Two regulatory developments in the past week should be of particular interest to community banks. First, in the area of examinations, the Federal Reserve issued new guidelines on off-site review of loan files, suggesting that banks have an option to request off-site review.  Second, while the new proposal on incentive-based compensation primarily applies to banks with more than $50 billion in assets, it includes qualitative prudential and corporate governance provisions that cover all banks. Existing practices and procedures regarding compensation at community banks probably incorporate much of the substance of these provisions, but it would be worth comparing current practices with the proposed rule in case there may be significant differences that would warrant a comment.  The comment deadline is July 22. 

Please save the date for our annual financial services conference on May 18 in Washington, D.C.  Discussion panels will address FinTech and marketplace lending. 

The full set of developments over the last week includes:

Community Banking

  • Federal Reserve institutes new procedures for off-site review of loan files during examinations of banks with less than $50 billion in assets (Apr. 19).

CFPB

  • Federal district court in Washington, D.C., rejects effort by CFPB to enforce civil investigative demand against accreditor of for-profit colleges for lack of jurisdiction (Apr. 21).
    • Specifically, stated purpose of CID was to obtain information "in connection with accrediting for-profit colleges" and information requested related to accrediting process.
    • Purpose did not relate to a consumer law or regulation and therefore outside CFPB's statutory authority.
    • Court observed that CFPB might be able to investigate whether ACICS is connected in any way to potential violations of consumer protection laws.
    • Note that CFPB may in the future be able to reword purpose statements, although requested material must be tied to that purpose.
    • Memorandum opinion in CFPB v. Accrediting Council for Independent Colleges and Schools, Civil Case No. 15-1838 (RJL) (Apr. 21, 2016).

Credit Ratings

  • "Credit Ratings in Financial Regulation: What's Changed Since the Dodd-Frank Act?" OFR Brief 16-04 (Apr. 21).

Currency

  • Treasury announces plan to redesign $5, $10, and $20 dollar bills (Apr. 20)
    • Harriet Tubman to replace Andrew Jackson on front of $20 bill; Jackson will be on the reverse.
    • Reverse of $10 bill to include leaders of women's suffrage movement.
    • Reverse of $5 bill to include images of Marian Anderson, Martin Luther King, Jr., and Eleanor Roosevelt.
    • Information available at https://modernmoney.treasury.gov/.

Executive Compensation

  • Agencies begin to roll out proposal on limits on incentive-based compensation under section 956 of Dodd-Frank.
    • NCUA approves proposal at board meeting on Apr. 21.
    • FDIC board to approve at meeting on Apr. 26.  Other agencies likely to follow same day or shortly afterwards.
    • Qualitative requirements apply to all banks, bank holding companies, and other financial institutions (collectively, "banks") regardless of size.
    • New limits tiered by asset size:
      • Less than $1 billion: no new restrictions in proposal.
      • $1 billion or more to $50 billion: restrictions may apply if bank determined to have complexity of operations or compensation practices consistent with those of larger banks.
      • $50 billion or more to $250 billion: restrictions slightly less onerous than those for larger banks.
      • $250 billion or more: full set of restrictions.
    • For C-level and other senior executives and for "significant risk-takers" at banks with $50 billion or more, deferral periods for portions of incentive-based compensation:
      • For banks between $50 billion and $250 billion, 50% and 40%, respectively, for three years.
      • For banks of $250 billion or more, 60% and 50%, respectively, for four years.
      • Other deferral periods for long-term incentive plans.
      • "Significant risk-takers" are individuals who receive one-third or more of annual compensation in incentive-based form and who either are among the most highly paid group at bank (definition of group varies by asset size) or may commit or expose 0.5% of bank's net worth or total capital.
    • Forfeiture or bonus payment reductions for poor financial performance due to significant deviations from business plan, inappropriate risk-taking, material risk management or control failures, or any legal violation that results in an enforcement or other legal action or a restatement to correct a material error.
    • Seven-year claw back at banks of $50 billion or more.
    • Other limits on increases in incentive-based compensation.
    • Risk control, corporate governance, and practice and procedure requirements.
    • Proposal available at https://www.ncua.gov/About/Pages/board-actions/bulletins/2016/april/BAB20160421.aspx.
    • Comment deadline: July 22.

M&A

Payday Lending

Too Big to Fail

Underbanked

  • Remarks by FDIC Chairman Gruenberg at the Financial Services Roundtable, "Bridging the Gap: Technology, Financial Literacy & Underserved Populations, Innovative Ways to Reach K-12" (Apr. 20).

Congressional Activity – Recent

Congressional Activity – Upcoming

  • Apr. 27
    • House Financial Services Committee hearing, "How Can the U.S. Make Development Banks More Accountable?"

Upcoming Events

  • May 2-4
    • OCC Director Workshop, "Building Blocks for Directors: Keys to Success," Wilmington DE.
  • May 3
    • OCC Director Workshop, "Risk Governance – Improving Director Effectiveness," Springfield IL.
  • May 4
    • OCC Director Workshop, "Compliance Risk: What Directors Need to Know," Springfield IL.
  • May 17
    • OCC Director Workshop, "Credit Risk: Directors Can Make A Difference," Corpus Christi TX.
  • May 18
    • OCC Director Workshop, "Operational Risk – Navigating Rapid Changes," Corpus Christi TX.
  • May 19
    • FDIC San Francisco Region Bankers' Forum teleconference, "Real Estate Settlement Procedures Act – Section 8."
  • June 9
    • FTC conference on FinTech.
  • June 23
    • OCC forum on "responsible innovation" (FinTech), Washington DC.
  • July 20
    • FDIC Money Smart Train-the-Trainer Online Live Meeting.

Regulatory Comment Deadlines

  • Apr. 25 – CFPB: expansion of mortgage rules to cover more small lenders operating in rural or underserved areas.
  • Apr. 29 – Federal Reserve: reduction in dividend rate on Reserve Bank stock held by member banks with total assets of more than $10 billion.
  • Apr. 29 – Federal Reserve, OCC, FDIC: ceiling on eligibility for 18-month examination cycle increased from $500 million to $1 billion.
  • May 2 – SEC/FDIC: application of orderly liquidation authority to broker-dealers.
  • May 13 – OCC: changes to various regulations to remove undue burdens.
  • May 26 – FDIC: recordkeeping requirements for banks with more than 2 million deposit accounts.
  • May 31 – OCC: white paper on responsible innovation (FinTech).
  • June 3 – Federal Reserve: single party credit exposures.
  • July 22 – Banking agencies et al.: incentive-based compensation limits.