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Agencies release statement on the community bank leverage ratio framework
On December 21, the Federal Reserve Board, the OCC, and the FDIC released an interagency statement regarding the optional community bank leverage ratio (CBLR) framework. According to the announcement, temporary relief measures affecting the framework are set to expire on December 31, 2021, and the CBLR requirement will revert to greater than 9 percent, as established under the 2019 final rule, starting January 1, 2022. The announcement further noted that “[t]he community bank leverage ratio framework includes a two-quarter grace period that allows a qualifying community bank to continue reporting under the framework and be considered ‘well capitalized’ as long as its leverage ratio falls no more than 1 percentage point below the applicable community bank leverage ratio requirement.” Other highlights of the announcement include, among other things: (i) if a banking organization elects the CBLR framework when submitting its March 31, 2022 Call Report, it will be subject to the greater than 9 percent CBLR requirement and must utilize total consolidated assets as of the report date to determine eligibility; and (ii) starting January 1, 2022, “a banking organization in the CBLR framework must report a leverage ratio greater than 8 percent to use the two-quarter grace period.”
Agencies release 2020 CRA data
On December 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 2020 small business, small farm, and community development CRA data. The analysis contains information from 687 lenders about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2020, a 1.2 percent decrease from the 695 lenders that reported data in 2019. According to the analysis, the total number of originated loans decreased by approximately 1.7 percent from 2019, with the dollar amount of originations increasing by roughly 7.9 percent. The analysis further noted that 621 banks reported community development lending activity totaling nearly $169 billion in 2020, a 52 percent increase from 2019.
OCC updates OREO booklet
On December 20, the OCC issued Bulletin 2021-65 announcing the revision of the Other Real Estate Owned (OREO) booklet of the Comptroller’s Handbook, which applies to the OCC’s supervision of community banks. The updated booklet replaces the booklet of the same title issued in September 2020, and rescinded OCC Bulletin 2020-79, “Other Real Estate Owned: Updated Comptroller’s Handbook Booklet.” (Covered by InfoBytes here.) Among other clarifying changes, the updated booklet: (i) defines physical possession as it pertains to OREO properties; and (ii) updates ownership obligations and actions as they pertain to the Fair Housing Act.
OCC updates HMDA examination procedures
On December 17, the OCC released revised interagency HMDA examination procedures for HMDA compliance. The revised examination procedures address changes made to the effective dates for banks meeting or exceeding either the closed-end mortgage loans or the open-end lines of credit loan-volume threshold in each of the two preceding calendar years. Effective July 1, 2020, a bank that “originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 500 open-end lines of credit in each of the two preceding calendar years meets or exceeds the loan-volume threshold.” Effective January 1, 2022, the temporary 500 open-end lines of credit provision expires, and a bank that “originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 200 open-end lines of credit in each of the two preceding calendar years” will now meet or exceed the loan-volume threshold. The revised examination procedures also outline changes to partial exemptions for an application or covered loan. A partial exemption applies to: (i) applications for originations of, and purchases of closed-end mortgage loans when the bank originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years, and (ii) applications for originations of, and purchases of open-end lines of credit provided the bank originated fewer than 500 open-end lines of credit in each of the two preceding calendar years.
Bulletin 2021-63 rescinds OCC Bulletin 2010-8, “Compliance Policy: Revised Home Mortgage Disclosure Act Examination Procedures,” as well as OCC Bulletin 2019-19, “Home Mortgage Disclosure Act: Revised Interagency Examination Procedures.”
FDIC updates videos on the mortgage servicing rules
On December 17, the FDIC announced that it updated the technical assistance videos on the mortgage servicing rules. According to the announcement, the information in the five videos provides a high-level overview, which is intended to help FDIC-supervised institutions understand and comply with the mortgage servicing rules. The announcement also noted that the videos incorporate the 2016 Mortgage Servicing Rule and the 2016 Fair Debt Collection and Practices Act Interpretive Rule, and that the video series generally focus on the small servicer, as defined in Regulation Z. Highlights of each video include, among other things: (i) an overview of mortgage servicing and information for determining whether a servicer qualifies as a small servicer under Regulation Z (Video 1); (ii) key provisions for which small servicers do not have an exception (Video 2); (iii) an overview of some of the requirements that apply to large servicers and not small servicers (Video 3); (iv) information regarding successors in interest (Video 4); and (v) information and examples related to developing a compliance management system (Video 5).
OCC solicits feedback on recently released climate-related risk principles
On December 16, the OCC announced draft principles intended to support the identification and management of climate-related financial risks at OCC-regulated institutions with over $100 billion in total consolidated assets. (See also OCC Bulletin 2021-62.) The principles address, among other things: (i) governance; (ii) polices, procedures and limits; (iii) strategic planning; (iv) risk management; (v) data, risk measurement, and reporting; and (vi) scenario analysis. According to the OCC, the principles are meant to support banks’ efforts to focus on key aspects of climate-related financial risk management and to provide a high-level framework for climate-related financial risk management consistent with existing OCC rules and guidance. The OCC also noted that though all banks, regardless of size, could potentially experience material exposures to climate-related financial risks, the principles are targeted at the largest banks. According to the announcement, the OCC intends “to elaborate on these principles in subsequent guidance that would distinguish roles and responsibilities of boards and management, incorporate the feedback received on the principles, and consider lessons learned and best practices from the industry and other jurisdictions.” Comments are due by February 14, 2022.
Agencies release annual CRA asset-size threshold adjustments
On December 16, the Federal Reserve Board and the FDIC announced joint annual adjustments to the CRA asset-size thresholds used to define “small bank” and “intermediate small bank,” which are subject to streamlined CRA evaluations, but not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small bank” is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.384 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $346 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.384 billion in assets. The joint final rule takes effect on January 1, 2022.
FSOC highlights potential risks in 2021 annual report
On December 17, the Financial Stability Oversight Council (FSOC) released its annual report highlighting significant financial market and regulatory developments, potential financial risks, and recommendations for promoting U.S. financial stability. The report focused on several recommendations that FSOC member agencies should take to mitigate systemic risk and ensure financial stability.
- Climate-related Financial Risk. FSOC advised financial regulators to “promote consistent, comparable, and decision-useful disclosures that allow investors and financial institutions to take climate-related financial risks into account in their investment and lending decisions.” Taking these steps, FSOC noted, will enable financial regulators to promote resilience within the financial-sector and help support an orderly, economy-wide transition to net-zero emissions. FSOC also recognized the importance of incorporating climate-related risks into risk management practices and supervisory expectations for regulated entities. The same day, acting Comptroller of the Currency Michael J. Hsu issued a statement supporting FSOC’s new Climate-Related Financial Risk Committee, which was announced in October (covered by InfoBytes here). “The CFRC will play an important role in identifying priority areas for assessing and mitigating climate-related risks to the financial system, coordinating information sharing, aiding in the development of common approaches and standards, and facilitating communication across FSOC members and interested parties. Addressing climate-related risks to the financial system requires the collaboration of multiple parties and partnerships, using many strategies and mechanisms.”
- Digital Assets. FSOC recommended that federal and state regulators continue to examine financial risks posed by emerging uses of digital assets and coordinate efforts to address potential issues arising in this space. FSOC advised member agencies to consider the recommendations in the President’s Working Group on Financial Markets’ “Report on Stablecoins” (covered by InfoBytes here), which was published in coordination with the FDIC and the OCC.
- LIBOR Transition. FSOC commended the Alternative Reference Rates Committee’s efforts to facilitate an orderly transition from LIBOR to alternative reference rates, and advised member agencies to “determine whether regulatory relief is necessary to encourage market participants to address legacy LIBOR portfolios.” Additionally, member agencies should “continue to use their supervisory authority to understand the status of regulated entities’ transition from LIBOR, including their legacy LIBOR exposure and plans to address that exposure.”
- Cybersecurity. FSOC advised federal and state agencies to “continue to monitor cybersecurity risks and conduct cybersecurity examinations of financial institutions and financial infrastructures to ensure, among other things, robust and comprehensive cybersecurity monitoring, especially in light of new risks posed by the pandemic, ransomware incidents, and supply chain attacks.”
While noting that financial conditions have normalized since spring 2020, FSOC noted that “risks to U.S. financial stability today are elevated compared to before the pandemic” and that “the outlook for global growth is characterized by elevated uncertainty, with the potential for continued volatility and unevenness of growth across countries and sectors.”
FinCEN, OCC take action against bank for AML violations
On December 16, FinCEN announced an $8 million civil money penalty against a Texas-based bank for violating the Bank Secrecy Act (BSA) and its implementing regulations from at least 2015 to 2019 by allegedly failing to implement and maintain an effective, reasonably designed anti-money laundering (AML) program. According to the consent order, the bank allegedly failed to report hundreds of suspicious transactions to FinCEN involving illegal financial activity by its customers and continued to knowingly process the transactions after becoming aware that certain customers were subjects of criminal investigations. According to FinCEN, the bank’s violations “caused millions of dollars in suspicious transactions to go unreported to FinCEN in a timely and accurate manner, including transactions connected to tax evasion, illegal gambling, money laundering, and other financial crimes.”
The same day, the OCC announced a $1 million civil money penalty against the bank for “related violations.” According to the OCC’s separate but coordinated investigation with FinCEN, the bank allegedly failed to adopt and implement a BSA/AML system of internal controls to assure ongoing compliance with the BSA and its implementing regulations. According to the consent order, the bank’s alleged internal control deficiencies, and other failures in its BSA/AML compliance program, “resulted in the failure to investigate and disposition alerts and violations of the suspicious activity reporting requirements.” FinCEN's announcement noted that, “[a]s many of the facts and circumstances underlying the OCC’s civil penalty also form the basis of FinCEN’s Consent Order, FinCEN agreed to credit the $1 million civil penalty imposed by the OCC, and “[t]aken together, [the bank] will pay a total of $8 million to the U.S. Treasury as a penalty for its violations, with $7 million representing FinCEN’s penalty and $1 million representing the OCC’s penalty.”
OCC releases enforcement actions
On December 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with such entities. Included in the release is a cease and desist order issued against an Oklahoma-based bank for alleged “unsafe or unsound practices” related “to management and board supervision, strategic and capital planning, risk ratings and loan review, credit administration, and the allowance for loan and lease losses.” Without admitting or denying the claims, the bank is required by the order to, among other things, maintain capital ratios, as defined in and as calculated in accordance with 12 C.F.R. Part 3: (i) “a total capital ratio at least equal to thirteen percent”; and (ii) “a leverage ratio at least equal to nine percent.” The order also provides that the bank must establish a Compliance Committee “to monitor and oversee the Bank’s compliance with the provisions of this [o]rder,” and “will meet at least monthly and maintain minutes of its meetings.”