Community banks – week in review

The newsletter may be late, but we are able to catch up on some of the latest and important news. Community banks should take special note of the banking agencies' release of new procedures for examinations for compliance with the CFPB's mortgage rules. For those concerned about the nature of the CFPB, the House of Representative will vote either today or tomorrow on legislation that would significantly restructure the agency and give Congress greater leverage over it. The likelihood of favorable Senate action is remote at best, however.

Major developments also occurred for systemically important banks over the past several days: on Tuesday, February 18, the Federal Reserve finalized "enhanced prudential standards." (Portions of these standards may flow down to smaller banks.) On Friday the 21st, the Federal Reserve, FDIC, and OCC announced eight banking holding companies that will be allowed, as of the second quarter of 2014, to use the Basel II advanced approaches in calculating risk-based capital.

The full set of developments over the past week are as follows:

The Economy

• Minutes of FOMC meeting Jan. 28-29, released.
  • Available at http://www.federalreserve.gov/newsevents/press/monetary/20140219a.htm.
• Chair Yellen's semi-annual testimony to Senate Banking Committee on current economic situation and monetary policy rescheduled for Feb. 27.

Financial Crisis

• Federal Reserve released on April 21 transcripts of FOMC meetings and related material regarding the response to the financial crisis in 2008.
  • Materials available at http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm.

Applications

• Federal Reserve discusses substantive issues leading to withdrawals of applications (Feb. 24).
  • SR Letter 14-2/CA Letter 14-1, available at http://www.federalreserve.gov/bankinforeg/srletters/sr1402.htm.
• Federal Reserve to publish semi-annual report on actions on applications, including denials and withdrawals, beginning with first half of 2014.

Capital

• Use of advanced approaches (Basel II) methodology for determining risk-based capital requirements now permitted for eight bank holding companies with total consolidated assets of more than $250 billion and their twelve subsidiary banks.
  • To begin second quarter 2014.
  • Advanced approaches framework to be part of stress testing and capital planning cycle beginning Oct. 2015.
  • Institutions still must comply with generally applicable risk-based capital rules released in July 2013.
  • Announcement available at http://www.federalreserve.gov/newsevents/press/bcreg/20140221a.htm.

CFPB

• House of Representatives to vote on H.R. 3193, the Consumer Financial Protection and Soundness Improvement Act of 2013.
  • Replaces single director with five-member board.
  • Taxpayer funded.
  • House Rules Committee print available at http://rules.house.gov/bill/113/hr-3193.

Directors

• OCC announces four series of workshops for directors.
  • "Mastering the Basics Workshop: A Director's Challenge."
  • "Risk Assessment Workshop: Directors, Where is the Risk in Your Institution?"
  • "Compliance Risk Workshop: What Directors Need to Know."
  • "Credit Risk Workshop: A Director's Focus."

Monetary Policy

• "Monetary Policy and Financial Stability," Remarks by Federal Reserve Governor Tarullo at the 30^th Annual National Association for Business Economics Economic Policy Conference (Feb. 25).
  • Text available at http://www.federalreserve.gov/newsevents/speech/tarullo20140225a.htm.

Mortgages

• Interagency compliance procedures for Dodd-Frank mortgage rules released (Feb. 25).
  • Procedures cover:
    • Ability-to-Repay/Qualified Mortgage Rule.
    • Loan Originator Compensation Rule.
    • Mortgage Servicing Rules.
    • High-Cost Mortgage and Homeownership Counseling Amendments Rule.
    • Higher-Priced Mortgage Loan Escrow Rule
    • HPML Appraisal Rule
    • ECOA Appraisal Rule
• Procedures available through FDIC FIL-9-2014 at http://www.fdic.gov/news/news/financial/2014/fil14009.html.
• Full manual available at http://www.fdic.gov/regulations/compliance/manual/index.html.

Mortgage Servicing

• CFPB on mortgage servicing:
  • Prepared remarks of CFPB Deputy Director Seven Antonakes at the Mortgage Bankers Association (Feb. 19).
    • Available at http://www.consumerfinance.gov/newsroom/deputy-director-steven-antonakes-remarks-at-the-mortgage-bankers-association/.

