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Financial Stability Board releases 2024 list of global systemically important banks
On November 26, the Financial Stability Board (FSB) released the 2024 list of global systemically important banks (G-SIBs), identifying 29 institutions based on 2023 data. The list of banks remained the same, but some banks shifted buckets. Notably, Bucket 5, which required the highest additional capital buffer of 3.5 percent, remains empty. These G-SIBs are subject to stringent requirements, including higher capital buffers, total loss-absorbing capacity standards, resolvability planning, and heightened supervisory expectations. These measures aim to mitigate hazards and risks posed by these institutions. The FSB’s assessment methodology, revised in 2018, guides the allocation of banks to the appropriate buckets. The capital buffer requirements for G-SIBs identified in the annual update will take effect in January 2026.
OCC releases FY 2025 bank supervision operating plan
On October 1, the OCC released its bank supervision operating plan for fiscal year (FY) 2025. The OCC outlined its supervision priorities and objectives which will guide the implementation of supervisory strategies for national banks, federal savings associations, federal branches and agencies of foreign banking organizations, and third-party service providers subject to OCC examination. As described by the OCC, the plan will help set supervisory priorities, planning, and resource allocation.
Key areas of focus for FY 2025 include:
- Financial: Credit, allowance for credit losses, asset and liability management, capital, and climate-related financial risks for banks with over $100 billion in total consolidated assets.
- Operational: Cybersecurity, enterprise change management, third-party risks, and payments.
- Compliance: BSA/AML/countering the financing of terrorism and OFAC compliance, consumer compliance, CRA, and fair lending.
The OCC will provide periodic updates on supervisory priorities, emerging risks, and horizontal risk assessments in its Semiannual Risk Perspective reports, released in the fall and spring.
OCC highlights recent enforcement actions
On September 19, 2024, the OCC released a list of recent enforcement actions against a federal savings bank, a national bank, and an individual affiliated with a national bank (an institution-affiliated party, or IAP).
In the action against the federal savings bank, the OCC determined the bank had engaged in unsafe or unsound practices associated with strategic planning, budgeting, succession planning, liquidity risk management, and interest rate risk management. The bank’s agreement with the OCC addressing these findings requires the bank to, among others, submit a strategic plan, a succession plan, and revised program documents addressing the bank’s liquidity risk management and interest rate risk management practices. In the action against the national bank, the OCC found deficiencies with the bank’s financial crimes risk management practices and anti-money laundering internal controls and requires the bank to take comprehensive corrective actions to enhance its BSA/AML compliance program, including, among others, establishing a compliance committee and submitting an action plan. In the consent order with the IAP, the OCC found that a former associate at a national bank was involved in a scheme to steal bank funds. The order prohibits the IAP from “participat[ing] in any manner in the conduct of [federal financial institutions].”
OCC’s Acting Comptroller discusses the evolution of bank supervision
On September 3, Acting Comptroller of the Currency Michael J. Hsu delivered remarks on the evolution of bank supervision at a recent international conference, focusing on the transformation of bank supervision over the last decades and the critical role it plays in maintaining the stability of the financial system. Noting that effective supervision requires consistent effort, and its impact accumulates over time, Hsu underscored the vital role that supervisors play in safeguarding the banking system, although supervision is often invisible to the public unless something goes wrong such as a bank failure. Hsu also noted that, while the number of bank charters has decreased, there has been a significant growth in the size and complexity of banks over the past decades — with total assets for banks surging from $800 billion to over $17 trillion. Coupled with the rising importance of nonfinancial risks, including cyber and operational risks, Hsu called for “a more nimble and integrated supervisory approach,” for global systemically important banks.
Looking forward, Hsu stressed the importance of risk-based supervision that prioritizes critical areas and the need for supervisory agility and credibility. Hsu concluded by focusing on the OCC’s efforts to collaborate with domestic and international counterparts and adapt to the changing bank landscape.
OCC releases May CRA evaluations for 19 institutions
On June 3, the OCC released its Community Reinvestment Act (CRA) performance evaluations for May. The OCC evaluated 19 entities including national banks, federal savings associations, and insured federal branches of foreign banks. The assessment framework incorporated four possible ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 19 evaluations reported by the OCC, eleven entities were rated “Satisfactory,” and eight entities were rated “Outstanding.” There were no institutions that received a rating of “Needs to Improve.” A full list of the bank evaluations is available here. In the FAQ section regarding the implementation of the CRA, the OCC detailed how it evaluated and rated financial institutions both on an institutional level and a community level. This explanation included an examination of institutional factors such as capacity, constraints, business strategies, competitors, and peers, as well as an analysis of the characteristics of the communities served by these institutions, which covered demographic particulars, economic data, and the availability of lending, investment, and service opportunities.
