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FDIC Issues Revised Scenarios for 2017 Stress Tests
On February 13, the FDIC released revised economic scenarios for use by certain financial institutions with total consolidated assets of more than $10 billion for 2017 stress tests. According to a statement from the agency, the previously released scenarios contained incorrect historical values for the BBB corporate yield in 2016. The Fed and OCC, with whom the FDIC works develop and distribute the scenarios, also issued revised data.
OCC Proposes Final Revisions to Stress Test Information Collection
On February 2, the OCC requested comment on proposed revisions to an existing information collection entitled “Company-Run Annual Stress Test Reporting Template and Documentation for Covered Institutions with Total Consolidated Assets of $50 Billion or More Under the [Dodd-Frank Act].” The agency is also giving notice that it has sent the collection to the OMB for review. This information collection is related to the conduct of annual stress tests that the Dodd-Frank Act requires of certain financial companies, including national banks and federal savings associations. Comments on the current notice must be received by March 6, 2017.
OCC, FDIC, and Fed Release Stress Test Scenarios for 2017
On February 3, the Fed announced the release of the “Supervisory Scenarios” to be used by banks and supervisors for the 2017 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and also issued instructions to firms participating in CCAR. The Fed also published three letters that provide additional information on its stress-testing program. The three letters describe: (i) the Horizontal Capital Review for large, noncomplex companies; (ii) the CCAR qualitative assessment for U.S. intermediate holding companies of foreign banks, which are submitting capital plans for the first time; and (iii) improvements to how the Fed will estimate post-stress capital ratios.
On February 3, the OCC similarly released economic and financial market scenarios for 2017 that are to be used by national banks and federal savings associations (with total consolidated assets of more than $10 billion) in their annual Dodd-Frank Act-mandated stress test. On February 6, the FDIC released its stress test scenarios, working in consultation with the Fed and OCC.
The three sets of supervisory scenarios provide each agency with forward-looking information for use in bank supervision and will assist the agencies in assessing the covered institutions’ risk profile and capital adequacy.
OCC Supplements Exam Procedures Covering Third-Party Relationships: Risk Management Guidance
On January 24, the OCC released Bulletin 2017-7 advising national banks, federal savings associations and technology service providers of examination procedures issued to supplement Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” issued October 30, 2013. As previously summarized in BuckleySandler’s Special Alert, Bulletin 2013-29 requires banks and federal savings associations (collectively “banks”) to provide comprehensive oversight of third parties, and warns that failure to have in place an effective risk management process commensurate with the risk and complexity of a bank’s third-party relationships “may be an unsafe and unsound banking practice.” Bulletin 2013-29 outlined a “life cycle” approach and provided detailed descriptions of steps that a bank should consider taking at five important stages of third-party relationships: (i) planning; (ii) due diligence and third party selection; (iii) contract negotiation; (iv) ongoing monitoring; and (v) termination. Following the OCC's issuance of Bulletin 2013-29, the Federal Reserve Board, on December 5, 2013, issued Supervision and Regulation Letter 13-19, which details and attaches the Fed’s Guidance on Managing Outsourcing Risk (SR 13-19). The FRB Guidance is substantially similar to Bulletin 2013-29.
Bulletin 2017-7 outlines procedures designed to help prudential bank examiners: (i) tailor supervisory examinations of each bank commensurate with the level of risk and complexity of the bank’s third-party relationships; (ii) assess the quantity of the bank’s risk associated with its third-party relationships; (iii) assess the quality of the bank’s risk management of third-party relationships involving critical activities; and (iv) determine whether there is an effective risk management process throughout the life cycle of the third-party relationship. Consistent with the life cycle approach established in Bulletin 2013-29, the examination procedures identify steps examiners should take in requesting information relevant to assessing the banks’ third-party relationship risk management relative to each phase of the life cycle.
For additional background, please see our Spotlight Series: Vendor Management in 2015 and Beyond.
Prudential Regulators Fine Mortgage Company Over "Significant Deficiencies" in Foreclosure-Related Services
On January 24, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency filed an amended Consent Order fining a foreclosure services provider $65 million for “improper actions” conducted by the company’s predecessor. The fine replaces all obligations to complete the “Document Execution Review” required in the original 2011 consent order between the same agencies and the servicer’s predecessor. In the 2011 order, the agencies claimed, among other things, that the predecessor company’s actions resulted in significant deficiencies in the foreclosure-related services it provided to mortgage servicers.
OCC Announces Launch of New Central Application Tracking System (CATS)
On January 17, the OCC launched the first phase of its Central Application Tracking System (CATS), a new web-based system for banks to file licensing and public welfare investment applications and notices. CATS provides a secure, electronic system through which authorized national banks, federal savings associations, federal branches, and banking agencies may draft, submit, and track their licensing and public welfare investment applications and notices. CATS will replace the existing e-Corp and CD-1 Invest application tools. As explained in OCC Bulletin 2016-37, the new program is being launched in three phases to help banks transition from the existing tools. The second and third phases of the CATS rollout are scheduled to begin in the spring of 2017. When ready, CATS will be accessible through BankNet, the secure portal for OCC-regulated banks.
