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Hsu discusses expanding minority homeownership
On April 19, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the Black Homeownership Collaborative’s Fair Housing Month Virtual Forum. In his remarks, Hsu described initiatives to expand fair access and homeownership opportunities for minorities, low- and moderate-income areas, and communities of color. Regarding home valuations, Hsu quoted a PAVE Program report (covered by InfoBytes here) that cited research finding that “12.5 percent of appraisals for home purchases in majority-Black neighborhoods and 15.4 percent in majority-Latino neighborhoods resulted in a value below the contract price—or what a buyer was willing to pay—compared with only 7.4 percent of appraisals in predominantly White neighborhoods.” Second, Hsu mentioned the OCC’s Project REACh (covered by InfoBytes here), which was launched in 2020 and promotes greater access to capital and credit for minority and underserved populations. Hsu compared Project REACh and the Black Homeownership Collaborative by claiming they both “recognize[] that there is power in bringing a range of stakeholders together to collaborate and solve problems.” Finally, Hsu noted that the federal banking agencies are modernizing and strengthening the CRA regulations to expand financial access and inclusion to low- and moderate-income communities, and noted that he expects an interagency CRA Notice of Proposed Rulemaking to come soon.
OCC issues final rule on authority for SAR requirements
On April 14, the OCC issued a bulletin reminding regulated banks of a final rule amending the agency’s suspicious activity report (SAR) regulations. The final rule takes effect May 1 (covered by InfoBytes here). Generally, the final rule clarifies the processes by which the OCC may issue exemptions from the requirements of the SAR regulations “based on a request … [for an exemption] that meets the criteria specified in the final rule.” The bulletin notes, however, that the final rule does not itself create any exemptions from the SAR regulations.
Agencies to update administrative enforcement proceedings
On April 13, the FDIC, OCC, Federal Reserve Board, and NCUA (collectively, “agencies”) announced they are issuing a notice of proposed rulemaking (NPRM) to modernize the agencies’ Uniform Rules of Practice and Procedure (Uniform Rules) applicable to formal administrative enforcement proceedings for insured depository institutions. As previously covered by InfoBytes, in March, the agencies issued an interagency proposal to update policies and procedures governing administrative proceedings for supervised financial institutions, which accounted for the routine use of electronic presentations in hearings and for use of technology in administrative proceedings, among other things. The proposed rule would recognize the use of electronic communications and technology in all aspects of administrative hearings to increase the accuracy and fairness of administrative adjudications. Among other things, the NPRM would (i) allow electronic signatures and filings; (ii) permit depositions to be held by remote means; (iii) modernize language and definitions; and (iv) extend certain filing time limits. Amended provisions also address additional topics including the authority of administrative law judges, adjudicatory proceedings, good faith certifications, ex parte communications, conflicts of interest, and expenses. The agencies also propose to modify their specific Local Rules of administrative practice and procedure applicable to enforcement actions brought by each agency. The OCC has already proposed to amend its rules on organization and functions to address service of process and to integrate its Uniform Rules and Local Rules so that a single set of rules applies to both national banks and federal savings associations Comments on both the interagency rulemaking and the OCC’s rulemaking are due 60 days after publication in the Federal Register.
OCC revises Comptroller’s Licensing Manual
On April 7, the OCC announced an updated version of the “General Policies and Procedures,” “Management Interlocks,” and “Public Notice and Comments” booklets of the Comptroller’s Licensing Manual. According to Bulletin 2022-11, the revised booklets replace booklets of the same title issued between January 2017 and October 2019. Additionally, the revised booklets, among other things: (i) reflect recent updates to 12 CFR 5 and other regulations; (ii) update guidance and references; and (iii) make other minor modifications and corrections throughout.
OCC says bank partnerships crucial in community reinvestment and resilience
On April 7, the OCC highlighted measures that banks can take to collaborate with community development financial institutions (CDFIs), minority depository institutions (MDIs), and other community-based groups to assist communities recovering from the Covid-19 pandemic and natural disasters. In the agency’s latest edition of its Community Developments Investments newsletter, “Partners in Recovery: Community Reinvestment and Resilience,” the OCC discussed ways banks have partnered with CDFIs and MDIs to originate small business loans, and highlighted federal emergency programs created to provide resources to low- and moderate-income and minority communities and businesses recovering from the disproportionate effects of the pandemic. The newsletter also provided examples of bank-community partnerships and addressed the role that these partnerships play in both rebuilding communities following disasters and the pandemic and preparing for future crises through climate resilience planning and investment.
Hsu discusses stablecoins, pushes for crypto banks
On April 8, acting Comptroller of the Currency Michael J. Hsu discussed stablecoin policy considerations in remarks before the Institute of International Economic Law at Georgetown University Law Center. Hsu called for the establishment of an “intentional architecture” for stablecoins developed along the principles of “[s]tability, interoperability and separability,” as well as “core values” of “privacy, security, and preventing illicit finance.” According to Hsu, one way to mitigate blockchain-related risks would be to “require that blockchain-based activities, such as stablecoin issuance, be conducted in a standalone bank-chartered entity, separate from any other insured depository institution [] subsidiary and other regulated affiliates.” Hsu also emphasized the need to evaluate whether stablecoin issuers should be required “to comply with a fixed set of safety and soundness-like requirements (as is the case with banks)” or be allowed to pick from a range of licensing options.
