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Congressmen Send Letter Urging Fed to Delay Rulemaking Until New Vice Chairman is Confirmed
On February 23, several GOP members of the House Financial Services Committee sent a letter to Fed Chair Janet Yellen in response to Chair Yellen’s recent Congressional testimony that the Fed may advance a pending rulemaking “pertain[ing] to the stress tests and what is called the Stress Capital Buffer.” Among other things, the letter urged that, “[a]bsent an emergency, the Federal Reserve should neither propose nor adopt any new rules until the U.S. Senate confirms a [Fed] Vice Chairman for Supervision.” The GOP lawmakers also cautioned that, should the Fed adopt rules prior to the confirmation of the Vice Chairman for Supervision, they intend to “work with [their] colleagues to ensure that Congress scrutinizes the Federal Reserve’s actions—and, if appropriate, overturns them—pursuant to the Congressional Review Act.”
Ann Misback Named to Replace Retiring Fed Secretary
On March 1, the Federal Reserve Board announced that Ann Misback will replace a retiring Robert de V. Frierson as the Board’s Secretary, effective April 2. Ms. Misback began her career at the Fed in 1992 as a senior attorney in the Legal Division’s international section and was appointed to the official staff in 2000. Since 2013, she has worked as an associate director in the Division of Supervision and Regulation. Mr. Frierson has served as Secretary since 2012 and his retirement marks the conclusion of 30 year career with the Fed.
Financial Services Institution Discloses SEC FCPA Investigation into Hiring Practices
On February 24, a major financial services institution disclosed in its 10-K that government and regulatory agencies, including the SEC, are conducting investigations concerning potential violations of the FCPA related to hiring of candidates referred by or related to foreign government officials. The institution stated that it was cooperating with the investigations.
This is not the first FCPA-related investigation of a company’s hiring practices. As previously reported here in November 2016, a global financial company and a Hong Kong subsidiary agreed to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, ending a nearly three year, multi-agency investigation of the subsidiary’s referral program through which the children of influential Chinese officials were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia. Similarly, as reported here, in August 2015, the SEC announced a settlement with a multinational financial services company over allegations that the company violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The company paid $14.8 million to settle the charges.
Nor are the inquiries confined to financial services companies. For example, the SEC announced in March 2016 that it settled charges with the San Diego-based mobile chip maker. The company agreed to pay a $7.5 million civil penalty to resolve charges that it violated the FCPA by hiring relatives of Chinese government officials and providing things of value to foreign officials and their family members, in an attempt to influence these officials to take actions that would assist the company in obtaining or retaining business in China.
FDIC Issues Revised Scenarios for 2017 Stress Tests
On February 13, the FDIC released revised economic scenarios for use by certain financial institutions with total consolidated assets of more than $10 billion for 2017 stress tests. According to a statement from the agency, the previously released scenarios contained incorrect historical values for the BBB corporate yield in 2016. The Fed and OCC, with whom the FDIC works develop and distribute the scenarios, also issued revised data.
Fed's Regulatory Chief Submits Letter of Resignation; Will Step Down in April
On February 10, the Fed announced that Daniel K. Tarullo submitted his resignation as a member of the Board of Governors of the Federal Reserve System, effective on or around April 5. Mr. Tarullo—who has been a member of the Board since January 28, 2009—was appointed to the Board by President Obama for an unexpired term ending January 31, 2022. During his time on the Board, he served as Chairman of the Board’s Committee on Supervision and Regulation. He was also Chairman of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation.
President of Philadelphia Fed Makes an Argument for FinTech Regulation
In prepared remarks at the “Global Interdependence Center’s Payment Systems in the Internet Age” Conference, Philadelphia Fed President Patrick T. Harker said that regulating the evolving FinTech industry benefits not only consumers, but also the innovators. While Harker did not speculate as to whether the Fed will become involved in FinTech regulation, he stated that it is in the best interest of FinTech companies “to have an established framework in which to operate.” He cautioned, however, that “all financial systems are a matter of trust” and thus FinTech firms will “need that trust the same as any other bank or financial institution.” Harker noted that regulations will help determine which companies can survive the “down side” of a credit cycle, but implementing regulations after a “crisis. . . could mean tighter strictures and less room for innovation.”
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
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.