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 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 December 19, the OCC announced the release of its quarterly Mortgage Metrics Report. The report highlights the mortgage performance of first-lien mortgages serviced by seven national banks and one federal savings association through September 30, 2014. Notably, the report showed 93 percent of mortgages were current and performing at the end of the quarter, compared with 92.9 percent at the end of the previous quarter and 91.4 percent a year earlier. Also, the report showed a 41.5 percent decrease in foreclosure activity in the last year. The mortgages included in this portfolio represent 46 percent of all residential mortgages in the U.S., approximately 24 million loans totaling $4.0 trillion in principal balances.
On December 17, the OCC announced the release of its semiannual report on key risk areas affecting the federal banking system. Specifically regarding community and midsize banks, the report identifies areas where the OCC intends to heighten its supervisory attention including, but not limited to, corporate governance, operational risk, cyber risk, and compliance risk, specifically related to fair lending and BSA/AML. Other notable takeaways from the report include continued improvement in the overall financial condition of community and midsize banks. However, the report also indicated that smaller banks, due to increased competition for loan demand and low investment yields, continue to experience pressure on earnings.
On December 16, the OCC announced the release of their annual survey of credit underwriting practices identifying trends in lending standards and credit risk for the most common types of commercial and retail credit provided by banks. According to the report, leveraged loans, indirect consumer loans, credit cards, large corporate loans, and international loans accounted for the largest easing in underwriting standards. The survey also noted competitive pressures, ample liquidity, and the desire to reach for yield in a low-interest rate environment as contributing factors to the loosened underwriting. As a group, large banks reported the highest share of eased standards. The survey included 91 of the largest banks and thrifts and covered $4.9 trillion of loans representing roughly 94 percent of all loans in the federal banking system.
On November 5, the OCC, FDIC, and the Fed announced that they will hold an outreach meeting on December 2 to review regulations under the Economic Growth and Regulatory Paperwork Reduction Acts of 1996 (EGRPRA). This is the first of a series of outreach meetings and will be held at the LA branch of the Federal Reserve Bank of San Francisco. Under the EGRPRA, the FFIEC and the previously mentioned agencies must review their regulations at least every 10 years to identify any unnecessary or outdated regulations. The December 2 meeting will feature panel presentations by industry participants and consumer and community groups.
On October 30, five federal agencies – the FCA, FDIC, NCUA, OCC and the Fed – issued a proposed rule regarding flood insurance. The proposed rule will amend regulations relating to loans secured by property located in special flood hazard areas. Specifically, the proposed rule would (i) establish requirements in connection with the escrow of flood insurance payments; (ii) provide certain borrowers with the option to escrow flood insurance premiums and fees; and (iii) eliminate the HFIAA requirement “to purchase flood insurance for a structure that is part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence.” Comments on the proposed rule are due by December 29, 2014.
On October 27, the OCC announced the appointment of Darrin Benhart as Deputy Comptroller for Supervision Risk Management and Bethany Dugan as Deputy Comptroller for Operational Risk. Mr. Benhart will assume the position of full-time chair of the agency’s National Risk Committee, responding to a recommendation from a peer review that the agency create such a role. Mr. Benhart’s position is intended to strengthen the OCC’s ability to address risk in the national banking system. Prior to his appointment, Mr. Benhart served as the Deputy Comptroller for Credit and Market Risk. In her new role, Ms. Dugan will oversee the policy and examination procedures developments, specifically those that address operational risk issues.
On October 22, coordinated by the Department of Treasury, six federal agencies – the Board of Governors, HUD, FDIC, FHFA, OCC, and SEC – approved a final rule requiring sponsors of securitized transactions, such as asset-backed securities (ABS), to retain at least 5 percent of the credit risk of the assets collateralizing the ABS issuance. The final rule, which largely mirrors the proposed rule issued in August 2013, defines a “qualified residential mortgage” (QRM) and exempts securitized QRMs from the new risk retention requirement. Government-controlled Fannie and Freddie are exempt from the rule. Most notably, the final rule’s definition of a QRM parallels with that of a qualified mortgage as defined by the CFPB. Further, initially part of the proposed rule, the final rule does not include down payment provisions for borrowers. The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securities, and two years after publication for all other types of securitized assets.
On October 3, the OCC appointed Kathy Murry to serve as its Senior Deputy Comptroller for Management and Chief Financial Officer. Ms. Murry had served as the Deputy Comptroller and the Chief Accountant since 2009, and has been serving as the agency’s acting Senior Deputy Comptroller for Management and Chief Financial Officer since June 2014. In her new role, Ms. Murry will serve on the OCC Executive Committee and oversee the OCC’s financial management, human resources, continuing education, information technology, security, workplace services, and performance improvement.
