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Agencies say supervisory guidance does not have the “force and effect” of law
On September 11, five federal agencies (the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC) issued a joint statement confirming that supervisory guidance “does not have the force and effect of law, and [that] the agencies do not take enforcement actions based on supervisory guidance.” The statement distinguishes the various types of supervisory guidance—interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions—from laws or regulations and emphasizes that the intention of supervisory guidance is to outline agencies’ expectations or priorities. The statement highlights five policies and practices related to supervisory guidance: (i) limit the use of numerical thresholds or other “bright-line” requirements; (ii) examiners will not cite to “violations” of supervisory guidance; (iii) request for public comment does not mean the guidance has the force and effect of law; (iv) limit multiple issuances of guidance on the same topic; and (v) continue to emphasize the role of supervisory guidance to examiners and to supervised institutions.
OCC seeks comments on notice of proposed rulemaking to enhance business flexibility for federal savings associations
On September 10, the OCC issued a notice of proposed rulemaking to implement section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S. 2155), which amended the Home Owners’ Loan Act to permit federal savings associations (covered savings associations) with total consolidated assets of $20 billion or less, as of December 31, 2017, to elect to operate with national bank powers. Among other things, the proposed rule would require covered savings associations to divest, conform, or discontinue nonconforming subsidiaries, assets, and activities so as not operate in a manner that would be impermissible for national banks. Covered savings associations would also be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to a similarly located national bank without requiring a charter conversion. The OCC further noted that even if a covered savings association’s assets exceed $20 billion after it makes the election, it will continue to receive covered savings association treatment. In addition, to reduce unnecessary burdens, covered savings associations are able to using federal savings association procedures, as opposed to national bank procedures, if the application of those procedures would not result in substantively different outcomes. Comments will be accepted for 60 days following publication in the Federal Register.
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.
OCC provides guidance to institutions affected by Hurricane Florence
On September 11, the OCC issued a proclamation permitting OCC-regulated institutions to close their offices affected by Hurricane Florence in the Southeast and Mid-Atlantic. The OCC noted that only institutions directly impacted by potentially unsafe conditions should close, and that those offices should attempt to reopen as soon as possible to serve their customers’ banking needs. OCC Bulletin 2012-28 provides further guidance on natural disasters and other emergency conditions.
Find continuing InfoBytes coverage on disaster relief here.
Agencies issue guidance to institutions affected by storms in Gulf Coast and Hurricane Lane in Hawaii
On September 5, the OCC issued a proclamation permitting OCC-regulated institutions to close their offices affected by Tropical Storm Gordon in the Gulf Coast Region. OCC Bulletin 2012-28 provides further guidance on natural disasters and other emergency conditions.
On August 30, the Department of Veterans Affairs issued Circular 26-18-17, requesting relief for homeowners impacted by Hurricane Lane in Hawaii. Among other things, the Circular (i) encourages loan holders to extend forbearance to borrowers in distress because of the storms; (ii) requests that loan holders establish a 90-day moratorium on initiating new foreclosures on loans affected by the major disaster; and (iii) waives late charges on affected loans. The Circular is effective until October 1, 2019.
Find continuing InfoBytes coverage on disaster relief here.
OCC updates Comptroller’s Handbook, issues guidance on “other real estate owned”
On August 31, the OCC issued Bulletin 2018-26, which updates the “Other Real Estate Owned” booklet of the Comptroller’s Handbook and provides guidance for examiners on the acquisition, reporting, management, and disposition of other real estate owned (OREO) held by supervised banks and federal savings associations. The OCC commented that while the booklet’s focus is on foreclosed real property, the guidance may also “apply to other types of foreclosed (repossessed) property, such as consumer and commercial goods, financial instruments, and intangible assets.” Foreclosed assets for reporting purposes include “loans where a bank has received physical possession of a borrower’s assets, regardless of whether formal proceedings take place.” Additional updates include (i) accounting changes for OREO sales by public and non-public business entities; (ii) interim guidance for federal savings associations on the OREO holding period; and (iii) clarifications concerning supervisory guidance and risk management practices, including third-party risk management guidance issued since the booklet was last published in 2013.
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.
OCC seeks stakeholder feedback on modernizing the Community Reinvestment Act
On August 28, the OCC issued an advance notice of proposed rulemaking (ANPR) seeking input from stakeholders on ways to transform or modernize the Community Reinvestment Act (CRA) regulatory framework. According to OCC Bulletin 2018-24, the ANPR seeks comments on several issues including:
- encouraging more lending and services in areas where there is the most need, such as low- and moderate-income areas;
- clarifying and expanding the types of activities eligible for CRA consideration;
- reviewing and updating how assessment areas are delineated and used;
- establishing measurable CRA rating metric-based thresholds;
- increasing the transparency of a bank’s CRA performance;
- improving the timeliness of CRA regulatory decisions; and
- reducing the cost and regulatory burden associated with CRA evaluations.
In its press release, the OCC stated that modernizing CRA regulations will “better achieve the statute’s original purpose, increase lending and investment where it is needed most, and reduce the burden associated with reporting and assessing CRA performance.” Additionally, the OCC noted in the ANPR that many stakeholders believe that aspects of current CRA regulations may only be “sufficient for certain locally focused and less complex banks,” as banking practices and the financial services industry continue to evolve.
As previously covered by InfoBytes, in April the Treasury Department released a memorandum of recommendations addressing findings from Treasury’s comprehensive assessment of the CRA framework. The memorandum focused on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. According to the OCC, comments on the ANPR “may inform the development of more specific policy proposals or future rulemakings.” The OCC will accept comments for 75 days following publication in the Federal Register.
OCC issues guidance regarding implied sovereign support and credit risk ratings
On August 28, the OCC issued Bulletin 2018-25, which provides guidance regarding the role of informal or implied expressions of support from foreign governments (implied sovereign support) in determining a borrower’s obligor and facility credit risk ratings. The Bulletin expands on Appendix E of the “Rating Credit Risk” booklet of the Comptroller’s Handbook and encourages banks to analyze, among other things, the sovereign’s legal and financial obligations and the relationship between the obligor and the sovereign. The OCC notes that the obligor’s importance to the sovereign’s local economy does not necessarily demonstrate “willingness to provide an obligor with financial support.” Additionally, the Bulletin provides guidance regarding bank policies regarding the use and application of implied sovereign support to determine a final regulatory risk rating. The OCC states that a sound policy would incorporate the following three elements: (i) defined criteria on how a risk rating may be changed for an obligor due to recognition of implied sovereign support; (ii) methods for determining whether implied sovereign support will be considered in the risk rating decision, including periodic reevaluations of the assessment; and (iii) appropriate documentation standards, including a tracking process that promotes “consistent and appropriate” application of the defined criteria.
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.