InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OCC Acting Comptroller Discusses Innovation and Technology in the Financial Services Industry
On October 19, OCC Acting Comptroller of the Currency Keith A. Noreika spoke at Georgetown University’s Institute of International Economic Law’s Fintech Week to discuss innovation within the financial technology sector and its impact on the evolution of the financial services marketplace. “[W]hat has allowed the business of banking to evolve so successfully is that we have remained open to change and created a framework of laws and regulation over time that allows banking activities to evolve,” Noreika remarked. “[W]e have to be careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from taking advantage of responsible advances in technology and commerce.”
Noreika spoke about the OCC’s Office of Innovation (Office), which was created earlier this year to facilitate discussions related to fintech and financial innovation. A pilot framework is currently being developed by the Office to create a “controlled environment” for banks to develop and test products to provide insight into a “proposed product’s controls and risks” and how it might possibly impact OCC policies in the future.
Noreika also discussed the OCC’s position on issuing special purpose national bank charters to non-depository fintech companies seeking to expand into the banking sector—a concept currently being contested by both the Conference of State Bank Supervisors (CSBS) and the New York Department of Financial Services (NYDFS), and one which the OCC has not yet made a decision (See previous InfoBytes coverage of CSBS’ and NYDFS’ challenges here and here.) Addressing claims that fintech charters would inappropriately mix banking and commerce, Noreika refuted the argument and stated that his suggestion was to “talk to any company interested in becoming a bank and that commercial companies should not be prohibited from applying—if they meet the criteria for doing so.” Further, a “chartered entity, regulated by the OCC, would be a bank, engaged in at least one of the core activities of banking” as defined by the Bank Holding Company Act.
Banking Agencies Offer Guidance Regarding Harvey Response
On August 29, the OCC and FDIC each issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent natural disasters.
OCC Bulletin 2012-28. The OCC bulletin rescinds and replaces previously issued natural disaster guidance and encourages banks serving affected customers to consider the following: (i) “waiving or reducing ATM fees”; (ii) “temporarily waiving late payment fees or penalties for early withdrawal of savings”; (iii) assisting borrowers based on individual situations, when appropriate, by restructuring debt obligations or adjusting payment terms—not to generally exceed 90 days; (iv) “expediting lending decisions when possible”; (v) “originating or participating in sound loans to rebuild damaged property”; and (vi) communicating with state and federal agencies to help mitigate the effects. “Examiners will not criticize these types of responses as long as the actions are taken in a manner consistent with sound banking practices,” the OCC announced. The bulletin also provides additional resources on accounting and reporting issues and Qualified Thrift Lender requirements, among other things.
FDIC FIL-38-2017. The FDIC financial institution letter (FIL) provides similar guidance for depository institutions assisting affected customers. FIL guidance includes the following suggestions: (i) “waiving ATM fees for customers and non-customers”; (ii) “increasing ATM daily cash withdrawal limits”; (iii) waiving items such as overdraft fees, time deposit early withdrawal penalties, availability restrictions on insurance checks, and credit card/loan balance late fees; (iv) “easing restrictions on cashing out-of-state and non-customer checks” as well as “easing credit card limits and credit terms for new loans”; (v) allowing borrowers to defer or skip some loan payments; and (vi) “delaying the submission of delinquency notices to the credit bureaus.” “Prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism,” the FIL noted. Also, the FDIC “encourages depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.”The following agencies also issued guidance: Federal Reserve, Farm Credit Administration, and the National Credit Union Administration.
