The agencies have taken action over the past two weeks in a variety of areas that will be of interest to different segments of the banking industry.  Perhaps most notably, the FDIC issued the Quarterly Banking Profile for the third quarter, which showed growing credit and interest rate risk as well as a growth rate in loans and leases that is the highest since mid-2007 to mid-2008.  The growth rate for community banks is noticeably higher than the rate for mid-size and large banks. Automatic deductions from deposit accounts and the EFTA and Regulation E requirements for prior consumer authorization were the subject of both an CFPB enforcement action and a Compliance Bulletin.

The full set of developments over the past two weeks is as follows:

The Economy

  • Bureau of Economic Analysis issues "second estimate" of realGDP growth in the third quarter (Nov. 24).
    • Real GDP increased at annual rate of 2.1% in third quarter.
    • In second quarter, real GDP increased at annual rate of 3.9%.
  • FDIC issues Quarterly Banking Profile with third quarter earnings in banking industry (Nov. 24).
    • Aggregate net income of $40.4 billion, up 5.1% from third quarter 2014.
      • Community bank net income of $5.2 billion, up 7.5% from 2014.
    • Net operating revenue of $172 billion unchanged from 2014.
      • Community bank net operating revenue of $22.4 billion, up 7.5% from 2014.
    • Noninterest expenses decline 2.9% from third quarter 2014: $108.8 billion to $105.6 billion.
    • Net interest margin for third quarter of 3.08%, down from 3.15% in third quarter 2014.
      • Industry response has been to lengthen asset maturities, increasing interest rate risk.
    • Twelve-month loan and lease growth rate of 5.9%, highest since mid-2007 and mid-2008.  Third quarter increase of 1.1%. 
      • Community bank growth rates higher: 8.5% over past 12 months and 1.9% for third quarter.
    • Number of problem banks falls from 228 to 203, smallest number since peak of 889 in first quarter 2011.
    • DIF reserve ratio rises from 1.06 to 1.09%.
    • Report and related material available at https://www.fdic.gov/news/news/press/2015/pr15092.html.

Community Banking

  • FDIC issues Quarterly Banking Profile for third quarter (Nov. 24).  For details relating to community banks, see The Economy above.

Auto Lending

CFPB

Consumer Leasing

Credit risk

  • FDIC warns of growing credit risk in Quarterly Banking Profile for third quarter (Nov. 24).
    • "Lending in higher-risk loan categories has been growing."
    • "These signs of growing interest-rate risk and credit risk are important because – as history tells us – it is during this phase of the credit cycle when lending decisions are made that could lead to future losses. Timely attention by banks to address these growing risks will benefit banks and contribute to the sustainability of the current economic expansion."
    • "These risks will continue to be a focus of supervisory attention."
    • Profile, remarks of Chairman Gruenberg, and related materials available at https://www.fdic.gov/news/news/press/2015/pr15092.html.
    • For further details, see The Economy above.

Cybersecurity

Deposit Account Debits

Deposit Insurance

  • FDIC issues FIL-53-2015 summarizing Oct. 22 proposed changes to Deposit Insurance Fund and assessments, as required by Dodd-Frank section 334 (Nov. 17).
    • Minimum reserve ratio to be increased from 1.15% to 1.35%.
    • When ratio reaches 1.15%, 4.5 basis point surcharge imposed on banks with assets of $10 billion or more.  Assessment rates for most smaller banks will decline.
    • Surcharge expected to cause ratio to rise from 1.15% to 1.35% in 8 quarters.
    • If reserve ratio has not reached 1.35% by Dec. 31, 2018, shortfall assessment to be imposed on large banks.
    • Small banks to receive assessment credits for portion of assessments that contribute to increase in reserve ratio from 1.15% to 1.35%.
    • DIF reserve ratio at 1.09% as of Sept. 30.
    • Comment deadline: Jan. 5, 2016.
    • FIL-53-2015 available at https://www.fdic.gov/news/news/financial/2015/fil15053.html.

