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Fed’s final rule modifies assessment fees for large financial companies
On November 19, the Federal Reserve Board issued a final rule modifying the annual assessment fees for its supervision and regulation of large financial companies. The final rule is nearly identical to the proposal issued in November 2019, covered by InfoBytes here. The final rule raises the minimum threshold from $50 billion to $100 billion in total consolidated assets to be considered an assessed company and adjusts the amount charged to assessed companies, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule will be effective 30 days after publication in the Federal Register.
Agencies provide regulatory relief to community banks
On November 20, the Federal Reserve Board, the OCC, and the FDIC issued an interim final rule providing temporary relief from certain regulation and reporting requirements for community banking organizations. Specifically, the interim final rule—which applies to community banking organizations and financial institutions with less than $10 billion in total assets as of December 31, 2019—gives community banks relief from expanded regulation and reporting requirements that may have been triggered due to participation in federal coronavirus response programs. The agencies note that programs, such as the Paycheck Protection Program and other lending facilities, may cause rapid and unexpected increases in the community bank’s size. The agencies expect these increases to be temporary and thus, the rule states that asset growth in 2020 or 2021 will not trigger new regulatory requirements for applicable community banking organizations until January 1, 2022, at the earliest. The rule is effective upon publication in the Federal Register.
Agencies finalize certain 2021 thresholds
On November 18, the CFPB, OCC, and the Federal Reserve Board announced a final rule, which increases the TILA smaller loan exemption threshold for the special appraisal requirements for higher-priced mortgage loans (HPMLs). TILA requires creditors to obtain a written appraisal before making a HPML unless the loan amount is at or below the threshold exemption. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2021 is $27,200, which remains at the same level it was in 2020.
Additionally, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of TILA (Regulation Z) and Consumer Leasing Act (Regulation M) (available here and here), as required by the Dodd-Frank Act. The exemption threshold for 2021, based on the annual percentage increase in the CPI-W, remains unchanged at $58,300 or less, except for private education loans and loans secured by real or personal property used or expected to be used as the principal dwelling of a consumer, which are subject to TILA regardless of the amount.
The final rules take effect on January 1, 2021.
OCC’s final rule amends licensing requirements
On November 16, the OCC announced a final rule to update and clarify certain licensing policies and procedures for national banks and federal savings associations. (See also Bulletin 2020-100.) The final rule makes various changes to 12 CFR Part 5, “Rules, Policies, and Procedures for Corporate Activities,” to eliminate unnecessary requirements consistent with safe, sound, and fair operation of the federal banking system. The OCC originally proposed the changes in March (covered by InfoBytes here). The final rule’s changes will, among other things, (i) allow national and federal savings associations to follow the procedures applicable to state banks or state savings associations for certain business combinations; (ii) expand operating subsidiary notice and expedited review processes to include activities that are substantively the same as activities previously approved by the OCC; (iii) allow non-controlling investments and pass-through investments in non-OCC supervised entities and permit certain other investments without a filing; (iv) create procedures for citizenship and residency waivers for national bank directors; (v) redefine “troubled condition” in relation to director and senior executive officer changes “to specify that an enforcement action must require the national bank or savings association to improve its financial condition for it to be considered in ‘troubled condition’ solely as a result of the enforcement action”; and (vi) add chief risk officer to the list of positions for which a bank in troubled condition must provide notice when making a personnel change. The final rule will take effect January 1, 2021, with certain exceptions that becomes effective upon publication in the Federal Register.
FHA proposes private flood insurance option
On November 10, the Federal Housing Administration (FHA) issued a proposed rule which would allow mortgagors the option to purchase private flood insurance on FHA-insured mortgages for properties located in Special Flood Hazard Areas (SFHAs). Under the Flood Disaster Protection Act of 1973, property owners located in an SFHA, and a community participating in the National Flood Insurance Program, are required to purchase flood insurance as a condition of receiving a mortgage backed by Fannie Mae or Freddie Mac, the Department of Veterans Affairs, the United States Department of Agriculture, or the FHA. The proposed rule would allow the purchase of private mortgage insurance for properties in SFHAs for the first time. Additionally, the proposed rule seeks comment on a compliance aid, which would “help mortgagees evaluate whether a flood insurance policy meets the definition of ‘private flood insurance.’” According to the FHA, between three and five percent of FHA borrowers could obtain a private flood insurance policy if the option becomes available.
OCC addresses CRA provisions and FAQs
On November 9, the OCC released Bulletin 2020-99, which discusses key provisions of the June 2020 Community Reinvestment Act (CRA) Rule and includes FAQs. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. The final rule was technically effective on October 1, but the final rule provides for at least a 27-month transition period for compliance based on a bank’s size and business model. Large banks and wholesale and limited purpose banks will have until January 1, 2023 to comply, and small and intermediate banks that opt-in to the final rule’s performance standards will have until January 1, 2024. The Bulletin details the key provisions of the final rule, including the (i) new criteria for designating bank assessment areas, and (ii) varying performance standards by bank type. The Bulletin’s FAQs cover a range of topics including (i) the transition period; (ii) qualifying activities; (iii) activities outside bank assessment areas; (iv) examination administration; and (v) data collection and reporting.
