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OCC notifies banks of 18-month on-site examination qualifications
On September 10, the OCC notified national banks, federal savings associations, and federal branches and agencies of the interim final rule issued jointly by the OCC, Federal Reserve, and FDIC allowing qualified insured depository institutions with less than $3 billion in total assets to be eligible for an 18-month on-site examination cycle. (See previous InfoBytes coverage here.) In addition to meeting the asset threshold, qualifying banks must also (i) have a rating of one or two; (ii) be well capitalized and well managed; (iii) not be subject to a federal banking agency’s formal enforcement proceeding or order; and (iv) not have experienced a change of control within the previous 12 months. The OCC further noted that it reserves the authority to maintain more frequent examinations for banks if necessary or appropriate. The interim final rule, issued pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S. 2155), took effect August 29. Comments on the interim final rule must be received by October 29.
FDIC issues summer 2018 Supervisory Insights
On September 5, the FDIC released its summer 2018 issue of Supervisory Insights (see FIL-44-2018), which contains articles discussing bank lending to the oil and gas sector and an overview of bank credit risk grading systems. Information and analysis from examiner observations is presented in the article, “Credit Risk Grading Systems: Observations from a Horizontal Assessment.” Sixteen large state nonmember banks’ credit risk grading programs are analyzed for (i) their use of expert judgment based systems and/or quantitative scorecards and models to assign credit grades; (ii) data usage and retention needs; and (iii) governance and risk management frameworks established by grade definitions. The article advises that “a bank’s credit risk grading system should align with the bank’s size and complexity to facilitate accurate risk identification, measurement, monitoring, and reporting,” and should include internal systems to allow for effective risk assessment, timely and accurate reporting, and procedures for safeguarding and managing assets. In addition, the issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
Agencies extend comment deadline for Volcker Rule revisions
On September 4, the OCC, Federal Reserve Board, FDIC, SEC, and CFTC (the Agencies) announced a 30-day extension to the public comment period for the Agencies’ joint revisions to the Volcker Rule. The comment period, which was previously scheduled to end on September 17, is now extended until October 17. The joint release notes that the extension will give interested parties “approximately four and a half months from the date the proposal was released to the public to submit comments,” as the Agencies’ first released the text of the proposal on May 30 (it was not published in the Federal Register until July 17). As previously covered by InfoBytes, the Agencies’ joint revisions are designed to simplify and tailor obligations for compliance with Section 13 of the Bank Holding Company Act, known as the Volcker Rule, which restricts a bank’s ability to engage in proprietary trading and own certain funds. Specifically, according to a Federal Reserve Board memo, the proposed amendments will better align Volcker rule requirements with a bank’s level of trading activity and risks.
FDIC releases July enforcement actions
On August 31, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in July. The 15 orders include “three Section 19 orders; four removal and prohibition orders; one civil money penalty; three terminations of consent orders; and four adjudicated decisions.” The FDIC assessed a $10,800 civil money penalty against a New Mexico-based bank for alleged violations of the Flood Disaster Protection Act in connection with alleged failures to (i) obtain flood insurance coverage on loans at or before origination or renewal; (ii) maintain flood insurance; (iii) notify borrowers that they were required to obtain flood insurance; and (iv) obtain flood insurance on a borrower’s behalf when the borrower did not obtain insurance within 45 days after receiving such notification. There are no administrative hearings scheduled for September 2018. The FDIC database containing all 15 enforcement decisions and orders may be accessed here.
Agencies issue interim final rules to comply with EGRRCPA
On August 22 and 23, the OCC, Federal Reserve, and FDIC (Agencies) jointly issued two interim final rules to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) (previously Senate bill S.2155).
On August 22, the Agencies issued an interim final rule amending the liquidity coverage ratio (LCR) rule to treat certain eligible municipal securities as high-quality liquid assets. The LCR rule applies to banking organizations that have $250 billion or more in total assets or that have $10 billion or more in foreign exposures, and to their subsidiaries that have assets of $10 billion, as required by Section 403 of EGRRCPA. According to the FDIC’s Financial Institution Letter, FIL-43-2018, the interim final rule amends the LCR rule to (i) add liquid, readily-marketable, and investment grade municipal obligations to the list of assets eligible for treatment as level 2B liquid assets; (ii) include a definition for “municipal obligations”; and (iii) add a reference to the Federal Reserve’s definition of “liquid and readily-marketable.” The rule takes effect upon publication in the Federal Register and comments are due within 30 days of publication.
