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OCC Proposes Stress Test Reporting Requirements for Large Banks
On August 16, the OCC published a notice that describes the reports and information the OCC proposes to collect to implement the Dodd-Frank Act’s annual stress tests for banks with consolidated assets of $50 billion or more. The information that the OCC proposes to collect includes documentation regarding income statements, balance sheets, capital statements, retail projections, securities, trading risk, counterparty credit risk, operational risk, and pre-provision net revenue. The OCC proposed rules to implement the stress tests earlier this year. A separate notice regarding reports for institutions with consolidated assets between $10 billion and $50 billion will be published at a later date. The OCC is accepting comments on the instant notice through October 15, 2012.
Banking Regulators Extend Comment Period for Three Proposed Capital Rules
On August 8, the Federal Reserve Board, the FDIC, and the OCC announced an extension of the comment period for three proposed regulatory capital rules. The proposed rules were announced in June with a comment period closing September 7, 2012. The regulators are now giving interested parties until October 22, 2012 to submit comments.
NCUA Proposes Rule to Enhance Emergency Liquidity Standards
On July 30, the NCUA proposed a rule that would alter the emergency liquidity requirements applicable to all federally-insured credit unions. For those credit unions with assets of $10 million or more, the rule would require a contingency funding plan with strategies for addressing liquidity under an emergency scenario. The rule would require institutions with assets of $100 million or more to have access to backup federal liquidity. Institutions with less than $10 million in assets would have to establish a board-approved framework for managing liquidity under emergency circumstances, including a list of contingent liquidity sources. The proposal reminds credit unions that their access to the Central Liquidity Facility is expected to close in October 2012. Comments on the proposal are due by September 28, 2012.
FDIC Finalizes Rule and Guidance Regarding Assessment of Risk Capital Requirements
On July 24, the FDIC published a final rule that prohibits any insured savings association from acquiring or retaining a corporate debt security unless the association first determines that the issuer has adequate capacity to meet its obligations through the projected life of the security. An issuer would satisfy this requirement if it presents a low risk of default and is likely to make a full and timely repayment of principal and interest. The final rule is largely identical to the rule as proposed, but makes one change to clarify the rule and harmonize it with parallel OCC regulations. In conjunction with the final rule, the FDIC also finalized guidance meant to assist savings associations in conducting due diligence to determine whether a security is eligible under the final rule. The finalized guidance is substantially similar to the proposed version. The final rule took effect July 21, 2012.
OCC Releases Bank Accounting Advisory Series Update
On July 25, the OCC released an update to its Bank Accounting Advisory Series, which provides accounting guidance for financial institutions. The updates are intended to address industry questions related to acquired loans, other real estate owned, troubled debt restructurings, nonaccrual, allowance for loan and lease losses, insurance claims, and debt discharged in bankruptcy.
NCUA Reorganizes Examination and Supervision Offices
On July 26, the NCUA announced the creation of the Office of National Examinations and Supervision, effective January 1, 2013. The new office will focus on consumer credit unions with more than $10 billion in assets. The NCUA is making the change to alter what it identifies as an imbalance in its current examination and supervision program by shifting resources from examination of smaller credit unions to the largest credit unions.
Senate Subcommittee Explores Money Laundering Vulnerabilities at Global Institutions
On July 17, the Senate Homeland Security and Government Affairs Committee, Permanent Subcommittee on Investigations, held a hearing to review money laundering and terrorist financing vulnerabilities that can emerge from certain international banking activities. In connection with the hearing, the Subcommittee released a report about its investigation into past money laundering and terrorist financing compliance failures at one multinational financial institution. The report notes that despite congressional efforts to strengthen anti-money laundering laws (AML), and financial institutions’ diligence in bolstering AML controls, money laundering risks associated with correspondent banking persist. Using the investigation and its findings as a case study, the report reiterates that effective AML compliance programs at U.S. banks should include written standards, sufficient and knowledgeable staff, effective training, and a positive compliance culture. With regard to specific issues that U.S. banks might face with regard to correspondent banking, the report recommends that U.S. banks implement programs that effectively (i) screen high-risk affiliates, (ii) prevent circumvention of OFAC prohibitions, (iii) avoid providing U.S. correspondent services to banks with links to terrorism, (iv) ensure traveler check controls restrict acceptance of suspicious bulk travelers checks, and (v) eliminate bearer share accounts. The report also identifies regulatory gaps and recommends that the OCC (i) treat AML deficiencies as a safety and soundness matter, (ii) develop a policy to coordinate internal divisions conducting AML examinations, (iii) consider the use of formal or informal enforcement actions to address mounting AML failures, and (iv) strengthen AML examinations by citing violations and focusing on specific business units and a bank’s AML program as a whole.
CFPB Releases Semiannual Regulatory Agenda
On July 16, the CFPB announced the release of its spring 2012 rulemaking agenda. The agenda lists the regulatory matters that the CFPB anticipates pursuing during the period June 1, 2012 through May 31, 2013. It also updates the CFPB’s first-ever such agenda, published as part of the fall 2011 Unified Agenda. For example, the updated agenda indicates that the CFPB expects to issue by January 2013, an Advance Notice of Proposed Rulemaking regarding the registration of certain nonbank entities, whereas the fall 2011 agenda anticipated a Notice of Proposed Rulemaking on this topic by March 2012. Similarly, the new rulemaking agenda updates the date by which the CFPB expects to take further action on developing regulations concerning the expanded HMDA data collection required by the Dodd-Frank Act from October 2012 to April 2013.
Federal Reserve Board Initiates Acquisition Guidance Program
On July 12, the Federal Reserve Board issued supervisory guidance outlining a new optional process for a supervised institution to request feedback on a potential bank and nonbank acquisition or other transactional proposal prior to the submission of a formal application or notice. The supervision and regulation letter explains that under the new optional process, supervised institutions may submit “pre-filings” to the appropriate Reserve Bank. Pre-filings can include inquiries seeking (i) advice about a specific aspect of a proposal, business plans or pro forma financial information related to a potential filing, or presentations outlining specific potential proposals, (ii) feedback on draft transactional and structural documents, and (iii) guidance regarding the type of filing required or the individuals or entities that would need to join a filing. In most cases, pre-filing and submitted information will be reviewed within 60 days. The guidance cautions that Federal Reserve staff review will focus on the specific request, and a review is not intended to identify or resolve all issues or concerns related to a possible future application or notice. The Federal Reserve also notes that it is not inviting negotiations on the structure of a potential proposal or for resolving significant issues of policy or law as part of this advance guidance program.
FDIC Reveals Banks' Living Wills
On July 3, the Federal Deposit Insurance Corporation (FDIC) posted the public sections of the initial resolution plans submitted by sixteen large bank holding companies. The resolution plans were required by the Dodd-Frank Act. The documents are meant to act as living wills that spell out how the banks could wind themselves down in the event of their failure. Generally, the public portions of these plans contain an outline of the banks organization, assets and capital ratios, and describe in high-level detail the mechanisms that each would employ to wind up its operations in the event of failure. The plans are subject to revisions following review by the FDIC and the Federal Reserve.