FDIC Issues Quarterly Banking Profile for Third Quarter 2015

The FDIC published its most recent Quarterly Banking Profile, summarizing the latest financial results for the banking industry. According to the FDIC’s findings, community banks reported net income of $5.2 billion in the third quarter of 2015, up 7.5% from the previous year. The Profile’s featured article – Financial Performance and Management Structure of Small, Closely Held Banks – indicates that closely held banks are outperforming widely held banks in operational efficiency and financial performance. The FDIC’s research suggests that management structures in which a bank’s managers are members of the ownership group or ownership insiders prove beneficial in that principal-agent problems are minimized because the “manager can be expected to act in the interests of the owners because the manager is an owner.” Although the Profile comments on the disadvantages of the organizational form of closely held banks, including succession issues and difficulty in raising capital, the researchers conclude that the “favorable comparisons between closely held and widely held community banks suggest that the closely held organizational form is by no means an impediment to performance, and may well be one of the keys to the success of closely held banks.”

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FDIC Scott Strockoz to Serve as Acting National Director of Minority and Community Development Banking

On January 15, the FDIC announced that Robert W. Mooney, national director for Minority and Community Development Banking, retired at the end of 2015. Scott D. Strockoz will serve as acting national director for Minority and Community Development Banking. Strockoz currently serves as deputy regional director in the New York Region and oversees examination activities regarding financial institutions’ compliance with consumer protection, fair lending, and community reinvestment laws and regulations. Strockoz “holds examiner commissions in both risk management and consumer protection and has additionally served as review examiner, field supervisor, acting regional director, and acting associate director, Compliance and Consumer Protection.”

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GAO Publishes Report Regarding the Impact of Dodd-Frank Regulations on Community Banks, Credit Unions, and Systemically Important Institutions

On December 30, the United States Government Accountability Office (GAO) released its fifth report mandated by Section 1573(a) of the Department of Defense and Full-Year Continuing Appropriations Act of 2011 (Act), which amended  Dodd-Frank, and requires the GAO to annually review financial services regulations, including those of the CFPB. The report reviews 26 Dodd-Frank rules that became effective from July 23, 2014 through July 22, 2015 to examine whether the agencies conducted the required regulatory analyses and coordination. In addition, it examines nine Dodd-Frank rules that were effective as of October 2015 to determine their impact on community banks and credit unions. Finally, the report assesses Dodd-Frank’s impact on large bank holding companies. The GAO found that the agencies conducted the required regulatory analyses for rules issued under Dodd-Frank and reported required coordination. In addition, surveys of community banks and credit unions suggest that the Dodd-Frank rules under review have resulted in an increased compliance burden, a decline in certain business activities in some cases (e.g., loans that are not qualified mortgages), and moderate to minimal initial reductions in the availability of credit. Although “regulatory data to date have not confirmed a negative impact on mortgage lending,” “these results do not necessarily rule out significant effects or the possibility that effects may arise in the future.” Finally, the GAO concluded that the full impact of Dodd-Frank on large bank holding companies remains uncertain, but summarized the results of certain analyses in the report.

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FAST Act to Provide Regulatory Relief to Community Banks

On December 4, President Obama signed into law H.R. 22, the “Fixing America’s Surface Transportation Act” (FAST Act). Although a transportation bill on its surface, the bill also contains various provisions that are intended to provide regulatory relief to community banks and improve the efficiency of state financial regulation. Significant provisions in the bill include: (i) establishing a process that allows parties, including banks and other stakeholders, to petition the CFPB for “rural” or “underserved” designations in certain areas for the purposes of the CFPB’s ability-to-repay rule; (ii) expanding the CFPB’s ability to exempt creditors serving rural or underserved areas from escrow requirements; (iii) granting greater flexibility to the CFPB in regards to treating a balloon loan as a qualified mortgage, if a community bank or creditor operating in a rural or underserved area extended the loan; (iv) increasing the threshold for 18-month exam cycles for well-capitalized banks from $500 million to $1 billion; and (v) authorizing the Nationwide Mortgage Licensing System – which state regulators use to license various nonbank financial services industries, such as money transmitters, payday lenders, and debt collectors – to process background checks for non-mortgage license applicants.

