[Federal Register Volume 82, Number 60 (Thursday, March 30, 2017)]
[Notices]
[Pages 15900-15979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06131]
[[Page 15899]]
Vol. 82
Thursday,
No. 60
March 30, 2017
Part III
Federal Financial Institutions Examination Council
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Joint Report to Congress: Economic Growth and Regulatory Paperwork
Reduction Act; Notice
Federal Register / Vol. 82 , No. 60 / Thursday, March 30, 2017 /
Notices
[[Page 15900]]
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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
[Docket No. FFIEC-2017-0001]
Joint Report to Congress: Economic Growth and Regulatory
Paperwork Reduction Act
AGENCY: Federal Financial Institutions Examination Council.
ACTION: Notice.
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SUMMARY: Pursuant to section 2222 of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 (EGRPRA), the Federal Financial
Institutions Examination Council (FFIEC) is publishing a report
entitled ``Joint Report to Congress, March 2017, Economic Growth and
Regulatory Paperwork Reduction Act'' prepared by four of its
constituent agencies: The Board of Governors of the Federal Reserve
System (Board), the Office of the Comptroller of the Currency (OCC),
the Federal Deposit Insurance Corporation (FDIC), and the National
Credit Union Association (NCUA).
FOR FURTHER INFORMATION CONTACT: Board: Claudia Von Pervieux, Counsel
(202) 452-2552; Brian Phillips, Attorney (202) 452-3321; for persons
who are deaf or hard of hearing, TTY (202) 263-4869, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
OCC: Heidi Thomas, Special Counsel (202) 649-5490; Rima Kundnani,
Attorney (202) 649-5490; for persons who are deaf or hard of hearing,
TTY (202) 649-5597, Office of the Comptroller of the Currency, 400 7th
Street SW., Washington, DC 20219.
FDIC: Rae-Ann Miller, Associate Director, Division of Risk
Management Supervision (202) 898-3898; Ruth R. Amberg, Assistant
General Counsel (202) 898-3736; for persons who are deaf or hard of
hearing, TTY 1-800-925-4618, Federal Deposit Insurance Corporation, 550
17th Street NW., Washington, DC 20429.
NCUA: Ross Kendall, Special Counsel to the General Counsel, (703)
518-6562, National Credit Union Administration, 1775 Duke Street,
Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION: EGRPRA requires the FFIEC, Board, OCC, and
FDIC (the Agencies) to conduct a decennial review of their regulations,
using notice and comment procedures, to identify outdated or otherwise
unnecessary regulatory requirements imposed on insured depository
institutions. 12 U.S.C. 3311(a)-(c). EGRPRA also requires the FFIEC or
the appropriate agency to publish in the Federal Register a summary of
comments that identifies the significant issues raised and comments on
these issues, and to eliminate unnecessary regulations to the extent
that such action is appropriate. 12 U.S.C. 3311(d). Furthermore, the
FFIEC must submit a report to Congress that includes a summary of the
significant issues raised by public comments and the relative merits of
these issues, and an analysis of whether the appropriate agency is able
to address the regulatory burdens associated with these issues by
regulation or whether the burdens must be addressed by legislative
action. 12 U.S.C. 3311(e).
The FFIEC and the Agencies have completed their second EGRPRA
review and comment process, and the FFIEC submitted the required report
to Congress on March 21, 2017. The text of this report, entitled
``Joint Report to Congress, March 2017, Economic Growth and Regulatory
Paperwork Reduction Act,'' is set forth below and as published herein
fulfills the EGRPRA Federal Register publication requirement.
The NCUA is not required to participate in the EGRPRA review
process. However, the NCUA elected to conduct its own parallel review
of its regulations pursuant to the goals of EGRPRA. NCUA's separate
report is included as Part II of the Joint Report to Congress.
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Federal Financial Institutions Examination Council
Joint Report to Congress
Economic Growth and Regulatory Paperwork Reduction Act
March 2017
Board of Governors of the Federal Reserve System
Office of the Comptroller of the Currency
Federal Deposit Insurance Corporation
National Credit Union Association
Preface
I. Joint Agency Report
A. Introduction
B. Highlights of Interagency and Agency Actions to Reduce Burden
C. Overview of the Agency's Second EGRPRA Review Process
D. Significant Issues Arising from the EGRPRA Review and the
Agencies' Responses
1. Capital
2. Call Reports
3. Appraisals
4. Frequency of Safety and Soundness Examinations
5. Community Reinvestment Act
6. Bank Secrecy Act
E. Other Agency Initiatives to Update Rules and Reduce Burden
1. Interagency Initiatives
2. The Board of Governors of the Federal Reserve System
3. Office of the Comptroller of the Currency
4. Federal Deposit Insurance Corporation
F. Rule by Rule Summary of Other EGRPRA Comments
1. Applications and Reporting
2. Powers and Activities
3. International Operations
4. Banking Operations
5. Capital (to the extent not addressed above)
6. Community Reinvestment Act (to the extent not addressed above)
7. Consumer Protection
8. Directors, Officers and Employees
9. Money Laundering (to the extent not addressed above)
10. Rules of Procedure
11. Safety and Soundness
12. Securities
13. Additional Comments Received from the EGRPRA Review
Appendix 1: State Liaison Committee Letter
Appendix 2: Economic Growth and Regulatory Paperwork Reduction Act of
1996
Appendix 3: EGRPRA Federal Register Notices (four)
Appendix 4: Agendas for each EGRPRA Outreach Meeting (six)
Appendix 5: FinCEN Response to EGRPRA Comments
II. NCUA Report
I. Executive Summary
II. Overview of NCUA Participation
III. Summary of Comments Received Under the NCUA EGRPRA Review
1. Applications and Reporting
2. Powers and Activities
3. Agency Programs
4. Capital Requirements
5. Consumer Protection
6. Corporate Credit Unions
7. Directors, Officers, and Employees
8. Anti-Money Laundering
9. Rules of Practice and Procedure
10. Safety and Soundness
IV. Significant Issues; Agency Response
Field of Membership
Member Business Lending
Federal Credit Union Ownership of Fixed Assets
Expansion of National Credit Union Share Insurance Coverage
Improvements for Small Credit Unions
Expanded Powers for Credit Unions
Consumer Complaint Processing
Interagency Task Force on Appraisals
[[Page 15901]]
V. Other Agency Initiatives
Possible Temporary Corporate Credit Union Stabilization Fund
Proposal for Early Termination
Call Report Enhancements
Supplemental Capital
Risk Based Capital
Examination Flexibility
Enterprise Solutions Modernization
Outreach and Coordination with Other Government Offices
Additional Areas of Focus
VI. Legislative Recommendations
Regulatory Flexibility
Member Business Lending
Supplemental Capital
Field-of-Membership Requirements
VII. Conclusion
VIII. Appendices
Appendix 1: Chart of Agency Regulations by Category
Appendix 2: Notices Requesting Public EGRPRA Comment on Agency Rules
(four)
Appendix 3: Regulatory Relief Initiative
Preface
by Daniel K. Tarullo, Governor, Board of Governors of the Federal
Reserve System
As chairman of the Federal Financial Institutions Examination
Council (FFIEC), I am pleased to submit this report of the second
Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review
to Congress. Under EGRPRA, the FFIEC and its member agencies \1\ are
directed to conduct a joint review of our regulations every 10 years
and consider whether any of those regulations are outdated,
unnecessary, or unduly burdensome.
