Righting ourselves, the newsletter is now back on schedule.  Last week was a full one, and the upcoming week promises at least the result of the Federal Open Market Committee meeting on Tuesday and Wednesday.  All banks, regardless of size or charter, should review two OCC publications on basic bank supervision and the priorities of the agency. Also worthy of attention, even though only New York institutions would be directly affected, is the Department of Financial Services' proposed formal regulation on cybersecurity.

In more specific areas, FinTech and marketplace lending were the subject of an important speech by the Comptroller, accompanied by a proposal for receiverships of uninsured national banks. The House of Representatives passed a resolution urging the development of a national policy on FinTech.  Elsewhere in the House, the Financial Services Committee passed a bill on September 13 that, while enactment in the current Congress seems remote, would change Dodd-Frank significantly, including an exemption from capital and liquidity requirements for banking organizations with a leverage ratio of at least 10% and a composite CAMELS rating of 1 or 2.

Finally, we remind you, today is International Talk Like a Pirate Day.  Aargh.

The full set of developments over the past week includes:

The Economy

Bank Supervision

  • "Emerging Issues in Bank Regulation," The 2016 Robert Glauber Lecture by Comptroller Curry (Sept. 15).
    • Discusses regulatory responses to three lessons of the Great Recession: insufficient capital, excessive leverage, and inadequate liquidity.
    • Also discusses OCC actions in response to the fourth lesson: the importance of effective bank supervision.
    • Speech available at http://www.occ.gov/news-issuances/speeches/index.html.
  • OCC releases Fiscal Year 2017 Bank Supervision Operating Plan (Sept. 14).

Cybersecurity

  • New York Dep't of Financial Services proposes cybersecurity rule (Sept. 13).
    • Rule would require regulated financial institution to:
      • Establish a cybersecurity program.
      • Adopt a cybersecurity policy.
      • Appoint a Chief Information Security Officer.
      • Policies and procedures to ensure the security of information held or accessible by third-party service providers.
    • Proposed rule available at http://www.dfs.ny.gov/about/press/pr1609131.htm.
    • Comment deadline: 45 days after publication in State Register.
  • CFTC finalizes system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories, and derivatives clearing organizations (Sept. 8).

Dodd-Frank

  • House Financial Services Committee approves H.R. 5983, the "Financial CHOICE Act of 2016" (Sept. 13).
    • Comprehensive financial reform measure repealing significant portions of Dodd-Frank and amending others, including:
      • Exemption from certain Dodd-Frank, capital, and liquidity requirements for banking organizations with leverage ratio of at least 10% and composite CAMELS rating of 1 or 2. 
      • Repeal of FSOC powers to designate nonbank financial companies or particular financial activities as systemically important.
      • Replacement of orderly liquidation authority with new chapter of the Bankruptcy Code to cover the failure of a large, complex financial institution.
      • Restructuring of CFPB.
      • Repeal of Volcker Rule and much of Title IV.
      • Changes to SEC and CFTC powers.
    • Text of bill and Committee Memorandum available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=401001.

FinTech

  • Remarks by Comptroller Curry before the Marketplace Lending Policy Summit 2016 (Sept. 13).
    • "The conversation about whether there should be a national substantive law or a federal license or charter for marketplace lenders and fintech firms is part of answering the question of 'who' should regulate the activity. If a firm merited a federal bank charter, the question would be resolved as it would be squarely under the primary federal supervision of the OCC."
    • "If we at the OCC do decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet."
    • OCC's regulatory role in FinTech will adhere to eight principles:
      • Support responsible innovation.
      • Foster receptive culture within OCC.
      • Capitalize on OCC expertise.
      • Ensure fair access and treatment of customers.
      • Require effective risk management and good corporate governance.
      • Encourage banks of all sizes to consider responsible innovation in strategic planning.
      • Continue dialog with all stakeholders in financial services community.
      • Collaborate with other regulators.
    • Remarks available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-111.html.
  • OCC proposes rule on receiverships for uninsured national banks (Sept. 13).
    • Widely seen as precursor to proposal for national bank FinTech charter.
      • Preface states that "as part of the agency’s initiative on responsible innovation in the Federal banking system, the OCC is considering how best to implement a regulatory framework that is receptive to responsible innovation, such as advances in financial technology. In conjunction with this effort, the OCC is considering whether a special purpose charter could be an appropriate entity for the delivery of banking services in new ways. For this reason, the OCC requests comment on the utility of the receivership structure in the proposed rule for receivership of such a special purpose bank."
    • See further details in Receiverships below.
    • Proposal, 81 Fed. Reg. 62835 (Sept. 13, 2016), available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-110.html.
    • Comment deadline: Nov. 14.
  • House of Representatives passes H. Res. 835 (Sept. 12).

Marketplace Lending

  • Remarks by Comptroller Curry before the Marketplace Lending Policy Summit 2016 (Sept. 13).
    • The expansion of marketplace lending raises four other important policy and regulatory questions.
      • "First, do new techniques, technologies, and products raise concerns about compliance with existing laws and regulations?"  An example is the possible disparate impact of lending based on particular algorithms.
      • "Second, are existing laws and regulations adequate?"  The Community Reinvestment Act is a case in point.
      • "Third, do innovative activities, products, or services present a need for entirely new regulation or law to protect the public’s interest or prevent risk to the broader financial system?"  Virtual currencies and cyber crime are areas of note.
      • "The fourth type of policy question regarding innovation involves answering should innovation be regulated and, if so, 'who' should be responsible for regulating an organization or activity."
    • Remarks available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-111.html.

