticized the Madden decision for disregarding the valid-when-made doctrine and the “stand-in-the-shoes-rule” of contract law (previously covered by InfoBytes here), and requests that the OCC prioritize rulemaking to address the issue.

    Federal Issues U.S. House House Financial Services Committee Madden Valid When Made Fintech Usury State Issues OCC

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  • SEC, CFTC join other regulators in approving Volcker Rule revisions

    Agency Rule-Making & Guidance

    On September 18, the SEC announced the approval of final revisions to the Volker Rule (the Rule) to simplify and tailor compliance with Section 13 of the Bank Holding Company Act’s restrictions on a bank’s ability to engage in proprietary trading and own certain funds. As previously covered by InfoBytes, the final revisions were approved by the OCC and FDIC at the end of August, and the Federal Reserve Board is expected to adopt the changes in the near future. In approving the revisions, Chairman Jay Clayton stated that the SEC collaborated with the other federal regulatory agencies to ensure the changes would “effectively implement statutory mandates without imposing undue burdens on participants in our markets, including imposing unnecessary costs or reducing access to capital and liquidity.” Chairman Clayton emphasized that the revisions draw on the agencies’ “collective experience in implementing the rule and overseeing compliance in our complex marketplace over a number of years.”

    Earlier, on September 16, the CFTC announced a 3-2 vote to approve the final revisions. Commissioner Tarbert stated that the final revisions would provide banking entities and their affiliates with “greater clarity and certainty about what activities are permitted under” the Rule as well as reduce compliance burdens. In voting against the approval, Commissioner Behnam issued a dissenting statement expressing, among other things, concerns about “narrowing the scope of financial instruments subject to the [] Rule,” which would limit the Rule’s scope “so significantly that it no longer will provide meaningful constraints on speculative proprietary trading by banks.” Commissioner Berkovitz also dissented, arguing that the revisions “will render enforcement of the [R]ule difficult if not impossible by leaving implementation of significant requirements to the discretion of the banking entities, creating presumptions of compliance that would be nearly impossible to overcome, and eliminating numerous reporting requirements.” Commissioner Berkovitz also criticized the rulemaking process that led to the final revisions, arguing that a number of the changes were not adequately discussed in the notice of proposed rulemaking process, including amendments to the “accounting prong” and the rebuttable presumption of proprietary trading.

    Agency Rule-Making & Guidance SEC CFTC OCC FDIC Volcker Rule Bank Holding Company Act

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  • OCC issues guidance on appraisal management company registration

    Agency Rule-Making & Guidance

    On September 16, the OCC issued Bulletin 2019-43, “Appraisals: Appraisal Management Company Registration Requirements,” which reminds covered institutions of the new registration requirement for appraisal management companies (AMC) that became effective on August 10. Specifically, under 12 CFR 34, subpart H, AMCs are now required to register with the state or states in which they do business; however, an AMC that is owned and controlled by an insured depository institution and regulated by the OCC, Federal Reserve Board, or FDIC is not subject to the registration requirement. The Bulletin reminds covered institutions that they should conduct sufficient due diligence to confirm that third-party AMCs are registered as required, including (i) checking the Appraisal Subcommittee of the Federal Financial Institutions Examination Council’s (ASC) national AMC registry; (ii) checking the relevant state’s AMC registry if the AMC is not listed on the national registry; and (iii) if no electronic registry check is available, requesting evidence of registration directly from the AMC. Moreover, if a covered institution determines that a federally related transaction is in a state that is not registering AMCs, an institution may instead use an individual appraiser, a staff appraiser employed by the institution, a smaller AMC not subject to the regulation, or a federally regulated AMC.

    Agency Rule-Making & Guidance OCC Appraisal

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