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  • OCC issues State Small Business Credit Initiative 2.0 FAQs

    On January 8, the OCC issued Bulletin 2024-1, which provides responses to frequently asked questions regarding the state small business credit initiative (SSBCI). The SSBCI, run by the U.S. Department of the Treasury, facilitates access to capital for small businesses, supports credit and investment programs, and offers technical assistance for applying to SSBCI funding and other government programs. The FAQs address a variety of topics, including the types of credit and investment programs states may set up, including collateral support programs, capital access programs, and loan guarantee programs, among others; criteria to qualify as “underserved” for access to the credit; treatment of certain funds; program descriptions; and whether loans made through the program could be considered for Community Reinvestment Act purposes.

    Bank Regulatory Federal Issues OCC Small Business Lending FAQs

  • Fed’s Barr speaks at fireside chat, underscores the importance of public comment

    On January 9, Fed Vice Chair of Supervision Michael S. Barr delivered remarks at an event held by Women in Housing and Finance, during which he discussed consumer credit, bank supervision, DEI issues, capital issues, bank regulation and more. Barr began by addressing current risks that the Fed is focused on mitigating, which included efforts surrounding the Community Reinvestment Act final rule and the Basel III Endgame proposal. The Fed, he said, has been receiving many comments on the proposal, which will help ensure the “balance” is right on the final capital rule. There is one more week before the comment period closes, he added.

    Barr also discussed the second quantitative impact study the Fed is conducting to ensure accuracy and help shape the final version of the Basel III proposal. He noted that the Fed conducted the first study a “few years ago” to inform the first proposal. He mentioned that the Fed is collecting information and will be publishing their aggregated analysis for public comment.  Barr also discussed comments considering whether the Fed should adjust for historical losses based on particular firms, or if there should be standardized accountability for all risk.

    In response to questions from the moderator, Barr opined that the capital rules in the Basel III proposal would have a modest impact on the affordability and accessibility of mortgage credit and consumer credit. He conceded that the proposal’s impact would create higher costs, but that the impacts on consumers would be “very very small.” Barr also invited commenters to inform the Fed about the impacts. On international competition, Barr also noted that the higher capital standards would not detrimentally impact the U.S. banking system.

    When asked about the Fed’s Bank Term Funding Program, made available by the Fed, FDIC, and Treasury last spring, Barr said banks and credit unions are still leveraging the program today. He explained that the “program was really designed in that emergency situation … to make sure that banks[,] and creditors of banks[,] and depositors [in] banks understand that banks have the liquidity they need.”

    Bank Regulatory Federal Issues Federal Reserve CRA Basel Capital Requirements Bank Supervision

  • Agencies adjust civil money penalties for 2024

    Agency Rule-Making & Guidance

    Recently, the CFPB, NCUA, FDIC, FTC, and OCC provided notice in the Federal Register of adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, FDIC here, OCC here, FTC here, and NCUA here) adjusts the maximum civil money penalties available and documents the inflation-adjusted maximum amounts associated with the penalty tiers for each type of violation within a regulator’s jurisdiction. For violations occurring on or after November 2, 2015, the OCC’s adjusted maximum penalties go into effect as of January 8; the CFPB and FDIC’s adjustments go into effect January 15; and the FTC and NCUA’s adjustments go into effect January 10.

    Agency Rule-Making & Guidance Federal Issues Bank Regulatory OCC CFPB Assessments Fees Civil Money Penalties

  • FDIC releases November enforcement actions

    On December 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in November. The FDIC made 12 orders public including, “five consent orders, three prohibition orders, two orders terminating consent orders, one order to pay a civil money penalty (CMP), and one order dismissing both a notice of assessment of CMPs and an order to pay.” Included is a stipulated order and written agreement with a Tennessee-based bank (the Bank) to resolve alleged violations of the Bank Secrecy Act (BSA) and weaknesses in board and management oversight of its information technology function. The Bank agreed to the conditions of the consent order which requires the Bank to, among other things (i) establish an action plan to correct the bank’s Anti-Money Laundering/Countering the Financing for Terrorism (AML/CFT) program deficiencies and alleged violations; (ii) retain qualified IT management; (iii) perform a cybersecurity assessment; and (iv) designate someone responsible for coordinating and monitoring day-to-day compliance with the BSA.