FDIC Releases Summer 2017 Supervisory Insights
On August 30, the FDIC released its Summer 2017 Supervisory Insights (see FIL-39-2017), which contains articles discussing community bank liquidity risks and developments and changes to the Bank Secrecy Act. The first article, “Community Bank Liquidity Risk: Trends and Observations from Recent Examinations,” discusses, among other things, (i) an overview of trends in liquidity risk; (ii) the importance of liquidity risk management and contingency funding plans as bank management navigate funding, mitigate liquidity stress, and plan for the future; and (iii) “principles outlined in existing supervisory guidance.” The first article is “intended as a resource for bankers who wish to heighten awareness of prudent liquidity and funds management.” The second article, “The Bank Secrecy Act: A Supervisory Update,” emphasizes the role information collected through Bank Secrecy Act/Anti-Money Laundering (BSA/AML) programs plays in the U.S. government’s counter terrorist financing initiatives and other financial system protection measures. The article also provides an overview of the financial regulatory agency examination process, compliance program monitoring, recent trends in BSA/AML examination findings, and examples of significant deficiencies in BSA/AML compliance programs that necessitated formal remediation. In addition, the summer issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
FDIC Issues Quarterly Banking Profile for Second Quarter 2017
On August 22, the FDIC released its latest Quarterly Banking Profile. The profile indicates that commercial banks and savings institutions reported an aggregate net income of $48.3 billion in the second quarter of 2017—a 10.7 percent increase from the previous year. The FDIC primarily attributed the rise in second quarter income to an increase in net interest income and noninterest income. Average return on assets rose to 1.14 percent, which is the highest in 10 years. Community bank net income increased 8.5 percent from a year earlier to $5.7 billion in the second quarter and community banks “continue[d] to report higher net interest margins than the overall industry,” although, the gap is narrowing. However, FDIC Chairman Martin J. Gruenberg noted in a statement released that same day that the annual rate of loan growth has slowed for three consecutive quarters and that “an extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield,” which created “heightened exposure to interest-rate risk, liquidity risk, and credit risk.”
OCC Updates Bank Accounting Guidance
On August 15, the Office of the Comptroller of the Currency (OCC) released the annual update to its long-running Bank Accounting Advisory Series (BAAS). Intended to “promote[] consistent application of accounting standards among OCC-supervised banks and federal savings associations,” the BAAS “represents the OCC’s Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance.” The 2017 edition of the BAAS updates guidance on a range of accounting standards issued by the Financial Accounting Standards Board (FASB), and “includes recent answers to frequently asked questions from the industry and examiners.” Several FAQs are updated or deleted, and new FAQs cover the following topics: investments in debt and equity securities; lessee classification and accounting; and transfers of financial assets and servicing.
This edition of the BAAS also introduces a new approach to recently issued accounting standards. Previous editions covered new accounting standards only after they became effective. But since many FASB Accounting Standard Updates (ASUs) now have different effective dates for public business entities (PBEs) and private companies, this edition also covers ASUs issued through March 31, 2017 that (i) “while not yet effective for all institutions, must be adopted by PBEs beginning in 2018 and may be adopted early by other institutions”; or (ii) “are not yet effective for any institutions but early adoption is allowed.” Accordingly, lavender text boxes include alternative content for both PBEs and early adopters, and gold text boxes include alternative content for early adopters only.
FDIC Releases August List of CRA Compliance Examinations
On August 4, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in May 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Monthly lists of all state nonmember banks and their evaluations that have been made publicly available can be accessed through the FDIC’s website. Of the 68 banks evaluated, four were rated “Outstanding,” 62 received a “Satisfactory” rating, and two were rated “Needs to Improve.”
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in June 2017
On July 28, the FDIC released its list of 23 orders in administrative enforcement actions taken against banks and individuals in June. Civil money penalties were assessed against two banks, including one citing violations of the National Flood Insurance Act for (i) failing to obtain flood insurance before loan origination, and (ii) failing to follow force placed flood insurance procedures.
Also on the list are 13 Section 19 orders allowing applicants to participate in the affairs of an insured depository institution and four orders for removal and prohibition for bank employees breaching fiduciary duties and participating in “unsafe or unsound banking practices” leading to financial losses.
There are no administrative hearings scheduled for August 2017.
Regulators Coordinate Review of Volcker Rule Application to Foreign Funds
On July 21, five U.S. financial regulators announced that they would not take action against foreign banks for qualifying foreign excluded funds, subject to certain conditions, under the Volcker Rule for a period of one year as they review the treatment of these types of funds under current implementing regulations. The regulators, which include the Federal Reserve Board, FDIC, OCC, SEC, and Commodity Futures Trading Commission, issued a joint statement to address concerns raised as to whether certain foreign excluded funds may fall within the definition of “banking entity” under the Bank Holding Company Act and therefore be subject to the Volcker Rule.
“A number of foreign banking entities, foreign government officials, and other market participants have expressed concern about the possible unintended consequences and extraterritorial impact of the Volcker Rule and implementing regulations for certain foreign funds,” according to the joint statement. The regulators noted that the review will allow time to consider the appropriate course of action to address these concerns, including whether congressional action may be necessary.In addition, the regulators stressed that the joint statement “does not otherwise modify the rules implementing section 619 [of the Dodd-Frank Act] and is limited to certain foreign excluded funds that may be subject to the Volcker Rule and implementing regulations due to their relationships with or investments by foreign banking entities.”
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in May 2017
On June 30, the FDIC released its list of 36 orders in administrative enforcement actions taken against banks and individuals in May. Several of the orders on the list assess civil money penalties for violations of the Flood Disaster Protection Acts of 1973 and 1968 and their flood insurance requirements including: (i) failing to obtain flood insurance before loan origination; (ii) failure to maintain adequate insurance coverage on loans; (iii) failure to provide the required notification and failure to provide timely notification on loans; (iv) failing to maintain adequate flood insurance during the term of the loan; (v) allowing flood insurance to lapse during the term of the loan; and (vi) failing to provide written notice to the borrower concerning flood insurance before renewing a loan.
Also on the list are 14 assessments of civil money penalties, three of which are coupled with orders of restitution. Additionally, there are six orders for removal and prohibition for bank employees breaching fiduciary duties and using positions of control to “facilitate and conceal schemes perpetrated by Bank customers” that caused the bank to violate the Bank Secrecy Act.
There are no administrative hearings scheduled for July 2017.
OCC Issues Branch Closings Booklet, General Policies and Procedures Booklet
On June 29, the OCC issued Bulletin OCC 2017-24, announcing its revised Comptroller’s Licensing Manual booklet, “Branch Closings,” replacing the booklet issued in April 2003. According to the Bulletin, the revised booklet describes the 90-day advance notice to the OCC and branch customers that a bank must observe before closing a branch. It also explains the specific timing, procedures, and forms of notice the bank must supply. The booklet, which applies to all national banks and federal savings associations, summarizes the different notice requirements for each under Section 42 of the Federal Deposit Insurance Act. It also lists steps for filing branch closing notices including: (i) sending advance notice to the OCC at least 90 days before closing; (ii) mailing notices to customers at least 90 days in advance; (iii) posting conspicuous notices at the branch at least 30 days in advance; and (iv) sending final closing notice to the OCC after the branch closes.
The notice requirement of Section 42 assists the OCC in assessing a bank’s record of opening and closing branches. The OCC reviews this record in examinations for compliance with Section 42 and in assessing performance under the Community Reinvestment Act (CRA). The OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) adopted a “Joint Policy Statement on Branch Closing Notices and Policies” (Joint Policy Statement) in June 1991 to provide guidance regarding the requirements of the branch closing statute.
On July 5, the OCC issued an additional bulletin, OCC Bulletin 2017-25, revising the “General Policies and Procedures” booklet of the Comptroller’s Licensing Manual issued in March 2008. This booklet explains how to file applications or notices with the OCC, requirements of the filings, and the OCC processes for licensing filings. The revised booklet applies to national banks, federal savings associations, and other entities that are involved in certain transactions including: (i) organizing a new bank; (ii) opening or closing a branch; (iii) establishing subsidiaries; (iv) some changes to capital or debt; and (v) certain other transactions. The booklet describes important policies and includes sample forms, filing requirements, and fees. It also covers the OCC’s review, approval or denial, and subsequent consummation requirements and appeal procedures.