Revised Term Deposit Facility Announced
On September 4th, the Federal Reserve Board announced it will conduct a series of eight consecutive seven-day term deposit operations through its Term Deposit Facility beginning in October. Term deposits in this series will incorporate an early withdrawal feature that will allow depository institutions to obtain a return of funds prior to the maturity date subject to an early withdrawal penalty. Federal Reserve Board Press Release.
Agencies Repropose Swap Margin Requirements
On September 3rd, the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation (“FDIC”), the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency (“OCC”) published for comment a reproposed rule that would establish margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants. The proposed rule would establish minimum requirements for the exchange of initial and variation margin between covered swap entities and their counterparties to non-cleared swaps and non-cleared security-based swaps. The proposal builds on one originally released by the agencies in April 2011 and includes some modifications, such as an expansion of the types of collateral eligible to be posted as initial margin. The proposal also generally follows the final framework for margin requirements on non-cleared derivatives that the Basel Committee on Banking Supervision and the International Organization of Securities Commissions adopted in September 2013. The amount of margin that would be required under the proposed rule would vary based on the relative risk of the counterparty and of the non-cleared swap or non-cleared security-based swap. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. Joint Press Release. In its summary of the proposal, Bloomberg noted that the revised proposal eases the collateral requirements originally suggested for end-users. End Users.
Banking Agencies Adopt Supplementary Leverage Ratio Rule
On September 3rd, the Federal Reserve Board, FDIC, and the OCC adopted a final rule modifying the definition of the denominator of the supplementary leverage ratio. The revisions to the supplementary leverage ratio apply to all banking organizations subject to the advanced approaches risk-based capital rule. The final rule modifies the methodology for including off-balance sheet items, including credit derivatives, repo-style transactions, and lines of credit, in the denominator of the supplementary leverage ratio. The final rule also requires institutions to calculate total leverage exposure using daily averages for on-balance sheet items and the average of three month-end calculations for off-balance sheet items. Joint Press Release.
Banking Regulators Finalize Liquidity Coverage Ratio
On September 3rd, the Federal Reserve Board, the FDIC, and the OCC published a final rule that creates a standardized minimum liquidity requirement for large and internationally active banking organizations. Each institution will be required to hold high quality, liquid assets (“HQLA”) such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The liquidity coverage ratio (“LCR”) will apply to all banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure and to these banking organizations ’ subsidiary depository institutions that have assets of $10 billion or more. The rule also will apply a less stringent, modified LCR to bank holding companies and savings and loan holding companies that do not meet these thresholds, but have $50 billion or more in total assets. Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the final rule. U.S. firms will be required to be fully compliant with the rule by January1, 2017. Joint Press Release.
OCC Issues Governance and Risk Management Guidelines
On September 2nd, the OCC published final guideline to strengthen the governance and risk management practices of large financial institutions. The guidelines apply to insured national banks, insured federal savings associations, and insured federal branches of foreign banks with $50 billion or more in average total consolidated assets. The guidelines also apply to an OCC-regulated institution with less than $50 billion in average total consolidated assets if that institution’s parent company controls at least one other covered institution. The guidelines provide that covered institutions should establish and adhere to a written risk governance framework to manage and control its risk-taking activities. The guidelines also provide minimum standards for the institutions’ boards of directors to oversee the risk governance framework. OCC Press Release.
OCC Bulletin on Electronic Fund Transfer Act
On August 28th, the OCC issued the “Electronic Fund Transfer Act” booklet of the Comptroller ’s Handbook. The revised booklet replaces a similarly titled booklet issued in October 2011. The booklet provides updated guidance to examiners and bankers relevant to recent changes made to Regulation E regarding remittance transfers. OCC Bulletin.
FDIC Releases Quarterly Banking Profile
On August 28th, the FDIC released quarterly banking information. Insured commercial banks and savings institutions reported aggregate net income of $40.2 billion in the second quarter of 2014, up $2.0 billion (5.3 percent) from earnings of $38.2 billion the industry reported a year earlier. The increase in earnings was mainly attributable to a $1.9 billion (22.4 percent) decline in loan-loss provisions and a $1.5 billion (1.4 percent) decline in noninterest expenses. Also, strong loan growth contributed to an increase in net interest income compared to a year ago. However, lower income from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in noninterest income. More than half of the 6,656 insured institutions reporting (57.5 percent) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the second quarter fell to 6.8 percent from 8.4 percent a year earlier. FDIC Press Release.
FDIC Publishes Consumer Newsletter
On August 27th, the FDIC published its latest consumer newsletter which features articles on preparing for stressful life events. FDIC Press Release.
Proposed Repeal of Credit Practices Rule and Related Guidance
On August 22nd, the Federal Reserve Board requested comment on a proposal to repeal its Regulation AA (Unfair or Deceptive Acts or Practices). The Dodd-Frank Act repealed the Federal Reserve Board ’s authority to write rules that address unfair or deceptive acts or practices, which are contained in Regulation AA. Regulation AA includes the Board ’s “credit practices rule,” which prohibits banks from using certain remedies to enforce consumer credit obligations and from including these remedies in their consumer credit contracts. In connection with the proposed repeal of Regulation AA, the Board, Consumer Financial Protection Bureau (“CFPB”), FDIC, National Credit Union Administration, and OCC issued guidance clarifying that the repeal of the credit practices rules applicable to banks, savings associations, and federal credit unions is not a determination that the prohibited practices contained in those rules are permissible. The practices described in the former credit practices rules could potentially violate the prohibition against unfair or deceptive practices under the Federal Trade Commission Act and Dodd-Frank Act, even in the absence of a specific regulation governing the conduct. Comments should be submitted on or before October 27, 2014. Federal Reserve Board Press Release. See also OCC Bulletin.
The OCC will host two workshops in Dallas, Texas on September 30-October 1, 2014 for directors of national community banks and federal savings associations. The Credit Risk and Risk Assessment workshops are designed exclusively for directors of institutions supervised by the OCC. The credit risk workshop focuses on the roles of the board and bank management, current events, emerging industry trends, and a range of credit issues, from the credit approval process, to managing credit risk, to collections. The risk assessment workshop discusses the OCC’s approach to risk-based supervision, and best practices to identify, measure, monitor and control risk. The interactive sessions also cover industry hot topics, such as credit risk, interest rate risk, and the regulatory environment. The OCC will host a workshop in Orlando, Florida on October 6-8, 2014 for directors of national community banks and federal savings associations. “Mastering the Basics: A Director’s Challenge” is a workshop designed exclusively for directors of institutions supervised by the OCC and provides practical information on the roles and responsibilities of board participation.