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Financial Services Law Insights and Observations


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  • Senator Warren pens letter to banking regulators to check on their regulatory commitments following 2023 bank failures

    On March 10, Senator Warren (D-MA) released a letter to Federal Reserve Vice Chair Michael Barr, FDIC Chairman Martin Gruenberg, and Acting Comptroller of the Currency Michael J. Hsu (the bank regulators) seeking information on any progress with their commitments to strengthen bank regulatory standards following the 2023 banking issues. Warren urged the bank regulators to reinstate the rules for banks with assets between $100 and $250 billion, including liquidity requirements and capital stress tests, that were rolled-back with the 2018 enactment of the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (EGRRCPA). She concluded her letter by posing several questions, including asking what efforts the bank regulators are taking to strengthen rules, when these rules are expected to be announced or implemented, how many banks will be subject to these rules, if the implementation process would include a comment period, and if lobbying by large banks against the Basel III capital rule has weakened the bank regulators’ resolve to strengthen rules for banks with more than $100 billion in assets. Sen. Warren has asked for a response by March 25.

    Bank Regulatory Basel FDIC OCC Federal Reserve EGRRCPA Dodd-Frank

  • FDIC Vice Chair delivers remarks on tokenization

    On March 11, FDIC Vice Chairman Travis Hill delivered prepared remarks on “Banking’s Next Chapter? Remarks on Tokenization and Other Issues.” The speech addressed the evolution of money and payment systems, focusing on the recent innovation of tokenizing commercial bank deposits and other assets and liabilities. Hill distinguished tokenization from assets like Bitcoin and Ether: “tokenization involves a representation of ‘real-world assets’ on a distributed ledger, including… commercial bank deposits, government and corporate bonds, money market fund shares, gold and other commodities, and real estate.” Hill highlighted the potential benefits of tokenization, such as improved efficiency in payments and settlements, 24/7/365 operations, programmability, atomic settlement (the settlement, or the act of transferring ownership of an asset from seller to buyer, combining instant and simultaneous settlements) and the creation of an immutable audit trail. He also mentioned that these innovations could streamline complex processes like cross-border transactions and bond issuances, offering notable advantages over traditional banking systems.

    The speech also acknowledged challenges and risks associated with tokenization, including technical, operational, and legal uncertainties. Questions remain about the structure of the future financial system, interoperability between different blockchains, and the legal implications of transferring ownership via tokens, Hill added.

    Regarding the regulatory approach to digital assets and tokenization, Hill expressed the need for as much clarity as possible, even in areas whether the technology is evolving quickly. For example, Hill noted that “it would be helpful to provide certainty that deposits are deposits, regardless of the technology or recordkeeping deployed, and if there are reasons to distinguish some or all tokenized deposits from traditional deposits for any regulatory, reporting, or other purpose, the FDIC should… explain how and why.”

    Bank Regulatory Federal Issues Digital Assets Bank Supervision Payments Federal Reserve

  • GAO report calls for FDIC, Fed to fix bank supervision issues

    On March 6, the U.S. Government Accountability Office (GAO) released a report to congressional requesters, including Senator Sherrod Brown (D-OH), Chairman of the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs, regarding the Fed and FDIC’s communication of supervisory concerns related to the 2023 banking issues and the agencies’ procedures for escalating concerns. The report found that while both regulators generally met their requirements for communicating concerns, the Fed’s escalation procedures lacked clarity and specificity, which could have contributed to delayed enforcement last year.

    The GAO recommended that the Fed revise its escalation procedures to be more precise and include measurable criteria. The Fed agreed with the recommendation and acknowledged that clearer examination procedures could help in addressing supervisory concerns more promptly. For the FDIC, the GAO recognized that the FDIC already updated its escalation procedures in August 2023 and will intend to implement further revisions to respond promptly. The GAO report also suggested that Congress amend the FDI Act to incorporate noncapital triggers related to unsafe banking practices before they affect capital.

    Bank Regulatory Federal Issues FDIC Federal Reserve Bank Supervision GAO Congress

  • FDIC releases March CRA evaluations for 56 banks, three rated as “Needs to Improve”

    On March 4, the FDIC released a list of state nonmember banks evaluated for compliance with the Community Reinvestment Act (CRA) for March. The FDIC evaluated 56 banks with four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 56 evaluations reported by the FDIC, three banks hold the lowest given ratings as “Needs to Improve.” Most banks were rated “Satisfactory,” and seven banks were rated “Outstanding.” According to the FDIC’s release, a copy of a bank’s CRA evaluation is available directly from the bank, as required by law, or from the FDIC’s Public Information Center.

    Bank Regulatory CRA Banking OCC Bank Supervision

  • House Financial Services Committee urges banking regulators to reconsider aspects of Basel III “Endgame” proposal

    Federal Issues

    On March 5, the Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), along with all Republican members released a letter to Federal Reserve Chairman Jerome Powell, Acting Comptroller of the Currency Michael Hsu, and FDIC Chairman Martin Gruenberg recommending they each withdraw from the Basel III “Endgame” proposal and identify better objectives with justifications. The Republican members indicated that the proposal received an “unprecedented number of comment letters,” with more than 97 percent receiving a call for withdrawal, re-proposal, or general concern with the proposal’s elements. Further, the letter pointed out that the agency chairs themselves recognized there was an issue, as shown by the agencies’ comment period extension by more than 45 days. While the members noted a strong desire to change the capital rules for financial institutions, they also expressed frustration with the lack of transparency regarding the whole process: “There has been little clarity . . . with Congress or the American people as to when or how the agencies will release the information collected from the banks or seek comment[.]” The Committee’s letter concluded by stating how the proposal is flawed and called for greater clarity on how agencies plan to account for public comments.

