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Financial Services Law Insights and Observations


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  • Fed releases guidance for de novo banks supervision

    Agency Rule-Making & Guidance

    On June 24, the Federal Reserve Board sent a letter to the Federal Reserve Banks (FRBs) providing guidance regarding the supervision of de novo state member banks, as well as the evaluation of de novo insured depository institutions (IDI) seeking to become state member banks. Under the letter, an insured depository institution is considered to be in the de novo stage until it has been operating for at least three years. Supervisory Letter SR 20-16, which supersedes Supervisory Letter SR 91-17, “applies to any commercial bank, thrift, Edge Act corporation, or industrial bank that has been in existence for less than three years and is converting to become a state member bank,” and outlines de novo application submission guidelines and FRB examination requirements. SR 20-16 provides that within six months following a de novo’s formation or conversion to a state member bank, the responsible FRB should conduct a targeted examination and issue a report summarizing supervisory findings, with targeted focus on the de novo’s risk management process or the management component of the CAMELS rating, as well as any business and operating plans submitted in connection with its membership application.” SR 20-16 outlines the examination cycle and notes that the full-scope statutorily required examination schedule will not occur until a de novo has had three full-scope examinations and has been in operation for three years. SR 20-16 further provides that, for de novo banks that are subsidiaries of existing bank holding companies, an FRB at its discretion, may elect to make a risk-based determination that if the parent bank has consolidated assets of greater than $3 billion and is in good standing, the subsidiary may be examined less frequently.

    Agency Rule-Making & Guidance Federal Reserve De Novo Bank Supervision

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  • FDIC approves creation of de novo banks; proposes new industrial bank rules

    Agency Rule-Making & Guidance

    On March 18, the FDIC announced (see here and here) the approval of two deposit insurance applications, which will allow for the creation of two de novo industrial banks. The first approval order will permit a California-based company to originate commercial loans to merchants that process card transactions through the company’s payments system and will operate from a main office located in Utah. The second approval order will permit a Nebraska-based corporation to originate and service private student loans and other consumer loans. The new bank will operate as an internet-only bank from a main office located in Utah. Both companies now await approval from the Utah Department of Financial Institutions.

    Separately, on March 17, the FDIC announced that it is seeking comments on a proposed rule that would require certain conditions and commitments for approval or non-objection to certain filings involving industrial banks and industrial loan companies (collectively, “industrial banks”), such as deposit insurance, change in bank control, and merger filings. The proposed rule applies to industrial banks whose parent company is not subject to consolidated supervision by the FRB. The proposed rule would require a covered parent company to enter into written agreements with the FDIC and the industrial bank to: (i) address the company's relationship with the industrial bank; (ii) require capital and liquidity support from the parent company to the industrial bank; and (iii) establish appropriate recordkeeping and reporting requirements.

    The proposed rule would require prospective covered companies to agree to a minimum of eight commitments, which, for the most part, the FDIC has previously required as a condition of granting deposit insurance to industrial banks. These include: (i) providing a list of all parent company subsidiaries annually; (ii) consenting to examinations of the parent company and its subsidiaries; (iii) submitting to annual independent audits; (iv) maintaining necessary records; (v) limiting the parent company’s representation on the industrial bank’s board to 25 percent; (vi) maintaining the industrial bank’s capital and liquidity requirements “at such levels deemed appropriate” for safety and soundness; (vii) entering into tax allocation agreements; and (viii) implementing contingency plans “for recovery actions and the orderly disposition of the industrial bank without the need for a receiver or conservator.” Comments on the proposed rule will be due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance FDIC ILC De Novo Bank Consumer Lending Commercial Lending

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  • FDIC issues 2018 annual report

    Federal Issues

    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).

    Federal Issues FDIC Bank Supervision EGRRCPA Bank Secrecy Act Anti-Money Laundering De Novo Bank Fintech Privacy/Cyber Risk & Data Security Deposit Insurance

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