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\1\ The National Credit Union Administration, although an FFIEC
member, is not a ``federal banking agency'' within the meaning of
EGRPRA and so is not required to participate in the review process.
Nevertheless, NCUA elected to participate in the EGRPRA review and
conducted its own parallel review of its regulations. NCUA's
separate report is included as Part II of this report. The CFPB,
although an FFIEC member, is not a ``federal banking agency'' within
the meaning of EGRPRA and so is not required to participate in the
review process. The CFPB is required (in a process separate from the
EGRPRA process) to review its significant rules and publish a report
of its review no later than five years after they take effect. See
12 U.S.C. 5512(d).
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This cycle's EGRPRA review commenced in the summer of 2014, with
the FFIEC agencies publishing the first of four Federal Register
notices through which we solicited formal, written comments on our
regulations. In addition, we hosted six outreach sessions across the
country, including one in Kansas City, Missouri, that focused on rural
banks, in which representatives from banks, community and consumer
groups, and other interested parties participated. Principals of all
the agencies participated in these sessions. As I noted at one of these
meetings, the federal banking agencies' underlying aim with these
efforts was to make this EGRPRA review as productive as possible and
not a formalistic bureaucratic exercise.
In response to over 230 written comments and 120 oral comments
received through this review, the FFIEC agencies have developed the
attached report, which summarizes comments received, the major issues
raised therein, and the agencies' responses to each of those issues.
Most importantly, the report sets forth the initiatives the agencies
have or will be undertaking to reduce regulatory burden while still
promoting the safety and soundness of insured depository institutions
and promoting consumer protection. Of note, the regulations governing
capital, regulatory reporting, real estate appraisals, and examination
frequency are the principal areas identified for modifications to
achieve meaningful burden reduction. In some of these areas, the FFIEC
agencies have either already made the changes or are in the process of
doing so. In the other areas, the agencies expect to propose changes to
our regulations in the near term to provide this relief.
I appreciate the participation and collaboration of the staffs of
the federal banking agencies in bringing about this comprehensive
report. The FFIEC agencies look forward to continuing to work with our
regulated institutions, Congress, and the public more generally to
fully realize the recommendations made herein.
I. Joint Agency Report
A. Introduction
Section 2222 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (EGRPRA) \2\ requires that, not less than once
every 10 years, the Federal Financial Institutions Examination Council
(FFIEC) and the Board of Governors of the Federal Reserve System
(Board), the Office of the Comptroller of the Currency (OCC), and the
Federal Deposit Insurance Corporation (FDIC) (collectively the Board,
OCC, and FDIC are referred to as the federal banking agencies or
agencies) \3\ conduct a review of their regulations to identify
outdated or otherwise unnecessary regulatory requirements imposed on
insured depository institutions (IDIs). In conducting this review, the
statute requires the FFIEC or the agencies to categorize their
regulations by type and, at regular intervals, provide notice and
solicit public comment on categories of regulations, requesting
commenters to identify areas of regulations that are outdated,
unnecessary, or unduly burdensome.\4\
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\2\ EGRPRA, Pub. L. 104-208 (1996) (codified at 12 U.S.C. 3311).
\3\ The FFIEC is an interagency body comprised of the OCC,
Board, FDIC, National Credit Union Administration (NCUA), Consumer
Financial Protection Bureau (CFPB), and State Liaison Committee. Of
these, only the federal banking agencies are statutorily required to
undertake the EGRPRA review. The CFPB is required to review its
significant rules and publish a report of its review no later than
five years after the rules take effect. See 12 U.S.C. 5512(d). This
process is separate from the EGRPRA process. The NCUA has
voluntarily conducted its own review of its regulations concurrently
with the timing of the agencies' review. The results of its review
are included in part II of this report. The FFIEC does not issue
regulations that impose burden on financial institutions and
therefore its regulations are not included in this EGRPRA review.
\4\ Other federal agencies also impose regulatory requirements
on IDIs. However, these regulations are not subject to the EGRPRA
process. Examples include rules issued by the CFPB under the federal
consumer financial laws, and anti-money laundering regulations
issued by the Department of the Treasury's Financial Crimes
Enforcement Network (FinCEN). During the EGRPRA review process, when
the agencies received a comment about a regulation issued by the
CFPB, FinCEN, or another federal regulator, the agencies provided
the comment to the other agency.
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EGRPRA also requires the FFIEC or the agencies to publish in the
Federal Register a summary of the comments received that identifies the
significant issues raised by commenters and that provides agency
comment on these issues. It also directs the agencies to eliminate
unnecessary regulations to the extent that such action is appropriate.
Finally, the statute requires the FFIEC to submit to Congress a report
that summarizes any significant issues raised in the public comments
and the relative merits of such issues. The report must include an
analysis of whether the agencies are able to address the regulatory
burdens associated with such issues by regulation or whether these
burdens must be addressed by legislative action.
The agencies completed the first review required by EGRPRA in
2007.\5\ This report contains the results of the agencies' second
EGRPRA review. Specifically, this report describes the EGRPRA review
process; summarizes the public comments received; identifies and notes
the merits of the significant issues raised by the comments; and
describes the agencies' response to these comments. This report also
includes the agencies' recommendations for legislative changes. The
State Liaison Committee
[[Page 15902]]
provided the agencies with its suggestions on the EGRPRA review, which
are included in the report in appendix 1. The agencies worked with the
State Liaison Committee during the review and will continue to
coordinate with the committee on the suggestions presented.
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\5\ 72 FR 62036 (November 1, 2007).
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As noted previously, the NCUA is not required to participate in the
EGRPRA review but elected to review its regulations pursuant to the
goals of EGRPRA during the first EGRPRA review 10 years ago. The NCUA
again has elected to review its regulations concurrently with the
agencies, and participated in the agencies' EGRPRA planning and comment
solicitation process. Because of the unique circumstances of federally
insured credit unions and their members, however, the NCUA established
its own regulatory categories and published its own notices and
requests for comments on its rules separately from the agencies. The
NCUA's notices were consistent and compatible with those published by
the agencies, and the NCUA published its notices during the same time
period as the agencies. Similar to the requirements of EGRPRA, the NCUA
invited public comment on any aspect of its regulations that are
outdated, unnecessary, or unduly burdensome. As in the prior EGRPRA
review, the NCUA's report is contained in part II of this report to
Congress.