The Bulletin notes that the OCC is conducting outreach to provide banks with more information regarding how the agency will administer the transition to the final rule. Additionally, the Bulletin notes the OCC will issue guidance addressing how the July 2016 Interagency Questions and Answers Regarding Community Reinvestment will apply to activities conducted under the final rule.
Lastly, the Bulletin rescinds OCC Bulletin 2020-3, “Community Reinvestment Act: Notice of Proposed Rulemaking,” and OCC Bulletin 2020-4, “Community Reinvestment Act: Request for Public Input.”
OCC’s Director’s Toolkit updates corporate governance responsibilities
On November 5, the OCC released updates to its Director’s Toolkit to assist directors of national banks and federal savings associations fulfill their corporate governance responsibilities. (See also OCC Bulletin 2020-97.) The revised Director’s Book: Role of Directors for National Banks and Federal Savings Associations (Director’s Book), as well as the new Director’s Reference Guide to Board Reports and Information (Director’s Reference Guide), replace and rescind previously issued OCC publications. In addition to including revisions from the “Corporate and Risk Governance” booklet of the Comptroller’s Handbook (covered by InfoBytes here), the Director’s Book also (i) provides an overview of the agency; (ii) outlines responsibilities for directors as well as management’s role; (iii) “explains basic concepts and standards for safe and sound operation of banks”; and (iv) “delineates laws and regulations that apply to banks.” The Director’s Reference Guide focuses on key areas related to planning, operations, and risk management, and is structured to “provide examples of sources of information, measures, questions to consider, red flags, and references to directors.” The OCC notes that the “types, amount, and frequency of information that directors should receive to effectively perform their duties vary at each bank and continually evolve.”
Fed report highlights banks’ Covid-19 responses
On November 6, the Federal Reserve Board (Fed) issued its Supervision and Regulation Report, which summarizes banking system conditions and the Fed’s supervisory and regulatory activities. The current report discusses the safety and soundness of the banking industry, especially with respect to economic and financial stresses resulting from Covid-19 containment measures. The report highlights, among other things, that Fed programs “have helped to preserve the flow of credit” and that banks have taken several actions to maintain financial and operational resiliency. These actions include providing access to substantial lines of credit for corporate borrowers and playing a significant role in supporting small businesses through the Paycheck Protection Program. In addition, the report notes that loan growth has grown slightly since the beginning of the year and that capital positions and liquidity conditions remain strong. However, the report cautions that while “economic indicators have shown marked improvement since the second quarter, a high degree of uncertainty persist.” The report also details the Fed’s current areas of supervisory focus and describes how banks have adapted to a largely remote working environment.
The same day, the Fed also announced updates to the list of firms supervised by its Large Institution Supervision Coordinating Committee Program, which is responsible for supervising the largest and most complex firms. As a result, “certain foreign banks with U.S. operations that have substantially decreased in size and risk over the past decade will move to the Large and Foreign Banking Organization supervision portfolio, where they will be supervised with other banks of similar size and risk.” The Fed stresses that the “portfolio move will have no effect on the regulatory capital or liquidity requirements of any firm.”
OCC exempts certain QFCs from express recognition requirements
On November 2, the OCC issued Bulletin 2020-95, which announced a September 30 order granting an exemption from the express recognition requirements of 12 CFR 47.4 for certain categories of qualified financial contracts (QFC). According to the OCC, the order is intended to relieve the burdens faced by financial institutions and is consistent with the purpose of the express recognition requirements of 12 C.F.R. § 47.4 “in achieving uniform cross-border application of the U.S Special Resolution Regimes to contracts subject to such authorities.” Specifically, the order states that “non-U.S. non-linked contracts” that are entered into by foreign subsidiaries of covered banks—large, systemically important banks—are exempt from the express recognition requirements of 12 C.F.R. § 47.4.
Agencies outline standards for strengthening operational resilience
On October 30, the Federal Reserve Board, OCC, and FDIC (agencies) released an interagency paper describing standards and sound practices for increasing operational resilience. (See also the Fed’s release and FDIC FIL-103-2020). The paper, titled Sound Practices to Strengthen Operational Resilience, does not revise existing agency regulations or guidance, but rather provides a “comprehensive approach” for banks to strengthen and maintain operational resilience. According to the agencies, “[r]obust operational risk and business continuity management anchor the sound practices, which are informed by rigorous scenario analyses and consider third-party risks. Secure and resilient information systems underpin the approach to operational resilience, which is supported by thorough surveillance and reporting.” The paper also includes an appendix focused on sound practices for cyber risk management and cybersecurity preparedness. The appendix is aligned to the National Institute of Standards and Technology Cybersecurity Framework and is “augmented to emphasize governance and third-party risk management.” The standards set forth in the paper are intended for large, domestic banks with more than $250 billion in average total consolidated assets, or banks with more than $100 billion in total assets and other risk characteristics.