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FDIC Announces Nationwide Seminars for Bank Officers and Employees
On May 18, the FDIC issued FIL-18-2017 announcing that, between June 6, 2017 and December 4, 2017, it will conduct four identical live seminars regarding FDIC deposit insurance coverage for bank employees and bank officers. The seminars will include an overview of popular topics such as (i) the Electronic Deposit Insurance Estimator—an interactive tool used to calculate deposit insurance coverage; (ii) the BankFind Directory, which allows users to confirm if a bank is FDIC-insured; and (iii) the Financial Institution Employee’s Guide to Deposit Insurance developed to help bankers provide detailed information about deposit insurance coverage to their depositors. In addition to the live seminars, the FDIC posted to its YouTube channel three separate seminars, entitled (i) Fundamentals of Deposit Insurance Coverage; (ii) Deposit Insurance Coverage for Revocable Trust Accounts; and (iii) Advanced Topics in Deposit Insurance Coverage. Both the live seminars and the YouTube seminars will provide bank employees and officers with an understanding of how to calculate deposit insurance coverage. Bankers interested in attending the seminars should visit the FDIC’s website.
FDIC Vice Chairman Discusses Forces of Change in Banking Industry, Proposes Regulatory Relief
On May 12, FDIC Vice Chairman Tom Hoenig spoke at the Systemic Risk and Organization of the Financial System Conference in California. He delivered prepared remarks on “Financial Markets and Accountability: A Better Way Forward.” Specifically, Hoenig discussed his views on the need for change in the banking industry and how his recently introduced reform proposal would strengthen the financial system and provide regulatory relief and long-term economic growth.
Hoenig argued that his proposal, “Regulatory Relief and Accountability for Financial Holding Companies Engaged in Nontraditional Banking Activities,” would help cure the ills and vulnerabilities of the current U.S. financial system, in which the largest banks have grown disproportionately big with activities that are too consolidated, resulting in a financial system that remains “heavily subsidized, increasingly concentrated, and less competitive.”
Hoenig’s proposal outlines ideas to address too-big-to-fail, enhance financial stability, and return the “safety net to its original purpose of depositor and payment system protection.” The proposal requires the largest banks to hold more capital, while partitioning nonbank activities away from the safety net. Hoenig stated that his proposal is intended to enhance competition by creating a more level playing field between insured and noninsured financial firms. The proposal also inhibits the intermingling of funding and operations between affiliates, which, while advantageous during good times, provides “far greater advantages” during bad times. Hoenig stated this would provide more stability and more consistent economic growth, and facilitate resolution using bankruptcy.
ICBA Support. Independent Community Bankers of America President and CEO Camden R. Fine issued a statement on Hoenig’s remarks, agreeing that “excessive regulatory burdens have exacerbated the dangerous consolidation of the banking industry into fewer and fewer hands,” and that “[t]o combat excessive consolidation and concentration of resources in the largest and most systemically risky financial firms, ICBA advocates comprehensive regulatory relief for community banks.” ICBA recently published a white paper entitled Community Bank Regulatory Relief: A Roadmap to Economic Growth and Prosperity outlining its views on regulatory reform.
FDIC Fines Wisconsin Bank and Affiliated Lenders for Overcharging Military Members
On May 11, the FDIC announced that a Wisconsin-based bank and its two institution-affiliated parties agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act. According to the FDIC, the unfair and deceptive practices, which harmed consumers including military service members and their families, included: (i) charging interest on loans that were marketed as interest-free if they were repaid within six months; (ii) selling add-on products without clearly disclosing the terms; and (iii) not allowing consumers the opportunity to use the monthly premium-payment option when they bought debt cancellation products. Under the terms of the settlement with the FDIC, the bank will establish a $3 million restitution fund for eligible consumers (and has agreed to add more if that amount is insufficient to make all of the required payments). In addition, the bank and its institution-affiliated parties are required to: (i) prepare a comprehensive restitution plan; (ii) retain an independent auditing firm to determine compliance with the plan; and (iii) provide the FDIC with quarterly written progress reports describing the actions taken by the parties to comply with the terms of the settlement. The settlement also requires the bank to pay a civil penalty of $151,000, and the institution-affiliated parties to pay civil money penalties of $54,000 and $37,000 respectively.
