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.”
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 This is the fourth of six scheduled outreach meetings around the country focused on identifying newly issued, outdated, or burdensome regulatory requirements imposed on financial institutions.
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.
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.
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.
On February 24, the FDIC announced fourth quarter earnings for all federally insured institutions, with substantial increases in community bank earnings. Community bank earnings for the fourth quarter rose $1.0 billion to $4.8 billion (an increase of approximately 28% from the previous year). Comparatively, FDIC-insured banks and savings institutions as a whole earned $36.9 billion in the fourth quarter, which is a decrease of 7.3% from the industry’s earnings a year before. The surge in earnings was attributed to higher net interest income, increased noninterest income, and higher loan growth.
On February 10, officials from federal and state banking authorities – the Fed, FDIC, NCUA, OCC, and the CSBS – testified at a U.S. Senate Banking Committee on ways the agencies can provide “regulatory relief” to community banks and credit unions, which disproportionately incur burdens to implement the rules and provisions of the Dodd-Frank Act. Specifically, officials from each of the federal banking agencies detailed current initiatives and proposals that would provide less burdensome compliance costs.
On February 10, the U.S. Senate Committee on Banking, Housing, and Urban Affairs is scheduled to hold its first full committee hearing on financial regulation, “Regulatory Relief for Community Banks and Credit Unions.” Officials from both federal and state banking regulators will give prepared remarks.
On January 29, the CFPB announced a proposed rule that would provide regulatory relief to more small lenders. Among other things, the proposed rule would (i) increase the loan origination limit to qualify for “small creditor” status from 500 loans to 2,000 loans annually; (ii) include certain mortgage affiliates in the calculation of small-creditor status; (iii) expand the definition of “rural” to include census blocks that are not in an urban area; and (iv) extend the transition period in which small lenders can make QMs with balloon payments, regardless of location, to April 1, 2016. Comments on the proposed rule are due by March 30.
On January 21, the Committee on Financial Services, in a voice vote, agreed to a new oversight plan that identifies the areas that the Committee and its subcommittees plan to oversee during the 114th Congress. Notable sections of the oversight plan include: (i) examining the governance structure and funding mechanism of the CFPB; (ii) reviewing recent rulemakings by the CFPB and other agencies on a variety of mortgage-related issues; (iii) examining the effects of regulations promulgated by Dodd-Frank on community financial institutions; and (iv) examining proposals to modify the GSEs.
On January 14, the OCC released its schedule of workshops for directors of national community banks and federal savings associations. The OCC examiner-led workshops provide practical training and guidance to directors of national community banks and federal savings associations to support the safe and sound operation of community-based financial institutions. The four workshops planned are (i) “Building Blocks for Directors,” (ii) “Risk Governance,” (iii) “Compliance Risk,” and (iv) “Credit Risk.” Each workshop costs $99.00. Registration is required.
On January 13, the OCC released a paper entitled, “An Opportunity for Community Banks: Working Together Collaboratively.” The paper describes how community banks can pool resources to “obtain cost efficiencies and leverage specialized expertise.” The paper explores the benefits of collaboration and outlines how community banks can structure collaborative arrangements. The paper cites examples of ways that community banks can, and already do collaborate, including: (i) networking, or exchanging information and ideas; (ii) jointly purchasing materials or services; (iii) sharing specialized team or staff members; and (iv) jointly providing and/or developing products and services.
On September 23, Federal Reserve Governor Jerome Powell spoke at the second annual Community Banking Research and Policy Conference, co-sponsored by the Federal Reserve and Conference of State Bank Supervisors. Governor Powell commented on the decline in the number of community banks over the past three decades, stating those remaining community banks have “struggled to survive” in the face of significant challenges, including the burden of regulatory compliance. The research presented at the conference focused on the following four main issues: (i) bank formation, behavior, and performance; (ii) the effects specific government policy has on community bank behavior; (iii) the effects government policy has on the profitability and viability of community banks; and (iv) how regulatory policy affects the structure of the U.S. banking system and the viability of community banks.
On April 16, Comptroller of the Currency Thomas Curry spoke to attendees of the Consumer Electronics Show Government Conference, taking his concerns about banks’ vendor relationships and cybersecurity risks to potential third-party technology service providers. Comptroller Curry explained the banking system’s vulnerability to cyberattacks given its significant reliance on technology and telecommunications, and expressed particular concern about potential attacks on community banks. He reiterated several of the specific risk issues he recently discussed with community bankers. Comptroller Curry (i) outlined risks related to the consolidation of bank vendors; (ii) identified as a “special problem” banks’ reliance on foreign vendors, and cautioned banks to consider the legal and regulatory implications of where their data is stored or transmitted; and (iii) expressed concern about vendors’ access to important and confidential bank and customer data. He assured attendees that the OCC is not trying to discourage the use of third-party vendors, but in explaining the OCC’s particular focus on controls and risk management practices employed by vendors that provide services to banks and thrifts, Comptroller Curry advised vendors of the OCC’s authority under the Bank Service Company Act to issue enforcement actions and its authority to examine vendors designated as Technology Service Providers. He reported that banks have asked the OCC to more actively supervise critical service providers and stated that in working to protect the banking system the OCC will have to “look beyond individual financial institutions to the range of vendors and customers that have access to some part of its infrastructure and systems.”
Over the past week, Virginia Governor Terry McAuliffe signed several bills impacting banks and certain consumer finance providers. The first bill, HB 358 repealed a state law that that barred out-of-state banks from opening de novo branches in Virginia unless the bank’s home state provided reciprocal access to Virginia banks. The change will allow out-of-state banks to establish branches in Virginia on the same basis as state-chartered banks. A second banking bill, HB 1062, provides that an existing statutory provision requiring the Virginia State Corporation Commission to ascertain that certain minimum capital stock requirements are met prior to issuing a certificate of authority to a bank does not apply to the Commission’s issuance of such a certificate to a bank holding company or to a resulting bank in connection with certain types of mergers involving the holding company and its subsidiary bank. A third bill, HB 69, amends state law to expand the types of services that may be provided under an extended motor vehicle service contract and to authorize the Board of Agriculture and Consumer Services to designate additional services that may be provided under an extended service contract. The bill also provides that extended service contracts are not insurance subject to state regulation as such. The above approved bills will take effect on July 1, 2014. Finally, the Governor has not yet approved a bill passed by the General Assembly, HB 954, which would permit the State Corporation Commission to issue transitional mortgage loan originator licenses.