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April is National Financial Capability Month; FDIC Highlights Free Financial Education Tools
On April 3, the FDIC released a list of its free financial education tools in recognition of National Financial Capability Month. The tools were developed to help educate people of all ages and expand their financial knowledge and skills. A few of the offered tools include: (i) Money Smart age-appropriate, multi-lingual financial education materials; (ii) Money Smart for Small Businesses for new entrepreneurs; (iii) Money Smart News featuring resources for financial educators; and (iv) FDIC Consumer News, which offers practical guidance on ways to use financial services.
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in February 2017
On March 31, the FDIC released its list of administrative enforcement actions taken against banks and individuals in February. Several of the consent agreements included on the list seek civil money penalties for, among other things, violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Other violations cited in the enforcement actions relate to unsafe or unsound banking practices, breaches of fiduciary duty, and violations of the Bank Secrecy Act. There are no administrative hearings scheduled for April 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.
FDIC Q4 2016 Quarterly Banking Profile Reveals Community Bank Deposits, Office Count Both Up; OCC Reports Uptick in Mortgage Performance through End of 2016
Earlier this week, the FDIC released the latest issue of both its Quarterly Banking Profile and the FDIC Quarterly Report–a “comprehensive summary of the most current financial results for the banking industry” that is published quarterly by the FDIC’s Division of Insurance and Research. According to its latest Report, community banks—which represent 92 percent of insured institutions—reported net income of $5.6 billion in the fourth quarter of 2016, a 10.5% increase over 2015. According to the Report, “the increase was driven by higher net interest income and noninterest income, which was partly offset by higher loan-loss provisions and noninterest expense.” The Report also reveals an 8.3 percent 12-month growth rate in loan balances at community banks. The Report notes further that “community banks accounted for 43 percent of small loans to businesses.” Notably, the FDIC observed that, although deposits across the banking industry grew, the number of non-community bank offices actually shrank. By contrast, however, the number of community banks increased during 2016.
Also this week, the OCC announced the release of its “OCC Mortgage Metrics Report, Fourth Quarter 2016,” its quarterly report based on performance data from seven national bank servicers, including over a third of all outstanding U.S. residential mortgages. As explained in the OCC’s Q4 2016 Report, foreclosure activity declined and mortgage performance continued to improve through the fourth quarter of 2016, with 94.7 percent of mortgages current and performing at the end of 2016, compared with 94.1 percent a year earlier. Servicers initiated 45,495 new foreclosures in the fourth quarter, a decrease of 5.1 percent from previous quarter and a decrease of 28.2 percent year-over-year. Notably, the number of mortgage modifications—most involving a reduction in borrower monthly payments—similarly reflected a substantial 9.3 percent decrease from the previous quarter. The OCC also notes, among other things, that the percentage of seriously delinquent mortgages dropped to 2.3 percent of the portfolio, down from 2.7 percent reported in the fourth quarter a year earlier.
FDIC Releases Presentation Materials Explaining New Streamlined “FFIEC 051 Call Report” for Eligible Small Institutions
Earlier this month, the FDIC released presentation materials used during a recent webinar hosted by the Federal Financial Institutions Examination Council (FFIEC) for the purpose of explaining the new streamlined “FFIEC 051 Call Report” for eligible small institutions. As previously covered by InfoBytes, the Federal banking agencies – including the FDIC, the Fed, and the OCC – are implementing a new Call Report for financial institutions with only domestic offices and less than $1 billion in total assets (see FIL-82-2016). The proposed changes – which go into effect on March 31 – modify the existing “FFIEC 041” and “FFIEC 031” versions of the Call Report as part of an ongoing initiative to reduce the burden associated with Call Report requirements for community banks. Among other things, the streamlined Call Report reduces the existing Call Report from 85 to 61 pages, resulting from the removal of approximately 950 (or about 40 percent) of the nearly 2,400 data items in the Call Report.
FDIC Releases Winter 2016 “Supervisory Insights”
On March 7, the FDIC released its Winter 2016 Supervisory Insights, which contains articles discussing credit risk trends and balance sheet growth, emphasizes the importance of strong risk management practices, and provides a roundup of recently released regulatory and supervisory guidance. Doreen Eberley, Director of the FDIC’s Division of Risk Management Supervision, stated in the release that “[h]istorically, financial institutions that have prudently managed loan growth have been better positioned to withstand periods of stress and continue to serve the credit needs of their local communities.” Her statement goes on to “encourage bankers to identify and correct loan underwriting and administration problems before they adversely affect the bottom line.” The Supervisory Insights note that nearly 80 percent of insured institutions grew their loan portfolios during the third quarter of 2016, which is “a figure not far from the peak of nearly 83 percent of institutions that grew their portfolios in 2005.” While this edition focused primarily on lending in the following sectors—commercial real estate, agriculture, and oil and gas—it also stressed the need for managing loan concentrations through strong, forward-looking risk management practices that allow for early intervention.