OCC Places Wisconsin-Based Bank into Receivership
On May 5, the OCC announced that it had put a Wisconsin-based a federal savings association (Bank) with branches in five states into receivership and appointed the FDIC as receiver. According to the OCC, the decision to close the Bank was made after determining that the Bank: (i) had experienced substantial dissipation of assets or earnings due to unsafe or unsound practices; (ii) was significantly undercapitalized; and (iii) failed to submit a capital restoration plan acceptable to the OCC.
To protect the depositors, the FDIC announced it has entered into a purchase and assumption agreement with a North Carolina-based bank to assume all of the failed Bank’s deposits and to purchase approximately $892 million of the failed Bank’s assets. The remaining assets will be retained by the FDIC for later disposition. The North Carolina bank announced that it will reopen 12 of the failed Bank’s brick-and-mortar locations but will not reopen any of the failed Bank’s 107 branches in retail outlets. Current FDIC estimates are that this failure—the fifth FDIC-insured institution to fail this year—will cost the Deposit Insurance Fund (DIF) $146.4 million. This closely follows the April 28 closure of a New Orleans-based bank, which the FDIC estimates will cost the DIF almost $1 billion.
Financial CHOICE Act of 2017 Approved by House Financial Services Committee
On May 4, GOP efforts to overhaul existing financial regulations took a step forward as the House Financial Services Committee approved H.R. 10, a revised version of the “Financial CHOICE Act of 2017” in a party-line vote, 34-26. The vote concluded a two week period that included both a three-day markup, of the GOP-backed legislation—during which several Democrat committee members sought, unsuccessfully, to remove various provisions of the bill—and, a two-day hearing that included testimony from 18 different witnesses.
Originally introduced by Committee Chairman Jeb Hensarling (R-TX) in September 2016, the main focus of the CHOICE Act was to give financial institutions the option of avoiding many of the rules set up by the 2010 Dodd-Frank law if they maintain a high level of capital and are “well-managed” as defined in the bill. The legislation, if enacted, would also end the Dodd-Frank Act’s taxpayer-funded bailouts of large financial institutions and would impose greater penalties on those who commit fraud and insider trading, while also demanding greater accountability from banking regulators. A summary of changes incorporated in the latest iteration of the proposed legislation—recently referred to as “CHOICE Act 2.0”—was released by the Committee last week and included, among other things:
- the elimination of the CFPB supervisory and examination authority;
- a restructuring of the CFPB, FHFA, OCC, and FDIC into bipartisan commissions appointed by the President;
- an opt-out of many regulatory requirements for banks and other financial institutions if they maintain a 10% leverage ratio (among other conditions);
- subjecting the federal banking regulators to greater congressional oversight and tighter budgetary control;
- reforms in bank stress tests;
- materially reducing the authority of the Financial Stability Oversight Council (FSOC) and the establishment of a new process of identifying financial institutions as "systemically important";
- a repeal of the Orderly Liquidation Authority and the creation of a new bankruptcy process for banks;
- a repeal of the Volcker Rule; and
- facilitated capital raising by small companies, including through crowd-funding.
Looking ahead, the House could vote to pass the bill later this month. While a party-line vote would pass the House, the bill will likely need to pick up a minimum of 60 votes—including support from several Democrats—in order for it to pass in the Senate.
FDIC Releases May List of CRA Compliance Examinations
On May 3, 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 February 2017. Monthly lists of all state nonmember banks and their evaluations that have been made publicly available can be accessed through the FDIC’s website. As noted by the FDIC, the CRA is “intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.”
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in March 2017
On April 28, the FDIC released its list of 24 administrative enforcement actions taken against banks and individuals in March. Among the consent orders on the list are civil money penalties for violations of the Food Disaster Protection Act of 1973 and its flood insurance requirements. An additional six actions listed relate to unsafe or unsound banking practices and breaches of fiduciary duty, including five removal and prohibition orders. There are no administrative hearings scheduled for May 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.