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Federal Reserve Chair Janet Yellen Delivers Semi-Annual Report on Supervision and Regulation

On November 4, Federal Reserve Chair Janet Yellen testified before the House Committee on Financial Services. The topic of Chair Yellen’s testimony was “the lessons of the financial crisis and how we have transformed our regulatory and supervisory approach.” She explained that, prior to the crisis, the Fed’s “primary goal was to ensure the safety and soundness of individual financial institutions” and that, since the crisis, the Fed’s aim has been to regulate and supervise “in a manner that promotes the stability of the financial system as a whole.” Yellen went on to explain that the regulatory approaches adopted to address both large financial institutions and companies and community banks have been different.  According to Yellen, with respect to the large financial institutions, the Fed’s approach is “oriented toward both the safety and soundness of the individual firms, and the stability of the financial system as a whole.” With respect to community banks, Chair Yellen noted that the Fed’s supervisory approach is risk based: “[i]n supervising these institutions, we follow a risk-focused approach that aims to target examination resources to higher-risk areas of each bank’s operations and to ensure that banks maintain risk-management capabilities appropriate to their size and complexity.”

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CSBS and Federal Reserve Provide Insight on Opportunities and Challenges for Community Banks

On October 6, the CSBS released a summary of research presented and discussions had at the third annual Community Banking Research and Policy Conference, held September 30 through October 1. At the conference, community bankers, academics, and federal and state policymakers discussed trends in community banking, with a particular focus on small business and farm lending, community bank performance, and community banks pre- and post-financial crisis. 27 state regulators attended the conference and held a roundtable to address first-hand the challenges – such as increased regulatory burden and evolving technology – and opportunities community bankers face.

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Federal Banking Regulators Schedule EGRPRA Outreach Meeting in Chicago

On September 28, the Federal Reserve, the FDIC, and the OCC announced that the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) will be held on October 10 in Chicago, Illinois. The meeting will feature panel presentations from industry insiders and consumer advocates. Senior officials from the Federal Reserve, OCC, and FDIC are also scheduled to attend. This meeting will be the fifth of six outreach meetings focused on identifying outdated or burdensome regulatory requirements imposed on financial institutions. The sixth and final meeting is expected to take place on December 2 in Washington, D.C. Previous InfoBytes coverage on EGRPRA can be found here.

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New York AG Settles with Community Bank over Redlining Allegations

On September 10, New York Attorney General Eric Schneiderman announced a settlement agreement with a New York-based community bank to resolve allegations that the bank engaged in discriminatory mortgage lending practices by excluding potential borrowers who resided in predominantly African-American neighborhoods in the Buffalo area. Under terms of the agreement, the bank agreed to revise its consumer and commercial lending policies to eliminate minimum mortgage amount requirements, provide fair lending training, to expand its lending footprint into previously excluded areas, and to establish an $825,000 fund to promote new homeownership and affordable housing opportunities.

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Banking Trade Associations Urge Senate Leaders to Pass Regulatory Relief Legislation for Community Institutions

On September 8, four trade associations representing 14,000 financial institutions – the American Bankers Association, the Credit Union National Association, the Independent Community Bankers of America, and the National Association of Federal Credit Unions – submitted a letter to Senate Banking Committee Chairman Richard Shelby and Ranking Member Sherrod Brown urging them to enact bipartisan legislation that would provide “regulatory relief to community financial institutions.” The letter describes the measures that community banks have been forced to make to address the “growing volume and complexity of regulations,” including cutting back on their loan officers ranks in favor of additional compliance staff and adjusting or eliminating financial products and services offered to consumers. The letter urges the Senate to pass the Financial Regulatory Improvement Act of 2015, S. 1484, which was approved by the Senate Banking Committee in May. This legislation, the letter claims, will “addresses statutory and regulatory obstacles that thwart the ability of community banks and credit unions to fully serve the diverse financial services needs of consumers.”

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FDIC-Insured Financial Institutions Report Record Second Quarter Earnings

On September 2, the FDIC issued its latest Quarterly Banking Profile. The Profile indicates that community banks and savings institutions reported an aggregate net income of $43 billion in the second quarter of 2015, the highest quarterly income on record. The FDIC attributed this rise in second quarter income to steady loan growth at most institutions along with a sharp increase in community bank earnings as compared to the second quarter of 2014. In a statement, FDIC Chairman Martin Gruenberg provided a mixed assessment surrounding the second quarter results of FDIC-insured institutions. Specifically, Gruenberg noted, “the industry experienced a continuation of positive trends observed over recent quarters. Revenue and income growth was broad-based, asset quality improved, loan balances increased, there were fewer problem banks, and only one bank failed during the quarter. However, the banking industry continues to face challenges. Revenue growth has lagged behind asset growth, as exceptionally low interest rates put downward pressure on net interest margins.”

