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OCC Updates Community Bank Supervision Comptroller's Handbook
On November 3, the OCC announced an update to the “asset quality core assessment procedures” in its Community Bank Supervision Comptroller’s Handbook (Handbook). Among other things, the revised Handbook: (i) updates concentration risk management procedures and stress testing guidance for community banks; (ii) incorporates procedures for credit underwriting assessments; (iii) enhances appraisal, evaluation, allowance, and credit review examination procedures; and (iv) updates the asset quality references and standard request letter.
ABA and Regional Members Lend Perspective on CFPB's Proposed Rule on Payday, Title, and Certain Other Installment Loans
On October 7, the American Bankers Association (ABA) sent a comment letter to the CFPB regarding the agency’s proposed rule on payday, title, and certain other installment loans. Describing the proposal as “exceedingly and unnecessarily complex,” the ABA argues that the proposed rule imposes significant restrictions on the small-dollar credit industry by limiting financial institutions’ ability to make small-dollar loans to consumers in need of such credit. In addition to asserting that the proposal reflects an over-reach of the CFPB’s statutory authority to regulate unfair, deceptive or abusive acts or practices, the comment letter contends that, if adopted, the proposed rule would, among other things, (i) “stifle innovation in consumer lending, reduce consumer choice, and directly harm the very borrowers [it] was intended to protect”; (ii) impose an unlawful cap on interest rates; (iii) regulate insurance, thereby violating the Dodd-Frank Act; and (iv) levy substantial costs on consumers and lenders. Furthermore, the comment letter includes several testimonials to illustrate how receiving short-term credit helped consumers establish credit and overcome arduous financial conditions. In an effort to safeguard affordable financial services, the ABA urged the CFPB to “protect the ability of community banks to continue to meet small dollar lending needs.” In particular, the ABA sought to exempt entities that make no more than 2,500 loans subject to the proposed rule in the course of a year “if those loans comprise no more than 10% of the lender’s gross annual revenue.”
In addition to the ABA’s comment letter, various regional ABA members, such as individual banks and state bankers associations, sent a letter to CFPB Director Richard Cordray expressing concern about the “substantial barriers and costs” the proposed rule would impose if adopted. ABA members called on the CFPB to “restore its previously proposed ‘5 percent payment-to-income ratio’ alternative compliance option” so that banks may maintain their ability to offer small-dollar credit.
OCC Issues Large Bank Recovery Guidelines
On September 29, the OCC released final guidelines establishing standards for recovery planning for large OCC-regulated institutions. The guidelines, which are not applicable to community banks, are designed to provide “a comprehensive framework for evaluating the financial effects of severe stress that may affect a covered institution and options it may take to remain viable under such stress.” Pursuant to the guidelines, an institution “should develop and maintain a recovery plan that is specific to that covered bank and appropriate for its individual size, risk profile, activities, and complexity, including the complexity of its organizational and legal entity structure.” OCC examiners will begin to assess an institution’s recovery plan for appropriateness and adequacy. The guidelines, which contain various compliance dates, become effective January 1, 2017.
OCC Lays Out Supervision Plan for 2017
On September 14, the OCC released its bank supervision operating plan for fiscal year 2017. The plan identifies the OCC’s priority objectives, which include: (i) commercial and retail loan underwriting; (ii) business model sustainability and viability; (iii) operational resiliency; (iv) BSA/AML compliance; and (v) processes to address regulatory changes. Moreover, the plan affirms that the OCC will look at each individual bank’s key risks, and will continue the process of stress testing, both for large banks and for midsize and community banks.
House Financial Services Committee Approves Financial CHOICE Act
On September 13, the House Financial Services Committee approved by a 30-26 vote the Financial CHOICE Act, Congressman Jeb Hensarling’s (R-TX) legislative replacement to the Dodd-Frank Act. In his opening remarks, Hensarling claimed that the bill aims to end bailouts, support economic growth, and provide regulatory relief to community banks. House Democrats did not offer amendments to the bill, although many expressed adamant disapproval. Congresswoman Carolyn Maloney (D-NY) claimed that the “deeply disturbing” legislation “would take us back to the regulatory stone age.” Various Democrats referenced the CFPB’s recent enforcement action against a national bank to argue that the Financial CHOICE Act’s attempt to remove the CFPB’s authority over abusive practices was one of many reasons to oppose the bill. Democrats unanimously voted against the legislation, while all but one Republican, Congressman Bruce Poliquin (R-ME), voted in favor of moving the legislation forward.
FDIC Announces Mortgage Lending Resources for Community Bankers
On September 15, the FDIC announced two new resources intended to provide community bankers with information on federal housing programs: the Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises and the Affordable Mortgage Lending Center. The FDIC released the guide in response to feedback from community bankers, who claimed “they did not understand the wide array of federal housing programs.” The purpose of the resource center, according to the FDIC, is to assist community bankers “[to] compare a variety of current affordable mortgage programs and to identify the next steps if they seek to expand or initiate affordable mortgage lending.” The FDIC plans to release Part II, State Housing Finance Agencies, and Part III, Federal Home Loan Banks, of the guide at a later date this year.
White House Releases Report on the Dodd-Frank Act and Community Banking; ABA Refutes Claims
Recently, the White House Council of Economic Advisers issued a report titled “The Performance of Community Banks Over Time.” Seeking to address industry concern that Dodd-Frank regulations have negatively impacted community banks, the report presents research related to bank branching patterns and macroeconomic conditions as “evidence” to the contrary, maintaining that “community banks have remained healthy as the Dodd-Frank financial reform has been implemented.” The report presents the following five key points as indication that community banks “remain strong” under the Dodd-Frank Act: (i) with the exception of smallest community banks, the lending growth rate has increased since the financial crisis in 2010; (ii) evidence fails to suggest that Dodd-Frank led to a decline in the number of community banks across counties; (iii) since 1994, for community banks with assets between $100 million and $10 billion, the average number of branch offices has increased; (iv) the decline in the number and market share of community banks with assets totaling less than $100 million is a result of growth; and (v) a combination of macroeconomic factors, such as low equilibrium interest rates, contribute to “a substantial portion of the drop in new bank entry in recent years.” In closing, the report reasons that the Obama Administration “has taken important steps to ensure that regulatory requirements are implemented in a fair and equitable manner for community banks.”
ABA president Rob Nichols released a statement challenging the report’s findings, claiming a “serious disconnect between [the] report and the daily reality for America’s hometown banks and the communities they serve.” Although Nichols acknowledges that the Dodd-Frank Act is not the only contributing factor causing community banks to close, he suggests that the “more than 24,000 pages of proposed and final rules belies the idea that Dodd-Frank had no impact” and emphasizes that “[c]omprehensive regulatory relief is long overdue for community banks.”
CFPB Responds to Senators' Request to Tailor Regulations to Exempt Smaller Financial Institutions
On August 17, CFPB Director Cordray responded to a request, from a 70 senator coalition spearheaded by Senators Donnelly (D-IN) and Sasse (R-NE), that the CFPB further tailor its regulations that may be “unduly burdensome” for community banks and credit unions. In Cordray’s response, he stated that the CFPB is committed to achieving well-tailored and effective regulations within the provisions of Dodd-Frank. Further, Cordray outlined already-in-place exemptions for small creditors, various actions taken to ensure the CFPB’s “commitment” to maintaining effective regulations, and highlighted the Small Business Regulatory Enforcement Act (SBREFA) panel as “just one part of the Bureau’s broader initiatives to address the unique issues facing small financial institutions.” Cordray did, however, note that one of the CFPB’s objectives is to “enforce Federal consumer financial law ‘consistently, without regard to the status of a person as a depository institution.’”
OCC to Host Workshop for Bank Directors
From September 19 through September 21, the OCC will host a “Building Blocks for Directors” workshop in St. Louis for directors of national community banks and federal savings associations supervised by the OCC. OCC supervision staff will lead the workshop, which will focus on directors’ duties and responsibilities, relevant laws and regulations, and increasing understanding of the examination process. The OCC is limiting the workshop’s capacity to the first 35 registrants.
CSBS Announces Dates for Community Banking Research Conference
On August 2, the CSBS announced that it will co-host with the Federal Reserve System the fourth annual “Community Banking in the 21st Century” research and policy conference on September 28 and 29. The two-day event will take place in St. Louis and will feature, among other things, the release of the 2016 Community Banking in the 21st Century national survey and a panel discussion of its findings. Federal Reserve Governor Jerome Powell and Federal Reserve Bank of Chicago President Charles Evans are among the speakers scheduled to deliver keynote speeches.