Following Hearing, House Financial Services Committee Chairman Formally Introduces Financial CHOICE Act of 2017
On April 26, the House Financial Services Committee held a hearing to discuss The Financial CHOICE Act – a GOP proposal to “reform the financial regulatory system” that was initially introduced and considered, though differing in a number of respects from the current version, but not adopted in the last Congress. The hearing debated the merits of a discussion draft, which was released on April 19 by Committee Chairman Jeb Hensarling (R-TX). Shortly after Wednesday’s hearing, Chairman Hensarling formally introduced H.R. 10, The Financial CHOICE Act of 2017. An Executive Summary of the proposed legislation has also been released.
The April 26 hearing – a video of which can be accessed here – included testimony from the following witnesses:
- Mr. Peter J. Wallison, a Senior Fellow and Arthur F. Burn Fellow, Financial Policy Studies with the American Enterprise Institute
- Dr. Norbert J. Michel, a Senior Research Fellow, Financial Regulations and Monetary Policy, with the Heritage Foundation
- The Honorable Michael S. Barr, a Professor of Law at University of Michigan Law School
- Mr. Alex J. Pollock, a Distinguished Senior Fellow with the R Street Institute
- Dr. Lisa D. Cook, an Associate Professor of Economics and International Relations at Michigan State University
- Ms. Hester Peirce, a Director in the Financial Markets Working Group and Senior Research Fellow at the Mercatus Center at George Mason University
- Mr. John Allison, Former President and Chief Executive Officer with the Cato Institute
On April 28, Democrats held a separate hearing pursuant to Clause (d)(5) of Rule 3 of the Committee rules, which entitles members of the minority party to call its own hearing on any matter that is the subject of a majority hearing. The second hearing day – a video of which can be accessed here – included testimony from the following witnesses:
- The Honorable Elizabeth Warren, United States Senator
- Rohit Chopra, Senior Fellow, Consumer Federation of America
- Corey Klemmer, Corporate Research Analyst, Office of Investment, AFL-CIO
- Rev. Willie Gable, Pastor, National Baptist Convention USA, Inc.
- John C. Coffee Jr., Adolf A. Berle Professor of Law, Columbia University
- Rob Randhava, Senior Counsel, Leadership Conference on Civil and Human Rights
- Melanie Lubin, Maryland Securities Commissioner, North American Securities Administrators Association
- Emily Liner, Senior Policy Advisor, Economic Program, Third Way
- Amanda Jackson, Organizing and Outreach Manager, Americans for Financial Reform
- Ken Bertsch, Executive Director, Council of Institutional Investors
- Sarah Edelman, Director, Housing Policy, Center for American Progress (CAP)
Ranking Minority Member Maxine Waters (D-CA) also used the hearing to express her strong disapproval of what she has dubbed the “Wrong Choice Act.” Among other things, the ranking member alleged that the proposed legislation would “destroy[] Wall Street reform, gut[] the Consumer Financial Protection Bureau, and returns us to the financial system that allowed risky and predatory Wall Street practices and products to crash our economy.”
FDIC Releases April List of CRA Compliance Examinations
On April 5, 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 January 2017. Monthly lists of all state nonmember banks whose evaluations have been made publicly available can be accessed through the FDIC’s website.
FDIC Releases Third Volume in its Affordable Mortgage Lending Guide
On April 6, the FDIC released the third volume of its Affordable Mortgage Lending Guide (Guide). The Guide is designed to help community bankers understand and compare various affordable mortgage-related programs, as well as their Community Reinvestment implications. This third installment of the Guide provides an overview of Federal Home Loan Bank programs designed to support single-family home purchases, such as down payment and closing cost assistance—many of which can be used in conjunction with other federal and state housing finance agency and government-sponsored enterprise programs. The Guide also provides alternatives for selling mortgages on the secondary market. As previously reported in InfoBytes, the first and second volumes in the series were published last year.