B. Highlights of Interagency and Agency Actions to Reduce Burden
During the EGRPRA review, the agencies have made meaningful efforts
to address the issues raised by EGRPRA commenters to reduce regulatory
burden, especially on community banks, while at the same time ensuring
that the financial system remains safe and sound. The agencies'
responses to these issues are described in detail in section D of this
report. Highlights include the following:
Simplifying the capital rules. With the goal of
meaningfully reducing regulatory burden on community banking
organizations while at the same time maintaining safety and soundness
and the quality and quantity of regulatory capital in the banking
system, the agencies are developing a proposal to simplify the
generally applicable framework. Such amendments likely would include
(1) replacing the framework's complex treatment of high volatility
commercial real estate (HVCRE) exposures with a more straightforward
treatment for most acquisition, development, or construction (ADC)
loans; (2) simplifying the current regulatory capital treatment for
mortgage servicing assets (MSAs), timing difference deferred tax assets
(DTAs), and holdings of regulatory capital instruments issued by
financial institutions; and (3) simplifying the current limitations on
minority interests in regulatory capital. The agencies would seek
industry comment on these amendments through the normal notice and
comment process.
Reduced regulatory reporting requirements with the
introduction of a community bank Call Report. The agencies proposed for
comment in August 2016, and in December 2016 finalized, a new,
streamlined FFIEC 051 Call Report for institutions with domestic
offices only and less than $1 billion in total assets. The FFIEC 051
was created from the existing FFIEC 041 report for all institutions
with domestic offices only by removing certain existing schedules and
data items that have been replaced by a limited number of data items
collected in a new supplemental schedule, eliminating certain other
existing data items, and reducing the reporting frequency of certain
data items. This new Call Report, which will take effect March 31,
2017, will reduce the length of the Call Report from 85 pages to 61
pages and will remove approximately 40 percent of the data items
currently included in the FFIEC 041.
Simplified the Call Report. In July 2016, the agencies
finalized certain Call Report revisions, which included a number of
burden-reducing and other reporting changes. Following Office of
Management and Budget (OMB) approval, some of the Call Report revisions
took effect September 30, 2016, and others will take effect March 31,
2017. The agencies' August 2016 proposal that was finalized in December
2016 includes further burden-reducing changes to the two existing
versions of the Call Report. Further Call Report streamlining is
anticipated in future proposals. In particular, any future
simplification of capital rules may significantly reduce the difficulty
of completing the Call Report's capital schedule, which was viewed as
particularly burdensome by commenters.
Raising appraisal threshold for commercial real estate
loans. The agencies are developing a proposal to increase the threshold
for requiring an appraisal on commercial real estate loans from
$250,000 to $400,000, in order to reduce regulatory burden in a manner
consistent with safety and soundness.
Addressing appraiser shortages in rural areas. Title XI of
the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) allows the Appraisal Subcommittee of the FFIEC (ASC)
after making certain findings and with the approval of the FFIEC, to
grant temporary waivers of any requirement relating to certification or
licensing of a person to perform appraisals under Title XI.
Furthermore, state appraiser certifying or licensing agencies may
recognize, on a temporary basis, the certification or license of an
appraiser issued by another state. The agencies intend to issue a
statement to regulated entities informing them of the availability of
both temporary waivers and temporary practice permits, which are
applicable to both commercial and residential appraisals, and may
address temporary appraiser shortages. Additionally, the agencies will
work with the ASC to streamline the process for the evaluation of
temporary waiver requests.
Clarified use of evaluations versus appraisals. To clarify
current supervisory expectations regarding evaluations, particularly in
response to commenters in rural areas, in March 2016 the agencies
issued an interagency advisory on when evaluations can be performed in
lieu of appraisals, including when transactions fall below the dollar
thresholds set forth in the appraisal regulations.
Reduced the full scope, on-site examination (safety-and-
soundness examination) frequency for certain qualifying institutions.
The agencies indicated support for revisions to the statute regarding
examination frequency. Congress subsequently enacted the Fixing
America's Surface Transportation Act (FAST Act) that, among other
things, gave the agencies discretion to raise the asset threshold for
certain IDIs qualifying for an 18-month examination cycle with an
``outstanding'' or ``good'' composite condition from less than $500
million in total assets to less than $1 billion in total assets.
Shortly thereafter, the agencies exercised this discretion and issued a
joint interim final rule to raise the asset threshold that, in general,
makes qualifying IDIs with less than $1 billion in total assets
eligible for an 18-month (rather than a 12-month) examination cycle. As
a result, approximately 611 more institutions would potentially qualify
for an extended 18-month examination cycle, increasing the number of
potentially qualifying institutions to approximately 83 percent of
IDIs.
Reduced frequency of Bank Secrecy Act (BSA) reviews for
certain qualifying institutions. In general, agency review of BSA
compliance programs are typically
[[Page 15903]]
conducted during safety and soundness examinations. Therefore,
institutions with assets between $500 million and $1 billion that are
now eligible for safety-and-soundness examinations every 18 months will
also generally be subject to less frequent BSA reviews.
Referred Bank Secrecy Act (BSA) and anti-money laundering
(AML) comments. As was noted in the first EGRPRA report to Congress in
2007, the agencies do not have exclusive authority over the threshold
filing requirements for Suspicious Activity Reports (SARs) and have no
authority over the threshold filing requirements for Currency
Transaction Reports (CTRs). The Financial Crimes Enforcement Network
(FinCEN), a bureau of the Department of the Treasury, is the delegated
administrator of the BSA that issues regulations and interpretive
guidance, and as such, any changes to the SAR or CTR requirements would
require a change in FinCEN's regulations. The agencies provided FinCEN
with the comments received during the EGRPRA review and FinCEN provided
a response, which is attached to the report in appendix 5. In addition,
the agencies have established common training policies for examiners,
maintain an interagency examination manual, and issued an interagency
statement setting forth the policy for enforcing specific AML
requirements for greater consistency in enforcement decisions on BSA
matters through publication of the FFIEC BSA/AML Examination Manual.
Clarifying guidance regarding flood insurance. The
agencies are updating and revising their Interagency Questions and
Answers Regarding Flood Insurance (Interagency Flood Q&As) to provide
additional guidance on a number of issues raised by EGRPRA commenters,
including the escrow of flood insurance premiums, force-placed
insurance, and detached structures.
Increasing the major assets interlock threshold. The
agencies anticipate issuing a proposal for comment to amend their rules
implementing the Depository Institution Management Interlocks Act
(DIMIA) to increase the asset thresholds in the major assets
prohibition, currently set at $2.5 billion and $1.5 billion, based on
inflation or market changes.
Increasing further guidance on Regulation O. The agencies
are working to provide a chart or similar guide on the statutorily
required rules and limits on extensions of credit made by an IDI to an
executive officer, director, or principal shareholder of that IDI, its
holding company, or its subsidiary.
