Notable developments last Tuesday for banks of different sizes. For banks with less than $10 billion in total assets, the FDIC approved a final rule on small bank deposit insurance assessment rates. For large bank holding companies and banks, the agencies have proposed a rule on a one-year liquidity requirement: the net stable funding ratio. Community banks should also be aware that the recently re-proposed incentive-based compensation rule contains qualitative guidance on practices and procedures that applies to banks at all sizes.

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:

The Economy

    • Target range for federal funds rate unchanged at ¼ to ½ %.
    • FOMC observations include:
      • "Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed."
      • "Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high."
      • "Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft."
      • "A range of recent indicators, including strong job gains, points to additional strengthening of the labor market."
      • "Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports."
      • "Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months."
      • Statement available at http://www.federalreserve.gov/newsevents/press/monetary/20160427a.htm.

Community Banking

  • FDIC finalizes rule on deposit insurance assessments on banks with less than $10 billion in total assets (Apr. 26).
    • For details, see Deposit Insurance below.
  • OCC issues bulletin warning national banks considering new communications technology to avoid any chat or messaging platforms or other technology with an automatic deletion function (Apr. 27).
    • See Recordkeeping below.

BSA/AML

  • FinCEN imposes $1 million civil money penalty on Nevada casino for failure to maintain required BSA/AML compliance program (Apr. 5).

Debt Collection

Deposit Insurance

Incentive-based Compensation

  • Agencies 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 approves proposal at board meeting on April 26.
    • 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.
    • Statement of FDIC Chairman Gruenberg available at https://www.fdic.gov/news/news/speeches/spapr2616a.html.
    • Statement of Comptroller Curry available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-49.html.
    • Comment deadline: July 22.

Mobile Banking

Mortgage Lending

Recordkeeping

  • OCC issues Bulletin 2016-13, Guidance for Banks' Maintenance of Records, Records Retention, and Examiner Access (Apr. 27).
    • Bulletin focuses on communications technology recently made available to banks that could prevent or impede OCC access to bank records through certain data deletion or encryption features.
    • Examples include certain chat and messaging platforms with automatic deletion.
    • Bulletin available at http://www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-13.html.

Student Loans

Too Big to Fail

  • Federal Reserve, FDIC, and OCC propose rule on net stable funding ratio (Apr. 26).
    • Sufficient "stable funding" to cover liquidity risks over a one-year time horizon.
      • Measurement is ratio of "available stable funding" to "required stable funding."
      • Ratio must equal or exceed 1.0.
      • ASF consists of risk-weighted amounts of equity and liabilities based on expected stability.
      • RSF consists of risk-weighted amounts of assets, derivative exposures, and commitments based on liquidity characteristics.
        • Liquidity characteristics include credit quality, tenor, encumbrances, counterparty type, and characteristics of the market in which an asset trades.
      • Public disclosure requirements.
    • Counterpart liquidity coverage ratio, with requirements over a 30-day window, has been in effect since Sept. 2014.
    • Rule would apply to bank holding companies with $250 billion or more in total assets or $10 billion or more in foreign exposures and to banks with $10 billion or more in assets that are consolidated subsidiaries of such holding companies.
    • Less onerous Federal Reserve rule for bank holding companies over $50 billion and below $250 billion: RSF is 70% of RSF based on calculation for largest institutions.
    • Statement of FDIC Chairman Gruenberg available at https://www.fdic.gov/news/news/speeches/spapr2616.html.
    • Statement of Comptroller Curry available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-50.html.
    • Comment deadline: August 5.
  • Agencies continue to roll out proposed new rule on incentive-based compensation, primarily at banks, bank holding companies and certain other financial institutions with assets of $50 billion or more (Apr. 26).
    • More stringent requirements for institutions with $250 billion or more in assets.
    • For details, see Incentive-based Compensation above.

Bank Closings

  • Trust Company Bank (Memphis, TN) closed by Tennessee Dep't of Financial Institutions (Apr. 29).

Congressional Activity – Recent

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

Congressional Activity – Upcoming

  • May 24
    • Senate Banking Committee hearing, "Understanding the Role of Sanctions Under the Iran Deal."
  • May 25
    • Senate Banking Committee hearing, "Understanding the Role of Sanctions Under the Iran Deal: Administration Perspectives."

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

  • 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.
  • June 12 – CFPB: Student Loan Payback Playbook.
  • July 22 – Banking agencies et al.: incentive-based compensation limits.
  • Aug. 5 – Federal Reserve/FDIC/OCC: net stable funding ratio.