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FHFA releases NPRM on capital requirements for FHLBanks
On September 27, the FHFA released its NPRM and request for comment to amend capital requirements for FHLBanks to modify limits on unsecured credit extensions. The proposal seeks to exclude interest-bearing deposit accounts (IBDAs) and other authorized overnight investments from the more restrictive “general limit” on unsecured credit to a single counterparty. This change is aimed at providing greater flexibility and enhancing FHLBanks’ liquidity management capabilities.
The FHFA’s proposed rule would add the term, “authorized overnight investments,” to include investments with a maturity of one day or less, such as deposits in banks or trust companies, but exclude demand accounts in Federal Reserve Banks. This change would allow FHLBanks to manage liquidity effectively by utilizing IBDAs, which offer higher yields and greater intraday liquidity flexibility compared to overnight federal funds. In addition, the proposed rule aims to clarify the measurement of unsecured credit exposure to include intraday exposure and calculation methods for total capital.
By expanding the types of investments subject only to the higher overall limit, the NPRM aims to enhance the FHLBanks’ abilities to meet short-term liquidity needs and reduce the overall cost of holding liquidity assets. Comments on the rule must be received within 60 days following publication in the Federal Register.
CFPB’s Chopra discusses privacy concerns and floats FCRA proposal
On September 19, CFPB Director Rohit Chopra delivered prepared remarks highlighting national security concerns related to the abuse and misuse of personal data. As previously covered by InfoBytes, Chopra emphasized President Biden’s recent Executive Order, which aims to prevent countries of concern from accessing Americans’ personal data, by highlighting how data brokers who sell sensitive data could be accessed by countries of concern, causing national security risks.
Chopra also addressed the role of the FCRA in protecting consumer data, noting that it was one of the pioneering data privacy laws and governs the reporting of personal information. He emphasized that not all companies comply with the FCRA, which heightens the risks posed by data brokers. To address this, the CFPB has launched a rulemaking process to ensure these brokers follow existing laws, thereby increasing consumer control over their sensitive data and reducing threats to national security.
Besides discussing his privacy concerns, Chopra noted the CFPB plans to propose a rule to extend the FCRA’s privacy protections to data brokers. This initiative aims to curb the unrestricted flow of sensitive data, which contributes to various forms of exploitation, such as financial scams and identity theft, especially in an era increasingly influenced by AI and predictive technologies.
FDIC issues NPRM requiring banks to provide accurate record-keeping in connection with third-party arrangements
On September 17, the FDIC released an NPRM aimed at strengthening record-keeping requirements for banks’ holding deposits from third-party non-bank companies (i.e., fintechs). The proposed rule seeks to mitigate risks among third-party arrangements, protect depositors and bolster public confidence in insured deposits. FDIC Chairman Martin J. Gruenberg emphasized that the rule would ensure banks are aware of the actual owners of deposits placed by third parties and can provide depositors with their funds even if a third party fails.
The FDIC’s proposed rule targets custodial deposit accounts with transactional features, where deposits from multiple beneficial owners are commingled. The proposed rule would require banks to maintain records identifying the beneficial owners, their balances and the ownership category of the deposited funds. While these records must be reconciled daily, banks will have the option to maintain these records themselves or request a third party to handle them. The proposed rule also included several exemptions such as accounts holding only trust deposits, government deposit accounts, and accounts established by brokers or dealers. The proposed rule would mandate that banks establish written policies and procedures to ensure compliance and conduct annual testing and validation of records.
FHFA releases NPRM on housing goals for 2025-2027
On August 22, FHFA released a proposed rule on its housing goals for Fannie Mae and Freddie Mac (the GSEs) for 2025-2027 as required by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. FHFA is requesting comments on all aspects of the proposed rule. The rule included goals and subgoals for single-family and multifamily mortgages for low-income and very low-income families, set requirements for housing plans, and made technical changes to 12 C.F.R. § 1282. FHFA also proposed new criteria that would assess if a housing plan would be required for certain single-family housing goals during the 2025-2027 housing goals period. FHFA stated that it proposed these changes “to encourage the [GSEs] to focus on meeting the market levels rather than focusing exclusively on the housing goals benchmark levels in the event of unexpected disruptions to the market[.]”
