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Meeting to Approve the Authorization and Oversight Plan of the Committee on Financial Services
On February 7, the House Financial Services Committee adopted, by a voice vote, its Authorization and Oversight Plan of the Committee on Financial Services for the 115th Congress. Among other things, the Oversight Plan identifies the Committee’s intention to focus on the following areas of oversight during the upcoming Congress: the Dodd-Frank Act, capital markets, housing, insurance, and monetary policy and trade. The document also describes anticipated actions relating to the oversight and authorization of agencies or programs under the Committee’s jurisdiction.
OCC Proposes Final Revisions to Stress Test Information Collection
On February 2, the OCC requested comment on proposed revisions to an existing information collection entitled “Company-Run Annual Stress Test Reporting Template and Documentation for Covered Institutions with Total Consolidated Assets of $50 Billion or More Under the [Dodd-Frank Act].” The agency is also giving notice that it has sent the collection to the OMB for review. This information collection is related to the conduct of annual stress tests that the Dodd-Frank Act requires of certain financial companies, including national banks and federal savings associations. Comments on the current notice must be received by March 6, 2017.
FDIC Issues List of Banks Examined for CRA Compliance
On February 3, the FDIC released its February 2017 list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). As part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress mandated the public disclosure of an evaluation and rating for each bank or thrift that undergoes a CRA examination on or after July 1, 1990. A monthly list of banks examined for CRA compliance dating back to 1996 can be accessed here. The February 2017 list covers evaluation ratings that the FDIC assigned to institutions in November 2016. Of the 49 banks evaluated, five were rated Outstanding, 43 received a Satisfactory rating, and one was rated Needs to Improve.
OCC, FDIC, and Fed Release Stress Test Scenarios for 2017
On February 3, the Fed announced the release of the “Supervisory Scenarios” to be used by banks and supervisors for the 2017 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and also issued instructions to firms participating in CCAR. The Fed also published three letters that provide additional information on its stress-testing program. The three letters describe: (i) the Horizontal Capital Review for large, noncomplex companies; (ii) the CCAR qualitative assessment for U.S. intermediate holding companies of foreign banks, which are submitting capital plans for the first time; and (iii) improvements to how the Fed will estimate post-stress capital ratios.
On February 3, the OCC similarly released economic and financial market scenarios for 2017 that are to be used by national banks and federal savings associations (with total consolidated assets of more than $10 billion) in their annual Dodd-Frank Act-mandated stress test. On February 6, the FDIC released its stress test scenarios, working in consultation with the Fed and OCC.
The three sets of supervisory scenarios provide each agency with forward-looking information for use in bank supervision and will assist the agencies in assessing the covered institutions’ risk profile and capital adequacy.
Fed Survey: CRE Tightening Trend Continues
On February 6, the Fed released its January 2017 senior loan officer survey, addressing changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. The January survey results indicated that over the fourth quarter of 2016, on balance, lenders left their standards on commercial and industrial (“C&I”) loans unchanged, while tightening credit for commercial real estate (“CRE”) loans. Banks reported that they expect to ease standards on C&I loans and for the asset quality of such loans to improve somewhat this year. In contrast, banks expect to tighten standards on CRE loans, while they expect the asset quality of most CRE loan categories to remain unchanged. As to loans to households, banks reported that demand for most types of home-purchase loans weakened over the fourth quarter. On balance, banks reported that they expect to ease standards and to see asset quality improve somewhat for most residential home-purchase loans in 2017.
For additional details see:
- Table 1 – Opinion Survey on Bank Lending Practices at Selected Large Banks in the U.S.
- Table 2 – Opinion Survey on Bank Lending Practices at Selected Branches & Agencies of Foreign Banks
- Charts – Measures of Supply and Demand for Commercial & Industrial Loans
State Financial Regulators Release BSA/AML Compliance Tool
On February 1, the Conference of State Bank Supervisors (CSBS) announced the release of its BSA/AML Self-Assessment Tool—a new, voluntary tool to help banks and non-depository financial institutions better manage Bank Secrecy Act/Anti-Money Laundering (BSA/AML) risk. Building upon CSBS’s efforts to help banks understand their risk exposure to third-parties, the self-assessment tool—developed jointly by the CSBS and state regulators—aims to help institutions better identify, monitor, and communicate BSA/AML risk, thereby reducing some of the burden and uncertainty surrounding compliance and facilitating more transparency within the financial sector. The self-assessment tool is available for use by any institution and may be accessed here. A narrated tutorial is also available here. Last year, CSBS released a white paper that outlines state supervision of money services businesses.
