Apart from the FDIC Chairman's statement last Tuesday about coming reductions in DIF assessments for most banks, the past week had little specifically for community banks.  The FOMC's decision to maintain the target range for the federal funds rate at ¼ to ½% led the week.  Two other items should be of interest.  NACHA announced the beginning of same day ACH for credit transactions.  In Congress, Patrick McHenry (R-NC) introduced legislation to formalize the regulatory "sandbox" approach to FinTech, modeled on programs in the UK.

          The full set of developments over the past week includes:

The Economy

  • Meeting of Federal Open Market Committee (Sept. 20-21).
    • Target range for federal funds rate remains at ¼ to ½ percent.
    • "Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average."
    • "The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further."
    • "Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further."
    • "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."
    • "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."
    • Statement available athttp://www.federalreserve.gov/newsevents/press/monetary/20160921a.htm.
    • Summary of Economic Projections available athttp://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160921.htm.


Auto Title Lending

Credit Repair

Deposit Insurance Assessments

  • FDIC Chairman Gruenberg announces increase in DIF balance and in reserve ratio to 1.17 percent (Sept. 20).
    • Per 2011 long-term management plan, assessments for most banks drop when reserve ratio rises above 1.15 percent.
    • Temporary surcharges also take effect for banks with $10 billion or more in assets until DIF reaches Dodd-Frank minimum of 1.35 percent by deadline of Sept. 30, 2020.
      • Approximately one-third of larger banks will pay lower net assessments given reductions for all banks.
    • FDIC staff expects DIF to achieve minimum in 2018; surcharge expected to last for eight quarters.
    • Statement available at https://www.fdic.gov/news/news/speeches/spsep2016a.html.


  • Congressman Patrick McHenry (R-NC) introduces H.R. 6118, the "Financial Services Innovation Act of 2016" (Sept. 22).
    • Bill would formalize "sandbox" approach to regulation of FinTech: would require 12 federal agencies to establish program for developers to test new products or business models without full regulatory review.
    • Program would be similar to programs now operating under the UK's Financial Conduct Authority.
    • Bill not yet published.

Mortgage Loans


Physical Commodities

  • Federal Reserve proposes rule to strengthen restrictions on physical commodity activities of financial holding companies (Sept. 23).
    • Purpose is to "reduce the catastrophic, legal, reputational, and financial risks that physical commodity activities pose to financial holding companies."
    • Proposed rule would:
      • Require firms to hold substantial additional capital in connection with activities involving commodities for which existing laws would impose liability if the commodity were released into the environment;
      • Tighten the quantitative limit on the amount of physical commodity trading activity firms may conduct;
      • Rescind authorizations that allow firms to engage in physical commodity activities involving power plants;
      • Remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and
      • Establish new public reporting requirements on the nature and extent of firms' physical commodity holdings and activities.
    • Proposal available athttp://www.federalreserve.gov/newsevents/press/bcreg/20160923a.htm
    • Comment deadline: 90 days after publication in Federal Register.

