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FDIC issues regulatory relief guidance for financial institutions in areas of Alabama affected by severe storms
On May 4, the FDIC issued a Financial Institution Letter, FIL-24-2018, to provide regulatory relief to financial institutions and facilitate recovery in areas of Alabama affected by severe storms and tornados. The FDIC is encouraging institutions to consider, among other things, extending repayment terms and restructure existing loans that may be affected by the natural disasters. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act (CRA) consideration for certain development loans, investments, and services in support of disaster recovery. The FDIC letter also contemplates regulatory relief for banks located in the affected areas.
Find continuing InfoBytes coverage on Disaster Relief here.
Quarles testifies before House Financial Services Committee
On April 17, Vice Chairman for Supervision of the Federal Reserve Board, Randal Quarles, testified at a hearing with the House Financial Services Committee entitled “Semi-Annual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System.” Quarles’ prepared testimony covered (i) the current condition of U.S. bank institutions; (ii) the Fed’s supervisory and regulatory agenda; and (iii) the Fed’s engagement with foreign regulators. During the hearing, Quarles emphasized transparency and simplicity, specifically highlighting the Fed’s recent proposed changes to the capital rules for large banks (previously covered by InfoBytes here). With regard to the global systemically important banks (GSIB) surcharge, Quarles responded to committee member concerns that the surcharge calculation may be seen as a penalty based on a growing economy and acknowledged that the Fed will look into the calculation with respect to those concerns. However, Quarles also emphasized that, “it is generally accepted that [the calculation] has resulted in improvement in the resolvability of the firms.” With regard to the Volker Rule, Quarles stated it is “unarguable” that the rule is detrimental to capital markets, and while the rule cannot be repealed by the Board because of statutory limitations, “there is a lot that [the Fed] can do to increase the certainty of application, to reduce the burden of application.” As previously covered by InfoBytes, the House passed a bill granting the Federal Reserve exclusive authority to implement the Volker Rule (currently the Fed, the OCC, the FDIC, the SEC, and the CFTC share rulemaking authority under the Rule). Quarles also discussed the Treasury Department’s recommendations (previously covered by InfoBytes here) to regulators regarding suggestions to modernize the Community Reinvestment Act (CRA), calling the CRA “a little formulaic and ossified,” commending Treasury’s efforts to review the CRA, and stating that regulators should “think about ways to apply [the CRA] more effectively.”
Treasury releases recommendations for modernizing the Community Reinvestment Act
On April 3, the U.S. Treasury Department released recommendations to the Federal Reserve Board, the FDIC, and the OCC (CRA regulators) on suggestions for modernizing the Community Reinvestment Act (CRA). As previously covered in a Buckley Sandler Special Alert, Treasury released a report last June indicating that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers and ensure that the benefits of the CRA investments are aligned with the needs of the communities being served. Last month the Government Accountability Office (GAO) released a report recommending Treasury consider GAO’s findings when conducting its review. (See previous InfoBytes coverage here.)
The April memorandum of recommendations addresses findings from Treasury’s comprehensive assessment of the CRA framework and focuses on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. Specifically, the recommendations include (i) updating the definitions of “geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors”; (ii) improving the flexibility of the CRA examination process to increase clarity in examiner guidance and improve evaluation criteria to increase CRA rating determination transparency and effectiveness; (iii) addressing the timing and issuance of performance evaluations to increase banks’ accountability when planning CRA activity; and (iv) identifying performance incentives to encourage banks to meet the credit and deposit needs of their entire communities, including low- and moderate-income areas. The memorandum solicited input from stakeholders such as consumer advocacy groups, financial industry members, and the CRA regulators.
GAO recommends Treasury offer incentives to financial institutions to serve LMI communities
On March 16, the Government Accountability Office (GAO) released a report identifying incentives to encourage financial institutions to provide banking services and small-dollar consumer loans in lower- and middle-income (LMI) communities. The report—issued in response to concerns raised by a 2015 FDIC survey, which found that “unbanked” or “underbanked” households tended to be located in LMI communities—assessed services provided by financial institutions in these areas, reviewed how regulators performed Community Reinvestment Act (CRA) evaluations, and solicited input from stakeholders such as consumer advocacy groups and financial industry members.
Currently, CRA evaluation procedures do not consistently require an assessment of banks’ provision of retail banking services or small-dollar, non-mortgage consumer lending. Rather, banks are evaluated for these criteria typically only “if consumer lending is a substantial majority of the lending or a major product of the institution, which generally is not the case across all institution types.” According to GAO’s report, a June 2017 Treasury report (previously covered in a Buckley Sandler Special Alert), indicated that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers. Treasury announced plans to review the CRA, but a timeline is yet to be released. Meanwhile, GAO recommended—and Treasury concurred—that Treasury should consider the findings in this report when conducting its review. GAO also proposed several incentives for financial institutions, including the following:
- modifying lending and service tests conducted as part of the CRA examination process to focus more on how institutions are offering basic banking services and small-dollar, non-mortgage loans;
- expanding the scope of areas and entities assessed as part of the CRA examinations to capture more types of institutions, including all bank affiliates and nonbanks; and
- providing clarifying guidance about the examination process.