    Federal Issues House Financial Services Committee Bank Regulatory Congressional Inquiry Basel

  • OCC releases February CRA evaluations for 31 banks, one “Needs to Improve”

    On March 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last February. The OCC evaluated 31 national banks and federal savings associations under four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 31 evaluations reported by the OCC, only one entity holds the lowest rating, a small bank in Indiana, which was rated “Needs to Improve.” Most entities were rated “Satisfactory,” and six entities were rated “Outstanding.” In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluates and rates financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution it serves (such as its demographics, economic data, lending, investment, and service opportunities). 

    Bank Regulatory Supervision CRA OCC FAQs

  • CFPB limits examiner term limits to five years after concurring with OIG recommendations

    On February 26, the Office of Inspector General for the CFPB (OIG) released a report entitled, “The CFPB Can Enhance Certain Practices to Mitigate the Risk of Conflicts of Interest for Division of Supervision, Enforcement and Fair Lending Employees.” The report found that the CFPB’s Office of Supervision Examinations (OSE) does not have a formal policy that requires bank examiners to rotate assignments in a specified time frame, which increases potential conflicts of interest. The OSE examines banks to check for compliance failures in federal consumer financial law and is based out of four regional offices: New York (Northeast), Atlanta (Southeast), Chicago (Midwest), and San Francisco (West). The OIG argued that a formal policy adopted by the OSE would more effectively monitor examiner rotations, promoting “objectivity, cross-training, and broader expertise” and reducing the risk of regulatory capture – or subjecting the same regulated entity to the same examiner and subsequently risking independence and objectivity of exams. The OIG’s report posited two recommendations: (i) that the CFPB implement a formal examiner rotation policy; and (ii) that the CFPB track and document assignments for examiners and its members.

    The OIG found that while some OSE offices have informal examiner rotation policies in place, there is no global system in place to track examiner assignments to ensure regular rotation. For example, OSE’s Northeast and West regional offices have written policies that require certain staff members to rotate every five years. However, the Southeast and Midwest offices do not have any written policies in place and stated having a “natural” turnover process based on needs and availability, among others.

    The CFPB concurred with both OIG recommendations, stating that it will limit the time for lead examiners and field managers to five years and develop a tool for tracking these assignments.

    Bank Regulatory CFPB OIG Enforcement Examination

  • FDIC orders bank to plan termination of relationships with “significant” fintech partners

    Recently, the FDIC released a consent order against a Tennessee bank as part of its release of January Enforcement Decisions and Orders. The FDIC stated that within sixty days of the effective date of the consent order, the bank must “submit a general contingency plan to the Regional Director… [on] how the [b]ank will administer an effective and orderly termination with significant third-party FinTech partners,” as part of its Third-Party Risk Management program for the bank. The Program must assess and manage the risks posed by all fintech firms associated with the bank. It will include policies related to due diligence and risk assessment criteria that are appropriate to the products and services provided by the fintech partner. The bank must also engage an independent firm for completion of a comprehensive Banking-as-a-Service Risk Assessment Report.

    The bank further consented, without admitting or denying any charges of unsafe or unsound banking practices, to board supervision of the bank’s management and approval of the bank’s policies and objectives, qualified management, the Regional Director’s prior consent for new or expanded lines of business that would result in an annual 10 percent growth in total assets or liabilities, and a comprehensive strategic plan.


    Bank Regulatory FDIC Consent Order Fintech Risk Management Enforcement

  • Fed’s Bowman speaks on current trends in banking regulation

    On February 27, Michelle Bowman, a member of the Federal Reserve Board of Governors, gave a speech reflecting on the state of the broader U.S. economy and banking regulation in Tampa, Florida. Bowman highlighted the need for the Fed to focus on “efficiency in how we deliver on our safety and soundness goals.” On capital reform, Bowman noted that since the closure of the comment period for the Basel III “Endgame” reforms, the federal banking agencies have been reviewing the feedback and identifying areas of concern: she hopes that the agencies will take this opportunity to revise the proposal in a way that addresses the concerns raised by the public. After voicing her non-support for the recently adopted Community Reinvestment Act (CRA) final rule, Bowman shared that while the new rule provided some positive changes, the changes are still “unnecessarily complex, overly prescriptive,” and have greater costs than benefits.  Bowman highlighted that the final rule treats a wide range of community banks with more than $2 billion in assets as “large banks, and would have resulted in a “nearly tenfold increase in banks with a ‘Need to Improve’ CRA rating” if applied to the period from 2018 to 2020. On Regulation II and debit card interchange fees, Bowman noted that the comment period has been extended until May 12, adding that the proposed permanent decrease in debit card interchange fees will have “consequences for banks of all sizes.” Bowman ended with discussion on bank mergers, climate change, and liquidity.

    Bank Regulatory Federal Reserve Federal Issues CRA Discount Window Basel

  • OCC names Ted Dowd as Acting Senior Deputy Comptroller and Chief Counsel

    On February 23, the OCC announced that Ted Dowd will serve as the Acting Senior Deputy Comptroller and Chief Counsel for the agency while the OCC searches for a successor to Ben McDonough. Dowd is currently the Deputy Chief Counsel, a position he has fulfilled since 2018 where he oversaw the operations of all OCC district counsel offices. Under the new position, Dowd will oversee all legal aspects of the OCC, as well as support the agency’s activities in bank chartering, supervision, enforcement, and rulemaking, among others. This positional change will go into effect on April 8 when the current OCC Chief Counsel Ben McDonough begins a new position at another agency.

    Bank Regulatory OCC Bank Supervision Enforcement


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