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On August 4, the FDIC published responses to exception requests pursuant to the Recordkeeping for Timely Deposit Insurance Determination rule (Rule). The notice outlines two time-limited exceptions for covered institutions effective as of July 28. The Rule, codified at 12 CFR Part 370 (and amended last year—covered by InfoBytes here), requires covered institutions to implement information technology systems and recordkeeping capabilities in order to calculate quickly the available amount of deposit insurance coverage for each deposit account in the event of failure. The FDIC allows covered institutions to request an exception from one or more of Part 370’s requirements should circumstances “make it impracticable or overly burdensome to meet those requirements.” Additionally, a covered institution may—upon notice to the FDIC—rely upon another covered institution’s FDIC-granted exception request, if the two institutions have substantially similar facts and circumstances.
The first exception grants an exception of up to 18 months from certain information technology and general recordkeeping requirements to allow covered institutions to perform system updates and remediation efforts to ensure certain sole proprietorship deposit accounts are correctly classified by an institution’s information technology system. The second exception grants an exception of up to 12 months from certain information technology and general recordkeeping requirements “for a limited number of joint accounts that a covered institution has not confirmed are ‘qualifying joint accounts’ entitled to separate deposit insurance coverage.”
On February 10, the FDIC issued FIL-8-2020, which incorporates Procedures for Deposit Insurance Applications from Applicants that are Not Traditional Community Banks into its Deposit Insurance Application Procedures Manual (manual). In addition to the updating the manual, the agency also issued a handbook, entitled Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions (handbook), advising that the updated manual together with the handbook provide comprehensive instructions for completing deposit insurance applications. According to the letter, the updated manual and the handbook contain mostly “technical edits and clarifications” and are meant to “provide transparency and clarity” for applicants. The letter also supplies the definitions of “non-bank” and “non-community bank.”
On February 7, the FDIC approved a proposed national bank’s application for deposit insurance and consent to merge with its parent company. The FDIC found that financial projections show the bank, which will offer banking products through mobile, online, and phone-based banking channels, will be “well capitalized” based on initial paid-in capital funds of no less than $104.4 million to be provided through the transfer of assets and liabilities. During the first three years of operation, the bank must maintain a Tier 1 leverage ratio of 10 percent or greater, and may also be required to maintain higher minimum capital requirements as dictated by the bank’s operating plan or as required by the OCC pursuant to its regulatory authority. According to the FDIC, the proposed national bank will be located in Utah, and while it will have no branches, deposit-taking ATMs, or offices available to the public, it will offer full-service banking products and combine “traditional retail banking approaches with modern technology.”
The FDIC noted that deposit insurance will not take effect until the bank has been granted a charter and its banking operation has been fully approved by the OCC to operate as a depository institution (in August 2018, the OCC granted preliminary conditional approval of the bank’s de novo chapter application). According to the FDIC, approval is conditioned on the Federal Reserve Board granting final approval to the parent company to become a bank holding company.
On January 30, the FDIC adopted the Final Rule to Revise Securitization Safe Harbor Rule (rule) as recommended by FDIC staff in a memorandum dated January 23. In July, as previously covered by InfoBytes, the FDIC approved a proposal to remove the requirement that, for safe harbor treatment, “the documents governing a securitization issuance require compliance with Regulation AB” of the SEC Regulation AB, “in circumstances where Regulation AB is not, by its terms, applicable to that transaction.” The proposal suggested that “it is no longer clear that compliance with the public disclosure requirements of Regulation AB in a private placement or in an issuance not otherwise required to be registered is needed to achieve the policy objective of preventing a buildup of opaque and potentially risky securitizations such as occurred during the pre-crisis years, particularly where the imposition of such a requirement may serve to restrict overall liquidity.” The final rule—which is unchanged from the proposal—eliminates the “significant disclosure requirements” to no longer mandate that private placements of securitization obligations provide Regulation AB disclosures. With the adoption of the final rule, only those transactions that are subject to Regulation AB are required to make the disclosures. The rule is expected to increase the securitization of residential mortgages and will become effective 30-60 days after it is published in the Federal Register.