GAO calls for the FDIC to address outstanding recommendations
On April 30, GAO sent a letter to the FDIC on its outstanding recommendations, emphasizing the importance of two priority recommendations, which pertained to blockchain technology and fintech. Regarding blockchain technology, the letter stressed the need for the FDIC and other financial regulators to establish a formal mechanism to identify and address blockchain-related risks. Despite the regulator's coordination, the response to crypto-asset risks had been criticized as untimely. With respect to fintech, this recommendation would have the FDIC and relevant agencies clarify the appropriate use of alternative data in loan underwriting for banks that partner with fintech lenders. The letter also called for the FDIC's attention to additional high-risk areas, including IT management, human capital, federal real property, cybersecurity, and the personnel security clearance process.
OCC and FDIC release CRA evaluations on 69 banks
On May 2, the OCC released its CRA performance evaluations for April and the FDIC released its evaluations for February. The OCC evaluated 13 national banks, federal savings associations, and insured federal branches of foreign banks. Of the 13 evaluations, most entities were rated “Satisfactory,” one entity was rated “Outstanding,” and one entity was rated as “Needs to Improve.” The FDIC released its May list of state nonmember banks of assigned CRA ratings in February. Out of 56 evaluations, two banks were rated “Outstanding,” 52 were rated as “Satisfactory,” one bank was rated as “Needs to Improve,” and one bank was rated as “Substantial Noncompliance.”
Fed’s Bowman discusses risk management and bank supervision
On April 18, Fed governor Michelle Bowman delivered opening remarks at the Regional and Community Banking Conference in New York. During her speech, Bowman acknowledged the recent challenges that have impacted the U.S. banking system. She pointed out that recent events, including the pandemic, a rapid rise in inflation and interest rates, market uncertainties, and bank failures, have brought traditional risks, such as liquidity and interest rate risks, to the forefront, while other risks, like cybersecurity and third-party risks, “continue to evolve and pose new challenges.”
Bowman emphasized the importance of banks having robust risk management frameworks to identify and control both existing and emerging risks. She also stressed the need for banks to innovate responsibly and adapt their risk management as new products and services are introduced, while cautioning that regulators must balance supervision and regulation so as not to stifle responsible innovation. In light of the recent bank failures, Bowman also underscored the need for banks to have of contingency funding plans in place, which may include borrowing from the Federal Home Loan Banks or the Fed’s discount window. While regulators can encourage banks to maintain and test these plans, she noted that they should not overstep their role and interfere with management decisions.
Highlighting that these evolving risks can be exacerbated by inadequate bank supervision and acknowledging the need for a review and potential adjustments in supervision following the recent bank failures, Bowman stressed that supervision should remain commensurate to a bank’s size, complexity, and risk profile, and should focus on core and emerging risks so as not to impair the long-term viability of the banking system, including mid-sized and smaller banks.
OCC releases March CRA evaluations for 19 banks
On April 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last March. The OCC evaluated 19 national banks, federal savings associations, and insured federal branches of foreign banks with a rubric that included four possible ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 19 evaluations reported by the OCC, two Midwest banks received the lowest rating, which was “Needs to Improve.” Most entities were rated “Satisfactory,” and four entities were rated “Outstanding.” A full list of the bank evaluations is available here. In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluated and rated financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution serves (such as its demographics, economic data, and its lending, investment, and service opportunities).
FDIC Vice Chair delivers remarks on tokenization
On March 11, FDIC Vice Chairman Travis Hill delivered prepared remarks on “Banking’s Next Chapter? Remarks on Tokenization and Other Issues.” The speech addressed the evolution of money and payment systems, focusing on the recent innovation of tokenizing commercial bank deposits and other assets and liabilities. Hill distinguished tokenization from assets like Bitcoin and Ether: “tokenization involves a representation of ‘real-world assets’ on a distributed ledger, including… commercial bank deposits, government and corporate bonds, money market fund shares, gold and other commodities, and real estate.” Hill highlighted the potential benefits of tokenization, such as improved efficiency in payments and settlements, 24/7/365 operations, programmability, atomic settlement (the settlement, or the act of transferring ownership of an asset from seller to buyer, combining instant and simultaneous settlements) and the creation of an immutable audit trail. He also mentioned that these innovations could streamline complex processes like cross-border transactions and bond issuances, offering notable advantages over traditional banking systems.
The speech also acknowledged challenges and risks associated with tokenization, including technical, operational, and legal uncertainties. Questions remain about the structure of the future financial system, interoperability between different blockchains, and the legal implications of transferring ownership via tokens, Hill added.
Regarding the regulatory approach to digital assets and tokenization, Hill expressed the need for as much clarity as possible, even in areas whether the technology is evolving quickly. For example, Hill noted that “it would be helpful to provide certainty that deposits are deposits, regardless of the technology or recordkeeping deployed, and if there are reasons to distinguish some or all tokenized deposits from traditional deposits for any regulatory, reporting, or other purpose, the FDIC should… explain how and why.”