Too Big to Fail

  • Federal Reserve to propose exemption of banking firms with less than $250 billion in assets that do not have significant international or nonbank activity from annual CCAR qualitative review (Sept. 26).
    • If finalized, proposal would be effective for CCAR in 2017.
  • “Next Steps in the Evolution of Stress Testing,” remarks by Federal Reserve Governor Tarullo at the Yale University School of Management Leaders Forum (Sept. 26).
    • Key topics considered by the Fed:
      • Alignment of CCAR with the major changes in the regulatory capital rules.
      • Macroprudential dimension of stress testing and CCAR.
      • Qualitative assessments of relatively smaller banking firms within CCAR.
    • Possible changes to the programs:
      • Adoption of a “stress capital buffer” to replace existing 2.5% capital conservation buffer as a component in each CCAR firm’s point-in-time capital requirements.
      • Single assumption that balance sheets and risk-weighted assets remain constant over the severely adverse scenario horizon to replace different assumptions about different business lines.
      • Reduction in severity of change in unemployment rate during downturns.
      • Replacement of judgmental approach to setting house prices by tying variable to disposable personal income.
    • Priority items for further Fed review:
      • Funding shocks.
      • Liquidity shocks and fire sale dynamics.
      • Default of a common counterparty and the reaction of central counterparties.
    • Improved transparency in three areas:
      • Release of all details of scenarios applied in the annual program.
      • More granular disclosure of stress test results in the next two cycles of testing.
      • Possible release of more details of Fed mondels and creation of Model Valuation Group.
    • Proposal to exempt banking firms with less than $250 billion in assets that do not have significant international or nonbank activity from annual CCAR qualitative review.
    • Remarks available athttp://www.federalreserve.gov/newsevents/speech/tarullo20160926a.htm
  • Committee on Capital Markets Regulation issues statement, "The Administrative Procedure Act and Federal Reserve Stress Tests: Enhancing Transparency" (Sept. 15).
  • FSOC meeting in executive session (Sept. 22).
  • FDIC Vice Chairman Hoenig releases semi-annual report of the Global Capital Index (Sept. 20).
    • Leverage among G-SIBs has increased in first half of 2016.
      • Weighted average tangible equity capital for the eight U.S. G-SIBs fell 22 basis points to 5.75 percent.
      • Weighted average for foreign G-SIBs fell 23 basis points to 5.45 percent.
    • Statement of Vice Chairman Hoenig and findings include:
      • "Asset quality remains an issue, especially in certain foreign jurisdictions."
      • "Global banks with stronger capital as measured under the leverage ratio and with fewer asset problems generally trade at a premium or at less of a discount to book value than banks with weaker capital."
      • "While capital levels are greater now than pre-crisis, they are inadequate for long-term resiliency."
      • "It is important to note that earlier this month global regulators affirmed that they will not significantly increase overall capital levels as they finalize the Basel III accords. There are also proposals from some groups that would introduce risk weighting into the leverage ratio itself, which would undermine its very purpose as a minimum capital standard. Such actions are unwise as they undermine long-term goals to strengthen the financial system and achieve stable long-term economic growth."
    • Index and statement available athttps://www.fdic.gov/news/news/speeches/spsep2016.html.

Virtual Currency

  • Federal district court in Manhattan rules that bitcoins are funds under 18 U.S.C. § 1960, which makes it a crime to operate an unlicensed money transmitting business (Sept. 19).
    • Memorandum and order in United States v. Murgio, docket no. 15-cr-769 (AJN) (S.D.N.Y.).

Bank Closing

Congressional Activity – Recent.

Congressional Activity – Upcoming

  • Sept. 27
    • House Financial Services Committee hearings:
      • "Examining Legislative Proposals to Address Consumer Access to Mainstream Banking Services."
      • "The Financial Stability Board's Implications for U.S. Growth and Competitiveness."
  • Sept. 28
    • House Financial Services Committee hearings:
      • "Semi-Annual Testimony on the Federal Reserve's Supervision and Regulation of the Financial System."
      • "The Impact of US-EU Dialogues on U.S. Insurance Markets."

Upcoming Events

  • Sept. 27
    • FDIC San Francisco Region Bankers' Forum: Teleconference on Risk Management – Cybersecurity Update and Information Technology Examination Program Overview.
  • Sept. 28
    • FDIC Community Banking Initiative: De Novo Outreach Meeting, San Francisco CA.
  • Oct. 13
    • FDIC Community Banking Initiative: De Novo Outreach Meeting, New York NY.
  • Oct. 19
    • FDIC Money Smart Train-the-Trainer Online Live Meeting.
  • Oct. 27-28
    • OFR and Center on Finance, Law, and Policy, Big Data: Improving the Scope, Quality, and Accessibility of Financial Data, Ann Arbor, MI.
  • Oct. 28
    • FDIC 6th Annual Consumer Research Symposium.
  • Nov. 29
    • FDIC Community Banking Initiative: De Novo Outreach Meeting, Atlanta GA.

Regulatory Comment Deadlines

  • Oct. 3 – FDIC: appeals of supervisory determinations.
  • Oct. 14 – Federal Reserve, FDIC, OCC: streamlined call report for small banks.
  • Oct. 18 – CFPB: changes to required Know Before You Owe mortgage lending disclosures.
  • Oct. 24 – FinCEN: extension of BSA/AML requirements to banks without a federal functional regulator.
  • Oct. 27 – FDIC: third-party lending guidance.
  • 45 days after publication in NYS Register – NY Dep't of Financial Services: cybersecurity requirements.
  • Nov. 14 – OCC: receiverships of uninsured national banks (with implications for possible FinTech charter).
  • Nov. 14 – OCC: prohibition from dealing and investing in industrial and commercial metals.
  • Dec. 22 – Federal Reserve: limits on physical commodity activities of financial holding companies.