NYDFS Fines German Bank $425 Million for Deficient Money Laundering Controls
On January 30, the New York Department of Financial Services (NYDFS) announced that it had assessed a $425 million fine against a German bank as part of a consent order addressing allegations that the bank allowed $10 billion in “mirror trades” involving Russian investors by failing to properly enforce protections against money laundering. According to the press release, the bank and several of its senior managers allegedly “missed key opportunities to detect, intercept and investigate a long-running mirror-trading scheme facilitated by its Moscow branch and involving New York and London branches.” Specifically, the consent order claims the bank (i) conducted its business in an unsafe and unsound matter; (ii) implemented weak “Know Your Customer” processes; (iii) failed to accurately rate its country and client risks for money laundering throughout the relevant time period and lacked a global policy benchmarking its risk appetite; (iv) maintained ineffective, understaffed anti-financial crime, AML, and compliance units; and (v) had a flawed corporate structure and organization.
In addition to the $425 million monetary penalty, the bank must, within 60 days of the consent order, engage an independent monitor to “conduct a comprehensive review of the [b]ank’s existing BSA/AML compliance programs, policies and procedures.” Furthermore, the bank must submit in writing for NYDFS review an action plan outlining enhancements to its current BSA/AML compliance programs.
Fed Finalizes Rule Simplifying Stress Testing Process for Regional Banks
On January 30, the Fed issued a finalized version of its rule aimed at simplifying the Fed’s Comprehensive Capital Analysis and Review (CCAR or “stress test”) by exempting all but the largest financial institutions from the qualitative assessment portion of the Fed’s stress test. The changes will apply to the 2017 CCAR cycle, which began on January 1, 2017.
Specifically, the new rule provides that “large and noncomplex firms”—those with total consolidated assets of at least $50 billion but less than $250 billion, and nonbank assets of less than $75 billion (and that are not U.S. global-systemically important banks)—will no longer be subject to the provisions allowing the Fed to object to a bank’s capital adequacy plan based on an evaluation of hypothetical scenarios of severe economic and financial market stress, known as a “qualitative assessment.” Previously, the Board could object to the annual capital plan of any bank subject to stress testing, based on the quantitative or qualitative findings of the exercise. However, the rule also decreases the amount of additional capital exempted banks can distribute to shareholders in connection with a capital plan without seeking prior approval from the Fed, now 0.25 percent of tier 1 capital down from 1 percent.
Major Regional Bank Agrees to Fix Anti-Money Laundering Controls in Fed/FDIC Orders
On January 27, the Federal Reserve publicly released a cease-and-desist order against a regional bank concerning its anti-money laundering (AML) program. The order, which is dated January 25, requires the bank to address certain deficiencies identified in a review of the bank’s AML compliance program by the Federal Reserve Bank of Richmond and develop a firm-wide compliance risk management program addressing the AML requirements. The order follows a recent Stipulated Order with the FDIC against the same bank concerning similar allegations and calling for, among other things, corrective actions and enhancements to address certain internal control deficiencies.
Bank Fined $18.3 Million for Billing Rate Discrepancies
On January 26, a cease-and-desist order was announced between the SEC and the bank regarding alleged violations involving unauthorized advisor fee overcharges affecting at least 60,000 advisory client accounts. The order claims that during a 15-year period, the bank failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents. Furthermore, the order alleges that the bank cannot locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012, preventing the bank from accurately validating the fee rates billed to clients over the years against the fee rates that were negotiated when the accounts were opened. As part of the settlement, the bank agreed to enhance its fee-billing and books-and-records practices, and will pay an $18.3 million fine.