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OCC issues Comptroller’s Handbook booklet updating sampling methodologies
On May 26, the OCC issued Bulletin 2020-56 announcing the revision of the Sampling Methodologies booklet of the Comptroller’s Handbook. Among other things, the revised booklet (i) discusses the differences between statistical and judgmental sampling; (ii) details the OCC’s statistical sampling methodologies; and (iii) includes look-up tables covering statistical sample sizes and upper confidence bounds. The revised booklet is effective for supervisory activities beginning on or after June 15.
OCC releases recent enforcement actions
On May 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is an April 14 consent order to resolve the OCC’s claims that a California-based bank engaged in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program violations. According to the consent order, an OCC examination identified deficiencies in the bank’s BSA/AML compliance program, including failure to implement a compliance program that “adequately covered the required BSA/AML program elements,” and failure to correct a previously identified BSA/AML compliance program problem. The consent order requires the bank to, among other things, (i) appoint a compliance committee of independent directors ; (ii) submit a written strategic plan to the OCC covering at least the next three years; (iii) ensure competent management and staff is in place to ensure compliance with the order, applicable laws, and rules and regulations; (iv) appoint a “permanent, qualified, and experienced BSA Officer”; (v) create and adopt a “written program of policies and procedures to provide for compliance with the BSA”; (vi) adopt a “written risk-based program of internal controls and processes to ensure compliance with the requirements to file SARs”; (vi) develop policies and procedures for performing customer due diligence; (vii) implement a program to manage BSA/AML and Office of Foreign Assets Control risk associated with processing wire transfers; and (viii) conduct a SAR “look-back” review, implement an independent BSA/AML audit program, and develop a comprehensive training program for bank employees.
Brian Brooks named acting Comptroller, Otting steps down
On May 21, the OCC announced that Comptroller of the Currency, Joseph Otting will step down from office on May 29, and Brian P. Brooks will become acting Comptroller of the Currency. Brooks currently serves as First Deputy and Chief Operating Officer. Prior to joining the OCC, Brooks was Chief Legal Officer of a digital currency exchange, and prior to that, he served as Executive Vice President, General Counsel, and Corporate Secretary of Fannie Mae.
Federal agencies issue FAQs covering CRA and Covid-19
On May 27, the Federal Reserve Board, the OCC, and the FDIC posted Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs acknowledge that while Covid-19 affected states are categorized by the Federal Emergency Management Agency (FEMA) as Category B, which would normally not be considered designated disasters under the CRA, the agencies will grant consideration for activities that revitalize or stabilize affected areas by protecting public health and safety. The FAQs frequently cite to the joint statement on CRA consideration for activities in response to Covid-19, issued by the agencies in March (covered by InfoBytes here). Among other things, the FAQs discuss how Paycheck Protection Program and Main Street Lending Program loans may be eligible for CRA consideration and how bank examiners will consider affordable housing measures under the CRA.
OCC permits remote director, shareholder, and member meetings
On May 26, the Office of the Comptroller of the Currency announced an interim final rule that would permit national banks and federal savings associations to hold all board of director, shareholder and member meetings telephonically or electronically, including after the Covid-19 emergency ends. The OCC also published optional model bylaws for mutual savings associations and federal savings associations to authorize and govern telephonic and electronic meetings. The interim final rule takes effect on May 28, and comments must be received by July 13, 2020.
Prudential regulators outline principles on small-dollar lending
On May 20, the FDIC, Federal Reserve Board, OCC, and NCUA issued joint principles for offering responsible small-dollar loans. The agencies note the “important role” that small-dollar lending can play during times of economic stress, such as the Covid-19 pandemic, and issued the guidance to encourage supervised banks, savings associations, and credit unions to offer responsible small-dollar loans to consumers and small businesses. The principles cover various loan structures, including open-end lines of credit with minimum payments, closed-end loans with short single payment terms, and longer-term installment payments. The guidance indicates that reasonable loan policies and risk management practices would generally address the following:
- Loan structures. Loan amounts and repayment terms should align with eligibility and underwriting criteria that support successful repayment of the loan, including interest and fees, rather than re-borrowing, rollovers, or immediate collectability in the event of default.
- Loan pricing. Pricing, including for loans offered through managed third-party relationships, should reflect “overall returns reasonably related to the financial institution’s product risks and costs” and comply with applicable state and federal laws.
