In apparent anticipation of the August slow-down, the agencies released several items last week covering a variety of different areas.  The most notable proposals last week would affect banks and their third-party relationships.  The FDIC proposed guidance on lending for or through third parties, and the CFPB issued a preliminary proposal that would "drastically" overhaul third-party debt collection. The CFPB also proposed relatively modest changes to the Know-Before-You-Owe disclosures.  For banks with exposures to the oil and gas industry, the FDIC re-issued guidance on underwriting and loan management.  All banks should note the OCC's update of its guidance on corporate governance. 

          The full set of developments over the past week includes:

The Economy

  • Meeting of Federal Open Market Committee (July 26-27).
    • Target range for federal funds rate remains at ¼ to ½ percent.
      • One dissenting vote from President of Kansas City Reserve Bank.
    • "The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."
    • Statement available athttp://www.federalreserve.gov/newsevents/press/monetary/20160727a.htm.

 Civil Money Penalties

 Corporate Governance

Credit  Cards

Credit Risk

  • Banking agencies release Shared National Credits Program Review (July 29).
    • "The level of adversely rated (i.e., special mention and classified) assets in the SNC portfolio continues to be higher than observed in previous periods of economic expansion, leading to concern that losses could rise considerably in the next downturn."
    • "The high level of credit risk stems from a large share of risky leveraged finance loans underwritten based on weak practices, and the significant decline in oil prices since mid-2014 that has reduced the repayment capacity of obligors in the oil and gas sector."
    • "Notwithstanding the riskiness of the existing portfolio, the agencies noted improved underwriting and risk management practices related to the most recent leveraged loan originations as underwriters continued to better align practices with regulatory expectations, and as investor risk appetite moderated away from transactions at the lower end of the credit spectrum."
    • Review available at http://www.occ.gov/news-issuances/news-releases/2016/nr-ia-2016-87.html.

Debt Collection

Diversity

  • Banking agencies release guidance on submission of self-assessments of diversity policies and practices (Aug. 2).

 Examinations

  • FDIC proposes changes to guidelines on appeal of material supervisory determinations (July 29).
  • FDIC also issues FIL-51-2016, updating and reissuing letter, "Reminder on FDIC Examination Findings" (July 29).

Mortgage Loans -- Disclosures

Oil and Gas

  • FDIC issues FIL-49-2016 to remind banks with oil and gas exposures to maintain sound underwriting, strong credit administration, and effective risk management (July 27).
    • Complex factors such as global supply and demand, geopolitical uncertainty, weather-related disruptions, fluctuations and volatility in currency markets, and changes in environmental and other governmental policies create volatility for borrowers tied to or reliant on the O&G industry that will directly affect borrowers' financial condition and repayment capacity.
    • Lending for O&G exploration and production activities in particular requires conservative underwriting, appropriate structuring, experienced and knowledgeable lending staff, and sound loan administration practices.
    • For institutions doing business in O&G dependent areas that would be affected by volatility in commodity prices, prudent management of geographic, industry, and borrower concentrations is needed for sound risk management of such exposures. Higher capital levels may be necessary.
    • FDIC-supervised banks encouraged to work with borrowers adversely affected by a severe or protracted downturn in commodity prices in accordance with a well-conceived workout plan and effective internal controls to manage these loans.
    • FIL-49-2016 available at https://www.fdic.gov/news/news/financial/2016/fil16049.html.

Swaps

Third-Party Lending

  • FDIC proposes guidance on third-party lending in FIL-50-2016 (July 29).
    • Third-party lending defined as an arrangement that relies on a third party to perform a significant aspect of the lending process, including originations for third parties, originations through or jointly with third parties, and originations using platforms developed by third parties.
    • Board and senior management ultimately responsible for arrangements as if all activities were performed within bank.
    • Requirement for risk management program and compliance management system that address risk assessment, due diligence and oversight, and contracting structuring.
    • For banks with significant third-party relationships, 12-month examination cycle, concurrent risk management and consumer protection examinations, offsite monitoring, and possible review of third parties.
    • FIL-50-2016 available at https://www.fdic.gov/news/news/financial/2016/fil16050.html.
    • Comment deadline: Sept. 12.

Too Big to Fail

Upcoming Events

  • Aug. 4
    • FDIC 2016 Joint Mutual Forum, Arlington VA.  
  • Aug. 16
    • OCC Director Workshop, "Risk Governance," Kansas City MO.  
  • Aug. 17
    • OCC Director Workshop, "Credit Risk," Kansas City MO.  
  • Sept. 8-9
    • FDIC 16th Annual Bank Research Conference.  
  • Sept. 13
    • OCC Director Workshop, "Credit Risk," Duluth MN.  
  • Sept. 14
    • OCC Director Workshop, "Compliance Risk," Duluth MN.  
  • Oct. 19
    • FDIC Money Smart Train-the-Trainer Online Live Meeting.  
  • Oct. 27-28
    • FDIC 6th Annual Consumer Research Symposium.

Regulatory Comment Deadlines

  • Aug. 5 
    • Federal Reserve/FDIC/OCC: net stable funding ratio.
    • Federal Reserve: amendment of QFCs to prevent immediate cancellation in event of bankruptcy or other resolution.  
  • Aug. 8 – Treasury/IRS: foreign-owned, single-owner entities required to obtain EIN.  
  • Aug. 22 – CFPB: ban on mandatory arbitration clauses.  
  • Aug. 29 – FDIC: replacement of references to credit ratings in international banking regulations.  
  • 30 days after publication in Federal Register
    • Federal Reserve/CFPB: changes to exemption thresholds under Truth in Lending Act for consumer loans and leases.
    • Federal Reserve/FDIC/OCC/CFPB: changes to threshold for exemption of small loans from higher priced mortgage loan appraisal requirements.  
  • Aug. 30 
    • OCC: adjustment of maximum CMPs to account for inflation.
    • Federal Reserve: adjustment of maximum CMPs.  
  • Sept. 12 – FDIC: third-party lending guidance.  
  • Sept. 14 – CFPB: payday loans.  
  • Sept. 16 – Federal Reserve: capital requirements for certain insurance companies.  
  • 60 days after publication in Federal Register – FDIC: appeals of supervisory determinations.  
  • Oct. 18 – CFPB: changes to required Know-Before-You-Owe mortgage lending disclosures.