FDIC Announces Enhancements to Financial Education Program for Older Adults
On March 13, the FDIC announced enhancements to Money Smart for Older Adults, its financial education program geared toward preventing elder financial exploitation. The program, which the FDIC developed in partnership with the CFPB, was designed as a response to the growing concerns about financial abuse of senior citizens, which often goes unreported. Statistics provided by the National Adult Protective Services Association show that “only one in 44 cases of financial abuse comes to the attention of authorities, and 90 percent of victims are exploited by a relative, friend, or trusted acquaintance.” The program, which covers topics such as identity theft and scams that target homeowners, also provides tools to help better educate seniors on money management and financial awareness. The recently-announced enhancements include new information and resources aimed at preventing elder financial exploitation.
FDIC Advisory Committee on Community Banking to Host Open Meeting on March 28
The Federal Deposit Insurance Corporation’s Advisory Committee on Community Banking will host an open meeting on Tuesday, March 28, 2017, at 9 a.m. The Advisory Committee will provide advice and recommendations on a broad range of policy issues that have particular impact on small community banks and the local communities they serve, with a focus on rural areas.
OCC to Host Credit Risk and Operational Workshops for Directors of National Community Banks and Federal Savings Associations; Banking Agencies to Conduct Webinar to Introduce New FFIEC Call Report
On March 2, the Office of the Comptroller of the Currency (OCC) announced that it will host two workshops in Phoenix on April 11-12 for directors of OCC supervised national community banks and federal associations. The Credit Risk workshop (April 11) will cover strategies to recognize trends and problems in credit risk within the loan portfolio, and the Operational Risk workshop (April 12) will discuss key components of operational risk, governance, third-party risk, vendor management, and cybersecurity.
Also on March 2, four members of the Federal Financial Institutions Examination Council (FFIEC) (Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Conference of State Bank Supervisors) announced the implementation of the new streamlined FFIEC 051 Call Report, effective March 31, 2017, that will introduce burden-reducing changes to the existing versions of the Call Report and will be available to eligible small institutions. “’Eligible small institutions’ are [defined as] institutions with domestic offices only and total assets of less than $1 billion, excluding those that are advanced approaches institutions for regulatory capital purposes.” The revisions to the requirements are subject to approval by the OMB. On March 8, the FFIEC will conduct a webinar from 2:00 p.m. to 3:30 p.m. ET to introduce the new Call Report and explain the revisions.
District Court Denies Injunction Against “Operation Choke Point” Activities
On February 23, a U.S. District Court for the District of Columbia issued a Memorandum Opinion denying a request for injunctive relief sought by a group of payday lenders to stop “Operation Choke Point” – a DOJ initiative targeting fraud by investigating US banks and the business they do with companies believed to be a higher risk for fraud and money laundering including, but not limited to, payday lenders. Payday lenders have called the initiative a coordinated effort by federal regulators to stop banks from doing business with them, thereby threatening their survival. See Advance America v. FDIC, [Memorandum Opinion No. 134] No. 14-CV-00953-GK (D.D.C. Feb. 23, 2017). According to the lenders, the Fed, FDIC, and OCC have adopted DOJ guidance on bank reputation risk and then used that guidance to exert “backroom regulatory pressure seeking to coerce banks to terminate longstanding, mutually beneficial relationships with all payday lenders.” The government has rejected this characterization, asserting that banks can do business with payday lenders as long as the risks are managed properly.
Evaluating the request under the due process “stigma-plus rule,” the Court focused on whether the payday lenders could show they were likely to succeed on the merits of their case and whether or not they were likely to suffer irreparable harm without the injunction.
Ultimately, the payday lenders were unable to convince the Court that they were likely to suffer the harm central to a “stigma-plus” claim. The Court reasoned that (i) the closure of some bank accounts would not be enough to constitute the loss of banking services, and that the lenders needed (and failed) to show that the loss of banking services had effectively prevented them from offering payday loans; and (ii) nearly all of the lenders were still in operation; and (iii) because the lenders were still able to find banks to work with, evidence of the possibility of future loss of banking services was too speculative to support an injunction.
The Court was also not persuaded that the lenders would be able to prove that regulatory actions caused banks to deny services to petitioners. Specifically, the Court determined that the lenders were “unlikely” to be able to set forth evidence of the “campaign of backroom strong-arming” underlying petitioners’ request for injunctive relief. Specifically, the Court noted that the lenders relied on “scattered statements,” some of which the Court characterized as “anonymous double hearsay,” to support their claims. The only direct evidence, according to the Court, was actually just “evidence of a targeted enforcement action against a single scofflaw.”
Though the Court explained that the two other factors—the balance of equities and the public interest—were of less significance in this situation, it noted in closing that “enjoining an agency’s statutorily delegated enforcement authority is likely to harm the public interest, particularly where plaintiffs are unable to demonstrate a likelihood of success on the merits.”
FDIC Releases March List of CRA Compliance Examinations
On March 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 December 2016. Monthly lists of all state nonmember banks whose evaluations have been made publicly available since July 1, 1990 can be accessed through the FDIC's website.