The proposed rule would amend the housing goals to update the benchmark levels for the total number of purchase money mortgages for low-income families to 25 percent, down from 28 percent; and for very low-income families from 7 percent to 6 percent. Revised subgoals include low-income census tract housing remaining at 4 percent, but the minority census tracts housing subgoal increased from 10 percent to 12 percent. The refinancing housing goal remains at 26 percent. The previous goals were for 2022-2024.
The NPRM also included a new section (Section 1282.21) to codify rules on compliance with housing goals and notice of final determination. The new enforcement factors for 2025-2027 were listed under Section 1282.22. The NPRM included multiple tables outlining FHFA’s housing goals. FHFA will accept written comments on the proposed rule on or before 60 days after publication in the Federal Register.
FHFA releases NPRM on housing goals for 2025-2027
On August 22, FHFA released a proposed rule on its housing goals for Fannie Mae and Freddie Mac (the GSEs) for 2025-2027 as required by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. FHFA is requesting comments on all aspects of the proposed rule. The rule included goals and subgoals for single-family and multifamily mortgages for low-income and very low-income families, set requirements for housing plans, and made technical changes to 12 C.F.R. § 1282. FHFA also proposed new criteria that would assess if a housing plan would be required for certain single-family housing goals during the 2025-2027 housing goals period. FHFA stated that it proposed these changes “to encourage the [GSEs] to focus on meeting the market levels rather than focusing exclusively on the housing goals benchmark levels in the event of unexpected disruptions to the market[.]”
The proposed rule would amend the housing goals to update the benchmark levels for the total number of purchase money mortgages for low-income families to 25 percent, down from 28 percent; and for very low-income families from 7 percent to 6 percent. Revised subgoals include low-income census tract housing remaining at 4 percent, but the minority census tracts housing subgoal increased from 10 percent to 12 percent. The refinancing housing goal remains at 26 percent. The previous goals were for 2022-2024.
The NPRM also included a new section (Section 1282.21) to codify rules on compliance with housing goals and notice of final determination. The new enforcement factors for 2025-2027 were listed under Section 1282.22. The NPRM included multiple tables outlining FHFA’s housing goals. FHFA will accept written comments on the proposed rule on or before 60 days after publication in the Federal Register.
FDIC proposes CBCA amendments, requests comments
On July 30, the FDIC released its NPRM and request for comment to amend the regulations under the Change in Bank Control Act (CBCA) regarding advance notice requirements for certain acquisitions of voting securities of FDIC-supervised institutions. Specifically, the FDIC’s current regulations “exempt [entities] from a notification requirement when the [Fed] reviews a notice under the CBCA.” The proposal would “remove the current exemption in order to ensure appropriate review of certain transactions, increasing the likelihood that all the statutory factors in the CBCA are met, and reducing the likelihood that certain transactions would result in an adverse effect on the Deposit Insurance Fund.”
To implement the change, the FDIC proposes amending the definition of “covered institution” to remove the reference to holding companies and associated exemptions. The proposed rule also removes the exemption at section 303.84(a)(8), which stated: “[t]he acquisition of voting securities of a depository institution holding company for which the [Fed] reviews a notice pursuant to the CBCA.”
The FDIC explained the rule was originally created to avoid duplicate regulatory review by both the Fed and the FDIC, but that the proposed change is necessary due to new “risks created by possible outsized control over and concentration of ownership of FDIC-supervised institutions.”
The FDIC also released twenty items for public feedback. Comments must be received within 60 days following publication in the Federal Register.
Financial agencies propose rules to standardize data collections
On August 2, the OCC, Fed, FDIC, NCUA, CFPB, FHFA, CFTC, SEC and Treasury (collectively, the agencies) released an interagency NPRM to establish data standards across these agencies for “certain collections of information reported to each Agency by financial entities” and “the data collected from the Agencies on behalf of the Financial Stability Oversight Council”, as mandated by the Financial Data Transparency Act of 2022 (FDTA) (enacted as part of the National Defense Authorization Act in FY 2023). While this is an interagency NPRM, the agencies will issue individual proposals following adoption of and comments on the joint standards.