OCC Finalizes Rule Addressing Receiverships of Uninsured National Banks
On December 20, the OCC announced the publication of its final rule implementing a framework for receiverships of national banks that are not insured, and thus not subject to receivership, by the FDIC under the Federal Deposit Insurance Act (“FDIA”). As discussed in a previous InfoBytes post, the OCC has not historically appointed a receiver for uninsured banks, opting instead to rehabilitate or resolve such institutions without a receiver. This OCC final rule—which goes into effect on January 19, 2017—reflects the OCC’s current belief that establishing and clarifying a receivership framework for uninsured banks “will be beneficial to financial market participants and the broader community of regulators.”
Among other things, the rule seeks to provide clarity to market participants with respect to the following key issues: (i) when and how a receiver for uninsured bank may be appointed; (ii) the powers held by the receiver of an uninsured bank; (iii) the two methods through which parties holding claims against an uninsured depository institution can seek approval of those claims; (iii) the order of payment for administrative expenses and claims against an uninsured bank; and (iv) the treatment of fiduciary or custodial assets. Notably, the OCC did not explicitly address whether the new rule will also apply to FinTech companies should they obtain a special purpose national bank charter as proposed recently by the OCC.
NYDFS Submits Comment Letter Opposing OCC FinTech Charter
On January 17, the New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo submitted a comment letter in stern opposition to the OCC proposal to create a new FinTech charter, stating that the proposed regulatory scheme is not authorized by federal law and would create a number of problems, including a serious risk of regulatory confusion and uncertainty. New York’s top financial regulator is of the opinion that “the OCC should not use technological advances as an excuse to attempt to usurp state laws.” More specifically, NYDFS’ contends, among other things, that: (i) state regulators are better equipped to regulate cash-intensive nonbank financial service companies; (ii) a national charter is likely to stifle rather than encourage innovation; (iii) the proposal could permit companies to engage in regulatory arbitrage and avoid state consumer protection laws; and (iv) a national charter would encourage large “too big to fail” institutions, permitting a small number of technology-savvy firms to dominate different types of financial services.
An interview of Superintendent Vullo discussing this topic may be accessed here.
PA Secretary of Banking and Securities Voices Concerns About OCC FinTech Charter
On January 17, Secretary of the Pennsylvania Department of Banking and Securities, Robin L. Wiessmann, submitted a comment letter calling upon the OCC to give “more thoughtful deliberation about the intended and unintended consequences that will result from such an apparent departure from the OCC’s current policy and scope of supervision.” Specifically, Wiessman requested that the federal bank regulator address three concerns regarding: (i) the broad application and ambiguity of the term “fintech”; (ii) the need by the OCC to have an adequate regulatory scheme in place before approving charters; and (iii) the possible federal preemption of existing state consumer protection laws. The Secretary’s letter echoes many of the concerns raised in a recent comment letter submitted by the Conference of State Bank Supervisors (CSBS) “reiterating its opposition to the [OCC] proposal to issue a special charter for fintech companies.”
OCC FinTech Proposal Draws a Range of Comments from Industry Stakeholders
A number of stakeholders submitted comment letters this week in response to the OCC's recent proposal to move forward with developing a special purpose national bank charter for financial technology (“FinTech”) companies and accompanying white paper outlining the OCC’s authority to grant such charters to FinTech companies and potential minimum supervisory standards for successful FinTech bank applicants. With the comment period for its white paper closing this week, the bank regulator drew a range of reactions from the stakeholders, several of which are described below:
Consumer Bankers Association (CBA): In its comment letter, the CBA noted that the OCC needs to provide more clarity about the regulatory and supervisory framework that will be applied to FinTech companies, and to proceed cautiously and “provide the public with more information about the potential risks and rewards presented by” FinTech companies. The trade association recommended that the OCC utilize its new Office of Innovation and Responsible Innovation Framework to conduct a study of the FinTech sector to provide sufficient information to evaluate the need for and public benefits of a FinTech charter. Although the CBA confirmed support for “any effort to enhance the ability of banks to innovate,” it stated that it could not “yet support the inclusion of fintech companies into the federal banking system.”
Independent Community Bankers of America (ICBA): In its comment letter, the ICBA stressed the need for the OCC to issue new chartering rules pursuant to the procedure under the Administrative Procedure Act, in consultation with the other bank regulators, and that ultimately these new institutions should be subject to the same supervision and regulation as community banks. The ICBA also expressed “strong concerns about issuing special purpose national bank charters to fintech companies without spelling out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to.”
American Bankers Association (ABA). The ABA’s comment letter expressed support of a special purpose national bank charter for FinTech companies, as long as existing rules and oversight are applied evenly and fairly. The letter noted, among other things, that significant benefits of financial innovation for consumers are “only realized when innovations are delivered responsibly,” which can be ensured by regulation and oversight. The letter added that “answers to many difficult questions should be made before granting any special purpose charter, including how to ensure that regulations and consumer protection are applied evenly; what protections must be in place to preserve existing laws regarding the separation of banking and commerce; and how would enforcement of operating agreements be accomplished.” The ABA also urged the OCC to work with other agencies “carefully and cooperatively” before any new charter is approved.
Financial Services Roundtable (FSR): Finally, a comment letter submitted by the FSR commended the OCC for developing the proposal, noting that regulations and regulators need to evolve with technology and changing customer preferences. The FSR letter noted that the OCC’s initiative should ensure parity among national charters, and not result in a two-tiered national banking system under which special purpose FinTech banks are subject to compromised supervisory standards. The letter added that to ensure parity in regulation and supervision, “the OCC may find it necessary to re-evaluate some standards applicable to full-service national banks and, as mentioned previously, examine the existing regulatory constraints inhibiting national banks from engaging in responsible innovation.”