On August 23, the Agencies issued an additional interim final rule allowing a lengthened examination cycle for an expanded number of qualifying insured depository institutions and U.S. branches and agencies of foreign banks. Specifically, as authorized by EGRRCPA, the interim final rule would allow qualifying insured depository institutions with less than $3 billion in total assets (an increase from the previous threshold of $1 billion) to be eligible for an 18-month on-site examination cycle. The rule takes effect upon publication in the Federal Register and comments are due within 60 days of publication.
OCC, FDIC provide guidance to institutions affected by California wildfires
On August 9, the OCC issued a statement permitting OCC-regulated institutions to close their offices affected by wildfires in California. OCC Bulletin 2012-28 provides further guidance on natural disasters and other emergency conditions. (See previous InfoBytes coverage here). On the same day, the FDIC also provided guidance related to California wildfires in FIL-41-2018. Among other things, the FDIC is encouraging institutions to consider extending repayment terms and restructuring existing loans that may be affected.
FDIC releases 25th anniversary edition of FDIC Consumer News
On August 3, the FDIC published a special edition of its quarterly FDIC Consumer News publication, recognizing the 25th anniversary of the newsletter, titled “25 Years of Tips You Can Bank On: Time-Tested Strategies for Managing and Protecting Your Money.” The quarterly newsletter intends to deliver “timely, reliable and innovative tips and information” about financial matters to consumers. The special edition reprises and updates an old article from each year going back to 1993 and includes topics such as (i) retirement planning and saving; (ii) how to know what is FDIC insured; (iii) minimizing the risk of identity theft; (iv) refinancing loans; and (v) cybersecurity checklists.
FDIC issues updated Section 19 policy statement
On August 3, the FDIC published in the Federal Register an updated statement of policy pursuant to Section 19 of the Federal Deposit Insurance Act (FDI Act) concerning participation in banking of a person convicted of a crime of dishonesty, breach of trust, money laundering or who has entered a pretrial diversion program in connection with the prosecution of such offenses. In addition to technical and clarifying changes, the final policy statement expands the criteria of de minimis offenses for which the FDIC will not require the filing of an application, and in response to comments received on the January proposal, (i) clarifies when an expungement is considered complete for Section 19 purposes; (ii) clearly recognizes that convictions set aside based on procedural or substantive error should not be considered convictions under Section 19; and (iii) adjusts the definition of “jail time” to not include “those on probation or parole who may be restricted to a particular jurisdiction.”
FDIC releases June enforcement actions
On July 27, the FDIC announced a list of orders of administrative enforcement actions taken against banks and individuals in June. The 12 orders include “four Section 19 orders; one civil money penalty; one removal and prohibition order; one prompt corrective action directive; three terminations of consent orders; one termination of prompt corrective action directive; and one modification of removal and prohibition order.” The civil money penalty order relates to violations of the Flood Disaster Protection Act by a Mississippi-based bank for allegedly failing to obtain flood insurance coverage on seven loans secured by buildings located, or to be located, in a special flood area at or before loan origination or renewal. There are no administrative hearings scheduled for August 2018. The FDIC database containing all 12 enforcement decisions and orders may be accessed here.
OCC releases additional guidance on state loan-to-deposit ratios
On July 25, the OCC issued Bulletin 2018-21 to provide additional guidance for covered national banks on how state loan-to-deposit ratios are used to determine compliance with Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. On June 21, the Federal Reserve, the FDIC, and the OCC released the host state loan-to-deposit ratios for each state or U.S. territory. Section 109, which prohibits banks from establishing or acquiring interstate branches for the primary purpose of deposit production, requires a comparison of a bank’s statewide loan-to-deposit ratio to the yearly host state loan-to-deposit ratios. If a bank’s statewide ratio is less than one-half the yearly published host state ratio, an additional review is required by the appropriate agency.