SEC

• SEC Speaks in 2014 conference, Feb. 21-22.
  • Remarks of Commissioners:
    • Chair White's address available at http://www.sec.gov/News/Speech/Detail/Speech/1370540822127.
    • Commissioner Gallagher, An Open Letter to the SEC Staff, available at http://www.sec.gov/News/Speech/Detail/Speech/1370540834506.
    • Commissioner Stein remarks available at http://www.sec.gov/News/Speech/Detail/Speech/1370540830487.
    • Commissioner Aguilar, Addressing Known Risks to Better Protect Investors, available at http://www.sec.gov/News/Page/List/Page/1356125649549.
• Audit committee slide presentation available at http://www.sec.gov/News/Speech/Detail/Speech/1370540846980.
• Other conference material available through PLI, https://www.pli.edu/Content/CourseHandbook/The_SEC_Speaks_in_2014/_/N-4mZ1z12fbh?ID=179332.

Securitizations

• Comment deadline on two SEC proposals for regulation of asset-backed securities extended to March 28.
  • Extension made to permit comment on staff memorandum regarding proposed disclosure of asset-level information in offering and reporting materials for ABS.
  • Materials available at http://www.sec.gov/rules/proposed.shtml.

Too Big to Fail

• Single point of entry resolution strategy: comment period on proposal extended to Mar. 20.
  • Extension action available at 79 Fed. Reg. 9899 (Feb. 21, 2014), https://www.federalregister.gov/articles/2014/02/21/2014-03692/resolution-of-a-systemically-important-financial-institution-the-single-point-of-entry-strategy.
  • Original proposal available at 78 Fed. Reg. 76614 (Dec. 18), https://www.federalregister.gov/articles/2013/12/18/2013-30057/resolution-of-systemically-important-financial-institutions-the-single-point-of-entry-strategy.
• Advanced approaches under Basel II now fully available to eight bank holding companies, see Capital above.
• Enhanced prudential standards finalized by Federal Reserve Board (Feb. 18).
  • For U.S. bank holding companies, standards relating to:
    • Enhanced risk-based and leverage capital requirements.
    • Capital planning and stress testing.
    • Risk management and risk committees.
    • Liquidity requirements.
    • Debt-to-equity limits.
  • For foreign banking organizations, standards relating to:
    • Intermediate bank holding companies.
    • Capital in U.S. subsidiaries.
    • Risk management.
    • Liquidity.
    • Stress testing.
    • Debt-to-equity limits.
• Standards do not apply to nonbank financial companies that have been designated by FSOC for regulation by the Federal Reserve.
• Standards available at http://www.federalreserve.gov/newsevents/press/bcreg/20140218a.htm.

Volcker Rule

• For chronology, see Appendix below.

Bank Closings

• None.

Upcoming Events

• Feb. 25
  • Senate Banking Committee hearing, "Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Part II."
• Feb. 26
  • FDIC to release Quarterly Banking Profile for fourth quarter 2013.
    • Press conference and other information available at http://www2.fdic.gov/qbp/index.asp.
• House Financial Services Committee hearing, "Inspector General Report: Allegations of Improper Lobbying and Obstruction at the Department of Housing and Urban Development."
• House Financial Services Committee hearing, "The Dodd-Frank Act's Impact on Asset-Backed Securities."
• Feb. 26/27
  • House of Representative vote on H.R. 3193, the Consumer Financial Protection and Soundness Improvement Act of 2013. See CFPB above.
    • Rules Committee print available at http://rules.house.gov/bill/113/hr-3193.
• Feb. 27
  • Senate Banking Committee hearing, "The Semiannual Monetary Policy Report to the Congress."
  • CFPB Consumer Advisory Board meeting.
• Feb. 28
  • House Financial Services Committee hearing, "Equity Market Structure: A Review of SEC Regulation NMS."
• Mar. 18-19
  • Federal Open Market Committee.
• Mar. 20
  • Federal Reserve to release results of supervisory stress tests.
• Mar. 26
  • Federal Reserve to release CCAR results.
• Mar. 31
  • OCC Symposium, "Building on 150 Years: The Future of National Banking."

