InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Trump signs legislation enacting bipartisan regulatory relief bill
On May 24, President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill) — which modifies provisions of the Dodd-Frank Act and eases certain regulations on certain smaller banks and credit unions. Upon signing, the White House released a statement quoting the president, “[c]ommunity banks are the backbone of small business in America. We are going to preserve our community banks.”
The House, on May 22, passed the bipartisan regulatory reform bill by a vote of 258-159. The bill was crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho and passed by the Senate in March. The House passed the bill without any changes to the Senate version, even though House Financial Services Chairman, Jeb Hensarling, originally pushed for additional reform provisions to be included. Specifically, the bill does not include certain provisions that were part of Hensarling’s Financial CHOICE Act, such as (i) a complete repeal of the Volker Rule; (ii) subjecting the CFPB to the Congressional appropriations process and restructure the agency with a bipartisan commission; and (iii) reducing the Financial Stability Oversight Council’s (FSOC) authority to designate nonbank financial institutions as Systemically Important Financial Institutions (SIFIs).
In response to the bill’s passage, the OCC’s Comptroller of Currency, Joseph Otting, issued a statement supporting the regulatory changes and congratulating the House, “[t]his bill restores an important balance to the business of banking by providing meaningful reductions of regulatory burden for community and regional institutions while safeguarding the financial system and protecting consumers.” Additionally, acting Director of the CFPB, Mick Mulvaney, applauded Congress, noting that the reforms to mortgage lending were “long overdue” and called the bill “the most significant financial reform legislation in recent history.”
As previously covered by InfoBytes, the highlights of the bill include:
- Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
- Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
- Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending from nine months to one year the protection that shields military personnel from foreclosure proceedings after they leave active military service; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to the TILA ability-to-repay requirement.
- Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a SIFI from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
- Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.
Each provision of the bill will take effect at various intervals from the date of enactment up to 18 months after.
FFIEC issues Examination Modernization Project update
On March 22, the Federal Financial Institutions Examination Council (FFIEC) issued an update on the status of its Examination Modernization Project. According to FDIC FIL-11-2018 and the accompanying press release, the project’s objective is to identify and assess measures to improve the community bank safety and soundness examination process, pursuant to the Economic Growth and Regulatory Paperwork Reduction Act’s review of regulations. According to feedback from selected supervised institutions and examiners, agencies should ensure examiners understand the importance of clear, transparent communication objectives during the examination process. As a result, the FFIEC indicated the following four areas with the potential for “meaningful supervisory burden reduction”:
- regulator communication objectives should be highlighted and reinforced before, during, and after examinations;
- technology should be leveraged to “shift, as appropriate, examination work from onsite to offsite”;
- examinations should continue to be tailored “based on risk”; and
- electronic file transfer systems should be improved “to facilitate the secure exchange of information between institutions and supervisory offices or examiners.”
The FFIEC also announced plans to take further action on other areas of improvement.
Senate passes bipartisan financial regulatory reform bill
On March 14, by a vote of 67-31, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill)—a bipartisan regulatory reform bill crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho—that would repeal or modify provisions of Dodd-Frank and ease regulations on all but the biggest banks. (See previous InfoBytes coverage here.) The bill’s highlights include:
- Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
- Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
- Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending the protection that shields military personnel from foreclosure proceedings after they leave active military service from nine months to one year; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses general consumer protection options such as expanded credit freezes and the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to TILA consumer protections.
- Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a systemically important financial institution from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
- Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.
The bill now advances to the House where both Democrats and Republicans think it is unlikely to pass in its current form.
House passes several bills focused on regulatory relief
On March 6, the House passed H.R. 2226, the “Portfolio Lending and Mortgage Access Act,” amending TILA and expanding the safe harbor provisions provided to qualified residential mortgages held in portfolio by banks with less than $10 billion in assets. Under the bill, a mortgage lender would not be subject to civil liability for violating specified ability-to-repay requirements if, among other things, the loan was originated and held continuously in portfolio by a covered institution and complies with certain limitations and requirements related to prepayment penalties and points and fees..
