Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On January 14, the CFPB announced a Memorandum of Understanding (MOU) with the NCUA, which is intended to improve supervision coordination of credit unions with over $10 billion in assets. According to the Bureau’s press release, the MOU covers (i) the sharing of the Covered Reports of Examination and final Reports of Examination for covered institutions, using secure, two-way electronic means; (ii) collaboration in semi-annual strategy planning sessions for examination coordination; (iii) information sharing on training activities and content; and (iv) information sharing related to potential enforcement actions.
On December 17, the Federal Reserve Board and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks, which are subject to streamlined CRA evaluations and not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small” bank is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.322 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $330 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.322 billion in assets. This joint final rule became effective on January 1.
The OCC did not join in this announcement. 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. Its new CRA rule defines a small bank as an institution with $600 million or less in assets in four of the last five calendar quarters and an intermediate small bank as having $2.5 billion or less in assets in four of the last five calendar quarters.
On December 9, the FDIC and Federal Reserve Board announced several resolution plan actions, including providing finalized guidance for the resolution plans of four large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The final guidance modifies the proposed updates issued last March (covered by InfoBytes here) in several ways. Among other changes, the agencies “tailored their expectations around resolution capital and liquidity, derivatives and trading activity, as well as payment, clearing, and settlement activities,” and modified the scope of the guidance “to generally cover foreign banks in category II of the agencies' large bank regulatory framework.” As a result, three FBOs would be subject to the guidance for their plan submissions for 2021, and an additional FBO would be subject to the guidance for its full plan due in 2024 if it remains within the scope. The agencies also released information for 15 large foreign and domestic banks in categories II and III of the large bank regulatory framework that identifies required targeted information to be included in their next resolutions plans, due December 17, 2021. The agencies also confirmed that certain previously identified weaknesses in four FBOs have been remediated.
On December 4, the Federal Reserve Board issued supervisory letter SR 20-28 / CA 20-14, which discusses the internal appeals process for material supervisory determinations and its policy regarding the Ombudsman. As previously covered by InfoBytes, in March, the Fed issued final amendments intended to improve and expedite the appeals process. Among other things, the final amendments (i) clarify that Matters Requiring Attention and Matters Requiring Immediate Attention “are appealable material supervisory determinations”; (ii) “permit an institution’s senior management to file an appeal, provided that management informs the institution’s board of directors of their decision to file an appeal and keeps the board informed of the status of the appeal”; (iii) “permit an institution to request an extension of time to file an appeal in appropriate circumstances”; and (iv) “clarify that, at an institution’s request, the initial review panel must schedule a meeting with the institution.” The amended Ombudsman policy formalizes current practices of the office, including receiving supervisory-related complaints and supervisory determination appeals. The Fed requests that Reserve Banks distribute the supervisory letter covering the appeals process changes to their various supervised institutions and to appropriate supervisory staff.
On November 20, the Washington governor issued a proclamation extending a previous moratorium on garnishment for consumer debts until the earlier of December 7, 2020 or the termination of Washington’s Covid-19 State of Emergency. See here, here and here for previous coverage. The suspension applies to garnishment of consumer bank accounts, wages and income to satisfy consumer debt judgments.
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.”
On October 29, the CFPB issued a final rule to modify its procedures for the disclosure of records and information. As previously covered by InfoBytes, in August 2016, the Bureau issued a proposed rule seeking to, among other things, amend procedures used by persons in the public domain to obtain information from the CFPB under the Freedom of Information Act (FOIA), the Privacy Act of 1974, and legal proceedings. In September 2018, the Bureau published a final rule addressing FOIA, the Privacy Act, and certain legal proceedings (covered by InfoBytes here). The Bureau now issues a final rule addressing “the confidential treatment of information obtained from persons in connection with the exercise of its authorities under federal consumer financial law.” The final rule amends definitions and clarifies certain provisions of subparts A and D of section 1070 of title 12 of the Code of Federal Regulations, which the Bureau states are intended to, among other things, (i) “improve transparency” about the Bureau’s confidential information procedures; (ii) increase collaborations with agency partners; and (iii) improve the Bureau’s ability to protect confidential information.
On October 21, Senator Sherrod Brown (D-OH) asked CFPB Director Kathy Kraninger to delay the implementation of a proposed reorganization of the Bureau’s Division of Supervision, Enforcement, and Fair Lending (SEFL) until after the election and a determination is made as to whether Kraninger will continue as Director. According to Brown, the proposed SEFL reorganization would remove the Office of Enforcement’s (Enforcement) “voice and role in critical SEFL decisionmaking processes,” and “introduces inefficiency and confusion.” Brown addressed several concerns, including that the proposed reorganization would (i) disband Enforcement’s Policy and Strategy Team, whose duties include determining overall priorities and strategies; (ii) strip “Enforcement of its seat at the table and vote to determine whether potential violations of federal consumer financial law should be resolved through supervisory examinations or through an enforcement action”; (iii) strip “Enforcement of its authority to open new research matters (precursors to investigations) or new investigations of potential violations of federal consumer financial laws”; (iv) strip “Enforcement of its E-Litigation Team, which provides specialized technology expertise and manages electronic data discovery from initial Enforcement investigations through trial”; and (v) strip “Enforcement of its representation in the ‘Clearance’ process, which will exclude Enforcement from sharing its views and potential concerns with other Bureau offices regarding proposed rules, regulations, guidance, advisory opinions, or other public Bureau statements.” Brown cautioned that while establishing a “consistent and unified SEFL approach to policy and strategic planning” may have merit, the manner in which this objective is achieved must be addressed.
On October 20, the Federal Reserve Board, OCC, and FDIC (collectively, “federal bank regulatory agencies”) finalized two rules for large banks.
The federal bank regulatory agencies first announced a final rule intended to reduce interconnectedness within the financial system between the largest banking organizations and to minimize systemic risks stemming from failure of these organizations. As the federal bank regulatory agencies noted in their announcement, the final rule, Regulatory Capital Treatment for Investments in Certain Unsecured Debt Instruments of Global Systemically Important U.S. Bank Holding Companies, Certain Intermediate Holding Companies, and Global Systemically Important Foreign Banking Organizations; Total Loss-Absorbing Capacity Requirements, “prescribes a more stringent regulatory capital treatment for holdings of [total loss-absorbing capacity] (TLAC) debt.” U.S. global systemically important banking organizations (GSIBs) will be required, among other things, to deduct from their regulatory capital certain investments in unsecured debt instruments issued by foreign or U.S. GSIBs in order to meet minimum TLAC requirements and long-term debt requirements, as applicable. The final rule recognizes the systemic risks posed by banking organizations’ investments in covered debt instruments and “create[s] an incentive for advanced approaches [for] banking organizations to limit their exposure to GSIBs.” The final rule takes effect April 1, 2021.
The federal bank regulatory agencies also announced a second final rule, Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements, which will implement a stable funding requirement for certain large banking organizations established by a quantitative metric known as the net stable funding ratio (NSFR). The NSFR will measure banking organizations’ level of stability, and will require that a minimum level of stable funding be maintained over a one-year period. According to the federal bank regulatory agencies, the NSFR is intended “to reduce the likelihood that disruptions to a banking organization’s regular sources of funding will compromise its liquidity position,” and is designed to “promote effective liquidity risk management, and support the ability of banking organizations to provide financial intermediation to businesses and households across a range of market conditions.” The final rule “applies to certain large U.S. depository institution holding companies, depository institutions, and U.S. intermediate holding companies of foreign banking organizations, each with total consolidated assets of $100 billion or more, together with certain depository institution subsidiaries” with “increases in stringency based on risk-based measures of the top-tiered covered company.” The final rule takes effect July 1, 2021.
On October 20, the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC released a notice of proposed rulemaking (NPRM), which seeks to codify the “Interagency Statement Clarifying the Role of Supervisory Guidance issued by the agencies on September 11, 2018 (2018 Statement).” As previously covered by InfoBytes, the 2018 Statement confirmed that supervisory guidance “does not have the force and effect of law, and [that] the agencies do not take enforcement actions based on supervisory guidance.” The Statement emphasized that the intention of supervisory guidance is to outline agencies’ expectations or priorities and highlighted specific policies and practices the agencies intend to take relating to supervisory guidance to further clarify the proper role of guidance, including: (i) not citing to “violations” of supervisory guidance; (ii) limiting the use of numerical thresholds or other “bright-line” requirements; (iii) limiting multiple issuances of guidance on the same topic; (iv) continuing to emphasize the role of supervisory guidance to examiners and to supervised institutions; and (v) encouraging supervised institutions to discuss supervisory guidance questions with their appropriate agency contact.
In addition to codifying the above elements of the 2018 Statement, the proposal would amend the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”
Comments are due 60 days after publication in the Federal Register, which has not yet occurred.
- Daniel R. Alonso to moderate an interactive roundtable at the Latin Lawyer and GIR Connect: Anti-Corruption & Investigations Conference
- APPROVED Checkpoint Webcast: You have license renewal questions, we have answers
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Marshall T. Bell and John R. Coleman to speak at 2021 AFSA Annual Meeting
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Daniel R. Alonso to discuss internal investigations at the Institute of Internal Auditors of Argentina Spanish-language webinar
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek