Over the past several days, there have been a number of interesting developments in the bank regulatory world, some well-publicized, including the BNP Paribas settlement. Of most immediate importance to community banks, however, was the release today of interagency guidance on HELOCs and the Justice Department's continuing commitment to Operation Choke Point.
The full set of developments over the past week was as follows:
- New interagency guidance for HELOCs; see HELOCs below.
- OCC issues Semiannual Risk Perspective for Spring 2014 (June 25).
- "Competition for limited lending opportunities is intensifying, resulting in loosening underwriting standards, particularly in indirect auto and leveraged lending. Easing in underwriting and increased risk layering is also occurring in commercial loans."
- "The prolonged low interest rate environment continues to lay the foundation for future vulnerability. Banks that extend asset maturities to pick up yield, especially if relying on the stability of non-maturity deposit funding in a rising rate environment, could face significant earnings pressure and potential capital erosion depending on the severity and timing of interest rate moves."
- "Many banks continue to re-evaluate their business models and risk appetites to generate returns against the backdrop of slow economic growth and low interest rates. OCC examiners will focus on banks’ strategic business and new product planning to ensure appropriate risk management processes are established."
- "Cyber-threats continue to evolve, requiring heightened awareness and appropriate resources to identify and mitigate the associated risks."
- "Financial asset prices have experienced very low volatility for an extended period. As a result, measures of price risk, such as value-at-risk, are at very low levels. The reduced willingness of dealers to hold securities in inventory, due to capital and other concerns such as a change in monetary policy, could contribute to greater price swings going forward and increased price risk."
- "Bank Secrecy Act and Anti-Money Laundering risks remain prevalent as money-laundering methods evolve, and electronic bank fraud increases in volume and sophistication. Banks work to incorporate appropriate controls to oversee higher risk customers and new products and services."
- Report available at http://www.occ.gov/news-issuances/news-releases/2014/nr-occ-2014-91.html.
- Agencies propose revisions to risk-weighted assets portion of Schedule RC-R of quarterly call report.
- Intended to reflect capital rules issued in July 2013.
- See FDIC FIL-31-2014 (June 23), available at http://www.fdic.gov/news/news/financial/2014/fil14031.html; FIL-32-2014 (June 25), available at http://www.fdic.gov/news/news/financial/2014/fil14032.html.
- Comment deadline: August 22.
Capital Planning and Stress Testing
- Federal Reserve extends deadline for "resubmission" of capital plans by four large banking firms from June 26, 2014, to Jan. 5, 2015 (June 24).
- Effect is to require that any changes in rejected plan be incorporated in next annual capital plan.
- No increase in capital distributions permitted until capital plan approved.
- Affected firms are Citigroup, Inc., HSBC North America Holdings, Inc., RBS Citizens, Inc., and Santander Holdings USA, Inc.
- Statement available at http://www.federalreserve.gov/newsevents/press/bcreg/20140624a.htm.
- Stress Testing after Five Years, remarks by Governor Tarullo at the Federal Reserve Third Annual Stress Test Modeling Symposium (June 25).
- Text of remarks available at http://www.federalreserve.gov/newsevents/speech/tarullo20140625a.htm.
- List of distressed or underserved nonmetropolitan middle-income geographies released by agencies (June 30).
- List available at http://www.federalreserve.gov/newsevents/press/bcreg/20140630a.htm.
- FFIEC launches cyber security webpage (June 24), www.ffiec.gov/cybersecurity.htm.
- NY Attorney General files complaint against Barclays under Martin Act in connection with alleged fraud in electronic trading division, People of the State of New York v. Barclays Capital, Inc.
- Complaint and press release available at http://www.ag.ny.gov/press-release/ag-schneiderman-announces-fraud-charges-against-barclays-connection-marketing-and.
- "A Few Things Directors Should Know About the SEC," speech by SEC Chair White at the Stanford University Rock Center for Corporate Governance (June 23).
- Text of remarks available at http://www.sec.gov/News/Speech/Detail/Speech/1370542148863.
- Federal Reserve invokes unfair and deceptive practices prohibition in enforcement action. See Student Loans below.
Federal Housing Finance Authority
- IG recommends that FHFA consider litigation by Fannie and Freddie against servicers and force-placed insurance providers for damages caused by past abuses in force-placed insurance market.
- FHFA to complete assessment within 12 months.
- IG report, FHFA's Oversight of the Enterprises' Lender-Placed Insurance Costs (June 25, 2014), available at http://fhfaoig.gov/.
Financial Stability Oversight Council
- Closed meeting to review an update on macroeconomic and market developments and presentations on short-term wholesale funding markets and leveraged lending (June 24).
- Readout available at http://www.treasury.gov/initiatives/fsoc/council-meetings/Pages/readouts.aspx.
- BNP Paribas, S.A. guilty plea to one count of conspiracy to violate the International Emergency Economic Powers Act and the Trading with the Enemy Act (June 30).
- Total payment: approx. $8.834 billion.
- Justice Department: forfeiture of approx. $3.839 billion.
- Statement of Facts available at https://www.documentcloud.org/documents/1211277-background-in-bnp-paribas-case.html.
- One-count information available at http://www.law360.com/articles/541890/bnp-pleads-guilty-in-9b-deal-over-sanctions-violations (subscription required).
- Guilty plea agreement available at https://www.documentcloud.org/documents/1211274-bnp-paribas-plea-agreement.html.
- Federal district court hearing scheduled for July 9.
- OFAC: $963 million, included in forfeiture to DOJ.
- Settlement agreement available at https://www.documentcloud.org/documents/1211274-bnp-paribas-plea-agreement.html.
- Federal Reserve Board: $508 million CMP.
- Consent orders available at http://www.federalreserve.gov/newsevents/press/enforcement/20140630a.htm.
- C&D order issued jointly with Autorité de Contrôle et de Prudentiel et de Résolution.
- New requirements include creation of US OFAC compliance office, compliance with payment messaging standards, and prohibitions on re-employment of certain individuals.
- FRB continuing to pursue enforcement actions against certain individuals.
- New York Dep't of Financial Services: approx. $2.243 billion CMP.
- Consent order available at https://www.documentcloud.org/documents/1211345-n-y-regulators-bnp-consent-order.html.
- New York County District Attorney: approx. $2.243 billion penalty.
- Guilty pleas to NY state criminal charges entered June 30.
- Filings available at http://manhattanda.org/press-release/bnp-paribas-bank-pleads-guilty-pays-883-billion-penalties-illegal-transactions.
- Federal banking agencies and CSBS issue Interagency Guidance on Home Equity Lines of Credit Nearing Their End-of-Draw Periods (July 1).
- Examiners to consider five risk management principles:
- Prudent underwriting for renewals, extensions, and rewrites.
- Compliance with pertinent existing guidance, including but not limited to the Credit Risk Management Guidance for Home Equity Lending [FRB SR Letter 05-11]and the Interagency Guidelines for Real Estate Lending Policies [12 CFR part 208, subpart E and App. C].
- Use of well-structured and sustainable modification terms.
- Appropriate accounting, reporting, and disclosure of troubled debt restructurings.
- Appropriate segmentation and analysis of end-of-draw exposure in allowance for loan and lease losses (ALLL) estimation processes.
- Ten additional management expectations.
- Guidance available at http://www.federalreserve.gov/newsevents/press/bcreg/20140701a.htm.
- Examiners to consider five risk management principles:
- OCC issues Mortgage Metrics Report, First Quarter 2014 (June 26).
- "The overall percentage of mortgages in this report that were current and performing increased to 93.1 percent [from 91.8 percent in previous quarter] at the end of the first quarter of 2014."
- Report available at http://www.occ.gov/news-issuances/news-releases/2014/nr-occ-2014-92.html.
- OCC to host public meeting of the Mutual Savings Association Advisory Committee, July 23.
- Meeting in conjunction with OCC/FDIC 2014 Joint Mutual Forum, July 23-24.
Operation Choke Point
- Justice Department to continue investigations of financial institutions that facilitate consumer scams or process fraudulent transactions.
- Video message from Attorney General Holder and press release available at http://www.justice.gov/opa/pr/2014/June/14-ag-657.html.
- Federal Reserve settlement of enforcement action against Cole Taylor Bank and Higher One, Inc., for alleged deceptive practices under section 5 of FTC Act (July 1).
- Consent order and CMP available at http://www.federalreserve.gov/newsevents/press/enforcement/20140701b.htm.
Swaps and Derivatives
- SEC adopts final rules on cross-border security-based swap activities (June 25). Highlights include:
- An explanation of when a cross-border transaction needs to be counted toward the requirement to register as a security-based swap dealer or major security-based swap participant, including transactions guaranteed by a U.S. person and transactions by a “conduit affiliate” (a foreign affiliate of a U.S. person that could be used to evade the requirements of Title VII of the Dodd-Frank Act).