Under the proposed rule, the agencies will define “collections of information” to have the same meaning as set forth in the Paperwork Reduction Act. The agencies also propose to leverage, as the legal entity unique identifier, the International Organization for Standardization 17442-1:2020, which is a 20-character, alphanumeric standard that “unambiguously” identifies a legal entity. The agencies will also adopt ISO 4914 unique product identifiers for swaps and security-based swaps; ISO 10962 to identify other types of financial instruments; and the U.S. Postal Service’s state abbreviations for state abbreviation, among other things. Last, the agencies will adopt rules to standardize data transmissions, schema and taxonomy formats. The NPRM will be open for comments 60 days after its Federal Register publication.
GOP Senators express concern on FDIC proposed rules regarding corporate governance and risk management
On July 31, Republican members of the U.S. Senate penned a letter to the Chairman of the FDIC, Martin Gruenberg, to convince the Chairman that an FDIC proposed rule regarding soundness standards for corporate governance and risk management may “hinder, not improve, safety and soundness in the U.S. financial system.” As previously covered by InfoBytes, the FDIC last sought comment on its NPRM titled “Guidelines Establishing Standards for Corporate Governance and Risk Management for Covered Institutions with Total Consolidated Assets of $10 Billion or More” in October 2023, which, among other things, would expand the responsibilities of the board of directors for financial institutions.
The Senators expressed three principal concerns about the proposed rules: first, that the proposed rules would impose new responsibilities on a financial institution’s board of directors that may be better suited to senior management, effectively “blur[ring] the lines between the responsibilities of senior management and responsibilities of the [b]oard,” particularly in respect of risk management processes; second, consistent with the criticisms by state supervisors, that some of the rules may conflict with other state and federal regulatory requirements, such as the preference that “risk management functions reside with the firm’s chief risk officer”; and third, the proposed rules would impose “burdensome” corporate governance standards to the smallest banks without any “empirical evidence” that any “discernible benefit” would be obtained. To confirm their findings, the Senators argued that the OCC removed requirements that were found to be analogous from a prior rulemaking — yet the FDIC has not.
The GOP Senators requested answers to several questions no later than August 16, such as whether the FDIC plans to amend or withdraw the proposed rules, and what level of engagement the FDIC had with state-based regulators or stakeholders in developing the proposal. The Senators also directed a question to the OCC’s Acting Comptroller regarding whether the OCC still “believes that board or risk committee approval of material policies under the Framework would be burdensome, and that these policies should be approved by management instead.” The Senators requested the FDIC withdraw the NPRM entirely.
FDIC releases NPRM for parent companies of industrial entities
On July 30, the FDIC released an NPRM to regulate parent companies of industrial banks and industrial loan companies (the industrial entities). The proposed rule would revise the definition of “Covered Company” to include conversions involving a proposed industrial bank or loan company under Section 5 of the Home Owners’ Loan Act, ensure that a parent company of an industrial entity would be subject to change of control under part 354, and give regulatory authority to the FDIC to apply part 354 to other situations where an industrial bank would become a subsidiary of a company not subject to Fed supervision. Part 354 took effect in April 2021 to govern parent companies of industrial banks and requires specific conditions for industrial banks to become a company’s subsidiary.
Under the Bank Holding Company Act (BHCA), industrial banks are currently exempted from the definition of “bank.” Due to this, the parent companies that oversee industrial banks were not subject to the Fed’s supervision and regulation. This led to concerns about an increased risk to the DIF where industrial banks may be overly dependent on their parent company or affiliates, leading to risk or financial distress. Comments on the NPRM must be received within 60 days of publication in the Federal Register.
FDIC issues NPRM on brokered deposits
On July 30, the FDIC released an NPRM that would provide restrictions, update definitions, and provide new exceptions to the rule on brokered deposits. The FDIC explained that these proposed amendments would simplify definitions, ensure uniform reporting, and strengthen the soundness of the banking system by ensuring lesser capitalized institutions will be “restricted from relying on brokered deposits to support risky, rapid growth.”
The proposed rule would amend the definition of “deposit broker” and revise the “primary purpose” exception to the “deposit broker” definition to consider the third party’s intent in placing funds at a particular institution. Additionally, the FDIC proposed eliminating the exclusive deposit placement arrangement exception and updating the application and notice processes for the primary purpose exception. Through the FDIC’s statistical analyses, the FDIC found a “general” correlation between a depository institution’s use of broker deposits and its probability of failure, resulting in what would be losses to the Deposit Insurance Fund. Comments on the NPRM must be received within 60 days of publication in the Federal Register.