    Bank Regulatory Federal Issues Enforcement Bank Secrecy Act Anti-Money Laundering

  • Agencies update the Uniform Rules of Practice and Procedure

    On December 28, 2023, the Fed, OCC, FDIC, and NCUA published a final rule amending the Uniform Rules of Practice and Procedure to recognize the use of electronic communications and enhance the efficiency and equity of administrative hearings. The agencies have implemented measures recognizing the role of electronic communications across all facets of administrative proceedings. Among other things, the final rule (i) defines “electronic signature” in the Uniform Rules; (ii) codifies permitting electronic service and filings for administrative actions; (iii) allows for remote depositions; (iv) includes Equal Access to Justice Act procedures based on the 2019 Administrative Conference of the United States Model Rule; (v) adds provisions on when parties must pay civil money penalties; (vi) adds specific provisions pertaining to the forfeiture of a national bank, federal savings association, or federal branch or agency charter or franchise due to certain money laundering or cash transaction violations; (vii) modifies the discovery rules to recognize electronic documents and allow for electronic production; (viii) establishes new rules for expert and hybrid fact-expert witnesses; and (ix) consolidates the Uniform Rules and Local Rules for national banks and federal savings associations.

    Additionally, the OCC has revised its specific administrative practice and procedure regulations to harmonize rules for national banks and federal savings associations. Furthermore, adjustments were made to the OCC’s regulations on organization and operations to encompass service of process considerations.

    The rule is effective April 1, 2024.

    Bank Regulatory Agency Rule-Making & Guidance OCC Federal Reserve FDIC NCUA Administrative Procedures Act

  • OCC announces CRA bank asset-size threshold adjustments for 2024

    On December 26, 2023, the OCC announced revisions to the asset-size thresholds used to define small and intermediate small banks and savings associations under the Community Reinvestment Act (CRA). Effective January 1, 2024, a small bank or savings association will mean an institution that, as of December 31 of either of the past two years, had assets of less than $1.564 billion. An intermediate small bank or savings association will mean an institution with assets of at least $391 million as of December 31 of both of the prior two years, and less than $1.564 billion as of December 31 of either of the prior two years. As previously covered by InfoBytes, the Fed and the FDIC also announced joint annual adjustments to the CRA asset-size thresholds used to define “small bank” and “intermediate small bank.”

    Bank Regulatory OCC Federal Reserve FDIC Federal Issues Agency Rule-Making & Guidance CRA Bank Supervision

  • FDIC proposes revisions to call reports

    Federal Issues

    On December 27, 2023, the FDIC published its proposed revisions to the reporting forms and instructions for Call Reports and the FFIEC 002 report in a financial institution letter under the auspices of the FFIEC. Call Reports are also known as Consolidated Reports of Condition and Income, a set of financial reporting standards that banks in the U.S. must file with a regulatory agency. The proposed revisions are currently open for public comment until February 26, 2024.

    The changes affect Call Reports FFIEC 031, FFIEC 041, and FFIEC 051, as well as the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002). The FFIEC’s proposed changes encompass reporting on (i) loans to non-depository financial institutions, (ii) structured financial products, and (iii) long-term debt requirements. The proposed changes are found in more detail in the Federal Register, and state detailed revisions for each FFIEC form. The changes will go into effect on June 30, 2024.

    Federal Issues FDIC FFIEC OCC Federal Reserve Call Report Bank Regulatory

  • Banking regulators update “small bank” definitions

    On December 20, the Fed and the FDIC announced changes to the 2024 asset-size thresholds used to define “intermediate small bank” and “small bank” under the CRA. To qualify as an “intermediate small bank,” a bank must have assets of at least $391 million as of December 31 in both prior two calendar years, and less than $1.564 billion as of December 31 in either of the prior two calendar years. To qualify as a “small bank,” a bank must have had assets of less than $1.564 billion as of December 31 in either of the prior two calendar years. These increases are based on a 4.06% increase in the applicable consumer price index and the thresholds will take effect beginning January 1, 2024.