On the same day, the House also passed H.R. 4725, the “Community Bank Reporting Relief Act,” to amend the Federal Deposit Insurance Act to reduce the regulatory reporting burden on community banks. Specifically, federal banking agencies would be required to issue regulations allowing qualified depository institutions with less than $5 billion in assets to submit abbreviated call reports (consolidated reports of condition and income) every other quarter rather than submitting full call reports every quarter.
Finally, by a vote of 264-143, the House passed H.R. 4607, the “Comprehensive Regulatory Review Act,” a measure to amend the Economic Growth and Regulatory Paperwork Reduction Act of 1996’s regulatory review process. Among other things, the bill requires federal financial regulators to perform a comprehensive review at least every seven years, instead of every ten years as currently required, to identify regulations that may be tailored to limit burdens on insured depository institutions.FDIC Chairman Delivers Remarks Concerning the Strengths and Challenges Facing Community Banks
On October 23, FDIC Chairman, Martin J. Gruenberg, spoke at an event hosted by the Illinois Department of Financial and Professional Regulation and the Conference of State Bank Supervisors about the important role community banks play in the U.S. financial system. Gruenberg noted that comparing the performance of community banks to noncommunity banks in the post-crisis period can be instructive. For instance, “community bank loans have grown faster than loans held at noncommunity banks in: 1- to 4-family mortgages, commercial real estate loans, and commercial and industrial loans.” In fact, Gruenberg stated, “[i]n each of the past three years, annual growth in community bank net income has equaled or exceeded growth at noncommunity banks.” Further, community banks continue to provide more credit for small business and banking services in general in non-metro areas.
Gruenberg went on to highlight some of the challenges facing community banks: (i) fewer resources for burdensome regulatory compliance; (ii) appraiser availability and shortages, especially in rural areas; (iii) complex capital requirements; (iv) the ability to effectively respond to information technology challenges, such as maintaining strong cybersecurity programs; and (v) succession planning and staff recruitment. Beyond agency efforts to address these concerns through advisors and proposed changes, Gruenberg spoke about the FDIC’s Community Banking Initiative, which offers resources and tools to help community banks stay informed of regulatory changes and manage costs.
CFPB Announces September 28 Community Bank Advisory Council Meeting
On Thursday, September 28, the CFPB will hold its next Community Bank Advisory Council meeting in Washington, DC. According to the September 12 Federal Register publication providing notice of the meeting, the Council’s discussion topics will focus on “Know Before You Owe: Overdraft” services and other financial empowerment initiatives. As previously discussed in InfoBytes, on August 4 the CFPB announced the release of a study focused on the use of overdraft services by consumers, as well as four prototype overdraft disclosure templates currently under testing.
Federal Banking Regulators Issue Proposal to Simplify Capital Requirements to Provide Regulatory Relief to Community Banks
On August 22, the Federal Reserve, FDIC and OCC issued a proposed rule that capital requirements set to take effect in January 2018 would be suspended under a proposed rule for banking organizations not subject to the advanced approaches capital rules, such as community and midsized banks— generally those with less than $250 billion in total assets and fewer than $10 billion in foreign exposure. The federal banking regulators proposed the suspension as they develop a proposal that would simplify capital requirements to reduce regulatory burden. Banks subject to the advance approaches capital rules will still be required to comply with the capital rule requirements taking effect January 1, 2018. The proposal would pause the fully phased-in Basel III requirements regarding the treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests (see FDIC Financial Institution Letter FIL-34-2017). According to a press release issued by the FDIC, “the transitional treatment for those items is scheduled to be replaced with a different treatment on January 1, 2018.” FDIC Vice Chairman Thomas M. Hoenig issued a statement supporting the proposal but pushed for the need to provide additional relief for community banks such as predicating relief based on banking activities and tangible equity rather than asset size.