The agencies are aware that regulatory burden does not emanate only
from statutes and regulations, but often comes from processes and
procedures related to examinations and supervisory oversight. As
detailed in this report, the agencies have taken a number of actions to
improve the efficiency and minimize unnecessary burdens of these
activities. The agencies plan to continue these efforts by jointly
reviewing the examination process, examination report format, and
examination report preparation process to identify further
opportunities to minimize burden to bank management where possible,
principally by rethinking traditional processes and making better use
of technology. In addition, the agencies plan to review interagency
guidance, such as policy statements, to update and streamline guidance.
In addition to interagency actions, the agencies have engaged in
individual efforts to reduce burden and update regulations and
processes, including, among other things, the following actions:
Board
Amended the Small Bank Holding Company (BHC)/Savings and
Loan Holding Company (SLHC) Policy Statement. In April 2015, the Board
approved a final rule that raised the asset threshold of the Small BHC
Policy Statement from less than $500 million in total consolidated
assets to less than $1 billion in total consolidated assets and
expanded the application of the policy statement to SLHCs. As of
issuance of the final rule, 89 percent of all BHCs and 81 percent of
all savings and loan holding companies were covered by the policy
statement and were excluded from certain consolidated capital
requirements.
Modernized initiatives related to safety-and-soundness
supervisory process. The Board has taken several actions to reduce
burden and to advance a more efficient and effective supervisory
program. For instance:
--The Board expanded its offsite loan review program for banking
organizations with less than $50 billion in total assets across the
Federal Reserve System.
--The Board issued a supervisory letter reinforcing its practice of
relying on the assessments of the primary regulator of a depository
institution when supervising bank holding companies and savings and
loan holding companies with total consolidated assets of less than $50
billion.
--The Board updated and issued supervisory guidance for assessing risk
management at institutions with less than $50 billion in total
consolidated assets, which provides clarification on, and distinguishes
supervisory expectations for, the roles and responsibilities of the
board of directors and senior management for an institution's risk
management.
--The Board revised its rule regarding company-run stress testing for
bank holding companies with total consolidated assets of between $10
and $50 billion to provide greater flexibility with respect to required
assumptions that must be included in company-run stress tests. This
revision allows these covered companies to incorporate their own
capital action assumptions into their Dodd-Frank Act required company-
run stress tests.
--The Board, the FDIC, and the state banking agencies (coordinated
through the Conference of State Bank Supervisors) collaborated to
develop an information technology (IT) risk-focused examination program
(referred to as InTREx). This examination program provides supervisory
staff with risk-focused and efficient examination procedures for
conducting IT reviews and assessing IT and cybersecurity risks at
supervised institutions. Further, under the InTREx program,
comprehensive IT examinations are conducted at institutions that
present the highest IT risks and more targeted IT examinations are
conducted at institutions with lower IT risks.
Reviewed supervisory policy. The Board periodically
reviews its existing supervisory guidance to evaluate its relevance and
effectiveness. The Board completed a policy review of the supervision
programs for community and regional banking organizations to make sure
that these programs and related supervisory guidance appropriately
align with current banking practices and risks. As a result of this
review, the Board eliminated 78 guidance letters that are no longer
relevant.
Revised consumer compliance examination practices. The
Board revised its consumer compliance examination frequency policy in
January 2014 to lengthen the time frame between on-site consumer
compliance and Community Reinvestment Act (CRA) examinations for many
community banks with less than $1 billion in total consolidated assets.
The Board adopted a new consumer compliance examination framework for
community banks at the same time. The
[[Page 15904]]
new framework more explicitly bases examination intensity on the
individual community bank's risk profile, weighed against the
effectiveness of the bank's compliance controls.
Launched an electronic applications filing system. The
Board launched its electronic applications filing system (E-Apps) in
2010 to allow state member banks, bank and savings and loan holding
companies, and their representatives, to file applications and notices
online eliminating the time and expenses of printing, copying, and
mailing documents.
Invited communications and outreach with the industry. The
Board continues to make special efforts to explain when its
requirements are applicable to community banks. For instance, the Board
provides a statement at the top of each Supervision and Regulation
letter and each Consumer Affairs letter that clearly indicates which
banking entity types are subject to the guidance. The Board also has
initiated numerous industry outreach opportunities to provide resources
on key supervisory policies, including the development of two
programs--``Outlook Live'' and ``Ask the Fed''--as well as the
publication of three newsletters--Community Banking Connections,
Consumer Compliance Outlook, and FedLinks. Additionally, the Federal
Reserve co-sponsors an annual community banking research and policy
conference, ``Community Banking in the 21st Century,'' along with the
Conference of State Bank Supervisors, to inform our understanding of
the role of community banks in the U.S. economy and the effects that
regulatory initiatives may have on these banks.
OCC
Issued two final rules to implement EGRPRA comments and
make other regulatory burden reducing changes. The OCC has issued two
final rules amending OCC regulations based on suggestions made by
EGRPRA commenters with respect to licensing transactions, electronic
activities, the electronic submission of securities-related filings;
and collective investment funds. These final rules also make a number
of other changes that reduce regulatory burden and update regulatory
requirements specifically with respect to business combinations;
changes to permanent capital; bank directors; fidelity bonds;
securities recordkeeping and confirmation; securities offering
disclosures; and reporting, accounting, and management policies. The
OCC plans to propose additional regulatory amendments in one or more
future rulemakings, or to revise licensing guidance, to address other
EGRPRA comments related to financial subsidiaries, fiduciary
activities, and employment contracts between a federal savings
association (FSA) and its officers or other employees.
Reduced regulatory burden and updated regulatory
requirements by integrating OCC national bank and FSA rules. The OCC is
continuing to integrate its rules for national banks and FSAs into a
single set of rules, where possible. The key objectives of this
integration process are to reduce regulatory duplication, promote
fairness in supervision, eliminate unnecessary burden consistent with
safety and soundness, and create efficiencies for both national banks
and FSAs.
Reduced burden in the OCC examination and supervisory
process. The OCC has modified its examination process in response to
comments received from bankers at EGRPRA and other outreach meetings,
specifically by tailoring its Examination Request Letter to the
institution being examined to remove redundant or unnecessary
information requests, improving the planning of on-site and off-site
examination work and incorporating examination process efficiencies in
individual bank supervisory strategies, and leveraging technology to
make the examination process more efficient and less burdensome.
Updating supervisory guidance. The OCC is in the process
of reviewing and updating its supervisory and examiner guidance to
align it to current practices and risks and to eliminate unnecessary or
outdated guidance. Since 2014, the OCC has eliminated approximately 125
outdated or duplicative OCC guidance documents and updated and/or
revised approximately 22 OCC guidance documents.
Issued guidance on reducing burden through collaboration.
