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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.
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.
On February 27, the U.S. Government Accountability Office (GAO) released a report of recommendations to financial regulators on actions to take related to the compliance burdens faced by certain small financial institutions. The report is the result of a study the GAO initiated with over 60 community banks and credit unions (collectively, “institutions”) regarding which financial regulations were viewed as the most burdensome. Among others, the report includes a recommendation to the CFPB that it should assess the effectiveness of its TILA/RESPA Integrated Disclosure Rule (TRID) guidance and take affirmative steps to address any issues that are necessary. In a response to the GAO that is included in the report, the CFPB Associate Director David Silberman said, “the Bureau agrees with this recommendation and commits to evaluating the effectiveness of its guidance and updating it as appropriate.” Among other recommendations, the GAO highlights the need for the CFPB to coordinate with the other financial regulators on their periodic Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) reviews.
In addition to the compliance concerns with TRID disclosures, the GAO reports that the institutions also consider the data reporting requirements under HMDA, and the transaction reporting and customer due diligence requirements of the Bank Secrecy Act and related anti-money laundering laws the most burdensome. The GAO includes specific recommendations to the other financial regulators to strengthen and streamline regulations through the EGRPRA process.
FDIC releases 2017 annual report, among key issues are living wills, cybersecurity, and simplifying regulations
On February 15, the FDIC released its 2017 Annual Report, which includes, among other things, the audited financial statements of the Deposit Insurance Fund and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund. The report also provides an overview of key FDIC initiatives, performance results, and other aspects of FDIC operations, supervision developments, and regulatory enforcement, including the following:
- Living Wills. The report discusses the FDIC’s continued evaluation of resolution plans for Systemically Important Financial Institutions (SIFIs) and notes there remain “inherent challenges and uncertainties” associated with the plans, specifically within four areas: “intra-group liquidity; internal loss-absorbing capacity; derivatives; and payment, clearing, and settlement activities.” Further, the FDIC and Federal Reserve (who share joint responsibility for reviewing and assessing resolution plans) reviewed plans submitted by the eight largest U.S. SIFIs and noted that four of the firms’ plans had shortcomings—although no deficiencies were identified—and stipulated that the plans must be resubmitted by July 1, 2019. (See previous InfoBytes coverage here on recent comments by FDIC Chairman Martin concerning living will challenges.)
- Cybersecurity. Among other initiatives, the report discusses a collaboration between the FDIC, the Federal Reserve, and the OCC to update the interagency Cybersecurity Assessment Tool, which “helps financial institutions determine their cyber risk profile, inherent risks, and level of cybersecurity preparedness.” The report provides feedback from institutions currently using the tool.
- Simplifying Regulation. In accordance with the requirements of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), the report discusses the FDIC’s, Federal Reserve Board’s, and OCC’s regulatory review process done in conjunction with the National Credit Union Administration and the members of the Federal Financial Institutions Examination Council (FFIEC). As previously covered in InfoBytes here and here, a report was issued in March outlining initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations, and last September a proposed rule to simplify capital rule compliance requirements and reduce the regulatory burden was issued.