Regulatory Comment Deadlines

• Feb. 28 – CFPB: Advance notice of proposed rulemaking on debt collection practices.
• Mar. 3 – Federal Reserve, OCC, FDIC, SEC, CFTC: exemption from Volcker Rule for certain CDOs backed by certain bank-issued trust preferred securities.
• Mar. 7 – Federal Reserve: amendments to Regulation A, emergency lending authority.
• Mar. 10 – SEC: Strategic Plan for 2014-2018.
• Mar. 17 – Federal Reserve: advance notice of proposed rulemaking on physical commodity holdings by financial holding companies.
• Mar. 17 – CFPB: Regulation E, list of countries qualifying for safe harbor.
• Mar. 24 – SEC: amendments to Regulation A.
• Mar. 28 – OCC: heightened expectations for large national banks and federal savings associations.
• Mar. 25 – SEC: Regulation of asset-backed securities; disclosure of asset-level information.
• Mar. 31 – Federal Reserve: amendments to Policy Statement on Payment System Risk and to Regulation HH (financial market utilities) to reflect international Principles for Financial Market Infrastructures.
• April 1 – CFPB: supervision of larger international money transmitters.
• April 11 – BCBS: Basel III: The Net Stable Funding Ratio.
• April 15 – Federal Reserve: repeal of Regulation P.
• April 21 – Federal Reserve: modification of definition of "creditor" in Identity Theft Red Flags Rule.
• April 21 – Federal Reserve: repeal of Regulation DD.
• May 2 – Federal Reserve: Application of Regulation CC to electronic checks and electronic returned checks.

Appendix - Volcker Rule

• Trust preferred securities: prohibition in final Volcker Rule on investments in CDOs extends to investments in pooled TruPS (Dec. 19).
  • Issues:
    • Important accounting consequence for banks now holding pooled TruPS: prohibition means that the investments have suffered an other-than-temporary impairment and must be written down.
• Chronology of events:
• Dec. 10: final Volcker Rule released and available at http://comments.cftc.gov/FederalRegister/Final.aspx.
• Dec. 19: agencies issue FAQs and related material available, at http://www.federalreserve.gov/newsevents/press/bcreg/20131219d.htm.
• Dec. 23: ABA and 4 banks file suit in D.C. federal district court to block application of Volcker Rule to TruPS holdings and seek emergency relief in D.C. Circuit.
  • Complaint and motion available at http://www.aba.com/Issues/Pages/Volcker-Rule.aspx.
• Dec. 27: agencies issue statement that they are reviewing application of Volcker Rule to TruPS investment vehicles, partly in light of Collins Amendment.
  • Banking: agency accountants advise that developments in January 2014 before filing of fourth quarter call reports and FR Y-9Cs should be taken into account in preparing filings.
  • Available at http://www.federalreserve.gov/newsevents/press/bcreg/20131227a.htm.
• Jan. 8-9: "Fairness for Community Job Creators Act" introduced to prohibit Volcker Rule from requiring banks to divest holdings of pooled TruPS and to prevent banks from having to take write-down.
  • S. 1907
  • H.R. 3819
• Jan. 9: Senators Manchin and Wicker introduce S. 1912, a bill to "clarify that certain banking entities are not required to divest from collateralized debt obligations backed by trust preferred securities under the Volcker Rule."
  • Narrower relief than S. 1907 or H.R. 3819.
• Jan. 14: agencies issue interim final rule authorizing retention of interests in and sponsorship of bank-issued CDOs backed by TruPS, available at http://comments.cftc.gov/FederalRegister/Final.aspx.
  • Prerequisites:
    • Underlying TruPS issued before May 19, 2010, by bank holding company with less than $15 billion in assets.
    • CDO established and interest issued before May 19, 2010.
    • Interest acquired on or before Dec. 10, 2013.
  • Comment deadline: 30 days after publication in Federal Register.
• Jan. 15: ABA announces withdrawal of request for emergency relief in D.C. Circuit but reserves judgment on continuing litigation.
• Jan. 15: House Financial Services Committee hearing. Written testimony and archived webcast available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=366279.
• Jan. 29: European Commission counterpart proposal, see International.
• Jan. 30: Agencies announce Mar. 3 as deadline for comments on interim final rule.
• Feb. 5: House Banking Committee hearing.
• Feb. 12: ABA announces voluntary dismissal of U.S. district court complaint against regulators.