On September 13, the OCC published a proposed rule under the authority of the National Bank Act, to provide a framework for receiverships for national banks that are not insured by the FDIC. For years the OCC has not placed uninsured banks into receivership, but the agency claims that establishing a clear and efficient process for handling failed uninsured banks would “contribute to the broader stability of the federal banking system.” Intended to “provide clarity to market participants about how they will be treated in receivership,” the OCC’s proposed framework outlines processes parallel to that of the FDIC’s receivership capacities. The proposal describes, among other things, (i) certain powers the receiver would hold, as well as the receiver’s duties in “winding up” an uninsured bank’s affairs; (ii) the process for submitting claims against the uninsured bank in receivership, and the receiver’s responsibilities to review such claims; (iii) the payment of dividends on claims and the distribution to shareholders of residual proceeds; and (iv) the receiver’s powers and duties related to the status of fiduciary and custodial accounts. Comments on the proposal are due November 14, 2016.
On September 27, the House Financial Institutions and Consumer Credit Subcommittee heard testimony on HR 4116, a bill that would affect how the FDIC determines the amount of deposits at insured banks that qualify as “brokered deposits.” The Federal Deposit Insurance Act currently requires larger premiums for banks with higher ratios of brokered deposits as compared to traditional deposits. This bill would exclude reciprocal deposits from the definition of brokered deposits where the condition of the institution at its most recent examination was adjudged either good or outstanding, or where the total reciprocal deposits of the institution do not exceed either $10 billion or 20% of its total liabilities. This narrowed scope of brokered deposits would come on the heels of the FDIC’s decision to exclude smaller community banks from including reciprocal deposits are brokered deposits announced earlier this year.
On September 15, the FDIC announced two new resources intended to provide community bankers with information on federal housing programs: the Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises and the Affordable Mortgage Lending Center. The FDIC released the guide in response to feedback from community bankers, who claimed “they did not understand the wide array of federal housing programs.” The purpose of the resource center, according to the FDIC, is to assist community bankers “[to] compare a variety of current affordable mortgage programs and to identify the next steps if they seek to expand or initiate affordable mortgage lending.” The FDIC plans to release Part II, State Housing Finance Agencies, and Part III, Federal Home Loan Banks, of the guide at a later date this year.
The FDIC recently released its Summer 2016 Supervisory Insights, which in addition to providing an overview of newly released supervisory guidance and regulations, includes the following two articles: “De Novo Banks: Economic Trends and Supervisory Framework” and “‘Matters Requiring Board Attention’ Underscore Evolving Risks in Banking.” The first article summarizes (i) trends in de novo formation; (ii) the application process for deposit insurance; (iii) the FDIC’s supervisory approach to de novo institutions; and (iv) FDIC initiatives intended to “support the development, submission, and review of proposals to organize new institutions.” According to the FDIC Director Doreen Eberley, the “entry of new institutions helps to preserve the vitality of the banking sector, fill critical gaps in local banking markets, and provide credit services to communities that may not currently have a local financial institution.” The second article discusses Matters Requiring Board Attention (MRBA), which are identified in written reports of examinations (ROEs) and communicated to banks as significant operational issues warranting improvement. According to the FDIC, from 2014 through 2015, board and management issues were the most frequently listed MRBAs. For example, nearly half of the board and management-related MRBAs concern “corporate governance issues attributable to incomplete or ineffective policies,” while approximately 31% address audit concerns. Based off MBRA trends discussed in the article, the FDIC emphasized “the need for strong risk management policies and practices, particularly as credit volumes continue to increase during this current economic expansion.”
On August 30, the Department of the Treasury, along with the OCC, FDIC, Federal Reserve and NCUA, issued a joint fact sheet on foreign correspondent banking. The fact sheet provides a summary of the agencies’ (i) expectations for BSA/AML and OFAC risk management at U.S. depository institutions; (ii) risk-based approach to the supervisory examination process; and (iii) use of enforcement as an “extension of the supervisory process.” As highlighted in a corresponding blog post, the fact sheet explains that about “95% of BSA/OFAC compliance deficiencies identified by the [Federal Banking Agencies], FinCEN, and OFAC are corrected by the institution’s management without the need for any enforcement action or penalty.” The fact sheet notes that, under existing regulations there is no general requirement for depository institutions to conduct due diligence on an individual customer of a foreign financial institution (FFI). But it also notes that “[i]n determining the appropriate level of due diligence necessary for an FFI relationship, U.S. depository institutions should consider the extent to which information related to the FFI’s markets and types of customers is necessary to assess the risks posed by the relationship, satisfy the institution’s obligations to detect and report suspicious activity, and comply with U.S. economic sanctions. This may require U.S. depository institutions to request additional information concerning the activity underlying the FFI’s transactions in accordance with the suspicious activity reporting rules and sanctions compliance obligations.”