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On February 28, the Federal Reserve Board announced an enforcement action against a bank holding company for alleged internal control deficiencies, resulting in unsafe and unsound practices in violation of the Federal Deposit Insurance Act that caused a financial loss to the company. The consent order acknowledges that the company has since addressed the deficiencies that contributed to the loss and implemented additional improvements in its internal controls and audit programs. The Federal Reserve Board assessed a civil money penalty of $1,012,500.
On August 28, the Federal Reserve Board issued an interim final rule to raise the asset threshold from $1 billion to $3 billion under the agency’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement. The interim final rule implements a provision in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S.2155), and applies to savings and loan holding companies with total consolidated assets of less than $3 billion. Under the interim final rule, small bank holding companies will be permitted to operate with higher levels of debt, making it easier to facilitate ownership transfers. However, the Fed noted that exempt holding companies’ depository institutions will still be required to meet minimum capital requirements. Comments are due by October 29.
On March 14, by a vote of 67-31, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill)—a bipartisan regulatory reform bill crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho—that would repeal or modify provisions of Dodd-Frank and ease regulations on all but the biggest banks. (See previous InfoBytes coverage here.) The bill’s highlights include:
- Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
- Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
- Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending the protection that shields military personnel from foreclosure proceedings after they leave active military service from nine months to one year; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses general consumer protection options such as expanded credit freezes and the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to TILA consumer protections.
- Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a systemically important financial institution from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
- Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.
The bill now advances to the House where both Democrats and Republicans think it is unlikely to pass in its current form.
On February 1, the Federal Reserve Board (Fed) published stress testing scenarios to be used when conducting the 2018 Comprehensive Capital Analysis and Review (CCAR) evaluations and stress test exercises for large bank holding companies and large U.S. operations of foreign firms. Instructions for participating banks also were released. According to the Fed, in an effort designed to “support the transition to stress testing,” foreign banks will only be required to participate in a “simplified global market shock” portion of the CCAR evaluation. As previously covered in InfoBytes, last December the Fed issued a request for comments on three proposals designed to increase stress testing transparency and resiliency of large, complex banks. This included a proposal to publically release, for the first time, information concerning the models and methodologies used during supervisory stress tests, including those applied in the CCAR. According to the Fed’s press release, the qualitative and quantitative evaluations will be used to evaluate a bank’s ability to survive in times of economic stress and are broken into three scenarios with varying degrees of stress: baseline, adverse and severely adverse. The Fed reminded participating banks that capital plan and stress testing submissions are due by April 5.
The same day, the OCC issued its own stress testing scenarios for required OCC-supervised institutions with more than $10 billion in assets, and on February 2, the OCC released a notice and request for comments (notice) on revised templates to be used for stress test exercises performed by covered institutions with total consolidated assets of $50 billion or more. According to the notice, revisions would reduce the number of data items in the Supplemental Schedule by approximately half, and include (i) the elimination of two reporting schedules—the Regulatory Capital Transitions Schedule and the Retail Repurchase Exposures Schedule; (ii) the addition of new criteria for institutions subject to the global market shock evaluation; and (iii) clarification on how “Credit Loss Portion” and “Non-Credit Loss Portion” are reported in the summary schedule worksheets. Furthermore, under the revisions, savings associations would be eligible to use the simplified reporting requirements already available to other large, non-complex holding companies. The notice was published in the Federal Register on February 2 and comments are due by March 5.
Additionally, on February 6, the FDIC released economic scenarios developed in coordination with the Fed and the OCC for certain supervised financial institutions. According to the FDIC, the scenarios “include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets.”
On July 19, Representative Blaine Luetkemeyer (R-Mo.) reintroduced legislation designed to overhaul the process used to manage systemic risk by basing the regulation of financial institutions on risk rather than asset size alone. As set forth in a press release issued by Rep. Luetkemeyer’s office, the Systemic Risk Designation Improvement Act of 2017 would replace the $50 billion threshold for designating a bank holding company as a Systemically Important Financial Institution (SIFI) with a series of standards for evaluating risk. The legislation would require the Federal Reserve to evaluate an “institution’s size, interconnectedness, substitutability, global cross-jurisdictional activity, and complexity” before designating it as a SIFI. The legislation was previously introduced in the House, but discussion was delayed to provide Rep. Luetkemeyer with time to propose a method for funding the proposed changes, which are estimated to cost more than $115 million. (See previous InfoBytes summary here.)
“This legislation supports economic growth throughout the country because it will free commercial banks to make loans while allowing financial regulators the ability to apply enhanced standards on banks based on actual risk posed to the financial system–rather than on arbitrary asset size alone," Luetkemeyer pronounced.
On May 26, Senators Orrin Hatch (R-Utah), Angus King (I-Me.), and Bill Nelson (D-Fla.) introduced bipartisan legislation intended to provide regulatory relief to small financial intuitions. According to a press release issued by Sen. Hatch’s office, the Community Bank Relief Act (S. 1284) would increase the asset threshold from $1 billion to $5 billion, thereby expanding the number of institutions covered by the Small Bank Holding Company Policy Statement (Statement). Based on FDIC data, raising the asset threshold would affect 443 bank holding companies (BHC) and other financial institutions. Additionally, 96 percent of BHCs and savings and loan holding companies would be covered by the Statement compared to 87 percent as of December 31, 2016, according to the Federal Reserve (Fed). The legislators believe the bill will improve the Dodd-Frank Act “without compromising safety standards” and help “small financial institutions provide households and small businesses more quality-based loans” that will advance economic growth. Notably, the Fed will still be able to exclude any BHC or savings and loan company if it determines the action is warranted.
On December 15, the Fed finalized a rule requiring the biggest global banks to guard against potential collapse by holding minimum amounts of long-term debt and regulatory capital. The rule applies to bank holding companies, U.S. global systemically important banks (GSIB), as well as U.S. branches of foreign banks, and aims to shift the costs of bank failure to shareholders rather than taxpayers by requiring lenders to maintain sufficient amounts of long-term debt, which can be converted to equity to keep a failing bank’s key operations afloat. Specifically, the measure will establish minimum required levels for long-term debt and total loss-absorbing capacity, as well as restrictions on certain short-term debt financing arrangements by parents of GSIB-designated financial institutions. In prepared opening remarks, Fed Chair Janet Yellen explained that “[t]he rule is guided by common sense principles: bank shareholders and debt investors should place their own money at risk so depositors and taxpayers are well protected, and the biggest banks must bear the costs that come with their size.”
In a memorandum to the Board of Governors, the Fed’s staff noted that covered banks are currently about $70 billion short altogether of the new requirements. The Fed staff estimated that the aggregate increased funding of approximately $680 million to $2 billion annually would be required to make up the shortfall.
On December 13, nearly five and a half years after assuming supervisory responsibility for savings and loan holding companies (SLHCs), the Fed is seeking comments on a proposal to fully apply the same supervisory rating system to savings and loan holding companies as currently applies to bank holding companies—a rating system commonly referred to as the “RFI rating system.” The RFI rating system generally grades a holding company’s risk management (R), financial condition (F), and impact (I) of non-depository entities on subsidiary depository institutions. Although the proposal would fully apply the rating system to most SLHCs supervised by the Fed, it would not apply to SLHCs engaged in significant insurance or commercial activities. These firms would instead continue to receive indicative ratings. Comments on the proposal must be received by Feb. 13, 2017.
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference