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On April 11, acting Director of the Office of Management and Budget (OMB), Russel Vought, sent a memorandum to the heads of all executive agencies announcing that on May 11, agencies will be required to submit all regulatory guidance materials to the Office of Information and Regulatory Affairs (OIRA) for review prior to publication. The memo asserts that the Congressional Review Act (CRA) “applies to more than just notice-and-comment rules; it also encompasses a wide range of other regulatory actions, including, inter alia, guidance documents, general statements of policy and interpretive rules” and therefore, agencies should not publish a regulatory action in the Federal Register without first submitting the document to OIRA to determine whether it is considered a “major rule” under the CRA. The CRA defines a “major rule” as one having (i) an annual effect on the economy of at least $100 million; (ii) a major increase in costs or prices for consumers, individual industries, or federal and state governments; or (iii) significant adverse effects on competition, employment, and U.S.-based enterprises. Should OIRA consider the regulatory action to be a “major rule,” the rule will be submitted to Congress with OIRA’s report and will not become effective sooner than 60 days after its submission. The memo instructs agencies to provide OIRA a quantitative analysis, which includes costs, benefits, and transfer impacts relative to a baseline, “when reasonably possible.” Additionally, the agency’s analysis should include whether the regulatory action would impose a disproportionate cost on a particular group or place a significant burden on the economy.
On April 8, the Federal Reserve Board announced a notice of proposed rulemaking and request for comment (NPRM) seeking to modify its regulation of the regulatory capital requirements for U.S. subsidiaries of foreign banking organizations. Chairman Jerome Powell referred to a proposal issued last fall for refining regulations for domestic banking firms based on risk profiles (previously covered by InfoBytes here), and noted that “because the U.S. operations of most foreign banks tend to have a larger cross-border profile, greater capital markets activities, and higher levels of short-term funding, they often present greater risk than a simpler, more traditional domestic bank.”
The NPRM builds upon the Federal Reserve’s framework for U.S. firms announced last fall, and states that foreign banking organizations with $100 billion or more in U.S. assets would be assigned to one of three categories based on the size of their U.S. operations as well as the following risk-based indicators: “cross-jurisdictional activity, nonbank assets, off-balance sheet exposure, and weighted short-term wholesale funding.” Under the proposal, foreign banking organizations would be classified into the following three categories: (i) Category II: foreign banking organizations with U.S. assets exceeding $700 billion or $75 billion in cross-border activity; (ii) Category III: foreign banking organizations with more than $250 billion in U.S. assets that also exceed certain risk thresholds; and (iii) Category IV: foreign banking organizations with U.S. assets between $100 billion and $250 billion and minimal risk factors. Category I would be reserved for U.S.-based global systemically important banks.
A second proposal issued the same day by the Federal Reserve Board, the FDIC, and the OCC (collectively, the “Agencies”) requests comment on, among other things, whether the Agencies should extend standardized liquidity requirements to foreign banking organizations’ U.S.-based branches and agency networks as well as approaches for doing so.
Comments on both proposals are due June 21.
CFPB and Federal Reserve update HMDA examination procedures; CFPB updates ECOA baseline review procedures
On April 1, the CFPB and the Federal Reserve Board (Federal Reserve) issued revisions to the HMDA examination procedures covering data collected since January 1, 2018, under the HMDA amendments issued by the Bureau in October 2015 and August 2017, as well as section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (implemented and clarified by the 2018 HMDA Rule, which was covered by InfoBytes in August 2018 here.) According to the Federal Reserve’s CA 19-5, the HMDA examination updates include, (i) Narrative, Examination Objectives, and Examination Procedure sections that were developed by the Task Force on Consumer Compliance of the FFIEC; (ii) Review of Compliance Management System, Examination Conclusions and Wrap-Up, and Examination Checklist sections that were developed in consultation with the FDIC and the OCC; and (iii) sampling, verification, and resubmission procedures. With regard to HMDA data collected prior to January 1, 2018, institutions will continue to be examined according to the interagency HMDA examination procedures “transmitted with CA 09-10 and the HMDA sampling and resubmission procedures transmitted with CA 04-4.”
Additionally, in April, the CFPB also released updated ECOA baseline review procedures. The procedures consist of five modules: (i) Fair Lending Supervisory History; (ii) Fair Lending Compliance Management System (CMS); (iii) Fair Lending Risks Related to Origination; (iv) Fair Lending Risks Related to Servicing; and (v) Fair Lending Risks Related to Models. According to the Bureau, all exams will cover the Fair Lending CMS module and additional modules will be assigned depending on the scope of examination.
On April 2, the FDIC, Federal Reserve Board, and the OCC (together, the “Agencies”) released a joint statement announcing a notice of proposed rulemaking (NPR) to limit the “interconnectedness” of large banking organizations and reduce systemic risk resulting from the failure of global systemically important bank holding companies (GSIBs), certain intermediate holding companies, and GSIB foreign banking organizations. Among other measures, the NPR proposes that, to discourage GSIBs and advanced approaches banking organizations (generally firms with total consolidated assets of $250 billion or more or at least $10 billion in on-balance sheet foreign exposure) from purchasing large amounts of unsecured debt issued by GSIBs, the Agencies propose to subject these investments “to deduction from the . . . organization’s own regulatory capital.” This debt, the Agencies note in the statement, is used to recapitalize the GSIB during bankruptcy or resolution as a result of failure, and the proposal is intended to reduce both interconnectedness within the financial system and systemic risk. Comments on the NPR are due 60 days after publication in the Federal Register.
On April 1, the Federal Reserve Board published a revised policy statement on payment system risk (PSR policy) in connection with procedures used to determine the “net debit cap and maximum daylight overdraft capacity” of U.S. branches and agencies of foreign banking organizations (FBO). Among other things, the amended PSR policy (i) removes references to the Strength of Support Assessment ranking, citing the ranking is an “inefficient use” of supervisory resources; (ii) removes references to a FBO’s financial holding company status, since that status has limited ability to measure the health of a FBO; and (iii) adopts alternative methods for determining a FBO’s “eligibility for a positive net debit cap, the size of its net debit cap, and its eligibility to request a streamlined procedure to obtain maximum daylight overdraft capacity.” The Board adopted the changes substantially as proposed, following a notice and request for comment period at the end of 2017. The revisions are effective April 1, 2020.
On March 29, the FDIC Board of Directors approved proposals to amend two rules, which would simplify the process for making deposit insurance determinations in the event a bank enters receivership. The first proposal amends Part 370 of the FDIC’s Rules and Regulations for “Recordkeeping for Timely Deposit Insurance Determination,” to address issues raised during implementation of the final rule adopted in November 2016 (covered by InfoBytes here). Among other things, the proposal provides an optional one-year extension of the rule’s compliance date of April 1, 2020. The second proposal amends Part 330, which would allow satisfaction of proof of co-ownership for deposits of a joint account to be insured separately from deposits in respective individual accounts, to be established by other information contained in deposit account records, and not solely by signed signature cards of each co-owner. Comments on each proposal will be due within 30 days of publication in the Federal Register.
On March 26, the OCC released Bulletin 2019-16, which announces that the FFIEC Task Force on Consumer Compliance developed new interagency examination procedures to reflect the amendments to Regulations Z and E under the CFPB’s Prepaid Accounts Rule (covered by InfoBytes here), which go into effect on April 1. Specifically, the examination procedures reflect (i) Regulation E requirements covering disclosures, limited liability and error resolution, periodic statement, and posting of account agreements; and (ii) Regulation Z requirements covering overdraft credit features with prepaid accounts.
On March 14, the FHA announced updates to its manual underwriting requirements for single-family mortgages with credit scores under 620 and debt-to-income ratios greater than 43 percent. The updates to the Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard will apply to mortgages with FHA case numbers assigned on or after March 18. This announcement reverses a decision made in August 2016 to remove a manual underwriting rule from the TOTAL Mortgage Scorecard, which the FHA claims has resulted in a “significant increase in higher-risk loans FHA endorses.” Lenders that submit higher-risk mortgages to the TOTAL Mortgage Scorecard through an automated underwriting system now may be informed that these mortgages must be manually underwritten. The FHA noted that “[t]he lender’s final underwriting review decision for those mortgages must be documented in accordance with existing FHA requirements for manually underwritten mortgages.”
On March 25, the CFPB announced that the Federal Financial Institutions Examinations Council (FFIEC) issued the 2019 edition of the “Guide to HMDA Reporting: Getting It Right!,” which reflects the amendments made to HMDA by the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act and the August 2018 interpretive and procedural rule issued by the CFPB. (Covered by InfoBytes here.) The guide includes (i) a summary of responsibilities and requirements; (ii) directions for assembling the necessary tools; and (iii) instructions for reporting HMDA data.
On March 20, the CFPB published in the Federal Register two requests to renew information collections, one on the “Report of Terms of Credit Card Plan,” which collects data from at least 150 financial institutions on credit card pricing and availability, and the other on ECOA and Regulation B. For both information collections, the Bureau is seeking comments on (i) whether the information collections are necessary for the proper function of the Bureau; (ii) if the Bureau accurately estimates the burden of the collection and how to minimize that burden; and (iii) how the Bureau can “enhance the quality, utility, and, clarity of the information” collected. Comments on both requests must be received by May 20.
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