The OCC has encouraged the collaboration and pooling of resources among
community banks as one way to reduce regulatory burden, and provided
guidance on this approach in January 2015 in a paper entitled An
Opportunity for Community Banks: Working Together Collaboratively.
Collaborative efforts could include alliances to bid on larger loan
projects; pooling resources to finance community development
activities; and collaborating on accounting, clerical support, data
processing, employee benefit planning, and health insurance. The OCC is
committed to encouraging such collaboration to the extent consistent
with applicable law and safety and soundness.
Established Office of Innovation to assist community banks
in Fintech environment. The OCC developed its financial innovation
initiative, launched in 2015, to provide federally chartered
institutions, in particular community banks, with a regulatory
framework that is receptive to responsible innovation and supervision
that supports it. As part of this initiative, the OCC established an
Office of Innovation where community banks can have an open and candid
dialogue apart from the supervision process on innovation and emerging
developments in the industry. When fully operational in 2017, the
Office of Innovation will provide value to community banks through
outreach and technical assistance to help community banks work through
innovation-related issues and understand regulatory concerns.
Issued risk reevaluation guidance. On October 5, 2016, the
OCC issued guidance that describes corporate governance best practices
for banks' consideration when conducting their periodic evaluations of
risk and making account retention or termination decisions relating to
foreign correspondent accounts. This guidance is intended to promote
efficiency as it communicates best practices observed by the OCC to aid
all OCC-supervised banks in developing practices suitable for
conducting risk reevaluations of their foreign correspondent accounts.
Clarified the supervision and examination of mutual FSAs.
The OCC issued OCC Bulletin 2014-35, ``Mutual Federal Savings
Associations: Characteristics and Supervisory Considerations,'' in July
2014 to clarify risk assessments and corporate governance expectations
for both OCC examiners and mutual FSAs. Specifically, the guidance
describes the unique characteristics of mutual FSAs and the
considerations the OCC factors into its risk-based supervision process.
Issued regulatory capital guidance. The OCC has published
a number of guidance documents to assist banks in their capital
planning efforts, such as OCC Bulletin 2012-16, ``Capital Planning:
Guidance for Evaluating Capital Planning and Adequacy,'' and the New
Capital Rule Quick Reference Guide for Community Banks. This latter
document is a high-level summary of the aspects of the new rule that
are generally relevant for smaller, non-complex banks that are not
subject to the market risk rule or the advanced approaches capital
rule.
[[Page 15905]]
Issued guidance on community banking. The OCC published A
Common Sense Approach to Community Banking, which shares fundamental
banking best practices that the OCC has found to prove useful to boards
of directors and management in successfully guiding their community
banks through economic cycles and environmental changes.
Issued guidance for national bank and FSA directors. The
OCC published The Director's Book: Role of Directors for National Banks
and Federal Savings Associations, which, in general, outlines the
responsibilities and role of national bank and FSA directors and
management, explains basic concepts and standards for safe and sound
operation of national banks and FSAs, and delineates laws and
regulations that apply to national banks and FSAs.
Clarified applicability of OCC issuances to community
banks. The OCC has added a ``Note for Community Banks'' box to all OCC
bulletins that explains if and how the new guidance or rulemaking
applies to them.
Increased electronic filing of applications, notices, and
reports. The OCC currently permits the electronic filing of many of its
required forms and reports though BankNet, the OCC's secure website for
communicating with and receiving information from national banks and
FSAs. As indicated above, the OCC's EGRPRA final rule permits national
banks and FSAs to file various securities-related filings
electronically through BankNet. Furthermore, the OCC has developed a
web-based system for submitting and processing licensing and public
welfare investment filings called the Central Application Tracking
System (CATS). Beginning in January 2017, the OCC began a phased
rollout of CATS to enable authorized national bank and FSA employees to
draft, submit, and track filings, and to allow OCC analysts to receive,
process, and manage those filings.
Continued support for community national banks and FSAs.
The OCC continues to provide support for community banks though its
online BankNet portal. Among other things, BankNet contains a
``Director Resource Center,'' which collects information on OCC
supervision most pertinent to national bank and FSA directors, and
includes a ``Directors Toolkit'' for further assistance in carrying out
the responsibilities of a national bank or FSA director. Furthermore,
BankNet contains a question and answer forum designed to facilitate
communication between OCC-regulated institutions and the OCC that
provides direct access to OCC Washington, DC, staff and senior
management for answers to general bank regulatory and supervisory
questions.
FDIC
Reduced supervisory burden on de novo institutions,
clarified guidance, and conducted outreach regarding deposit insurance
applications.
--Rescinded FIL-50-2009, ``Enhanced Supervisory Procedures for Newly
Insured FDIC-Supervised Institutions,'' reducing from seven years to
three years the period of enhanced supervisory monitoring of newly
insured depository institutions.
--Issued guidance in the form of questions and answers on issues
related to deposit insurance applications, clarifying the purpose and
benefits of pre-filing meetings, processing timelines, initial
capitalization requirements, and business plan requirements.
--Conducted three outreach meetings with more than 100 industry
participants, providing guidance about the deposit insurance
application process.
--Designated subject matter experts in each of the FDIC's six regional
offices, providing applicants with dedicated points of contact for
deposit insurance applications.
--Issued for public comment a handbook for organizers of de novo
institutions, describing the process of applying for federal deposit
insurance and providing instruction about the application materials
required.
Reduced the frequency of consumer compliance and CRA
examinations for small and de novo banks.
--In November 2013, the FDIC revised its frequency schedule for small
banks (those with assets of $250 million or less) that are rated
favorably for compliance and have at least a Satisfactory rating under
the CRA. Previously, small banks that received a Satisfactory or
Outstanding rating for CRA were subject to a CRA examination no more
than once every 48 to 60 months, respectively. Under the new schedule,
small banks with favorable compliance ratings and Satisfactory CRA
ratings are examined every 60 to 72 months for joint compliance and CRA
examinations and every 30 to 36 months for compliance only
examinations. This revised schedule has reduced the frequency of onsite
examinations for community banks with satisfactory ratings.
--In April 2016, the examination frequency for the compliance and CRA
examinations of de novo institutions and charter conversions was
changed. As a result of the FDIC's supervisory focus on consumer harm
and forward-looking supervision, the de novo period, which had required
annual on-site presence for a period of five years was reduced to three
years.
Reduced burden in application, examination, and
supervisory processes.
--Implemented an electronic pre-examination planning tool for both risk
management and compliance examinations that allows request lists to be
tailored to ensure that only those items that are necessary for the
examination process are requested from each institution. Tailoring pre-
examination request lists minimizes burden for institutions, and
receiving pertinent information in advance of the examination allows
examiners to review certain materials off site, reducing on-site
examination hours.
--Implemented a secure, transactions-based website, known as
FDICconnect, to provide alternatives for paper-based processes and
allow for the submission of various applications, notices, and filings
required by regulation. There are 5,977 institutions registered to use
FDICconnect, which ensures timely and secure access for bankers and
supervisory staff, including state supervisors. Twenty-seven business
transactions have been made available through FDICconnect.