On September 24, the CFPB announced a consent order with a large national bank to address alleged unfair practices related to add-on identity theft protection products marketed by the bank and sold and administered by a third-party service provider to the bank’s customers from 2003–2012. Specifically, the CFPB alleged that customers were unfairly billed by the service provider for certain products that offered credit monitoring and credit report retrieval services without receiving the full benefit of the services. Customers who enrolled in these add-on identity theft products were required to provide sufficient written authorization and personal verification before the customers’ credit bureau reports could be accessed. However, according to the Bureau, in many instances time passed before a customer’s authorization was obtained or a customer’s authorization was never obtained. In other instances, the credit bureau could not match the customer’s identification information with its records. Although the bank’s vendor, rather than the bank itself, was directly responsible for selling and administering the products, the CFPB found that the bank’s compliance monitoring, service provider management, and quality assurance functions had failed to prevent, identify, and correct the unfair practices, resulting in substantial injury to more than 420,000 consumers. According to the CFPB’s order, this injury was not reasonably avoidable by consumers, and was not outweighed by any countervailing benefit to consumers or competition, and, therefore, the bank engaged in unfair practices. Read more…
On September 8, the OCC, the FDIC, and the Federal Reserve Board released proposed revisions to the Interagency Questions and Answers Regarding Community Reinvestment. Specifically, the agencies propose to revise three questions and answers that address alternative systems for delivering retail banking service and provide additional examples of innovative or flexible lending practices. In addition, the proposal would revise three questions and answers addressing community development-related issues and add four new questions and answers – two of which address community development services, and two of which provide general guidance on responsiveness and innovativeness. Comments on the proposal are due by November 10, 2014.
On September 3, the OCC, the FDIC, and the Federal Reserve Board released a final rule establishing a minimum liquidity requirement for large and internationally active banking organizations. The rule will require banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure, and such banking organizations’ subsidiary depository institutions that have assets of $10 billion or more, to hold high quality, liquid assets (HQLA) that can be converted easily into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The ratio of the institution’s HQLA to its projected net cash outflow is its “liquidity coverage ratio,” or LCR. The Federal Reserve Board also is adopting a modified LCR for bank holding companies and savings and loan holding companies that do not meet these thresholds, but that have $50 billion or more in total assets. Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the final rule. Relative to the proposal issued in October 2013, the final rule includes changes to the range of corporate debt and equity securities included in HQLA, a phasing-in of daily calculation requirements, a revised approach to address maturity mismatch during a 30-day period, and changes in the stress period, calculation frequency, and implementation timeline for the bank holding companies and savings and loan companies subject to the modified LCR. Covered U.S. firms will be required to be fully compliant with the rule by January 1, 2017. Specifically, covered institutions will be required to maintain a minimum LCR of 80% beginning January 1, 2015. From January 1, 2016, through December 31, 2016, the minimum LCR would be 90%. Beginning on January 1, 2017, and thereafter, all covered institutions would be required to maintain an LCR of 100%.
On September 3, the OCC, the FDIC, and the Federal Reserve Board released a final rule that modifies the definition of the denominator of the supplementary leverage ratio in a manner consistent with recent changes agreed to by the Basel Committee. The revisions to the supplementary leverage ratio apply to all banking organizations subject to the advanced approaches risk-based capital rule. The final rule modifies the methodology for including off-balance sheet items, including credit derivatives, repo-style transactions, and lines of credit, in the denominator of the supplementary leverage ratio. The final rule also requires institutions to calculate total leverage exposure using daily averages for on-balance sheet items and the average of three month-end calculations for off-balance sheet items. Certain public disclosures required by the final rule must be made starting in the first quarter of 2015, and the minimum supplementary leverage ratio requirement using the final rule’s denominator calculations is effective January 1, 2018.
On August 28, the OCC issued Bulletin 2014-43, which announces the issuance of a revised “Electronic Fund Transfer Act” booklet of the Comptroller’s Handbook. This booklet replaces the similarly titled booked issued in October 2011, and provides updated guidance to examiners and bankers relevant to recent changes made to Regulation E regarding remittance transfers. Specific updates address: (i) the transfer of rulemaking authority for the EFTA from the Board of Governors of the Federal Reserve System to the CFPB; (ii) Dodd-Frank’s amendments to the EFTA, which create a new system of consumer protections for remittance transfers; and (iii) the issuance of the CFPB’s final rule that restructures Regulation E and provides specific requirements for remittance service providers in new subpart B.