- Procedures for foreign regulators or market participants to apply for substituted compliance, which would permit market participants to comply with U.S. requirements by complying with foreign requirements.
- An anti-fraud rule that addresses the scope of the Commission’s cross border anti-fraud enforcement authority, clarifying that the authority applies where the fraud occurs or is felt within the U.S.
- Final rules available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542163722.
- Commissioner statements available at http://www.sec.gov/News/Page/List/Page/1356125649549.
Too Big to Fail
- Banking Organization Systemic Risk Reports for 33 large U.S. bank holding companies now available.
- Data covers size, interconnectedness, complexity, substitutability, and cross-jurisdictional activity.
- Reports available on National Information Center website, www.ffiec.gov/nicpubweb/nicweb/nichome.aspx
- Federal Reserve announcement available at http://www.federalreserve.gov/newsevents/press/bcreg/20140626a.htm.
- California enacts AB-129, repealing section 107 of the Corporations Code, which had prohibited the use of anything other than U.S. currency as money.
- Signed by Governor Brown on June 28.
- Text available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB129.
- The Freedom State Bank (Freedom, OK) (June 27).
- All deposit accounts assumed by Alva State Bank & Trust Company (Alva, OK).
- Information on closing available at http://www.fdic.gov/bank/individual/failed/freedomstate.html.
- Senate Banking Committee hearings
- Nomination of Julian Castro to be HUD Secretary approved (June 25).
- "The Financial Stability Oversight Council Annual Report to Congress" (June 25).
- Written testimony and archived webcast available at http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=63cfdf27-ae6a-44f8-a5be-868fe4d38c48.
- "Dreams Deferred: Young Workers and Recent Graduates in the U.S. Economy" (June 25).
- Written testimony and archived webcast available at http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=974411d4-4fa8-4d96-9311-6348362408af.
- House Financial Services Committee hearings
- "The Annual Report of the Financial Stability Oversight Council" (June 24).
- Committee memorandum, written testimony, and archived webcast available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=384888.
- "Examining Reauthorization of the Export-Import Bank: Corporate Necessity or Corporate Welfare?" (June 25).
- Committee memorandum, written testimony, and archived webcast available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=385048.
- "Oversight of the SEC's Division of Trading and Markets" (June 26).
- Committee memorandum, written testimony, and archived webcast available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=385227.
- "The Annual Report of the Financial Stability Oversight Council" (June 24).
- July 2
- SEC closed meeting.
- July 8-9
- OCC bank director workshops, "Risk Assessment" and "Credit Risk" (Seattle WA).
- July 9
- FDIC Atlanta Region webinar, "Bankers' Export Financing Resources."
- July 22-23
- OCC bank director workshops, "Compliance Risk" and "Risk Assessment" (Minneapolis MN).
- July 23
- OCC Mutual Savings Association Advisory Committee public meeting.
- July 23-24
- Joint Mutual Forum hosted by FDIC and OCC.
- July 28-30
- OCC bank director workshop, "Mastering the Basics: A Director's Challenge" (Columbus OH).
- July 29
- Don't Forget About Deposit Regulations, FDIC Chicago Region regulatory conference call.
- Sept. 23-24
- Community Banking in the 21st Century, Federal Reserve System/CSBS Second Annual Community Banking Research Conference.
- Oct. 16-17
- FDIC annual Consumer Research Symposium.
Regulatory Comment Deadlines
- July 1 – SEC: recordkeeping, reporting, and notification requirements for security-based swap dealers and major security-based swap participants.
- July 7 – CFPB: correction or cure of debt-to-income overages and credit extension limit for small creditor definition; "small servicer" definition.
- July 8 – Federal Reserve: Dodd-Frank section 622 concentration limits on large financial companies.
- Aug. 4 – FHFA: Fannie and Freddie guarantee fees.
- 30 days from publication in Federal Register – CFTC: position limits on physical commodity derivatives and aggregation.
- Aug. 11 – OCC: integration of national bank and federal savings association rules on corporate activities and transactions.
- Aug. 11 – Federal Reserve: shift in 12-month cycle for capital planning and stress testing.
- Sept. 2 – Federal Reserve/FDIC/OCC: regulatory burden with respect to applications and reporting, powers and activities, and international operations.
- Sept. 2 – OCC/FDIC: shift in 12-month cycle for capital planning and stress testing.
- Sept. 10 – CFPB: request for information on mobile financial services.