On July 16, the FDIC approved amendments to two final rules designed to resolve issues related to deposit insurance regulations. As previously covered by InfoBytes, the first of the final rules amends Part 370 of the FDIC’s Rules and Regulations for “Recordkeeping for Timely Deposit Insurance Determination,” to address issues raised during implementation of the final rule adopted in November 2016 (covered by InfoBytes here). Among other things, the amendments to Part 370 require banks with at least two million deposit accounts to upgrade deposit recordkeeping to allow the FDIC to determine the necessary deposit insurance coverage. The rule also allows for an optional one-year extension of the rule’s compliance date of April 1, 2020, provided prior notice is given to the FDIC. The final rule is effective October 1. FDIC Director Gruenberg dissented from the final rule’s approval.
The second final rule amends Part 330—applicable to banks of all sizes—to update the requirements for verifying participants in joint deposit accounts. Part 330 provides alternatives to the traditional signature card, and will allow satisfaction of proof of joint-ownership to be established by other information contained in a bank’s deposit account records and not solely by signed signature cards of each co-owner. The final rule takes effect 30 days after publication in the Federal Register.
On March 29, the FDIC Board of Directors approved proposals to amend two rules, which would simplify the process for making deposit insurance determinations in the event a bank enters receivership. The first proposal amends Part 370 of the FDIC’s Rules and Regulations for “Recordkeeping for Timely Deposit Insurance Determination,” to address issues raised during implementation of the final rule adopted in November 2016 (covered by InfoBytes here). Among other things, the proposal provides an optional one-year extension of the rule’s compliance date of April 1, 2020. The second proposal amends Part 330, which would allow satisfaction of proof of co-ownership for deposits of a joint account to be insured separately from deposits in respective individual accounts, to be established by other information contained in deposit account records, and not solely by signed signature cards of each co-owner. Comments on each proposal will be due within 30 days of publication in the Federal Register.
On February 14, the FDIC released its 2018 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. Highlights of the report include: (i) the FDIC’s efforts to adopt and issue proposed rules on key regulations under the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA); (ii) efforts to strengthen cybersecurity oversight and help financial institutions mitigate cyber risk; (iii) supervision focus on Bank Secrecy Act/Anti-Money Laundering compliance; and (iv) financial institution letters providing regulatory relief to institutions affected by natural disasters. The report also highlights the FDIC’s monitoring of financial technology developments through its various research groups and committees to better understand how technological efforts may affect the financial market. Lastly, the report covers the agency’s efforts to encourage de novo bank applications, including the December 2018 request for information soliciting comments on the deposit insurance applications process (covered by InfoBytes here).
FDIC encourages more de novo bank applicants, launches initiatives to streamline and promote transparency in deposit insurance applications
On December 6, the FDIC announced several initiatives designed to streamline and promote transparency in the federal deposit insurance application process, while encouraging more applications from de novo banks. According to FDIC Chairman Jelena McWilliams, the “application process should not be overly burdensome and should not deter prospective banks from applying.” As part of its initiative, the FDIC issued a request for information (RFI) soliciting feedback on all aspects of the deposit insurance application process—the RFI applies to all institutions, including those with less than $1 billion in total assets, as well as traditional community banks. The RFI seeks comments on: (i) suggestions for modifying the application process as it relates to traditional community banks; (ii) potential ways to “support the continuing evolution of emerging technology and fintech companies . . . [and whether there are] particular risks associated with any such proposals”; (iii) aspects of the application process such as legal, regulatory, economic, or technological factors that may discourage potential applications; and (iv) other suggestions for addressing stakeholder concerns regarding the application process, as well as methods for improving effectiveness, efficiency, and transparency. Comments on the RFI will be accepted for 60 days following publication in the Federal Register.
The FDIC also discussed a new, voluntary process for new deposit insurance applicants to request feedback on draft applications before filing formal submissions. “The new process is intended to provide an early opportunity for both the FDIC and organizers to identify potential challenges with respect to the statutory criteria, areas that may require further detail or support, and potential issues or concerns,” the announcement stated.
In addition to updating publications related to the application process (available through FIL-83-2018), the FDIC also released FIL-81-2018 and FIL-82-2018, which respectively provide application processing timeframe guidelines and an overview of the review process for draft deposit insurance proposals.
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