    Bank Regulatory Federal Issues CRA FDIC Federal Reserve

  • FDIC issues advisory on managing commercial real estate concentrations

    On December 18, the FDIC issued an advisory to institutions with commercial real estate (CRE) concentrations. The advisory, among other things, reminds insured state non-member banks and savings associations (FDIC-supervised institutions) of the importance of “strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices” when managing CRE concentrations. The advisory notes that “[r]ecent weaknesses in the economic environment and fundamentals related to various CRE sectors have increased the FDIC’s overall concern for state nonmember institutions with concentrations of CRE loans.” The FDIC said that “CRE investment property capitalization rates have not kept pace with recent rapid increases in long-term interest rates, which leads to concerns about general over-valuation of underlying collateral.” For institutions with concentrated CRE exposures, the agency “strongly recommended” that “as market conditions warrant, institutions with CRE concentrations (particularly in office lending) increase capital to provide ample protection from unexpected losses if market conditions deteriorate further.” The agency also outlined key risk-management measures for financial institutions with significant concentrations in CRE and real estate construction and development (C&D) to manage through changing market conditions: (i) “maintain strong capital levels;” (ii) “ensure that credit loss allowances are appropriate;” (iii) “manage C&D and CRE loan portfolios closely;” (iv) “maintain updated financial and analytical information;” (v) “bolster the loan workout infrastructure;” and (vi) “maintain adequate liquidity and diverse funding sources.”

    Bank Regulatory Agency Rule-Making & Guidance Federal Issues FDIC Commercial Finance

  • FSOC report highlights AI, climate, banking, and fintech risks; CFPB comments

    Privacy, Cyber Risk & Data Security

    On December 14, the Financial Stability Oversight Counsel released its 2023 Annual Report on vulnerabilities in financial stability risks and recommendations to mitigate those risks. The report was cited in a statement by the Director of the CFPB, Rohit Chopra, to the Secretary of the Treasury. In his statement, Chopra said “[i]t is not enough to draft reports [on cloud infrastructure and artificial intelligence], we must also act” on plans to focus on ensuring financial stability with respect to digital technology in the upcoming year. In its report, the FSOC notes the U.S. banking system “remains resilient overall” despite several banking issues earlier this year. The FSOC’s analysis breaks down the health of the banking system for large and regional banks through review of a bank’s capital and profitability, credit quality and lending standards, and liquidity and funding. On regional banks specifically, the FSOC highlights how regional banks carry higher exposure rates to all commercial real estate loans over large banks due to the higher interest rates.

    In addition, the FSOC views climate-related financial risks as a threat to U.S. financial stability, presenting both physical and transitional risks. Physical risks are acute events such as floods, droughts, wildfires, or hurricanes, which can lead to additional costs required to reduce risks, firm relocations, or can threaten access to fair credit. Transition risks include technological changes, policy shifts, or changes in consumer preference which can all force firms to take on additional costs. The FSOC notes that, as of September 2023, the U.S. experienced 24 climate disaster events featuring losses that exceed $1 billion, which is more than the past five-year annual average of 18 events (2018 to 2022). The FSOC also notes that member agencies should be engaged in monitoring how third-party service providers, like fintech firms, address risks in core processing, payment services, and cloud computing. To support this need for oversight over these partnerships, the FSOC cites a study on how 95 percent of cloud breaches occur due to human error. The FSOC highlights how fintech firms face risks such as compliance, financial, operational, and reputational risks, specifically when fintech firms are not subject to the same compliance standards as banks.

    Notably, the FSOC is the first top regulator to state that the use of Artificial Intelligence (AI) technology presents an “emerging vulnerability” in the U.S. financial system. The report notes that firms may use AI for fraud detection and prevention, as well as for customer service. The FSOC notes that AI has benefits for financial instruction, including reducing costs, improving inefficiencies, identifying complex relationships, and improving performance. The FSOC states that while “AI has the potential to spur innovation and drive efficiency,” it requires “thoughtful implementation and supervision” to mitigate potential risks.

    Privacy, Cyber Risk & Data Security Bank Regulatory FSOC CFPB Artificial Intelligence Banks Fintech

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