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Federal Banking Agencies Reveal Location For Latest EGRPRA Outreach Meeting Highlighting Rural Banking Issues

On July 6, federal banking agencies – the Board of Governors, FDIC, and OCC – announced the date and location of the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Scheduled for August 4 at the Federal Reserve Bank of Kansas, the upcoming meeting will examine rural banking issues and will feature remarks from agency officials. This is the fourth of six scheduled outreach meetings around the country focused on identifying newly issued, outdated, or burdensome regulatory requirements imposed on financial institutions.

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Federal Reserve Releases 2015 Annual Performance Plan

Recently, the Federal Reserve submitted to Congress its 2015 Annual Performance Plan, which sets forth the Board’s planned projects, initiatives, and activities for the upcoming year.  The Plan, which complements the Federal Reserve’s Strategic Framework 2012-15, outlines planned activities in the following six areas aimed at assisting the Board in meeting its strategic framework’s long-term objectives: (i) supervision, regulation, and monitoring risks to financial stability; (ii) data governance; (iii) facilities infrastructure; (iv) human capital; (v) management process; and (vi) cost reduction and budgetary growth. Among its initiatives, the Board aims to continue building an interdisciplinary infrastructure for supervision, regulation, and monitoring of risks to financial stability.   In addition, the Board’s staff plans to develop “analytical tools” that enhance the Board’s understanding of evolving market structures and practices, including changes in risk-management practices and incentives for financial institutions to appropriately manage risk exposures. With respect to the supervision of individual institutions, the report highlights the Board’s intent to develop supervisory approaches for community and regional banks, as well as for savings and loan holding companies, that “identify and support taking action against early warning indicators of outlier risk.”

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FDIC Chairman Discusses Role and Current Challenges Facing Community Bank Directors

On May 12, FDIC Chairman Martin Gruenberg delivered remarks at the American Association of Bank Directors (AABD)-SNL Knowledge Center Bank Director Summit. In his prepared remarks, Gruenberg discussed, among other things, (i) the role of bank directors with respect to the safety and soundness of the U.S. banking system, particularly the importance of an effective corporate governance framework within community banks, and (ii) current challenges facing the boards of community banks, citing strategic and cyber risk as the most pressing. Of significant importance, Gruenberg provided information concerning community bank directors’ professional liability in regard to the banking regulator’s supervisory expectations, reminding that as receiver for a failed bank, the FDIC has the authority to bring legal action against professionals, including bank directors, for their role in a bank’s failure. BuckleySandler’s David Baris serves as President of AABD.

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OCC Comptroller Curry Delivers Remarks on Easing Regulatory Burdens on Small Banks

On May 4, OCC Comptroller Thomas J. Curry delivered remarks at the third outreach meeting held under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) in Boston. Acknowledging that smaller banks lack compliance resources as compared to larger institutions, Curry noted that the agency is working with the FFIEC to remove the outdated and onerous regulatory requirements currently imposed on the institutions: “If it is clear that a regulation is unduly burdensome, and if we have the authority to make changes to eliminate that burden, we will act.” With respect to regulatory requirements that call for legislative action, Curry emphasized that the agency is working with Congress to eliminate the unnecessary burdens. In this regard, the agency has presented lawmakers with three specific proposals to remove regulatory burden on smaller banks: (i) raise the asset threshold from $500 million to $750 million so that a greater number of community banks qualify for the 18-month examination cycle; (ii) provide a community bank exemption from the Volcker Rule; and (iii) provide greater flexibility to federal savings associations to change and expand their business strategies without changing their governance structure.

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Comptroller Curry Remarks on OCC Assistance to Mutual Savings Associations and Community Banks

On March 23, OCC Comptroller Curry delivered remarks at the ABA Mutual Community Bank Conference regarding the agency’s supervision of mutual savings associations and community banks. Curry focused on the agency’s ongoing efforts to assist smaller financial institutions, specifically by reducing some of the unnecessary burden placed on them. Curry outlined three areas in which the agency is urging Congress to take action to reduce burdensome regulation: (i) raising the asset threshold requirement for the 18-month examination cycle from $500 million to $750 million; (ii) exempting community banks from the Volcker Rule requirement; and (iii) making it “easier for thrifts to expand their business model without changing their governance structure.” In addition to recommending actions to Congress, the OCC continues to hold OCC Mutual Savings Association Advisory Committee meetings and support collaboration among community banks to further ensure that smaller institutions can continue to serve their communities.

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