Monetary Policy

  • "The 'New Normal' and What It Means for Monetary Policy," remarks by Federal Reserve Governor Brainard at the Chicago Council on Global Affairs" (Sept. 12).
    • Key features of the "new normal":
      • Inflation has been undershooting, and the Phillips curve has flattened.
      • Labor market slack has been greater than anticipated.
      • Foreign markets matter.
      • The neutral rate is likely to remain very low for some time.
      • Policy options are asymmetric.
    • Conclusions:
      • "In today's new normal, the costs to the economy of greater-than-expected strength in demand are likely to be lower than the costs of significant unexpected weakness."
      • "The response of inflation to unexpected strength in demand will likely be modest and gradual, requiring a correspondingly moderate policy response and implying relatively slight costs to the economy."
      • "In the face of an adverse shock, however, our conventional policy toolkit is more limited, and thus the risk of being unable to adequately respond to unexpected weakness is greater. The experience of the Japanese and euro-area economies suggest that prolonged weakness in demand is very difficult to correct, leading to economic costs that can be considerable."
      • "This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation."
    • Remarks available at http://www.federalreserve.gov/newsevents/speech/brainard20160912a.htm (subscription required).

Mortgage Loans

  • FDIC publishes The Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises and launches online Affordable Mortgage Lending Center (Sept. 15).
    • Guide describes federal programs for single-family housing lending that support home purchase, refinance, manufactured housing, and some home improvements, including programs for specific communities, such as rural areas and Native American communities, low- and moderate-income individuals, first-time homebuyers, and veterans.
    • Part II of Guide covering state programs and Part III covering the Federal Home Loan Banks to be released later in 2016.
    • Lending center includes data, fact sheets, and mortgage lending studies, the full version of the guide and links to different federal programs.
    • Guide available at https://www.fdic.gov/news/news/press/2016/pr16081.html.
    • Lending center webpage address:https://www.fdic.gov/consumers/community/mortgagelending/index.html.
  • Justice Department settles case with Regions Bank involving origination of FHA-insured loans that did not meet FHA requirements (Sept. 13).

Receiverships

  • OCC proposes rule on receiverships for uninsured national banks (Sept. 13).
    • Proposal widely seen as precursor to possible national bank FinTech charter.  SeeFinTech above.
    • Proposal covers:
      • Appointment of a receiver and required federal notice.
      • Process for submitting claims against the receivership.
      • Order of priorities for payment of administrative expenses and claims.
      • Powers and duties of the receiver.
      • Payment of dividends on claims.
      • Sources of funds for payments and claims.
      • Status of fiduciary and custodial assets and accounts.
    • Proposal, 81 Fed. Reg. 62835 (Sept. 13, 2016), available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-110.html.
    • Comment deadline: Nov. 14.

Student Loans

  • CFPB enters into consent order with Bridgeport Education for deceptive practices involving private student loans (Sept. 12).
    • Deceptive practices involved inaccurate statements by Bridgeport representatives that loan could be paid off with as little as $25 in monthly payments.
    • Order requires Bridgeport to provide to students a newly created disclosure tool:
      • Tool provides each student access to personalized financial aid offer information generated by Bridgeport.
      • Tool also contains information about graduation and loan default rates, potential salaries for graduates of their programs, and post-graduation budgeting.
      • Bridgeport must require students to  use this tool before enrolling.
    • Bridgeport also required to remove negative information about student loan debt from borrowers' credit reports.
    • Monetary relief:
      • Discharge all outstanding loans made by Bridgeport.
      • Refund loan payments.
      • $8 million civil money penalty.
    • Consent order available at http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-takes-action-against-bridgepoint-education-inc-illegal-student-lending-practices/.

Congressional Activity – Recent

Congressional Activity – Upcoming

  • Sept. 20
    • Senate Banking Committee hearing, "An Examination of Wells Fargo's Unauthorized Accounts and the Regulatory Response."
  • Sept. 21
    • Senate Banking Committee hearing, "NSITF: Terror Financing Risks of America's $1.7 Billion Cash Payments to Iran."
    • House Financial Services Committee hearings.
      • "The Future of Housing in America: A Better Way to Increase Efficiencies for Housing Vouchers and Create upward Economic Mobility."
      • "Corporate Governance: Fostering a System that Promotes Capital Formation and Maximizes Shareholder Value."
  • Sept. 22
    • Senate Banking Committee hearing, "HTCD: Oversight of the HUD Inspection Process."
    • House Financial Services Committee hearings.
      • "The Annual Report of the Financial Stability Oversight Council."
      • "Examining the Agenda of Regulators, SROs, and Standards-Setters for Accounting, Auditing, and Municipal Securities."
  • Sept. 23
    • House Financial Services Committee hearing, "The Financial Stability Board's Implications for U.S. Growth and Competitiveness."

Upcoming Events

  • Sept. 19-21
    • OCC Director Workshop, "Building Blocks for Directors," St. Louis MO.
  • Sept. 20-21
    • Federal Open Market Committee meeting.
  • 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. 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.