Electronic Funds Transfer Act

Examinations

  • Federal Reserve issues recommendations to enhance supervision of large and complex banking organizations, including development of process by which divergent views of examiners may be resolved (Nov. 24).

Federal Reserve

  • House of Representatives passes the Fed Oversight Reform and Modernization Act of 2015 (the "FORM Act"), H.R. 3189 (Nov. 19).
    • Core provisions:
      • Cost-benefit analysis required in rulemaking.
      • Greater disclosure of bank stress tests and international financial regulatory negotiations. 
      • Various employment-related requirements, including disclosure of salaries of highly paid employees.
      • "Blackout period” before Fed Governors and employees may publicly speak on certain matters extended; membership on the Federal Open Market Committee revised. 
      • New constraints on emergency lending powers. 
      • Full FOMC to decide policy rates on excess balances maintained at a Federal Reserve Bank. 
      • Audit by GAO and report to Congress.
    • Bill available at http://thomas.loc.gov/cgi-bin/query/z?c114:H.R.3189:.

Financial Literacy

Interest Rate Risk

  • FDIC warns of increasing interest rate risk in Quarterly Banking Profile for third quarter (Nov. 24).
    • "In order to mitigate the impact of low rates on net interest margins, banks have been going out further on the yield curve and increasing the mismatch between asset and liability maturities."
    • "These signs of growing interest-rate risk and credit risk are important because – as history tells us – it is during this phase of the credit cycle when lending decisions are made that could lead to future losses. Timely attention by banks to address these growing risks will benefit banks and contribute to the sustainability of the current economic expansion."
    • "These risks will continue to be a focus of supervisory attention."
    • Profile, remarks of Chairman Gruenberg, and related material available at https://www.fdic.gov/news/news/speeches/spnov2415.html.
    • For further details, see The Economy above.

Lender of Last Resort

  • Federal Reserve finalizes rule on its section 13(3) emergency lending procedures to comply with Dodd-Frank requirements (Nov. 30).
    • Dodd-Frank requires that any lending be part of a “broad-based” program and prohibits loans to insolvent entities.
    • Under new rule, “broad-based” means a facility in which at least five entities would be eligible to participate.
    • Facility may not be designed for purpose of aiding any failing firms.
    • Interest rates on emergency loans “to be set at a level that is a premium to market rate in normal circumstances, affords liquidity in unusual and exigent circumstances, and encourages repayment and discourages use of the program as circumstances normalize.”
    • Rule available at http://www.federalreserve.gov/newsevents/press/bcreg/20151130a.htm

Liquidity

  • Federal Reserve proposes requirement that SIFIs disclose holdings of liquid assets (Nov. 24).  See Too Big to Fail below.

Monetary Policy

  • Federal Open Market Committee releases minutes of Oct. 27-28 meeting (Nov. 18).
    • "Meeting participants saw the information received over the intermeeting period as suggesting that economic activity had been expanding moderately."
    • "Participants noted that the pace of job gains slowed while the unemployment rate held steady; nonetheless, a range of labor market indicators, on balance, suggested that underutilization of labor resources had diminished since early this year."
    • "Participants generally viewed the incoming data as confirming their assessment that economic activity would continue to expand at a moderate rate, leading to further improvement in labor market conditions."
    • "Inflation continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and prices of non-energy imports."
    • "Participants generally anticipated that inflation would rise gradually toward 2 percent as the labor market improved further and the transitory effects of earlier declines in energy and import prices dissipated."
    • "Participants generally agreed that it would probably be appropriate to remove policy accommodation gradually. Participants also indicated that the expected path of policy, rather than the timing of the initial increase, would be the more important influence on financial conditions and thus on the outlook for the economy and inflation, and they noted the importance of under-scoring this view at the time of liftoff. It was noted that beginning the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow."
    • "Members continued to anticipate that inflation would gradually return to the Committee’s 2 percent objective over the medium term, but most of them were not yet sufficiently confident of that outlook to begin the normalization process. They generally agreed that their confidence would increase if, as anticipated, economic activity continued to expand at a pace sufficient to increase resource utilization."
    • "All but one member agreed to leave the target range for the federal funds rate un-changed at this meeting."
    • "In its postmeeting statement … the Committee decided to indicate that, in determining whether it would be appropriate to raise the target range at its next meeting, it would assess both realized and expected progress toward its objectives of maximum employment and 2 percent inflation. Members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting, provided that unanticipated shocks do not adversely affect the economic outlook…."  
    • Minutes available at http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.