OCC provides banks with resources for community revitalization efforts
On February 27, the OCC published a new edition of its Community Developments Investments newsletter entitled, “Expanding Housing Opportunities: Single-Family Rehabilitation Financing Programs.” The publication provides resources and programs for national banks and federal savings associations to utilize to assist in community revitalization efforts. Highlighted is program guidance set forth previously in OCC Bulletin 2017-28, “Mortgage Lending: Risk Management Guidance for Higher-Loan-to-Value Lending Programs in Communities Targeted for Revitalization,” which outlines criteria geared towards residential rehabilitation loan financing. (See previous InfoBytes coverage here.) The publication also covers significant revitalization initiatives in communities across America, explains the ways in which loan programs sponsored by the Federal Housing Administration and Fannie Mae are supporting single-family rehabilitation financing initiatives, and notes that banks participating in such programs may qualify for Community Reinvestment Act consideration during evaluation.
Agencies offer CRA credit for certain disaster relief efforts
On January 25, the FDIC, OCC, and the Fed (collectively “Agencies”) issued an interagency statement on the availability of Community Reinvestment Act (CRA) credit for financial institution activities that “help revitalize or stabilize the U.S. Virgin Islands and Puerto Rico, which were designated as major disaster areas by the President because of Hurricane Maria.” Provided financial institutions continue to be responsive to the community needs of their own CRA assessment areas, the Agencies will now give “favorable consideration” to community development activities, such as assistance to displaced people, in the areas impacted by Hurricane Maria. The Agencies state that they may give higher consideration to activities aimed at assisting the low- and moderate-income affected areas but that general consideration will be given regardless of median or personal income.
Agencies Release CRA Asset-Size Threshold Adjustments
On December 21, the Federal Reserve, the OCC, and the FDIC (collectively, the “Agencies”) jointly announced the adjusted thresholds for asset-size used to define “small” and “intermediate small” banks and savings associations under the Community Reinvestment Act (CRA). Effective January 1, 2018, a small bank or savings association will be defined as an institution that, as of December 31 of either of the past two calendar years, had assets of less than $1.252 billion. Additionally, an “intermediate small” bank or “intermediate small” savings association will be defined as an institution with at least $313 million and less than $1.252 billion in assets as of December 31 of either of the past two calendar years. The agencies published the annual adjustments in the Federal Register on December 27.
FHFA Requests Input on GSE Credit Score Requirements; Releases 2018 Scorecard
On December 20, the Federal Housing Financial Agency (FHFA) announced a Request for Input (RFI) seeking feedback from interested parties regarding how Fannie Mae and Freddie Mac (the GSEs) should update their current credit score requirements. Specifically, the GSEs plan to stop using the Classic FICO credit score model and to replace it with one of four options. These options include (i) requiring the use of either the FICO 9 credit score model or the VantageScore 3.0 credit score model; (ii) requiring the use of both the FICO 9 and the VantageScore 3.0 credit score models; (iii) allowing lenders to choose between either the FICO 9 or the VantageScore 3.0 credit score models; or (iv) allowing lenders to deliver multiple scores through a waterfall approach that would establish a primary and a secondary score. The FHFA’s RFI asks interested parties to provide feedback on these options by responding to 22 questions outlined in the RFI by February 20.
On December 21, FHFA released the 2018 Scorecard outlining specific conservatorship priorities for the GSEs and their joint venture, Common Securitization Solutions, LLC (CSS). The 2018 Scorecard continues to identify many of the priorities outlined in the 2017 Scorecard. In addition, the 2018 Scorecard highlights the FHFA’s focus on gathering information to support its assessment of single-family rental strategies and extends the timeline for implementation of the Single Security Initiative on the Common Securitization Platform to the second quarter of 2019.
Federal Banking Agencies Amend CRA Regulations to Conform With HMDA Regulation Changes
On November 24, the Federal Reserve Board, FDIC, and OCC published a joint final rule in the Federal Register, amending their respective Community Reinvestment Act (CRA) regulations. The amended regulations conform with the CFPB’s amendments to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The amendments are designed to reduce the burden associated with CRA performance evaluation reporting requirements. Specifically, the amended regulations (i) modify the definitions of “home mortgage loan” and “consumer loan”; (ii) revise the public file content requirements; and (iii) make technical corrections and remove obsolete references to the Neighborhood Stabilization Program (see previous InfoBytes coverage here).
As previously reported in InfoBytes, amendments to Regulation C generally take effect January 1, 2018, with the agencies’ specific amendments to the CRA regulations taking effect the same day.
Agencies Announce Availability of 2016 Small Business and Farm CRA Data
On November 21, the three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibility—the Federal Reserve Board, the FDIC, and the OCC—announced the release of the 2016 small business and small farm CRA data. The analysis contains information from 726 lenders reporting data about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2016, a 3.3 percent decrease from 2015.
The FFIEC disclosure statement on the data for each reporting lender is available here.