--In 2016, and in response to EGRPRA commenters, established a process
to allow for electronic submission of audit reports required by part
363 of the FDIC Rules and Regulations via FDICconnect, eliminating the
need for institutions to mail hard copies.
--Eliminated requirements for institutions to file applications under
part 362 of the FDIC Rules and Regulations to conduct activities
permissible for national banks through certain bank subsidiaries
organized as limited liability companies. The FDIC estimates the vast
majority of the over 2,000 part 362 applications processed over the 10
years before the streamlined procedures were adopted involved limited
liability companies, the changes result in a significant reduction in
filing requirements.
--Enhanced information technology (IT) examination procedures to
require less pre-examination information
[[Page 15906]]
from bankers, incorporate cybersecurity principles, and align the
examination work program with the Uniform Rating System for Information
Technology (URSIT). The revised IT Officer's Questionnaire that is
completed by bankers in advance of the examination has 65 percent fewer
questions than previous versions, reducing the amount of time needed to
prepare for an examination. The new work program has been made publicly
available to bankers, and component URSIT ratings will be shared in
reports of examination to improve transparency of the examination
process and findings.
--Piloted an automated process with certain Technology Service
Providers to obtain standardized downloads of imaged bank loan files to
facilitate offsite loan review, thereby reducing the amount of examiner
time in financial institutions.
Rescinded outdated and redundant rules and guidance.
--Rescinded 16 rules that were transferred from the Office of Thrift
Supervision (OTS) and issued a proposal to rescind another OTS rule,
eliminating duplicative rulemakings and updating related FDIC rules as
appropriate. Updated FDIC rulemakings by clarifying and aligning the
definition of ``control'' to that used by the other federal banking
agencies and increasing the threshold for required reporting of certain
securities transactions. An additional 14 OTS rules are under review
for potential rescission.
--Reviewed internal examiner guidance documents and identified nearly
half to be no longer needed. The FDIC is in the process of eliminating
the outdated guidance as well as updating remaining examiner guidance.
Provided support to community banks under the multi-year
Community Banking Initiative.
--Established the FDIC Advisory Committee on Community Banking to
provide the FDIC with advice and guidance on a broad range of important
policy issues impacting community banks throughout the country, as well
as the local communities they serve, with a focus on rural areas.
--Established a Directors' Resource Center on the FDIC's website, which
among other things, contains more than 25 technical assistance videos
designed for bank directors and management on important and complex
topics.
--Revised banker guidance on deposit insurance coverage and conducted
related outreach sessions for bankers.
--Pursued an agenda of research and outreach focused on community
banking issues, including the FDIC Community Bank Study, a data-driven
analysis of the opportunities and challenges facing community banks
over a 25-year period, as well as research regarding the factors that
have driven industry consolidation over the past 30 years, minority
depository institutions, branching trends, closely held banks,
efficiencies and economies of scale, earnings performance, and rural
depopulation.
--Introduced a Community Bank Performance section of the FDIC Quarterly
Banking Profile to provide a detailed statistical picture of the
community banking sector that can be accessed by analysts, other
regulators, and bankers themselves.
--Developed and distributed to all FDIC-supervised institutions a
Community Bank Resource Kit, containing a copy of the FDIC's Pocket
Guide for Directors, reprints of various Supervisory Insights articles
relating to corporate governance, interest rate risk, and
cybersecurity; two cybersecurity brochures that banks may reprint and
share with their customers to enhance cybersecurity savvy; a copy of
the FDIC's Cyber Challenge exercise; and several pamphlets that provide
information about the FDIC resources available to bank management and
board members.
Improved communication with bank boards of directors and
management
--Reissued and updated guidance entitled ``Reminder on FDIC Examination
Findings'' to re-emphasize the importance of open communications
regarding supervisory findings and to provide an additional informal
review process at the Division Director level for banker concerns that
are not eligible for another review process.
--Improved transparency regarding developing guidance and supervisory
recommendations by issuing two statements by the FDIC Board of
Directors that set forth basic principles to guide FDIC staff in (1)
developing and reviewing supervisory guidance and (2) communicating
supervisory recommendations to financial institutions under its
supervision.
--Proposed revised guidelines for supervisory appeals to provide more
transparency and access to the appeals process.
Clarified capital rules and provided related technical
assistance.
--Issued FIL 40-2014 to FDIC-supervised institutions, clarifying how
the FDIC would treat certain requests from S-corporation institutions
to pay dividends to their shareholders to cover taxes on their pass-
through share of bank earnings when those dividends are otherwise not
permitted under the new capital rules. The FDIC told banks that unless
there were significant safety-and-soundness issues, the FDIC would
generally approve those requests for well-rated banks.
--Conducted outreach and technical assistance designed specifically for
community banks that included publishing a community bank guide for the
implementation of the Basel III capital rules; releasing an
informational video on the revised capital rules; and conducting face-
to-face informational sessions with community bankers in each of the
FDIC's six supervisory regions to discuss the revised capital rules.
Enhanced awareness of emerging cybersecurity threats.
--Conducted cybersecurity awareness outreach sessions in each of the
FDIC's six regional offices and hosted a webinar to share answers to
the most commonly asked questions.
--Developed cybersecurity awareness technical assistance videos to
assist bank directors with understanding cybersecurity risks and
related risk-management programs, and to elevate cybersecurity
discussions from the server room to the board room.
--Developed and distributed to FDIC-supervised financial institutions
Cyber Challenge, a program designed to help financial institution
management and staffs discuss events that may present operational risks
and consider ways to mitigate them.
C. Overview of the Agencies' Second EGRPRA Review Process
Consistent with EGRPRA, the agencies grouped their regulations into
the following 12 regulatory categories: (1) Applications and Reporting;
(2) Banking Operations; (3) Capital; (4) CRA; (5) Consumer Protection;
\6\ (6)
[[Page 15907]]
Directors, Officers and Employees; (7) International Operations; (8)
Money Laundering; (9) Powers and Activities; (10) Rules of Procedure;
(11) Safety and Soundness; and (12) Securities.\7\ To determine these
categories, the agencies divided the regulations by type and sought to
have no category be too large or broad.
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\6\ As previously noted, the agencies sought comment only on
those consumer protection regulations for which the agencies retain
rulemaking authority for IDIs and regulated holding companies
following passage of section 1061 of the Dodd-Frank Act Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act), Pub. L. No.
111-203 (2010) (codified at 12 U.S.C. 5581(b)).
\7\ Consistent with EGRPRA's focus on reducing burden on IDIs,
the agencies did not include their internal, organizational, or
operational regulations in this review.