Additionally, Hsu raised the question about how separable stablecoin issuers should be. “Blockchain-based money holds the promise of being ‘always on,’ irreversible, programmable, and settling in real-time,” he explained. “With these benefits, however, come risks, especially if commingled with traditional banking and finance.” Specifically, Hsu cited concerns that a bank’s existing measures for managing liquidity risks associated with traditional payments “may not be effective for blockchain-based payments,” which could conceivably accumulate over a weekend and “outstrip a bank’s available liquidity resources.” Hsu also raised concerns related to the current “lack of interoperability” should stablecoins expand from trading to payments, and stressed that “[i]n the long run, interoperability between stablecoins and with the dollar—including a [central bank digital currency]—would help ensure openness and inclusion.” He added that this “would also help facilitate broader use of the U.S. dollar—not a particular corporate-backed stablecoin—as the base currency for trade and finance in a blockchain-based digital future.”
FDIC instructs banks to provide notification when engaging with crypto assets
On April 7, the FDIC released FIL-16-2022, titled “Notification of Engaging in Crypto-Related Activities,” instructing banks that intend to engage in, or that are currently engaged in, any activities involving or related to crypto assets (also referred to as “digital assets”), to notify the FDIC of their intent and to provide “all necessary information that would allow the FDIC to engage with the institution regarding related risks.” The FDIC noted that, though it “supports innovations that are safe and sound,” the agency is “concerned that crypto assets and crypto-related activities are rapidly evolving, and risks of this area are not well understood given the limited experience with these new activities.” According to the FDIC, crypto-related activities “may pose significant safety and soundness risks as well as financial stability concerns,” digital asset activities “present risks to consumers,” and insured depository institutions “face risks in effectively managing the application of consumer protection laws and regulations” related to these “new and changing crypto-related activities.” The letter also specified that a bank should promptly "notify the appropriate FDIC Regional Director” of “information necessary to allow the agency to assess the safety and soundness, consumer protection, and financial stability implications” of digital asset activities. The FDIC will review the information and provide relevant supervisory feedback.
FDIC announces Puerto Rico disaster relief
On April 5, the FDIC issued FIL-15-2022 to provide regulatory relief to financial institutions and facilitate recovery in areas of Puerto Rico affected by severe storms, flooding and landslides. The FDIC acknowledged the unusual circumstances faced by institutions and their customers affected by the weather and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, so long as these measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
OCC’s Hsu discusses large bank resolvability
On April 1, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the University of Pennsylvania Wharton School of Business focusing on financial stability and large bank resolvability. In his remarks, Hsu described gaps in resolvability for the largest non-global systemically important banks, potential solutions, and the subsequent effect on financial stability. Hsu stated that he has been involved in every “systemically important” financial stability event since 2008, and that the dangers posed by too-big-to-fail firms “are not a theoretical matter” to him. While the resolvability of the eight global systemically important banks (GSIB) is “logica[lly]” regulated under Title I of the Dodd-Frank Act, Hsu warned that the largest non-GSIB banks are not subject to these "heightened standards.” Hsu pointed out that the four largest non-GSIB banks have total consolidated assets greater than $500 billion, and questioned that “if one were to fail, how would it be resolved?” Noting that the likely resolution would be the absorption of the failing non-GSIB bank by one of the GSIBs, Hsu stated that this is not a “terrible outcome” from a “traditional financial stability perspective.” However, “a GSIB would be forced through a shotgun marriage to be made significantly more systemic, with minimal due diligence and limited identification of integration challenges, which for firms of this size are significant,” he stated. Hsu advocated for utilizing a “single-point-of-entry,” which is the same strategy to which GSIBs are currently subject under their resolution planning framework. Hsu explained that with this approach, “only the parent holding company is supposed to file for bankruptcy or be taken into receivership; all of the material subsidiaries are expected to continue to operate and function, thus avoiding the chaos of multiple proceedings.”
OCC’s Hsu discusses managing tail risks
On March 31, acting Comptroller of the Currency Michael J. Hsu spoke before the American Bankers Association Risk 2022 Conference to discuss managing low probability, high impact risk events, or tail risks. In particular, Hsu highlighted the connection between Russia’s invasion of Ukraine and heightened tail risks associated with geopolitical risk, cyber risk, and inflation risk. Hsu warned that multiple possible events stemming from the conflict, including cyber-attacks from Russia, broader conflict in Europe, and increased inflation could materialize simultaneously increasing the chances that tail risks materialize that could trigger a recession. Hsu noted that the increase of sanctions to oil and gas would put upward pressure on fuel prices, and “Ukraine’s role as a producer of wheat, neon, platinum, and palladium is also beginning to affect global prices in certain markets.” Despite the elevated risks, Hsu noted that enhanced stress testing has positioned large banks to absorb a range of shocks, but warned that “nonetheless, greater caution and risk management vigilance is warranted today, perhaps more than any time in recent memory.” Hsu also singled out risks associated with crypto assets and said that the OCC is collaborating with other agencies on “how to maintain a consistent, careful and cautious” approach to bank involvement in cryptocurrency. Hsu cautioned that in light of “limited or unreliable price histories” of crypto-assets, financial institutions should “carefully consider” the tail risks associated with factoring cryptocurrency positions into the overall risk management process. Hsu discussed his worry regarding the potential for crypto derivatives to create “wrong-way risk” in which a leveraged party use trades to “double-down” at the same time it is experiencing financial stress. Hsu stated that the OCC has engaged with government agencies in the U.K. and U.S. on “how to maintain a consistent, careful, and cautious approach to bank involvement in crypto.”