Comments on the proposed rule are due 30 days after publication in the Federal Register.
Senators Introduce Bill to Provide Relief to Community Banks
On May 26, Senators Orrin Hatch (R-Utah), Angus King (I-Me.), and Bill Nelson (D-Fla.) introduced bipartisan legislation intended to provide regulatory relief to small financial intuitions. According to a press release issued by Sen. Hatch’s office, the Community Bank Relief Act (S. 1284) would increase the asset threshold from $1 billion to $5 billion, thereby expanding the number of institutions covered by the Small Bank Holding Company Policy Statement (Statement). Based on FDIC data, raising the asset threshold would affect 443 bank holding companies (BHC) and other financial institutions. Additionally, 96 percent of BHCs and savings and loan holding companies would be covered by the Statement compared to 87 percent as of December 31, 2016, according to the Federal Reserve (Fed). The legislators believe the bill will improve the Dodd-Frank Act “without compromising safety standards” and help “small financial institutions provide households and small businesses more quality-based loans” that will advance economic growth. Notably, the Fed will still be able to exclude any BHC or savings and loan company if it determines the action is warranted.
OCC Updates Guidance on Violations of Laws and Regulations in Comptroller’s Handbook
On May 23, the OCC issued OCC Bulletin 2017-18 announcing updated guidance on its policies and procedures regarding violations of laws and regulations for its examiners. The updates will be reflected in its “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies Supervision,” and “Large Bank Supervision” booklets as well as other sections of the Comptroller’s Handbook and internal guidance. According to the Bulletin, an International Peer Review Report from 2013 noted that the OCC could improve its supervisory effectiveness. In response, the OCC released Bulletin 2014-52 to address the report’s concerns. These latest updates are an extension of the 2014 Bulletin to support the OCC’s mission of ensuring a safe and sound federal banking system by “emphasizing timely detection and correction of violations before they affect a bank’s condition.”
The OCC’s updated guidance implements certain goals and practices, including:
- ensuring the consistency of the purpose, processes, and procedures within and across all OCC lines of business, including: community, midsize, and large banks; federal branches and agencies; and banks overseen by the OCC’s Special Supervision group;
- communicating violations using a consistent format such as: (i) using legal citation and description; (ii) summarizing relevant statutory or regulatory requirements; (iii) including facts supporting the violation and root causes; (iv) outlining required corrective actions; and (v) noting commitments to corrective action by board and management;
- reinforcing the importance of timely and thorough follow-up and tracking of bank management’s corrective actions and milestones;
- conveying the relationship of violations to “matters requiring attention, CAMELS/ITCC or ROCA ratings, and the bank’s risk appetite and profile;” and
- emphasizing the need for examiners to timely and effectively communicate with the bank’s board of directors and management team as well as with OCC supervisors.
The policy goes into effect July 1, 2017.
OCC Names New Senior Leadership in Midsize and Community Bank Supervision
On May 2, the OCC announced the promotion of two long-time OCC employees to leadership roles within its Community Bank Supervision unit. Starting this May, Scott Schainost will serve as one of two deputies responsible for overseeing the supervision of midsize national banks and federal savings associations where he will oversee a portfolio of companies with assets generally ranging from $5 billion to $60 billion, as well as a number of nationally chartered institutions. This is a new position created to enhance the supervision of midsize banks. Schainost – who has held a variety of positions at the OCC during his 33 years at the agency – started his career as an Assistant Bank Examiner in Kansas City, before moving on to supervise banks of all sizes.
Beginning this June, Troy Thornton will serve as the head of one of the OCC’s four districts that make up community bank supervision, where he will oversee the supervision of more than 390 national banks, federal savings associations, and trust companies, while also overseeing 28 technology service providers spread over nine states from Texas to Florida. His responsibilities will include managing staff in 21 field and satellite offices throughout the district. Thornton began his career at the OCC 31 years ago as a Field Examiner in Texas. He is filling a vacancy left by Gilbert Barker’s retirement in November 2016.