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To carry out the EGRPRA review, the agencies published four Federal
Register notices, each addressing three categories of rules and each
providing a 90-day comment period. On June 4, 2014, the agencies
published the first notice, seeking comment on rules in the categories
of Applications and Reporting, Powers and Activities, and International
Operations.\8\ On February 13, 2015, the agencies published the second
notice, seeking comment on rules in the categories of Banking
Operations, Capital, and the CRA.\9\ On June 5, 2015, the agencies
published the third notice, seeking comment on rules in the categories
of Consumer Protection, Directors, Officers and Employees, and Money
Laundering.\10\ The agencies note that they announced in this third
notice their decision to expand the scope of the EGRPRA review to
include recently issued rules, such as those issued pursuant to the
Dodd-Frank Act and the recently promulgated domestic capital and
liquidity rules. The agencies identified these rules, referred to as
``Newly Listed Rules,'' on a chart included in the third notice.
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\8\ 79 FR 32172 (June 4, 2014) at https://www.gpo.gov/fdsys/pkg/FR-2014-06-04/pdf/2014-12741.pdf.
\9\ 80 FR 7980 (February 13, 2015) at https://www.gpo.gov/fdsys/pkg/FR-2015-02-13/pdf/2015-02998.pdf.
\10\ 80 FR 32046 (June 5, 2015) at https://www.gpo.gov/fdsys/pkg/FR-2015-06-05/pdf/2015-13749.pdf.
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On December 23, 2015, the agencies published the fourth and final
Federal Register notice, seeking comment on rules in the categories of
Rules of Procedure, Safety and Soundness, and Securities. This final
notice also requested comment on the Newly Listed Rules as well as on
any other rule issued in final form on or before December 31, 2015, not
previously included in one of the 12 categories \11\ (see appendix 3
for the complete text of the agencies' four notices requesting public
comment on the agencies' rules, as sent to the Federal Register).
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\11\ 80 FR 79724 (December 23, 2015) at https://www.gpo.gov/fdsys/pkg/FR-2015-12-23/pdf/2015-32312.pdf.
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Throughout the EGRPRA review process, the agencies invited comment
on any of the agencies' rules included in this EGRPRA review during any
open comment period.
In addition to seeking public comment through the Federal Register
notices, the agencies held six public outreach meetings across the
country to provide an opportunity for bankers, consumer and community
groups, and other interested persons to present their views directly to
agency senior management and staff on any of the regulations subject to
EGRPRA review. The agencies held outreach meetings in Los Angeles,
California, on December 2, 2014; Dallas, Texas, on February 4, 2015;
Boston, Massachusetts, on May 4, 2015; Kansas City, Missouri, on August
4, 2015 (focusing on rural banking issues); Chicago, Illinois, on
October 19, 2015; and Washington, DC, on December 2, 2015.\12\ Each
outreach meeting consisted of panels of bankers and consumer and
community groups who presented their views on the agencies'
regulations. These meetings were open to the public and provided all
attendees, including those in the audience, with the opportunity to
present their views on any of the regulations under review.
Furthermore, these meetings were livestreamed via a public webcast in
order to increase education and outreach. At the Kansas City, Chicago,
and Washington, DC, meetings, online viewers were able to submit real-
time, electronic comments to the agencies. Reflective of the importance
of the EGRPRA process to the agencies, principals or senior management
from each agency attended each of the outreach meetings (see appendix 4
for the text of the agencies' notices announcing the EGRPRA outreach
meetings, as sent to the Federal Register).
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\12\ See, Notices Announcing EGRPRA Outreach Meetings: 79 FR
70474 (November 26 2014) https://www.gpo.gov/fdsys/pkg/FR-2014-11-26/pdf/2014-27969.pdf; 80 FR 2061 (January 15, 2015) https://www.gpo.gov/fdsys/pkg/FR-2015-01-15/pdf/2015-00516.pdf; 80 FR 20173
(April 15, 2015) https://www.gpo.gov/fdsys/pkg/FR-2015-04-15/pdf/2015-08619.pdf; 80 FR 39390 (July 9, 2015) https://www.gpo.gov/fdsys/pkg/FR-2015-07-09/pdf/2015-16760.pdf; 80 FR 60075 (October 5,
2015) https://www.gpo.gov/fdsys/pkg/FR-2015-10-05/pdf/2015-25258.pdf; and 80 FR 74718 (November 30, 2015) https://www.gpo.gov/fdsys/pkg/FR-2015-11-30/pdf/2015-30247.pdf
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To provide the public with information about the EGRPRA process,
the agencies established a dedicated website, http://egrpra.ffiec.gov.
Among other things, this website contains links to all of the Federal
Register notices, transcripts and videos of each of the outreach
meetings, and links to all of the public comments received. The public
also could submit comments on the agencies' regulations directly
through this website.
The agencies received over 230 comment letters from IDIs, trade
associations, consumer and community groups, and other interested
parties directly in response to the Federal Register notices. The
agencies also received numerous oral and written comments from
panelists and the public at the outreach meetings. The agencies have
summarized and reviewed these comments, and these comments form the
basis of this report.
D. Significant Issues Raised in the EGRPRA Review and the Agencies'
Responses
The topics that received the most comments relate to (1) capital,
(2) Call Reports, (3) appraisals, (4) frequency of safety-and-soundness
bank examinations, (5) the CRA, and (6) BSA/AML. This section of the
report discusses these topics and the agencies' response to the most
significant issues raised by the commenters. As discussed below, the
agencies have taken steps to address many of the issues raised by
commenters. The agencies continue to review these and other issues, and
intend to take additional steps as appropriate.
1. Capital
Background
In 2013, the agencies published comprehensive revisions to their
regulatory capital framework (revised capital rules) designed to
address weaknesses that became apparent during the financial crisis of
2007-08.\13\ The agencies made a number of changes to the final
standards in response to feedback to the proposed rule about the
potential impact on community banks. These changes included
grandfathering certain non-qualifying capital instruments in the tier 1
capital of bank holding companies with less than $15 billion in
consolidated assets, allowing community banks the option to exclude
most elements of accumulated other comprehensive income from their
capital calculations, which allows community banks to simplify their
capital calculations by reducing volatility, and not adopting a
proposal that would have made the treatment of residential mortgage
loans more complex. In addition, the revised capital rules do not
subject community banking organizations to the countercyclical capital
buffer, the supplementary leverage ratio, capital requirements for
credit valuation adjustments, and
[[Page 15908]]
certain disclosure requirements. Further, the agencies determined not
to apply to community banks the enhanced prudential standards related
to capital plans, stress testing, liquidity and risk management
requirements, and the global systemically important bank (GSIB),
enhanced supplementary leverage ratio standards and the GSIB surcharge.
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\13\ See 12 CFR part 3, 12 CFR 217 (Regulation Q), and 12 CFR
324.
