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FDIC Issues First Quarter 2018 CRA Examination Schedule, Releases September List of CRA Compliance Examinations
On August 31, the FDIC issued its Community Reinvestment Act (CRA) Examination Schedule for the Fourth Quarter of 2017 and First Quarter of 2018. The FDIC stated that the banks listed on the schedules were chosen for CRA examinations based on their asset size and CRA rating, and that absent reasonable cause, institutions with $250 million or less in assets and a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. The FDIC noted that due to recent natural disasters, some examinations may be delayed.
Separately, the FDIC published its monthly list of state nonmember banks recently evaluated for CRA compliance. The list reports CRA evaluation ratings assigned to institutions in June 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Of the 67 banks evaluated, 6 were rated “Outstanding,” 59 received a “Satisfactory” rating, and 2 were rated “Needs to Improve.” Monthly lists of all state nonmember banks and their evaluations that have been made publicly available can be accessed through the FDIC’s website.
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 Releases List of Enforcement Actions Taken Against Banks and Individuals in July 2017
On August 25, the FDIC released its list of 24 orders of administrative enforcement actions taken against banks and individuals in July. The FDIC issued consent orders against three banks, including one alleging “unsafe or unsound banking practices relating to [b]ank management and directors, capital maintenance, liquidity, credit administration, third-party risk management, audit, interest rate risk, and strategic and profit planning.”
Ten enforcement actions identified by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty leading to financial loss, including seven removal and prohibition orders and three assessments of civil money penalties. Also on the list are four Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and seven terminations of consent orders.
There are no administrative hearings scheduled for September 2017. The FDIC database containing all 24 of its enforcement decisions and orders may be accessed here.
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.”
FFIEC Releases Guidelines on HMDA Data Testing and Resubmission Standards
Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018. As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices. According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.
As previously discussed in InfoBytes, in 2016 the CFPB issued a request for public feedback on the resubmission of mortgage lending data reported under HMDA.
Federal Banking Regulators Issue Proposal to Simplify Capital Requirements to Provide Regulatory Relief to Community Banks
On August 22, the Federal Reserve, FDIC and OCC issued a proposed rule that capital requirements set to take effect in January 2018 would be suspended under a proposed rule for banking organizations not subject to the advanced approaches capital rules, such as community and midsized banks— generally those with less than $250 billion in total assets and fewer than $10 billion in foreign exposure. The federal banking regulators proposed the suspension as they develop a proposal that would simplify capital requirements to reduce regulatory burden. Banks subject to the advance approaches capital rules will still be required to comply with the capital rule requirements taking effect January 1, 2018. The proposal would pause the fully phased-in Basel III requirements regarding the treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests (see FDIC Financial Institution Letter FIL-34-2017). According to a press release issued by the FDIC, “the transitional treatment for those items is scheduled to be replaced with a different treatment on January 1, 2018.” FDIC Vice Chairman Thomas M. Hoenig issued a statement supporting the proposal but pushed for the need to provide additional relief for community banks such as predicating relief based on banking activities and tangible equity rather than asset size.
Comments on the proposed rule are due 30 days after publication in the Federal Register.
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.”
OCC Updates Comptroller’s Licensing Manual Booklet to Provide Guidance on Failure Acquisitions
On August 3, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2017-26 announcing a revised version of its “Failure Acquisitions” booklet designed to provide guidance on several policies and procedures impacting national banks and federal savings associations interested in acquiring a failed depository institution through the FDIC’s bidding process. The booklet, which is part of the Comptroller’s Licensing Manual, covers:
- an overview of the process banks must follow when submitting a purchase and assumption (P&A) application, which requires OCC approval before a bank can begin the FDIC bidding process;
- considerations undertaken by the OCC when reviewing a P&A application;
- a description of the process and elements of the application, including public notice and competitive factors, as well as legal and accounting standards; and
- references and links to informational resources.
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.