- Loan underwriting. Underwriting should use internal and/or external data sources to assess a customer’s creditworthiness. Underwriting may use new technologies and automation to lower the cost of providing the small-dollar loans.
- Loan marketing and disclosures. Disclosures should comply with applicable consumer protection laws and regulations and provide information in “a clear, conspicuous, accurate, and customer-friendly manner.”
- Loan servicing and safeguards. Timely and reasonable workout strategies, such as payment term restructuring, should be provided for customers who experience financial distress.
As previously covered by InfoBytes, the federal financial regulators issued a joint statement in March, encouraging institutions to offer reasonable, small-dollar loans to consumers and small businesses to help mitigate the effects of the Covid-19 pandemic.
Special Alert: OCC issues CRA final rule
On May 20, the Office of the Comptroller of the Currency announced a final rule to modernize the regulatory framework implementing the Community Reinvestment Act. The final rule marks the culmination of a three-year effort led by the Treasury Department to revamp the CRA and arrives exactly six weeks after the comment period on the notice of proposed rulemaking (NPR) closed on April 8, 2020.
Significantly, while the Federal Deposit Insurance Corporation joined the OCC in issuing the NPR, the FDIC did not join in promulgating the final rule. The Federal Reserve Board was not party to the NPR or the final rule. Accordingly, banks whose prudential regulator is the FDIC or the Federal Reserve will continue to be subject to the existing CRA regulations.
The OCC’s rule, while technically effective October 1, 2020, provides for at least a 27-month transition period for compliance based on a bank’s size and business model. Large banks and wholesale and limited purpose banks will have until January 1, 2023 to comply, and small and intermediate banks that opt-in to the final rule’s performance standards will have until January 1, 2024. In the interim, a performance evaluation conducted after October 1, 2020, and before January 1, 2023 or 2024, as applicable, would permit banks to rely on the current performance standards and tests or on the final rule.
Federal agencies allow supplementary leverage ratio flexibility
On May 15, the FDIC, Federal Reserve Board (Fed), and the OCC announced an interim final rule (IFR) that temporarily permits depository institutions to choose to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio (SLR) to provide flexibility during the Covid-19 pandemic. The exclusion would enable depository institutions to expand their balance sheets to provide additional credit to households and businesses. The SLR and the IFR apply to depository institution subsidiaries of U.S. systemically important bank holding companies and depository institutions subject to Category II or Category III capital standards. According to the FDIC’s Financial Institution Letter FIL-57-2020, if a depository institution elects to exclude U.S. Treasury securities and deposits from the SLR, it, among other things, (i) must notify its primary federal banking regulator within 30 days after the IFR is effective; (ii) may choose to reflect the exclusion as if the IFR has been in effect the entire second quarter of 2020; and (iii) must obtain approval from its primary federal banking regulator before making a distribution or creating an obligation to make a distribution, beginning in the third quarter of 2020 through March 2021, so long as the temporary exclusion is in effect. The IFR goes into effect upon publication the Federal Register and is effective through March 31, 2021.
See also OCC Bulletin 2020-52 and additional questions for feedback by the Fed.
Agencies finalize policy changes to CECL
On May 8, the FDIC, Federal Reserve Board, OCC, and NCUA finalized an interagency policy statement on allowances for credit losses and interagency guidance on credit risk review systems. As previously covered by InfoBytes, the proposed policy statement and interagency guidance were released in October 2019.
The final policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology. The CECL methodology determines allowances for credit losses applicable to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. The final policy statement becomes applicable to an institution upon that institution’s adoption of a CECL methodology.
The interagency credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—updates the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.
See also FDIC FIL-54-2020 and FIL-55-2020 and OCC 2020-49 Bulletin and 2020-50 Bulletin.
OCC issues guidance about health-related changes to annual meetings
On May 12, the Office of the Comptroller of the Currency issued guidance for national banks and federal savings associations that are considering changing the date, time, or location of their annual meetings as a result of stay-at-home orders or other health concerns. The OCC clarified that, for national banks, the requirement to hold an annual meeting is governed by state laws and the bank’s governing documents. OCC regulations require federal savings associations to hold annual meetings within 150 days after the end of the fiscal year and to incorporate the time frame for conducting the meeting into their bylaws. Although federal savings associations must receive OCC approval to amend their bylaws to incorporate a longer time frame, the OCC will deem such an amendment as approved and effective if it meets the conditions set out in the guidance. The OCC also strongly encourages all banks to use electronic methods for submitting licensing filings during the COVID-19 emergency.