Mortgage Lending

Mortgage Servicing

Payday Lending

  • CFPB files notice of charges against Integrity Advance for alleged deceptive practices (Nov. 18).
    • Allegations:
      • Contracts did not disclose costs consumers would pay under default terms.
      • Loans conditioned on pre-authorization of ACH payments in violation of EFTA.
      • Use of remotely created checks to debt borrowers' bank accounts even after authorization for automatic withdrawals was revoked.
    • Action to take the form of adversarial proceeding before a CFPB administrative law judge.
    • Notice of charges to be published 10 days after service on respondent.
    • Announcement available at http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-online-lender-for-deceiving-borrowers/.
  • FDIC reissues FIL-14-2005, known as the 2005 Payday Lending Guidance, "to ensure that bankers and others are aware that [the Guidance] does not apply to banks offering products and services, such as deposit accounts and extensions of credit, to non-bank payday lenders" (Nov. 16).

Regulatory Reform

Shadow Banking

Too Big to Fail

  • Federal Reserve finalizes changes to capital planning and stress testing rules (Nov. 25).
  • Federal Reserve issues Review of Federal Reserve Banks' Large Institution Supervision Coordinating Committee Information Flows and Communication Channels (Nov. 24).
    • Purpose of review was to assess consistency of information provided to Large Institution Supervision Coordinating Committee and adequacy of mechanisms to resolve divergent views of examiners.
    • In light of finding of certain inconsistencies in information provided to LISCC, LISCC Operating Committee to establish minimum operating and documentation standards and draft supervision manual.
    • Federal Reserve System to develop formalized process in 2016 for review of dissenting or divergent views of examination staff.
    • Announcement and Review available at http://www.federalreserve.gov/newsevents/press/bcreg/20151124b.htm.
  • Federal Reserve proposes rule requiring banking organizations with more than $50 billion in consolidated assets to publicly disclose liquidity information (Nov. 24).
    • Consolidated liquidity coverage ratios to be disclosed quarterly, based on averages over prior quarter.
    • Consolidated amounts of high quality liquid assets to be disclosed, broken down by category (as explained in liquidity coverage ratio rule).
    • Projected net cash outflow amounts to be disclosed, including retail inflows and outflows, derivatives inflows and outflows, as well as other measures.
    • Proposed rule available at http://www.federalreserve.gov/newsevents/press/bcreg/20151124a.htm.
    • Comment deadline: Feb. 2, 2016.
  • Orderly resolution and resolution planning, remarks of FDIC Chairman Gruenberg to The Clearing House Annual Conference (Nov. 18).

Truth in Lending

Congressional Activity – Upcoming

  • No House or Senate banking committee hearings scheduled.

Congressional Activity – Recent

Upcoming Events 

  • Dec. 1
    • OCC director workshop, "Risk Governance," Knoxville, TN.  
  • Dec. 2
    • EGRPRA outreach meeting, Arlington, VA.
    • OCC director workshop, "Credit Risk," Knoxville, TN.  
  • Dec. 15-16
    • FOMC meeting.

Regulatory Comment Deadlines

  • Jan. 5, 2016 – FDIC: increase in DIF reserve ratio to 1.35% through surcharge on larger banks.
  • Feb. 1, 2016 – Federal Reserve: long-term debt rule.
  • Feb. 2, 2016 – Federal Reserve: disclosure of liquidity information by large banking firms.