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EGRPRA Comments
Over 30 commenters, including banking organizations, banking trade
associations, and consumer groups, addressed the agencies' regulatory
capital requirements. The majority of these commenters focused on the
revised capital rules. Several banking organization and trade
association commenters suggested that the agencies exempt certain
banking organizations from having to comply with all or certain parts
of the revised capital rules. Commenters suggested drawing distinctions
between community banks with less than $10 billion in total assets,
non-systemically important banks with less than $50 billion in total
assets, or other banking organizations that can demonstrate high levels
of capital. As discussed in more detail below, banking industry
commenters also addressed several specific areas of the revised capital
rules where they suggested that the agencies should make revisions or
provide additional guidance to alleviate regulatory burden. One
consumer group commenter objected to the inclusion in the EGRPRA
process of rules promulgated in response to the financial crisis that
have been in effect for five years or less. This commenter stated that
reviewing such rules too soon carries the risk that one-time costs
associated with their implementation could be mistaken for their
permanent effects.
Impact of prompt corrective action (PCA) requirements on community
banks
Two trade association commenters asserted that the PCA requirements
impact community banks differently than large banking organizations.
These commenters stated that the PCA restrictions discourage investment
in struggling community banks more so than large banking organizations
because large banking organizations are more likely to receive
government support. The commenters asserted that the agencies should
make the PCA rules more flexible and that any government support
received by large banking organizations should be discounted when
evaluating compliance with regulatory capital requirements.
Capital ratios
Comments from a banking trade association and two banking
organizations stated that the agencies should simplify and streamline
their regulatory capital requirements and should exempt banking
organizations that can demonstrate high levels of capital according to
certain specified measures from the more complex capital calculations
in the revised capital rules. The banking trade association stated that
large banking organizations are now subject to numerous duplicative
capital ratios (eight total), several of which produce disparate and
inconsistent results. To comply with the various requirements in the
revised capital rules, the commenter stated that large banking
organizations must create redundant and costly compliance systems.
Threshold for application of the most rigorous regulatory capital
standards (including the advanced approaches risk-based capital rules)
Four large banking organization commenters stated that the
threshold for application of the advanced approaches risk-based capital
rules ($250 billion in total consolidated assets or $10 billion in
foreign exposure) is outdated and, in light of the costs necessary to
implement advanced approaches systems, arbitrarily captures many
banking organizations with traditional business models that do not
share the same risk profile as the largest and most complex
organizations identified as GSIBs by the Board. Three of these
commenters suggest limiting the scope of the advanced approaches risk-
based capital rules to banking organizations identified as GSIBs. One
commenter asserted that the agencies should eliminate the advanced
approaches risk-based capital rules altogether because the capital
floor established by the Dodd-Frank Act (codified at 12 U.S.C. 5371)
has rendered them unnecessary.
Burden of revised capital rules on community banks
Seven commenters from individual community banks and a community
bank trade association asserted that the revised capital rules added
undue burden on community banks by increasing compliance costs without
corresponding benefits to safety and soundness. Several of these
commenters suggested completely exempting community banking
organizations from having to comply with the revised rules. Others
suggested relaxing different aspects of the revised capital rules as
they apply to community banks.
Two banking organization commenters suggested allowing community
banks to include certain amounts of their allowance for loan and lease
losses (ALLL) in tier 1 capital, rather than tier 2 capital, as is
currently allowed.
Two banking organization commenters asserted that the revisions to
the treatment of mortgage servicing assets (MSAs) were unduly
restrictive for community banks. Rather than the requirement for
deductions from regulatory capital for concentrations of MSAs above 10
percent of a banking organization's common equity tier 1 capital, these
commenters stated that community banks should be permitted to hold MSAs
up to 100 percent of common equity tier 1 capital before any deductions
apply.
Three banking organization commenters stated that the capital
conservation buffer--which restricts dividend and bonus payments for
banking organizations that fail to maintain a specified amount of
capital in excess of their regulatory minimums--should be removed or
modified to permit community banks to pay dividends equal to at least
35 percent of their reported net income for a reporting period, or in
the case of banks organized as S-corporations, to pay dividends large
enough to cover the tax liabilities assessed to their shareholders.
Definition of high volatility commercial real estate
Four community bank commenters stated that the definition of HVCRE
is neither clear nor consistent with established safe and sound lending
practices. These commenters stated that the 150 percent risk weight
applied to HVCRE lending is too high, and that the criteria for
determining whether an acquisition, development, or construction (ADC)
loan may qualify for an exemption from the HVCRE risk weight are
confusing and do not track relevant or appropriate risk drivers. In
particular, commenters expressed concern over the requirements that
exempted ADC projects include a 15 percent borrower equity
contribution, and that any equity in an exempted project, whether
contributed initially or internally generated, remain within the
project (i.e., internally generated income may not be paid out in the
form of dividends or otherwise) for the life of the project.
[[Page 15909]]
Treatment of ALLL
Two banking organization commenters stated that the agencies should
remove the current limit on the amount of ALLL that a banking
organization may include in its tier 2 capital, which is currently
capped at an amount equal to 1.25 percent of the banking organization's
standardized total risk-weighted asset amount.
Asset concentrations
One community bank commenter stated that the revised capital rules
are only one tool to address risk and that banking organizations should
focus more on concentrations of assets and stress tests. In particular,
this commenter stated that the revised capital rules should incorporate
stress tests and provide more granular risk weights for agriculture,
oil and gas, and commercial real estate lending.
Short-term trade financing
One community bank commenter stated that the standardized approach
risk weights in the revised capital rules, which reference country risk
classifications published by the Organization for Economic Co-Operation
and Development (OECD) to establish risk weights for exposures to other
banking organizations, inappropriately increased the capital
requirements applied to certain trade finance-related claims on other
banks. Rather than reference OECD risk classifications, which focus on
longer-term financing, the commenter stated that the agencies' capital
rules should provide a flat 10 percent capital charge for short-term
trade financing provided by banking organizations with less than $10
billion in total assets.
Need for more agency guidance
One community bank commenter asked the agencies to provide more
plain-language guidance on capital and other rules. This commenter
stated that small banks, in particular, need more guidance on best
practices and how to determine how much capital is enough capital.
Agencies' Response
The agencies regularly monitor and analyze developments in the
banking industry to ensure that the revised capital rules appropriately
reflect risks faced by banking organizations. Through this ongoing
process, the agencies consider many issues and determine whether a
change to the revised capital rules is appropriate. The agencies note
that safety and soundness of community banks depends, in part, on their
having and maintaining sufficient regulatory capital. More than 500
banking organizations, most of which were community banks, failed in
the aftermath of the financial crisis because they did not have
sufficient capital relative to the risks they took.
The agencies understand, however, community banks' concerns that
the regulatory capital rules are too complex given community banks'
size, risk profile, condition, and complexity. The agencies therefore
are developing a proposal to simplify the regulatory capital rules in a
manner that maintains safety and soundness and the quality and quantity
of regulatory capital in the banking system. To this end, such
amendments likely would include (1) replacing the framework's complex
treatment of HVCRE exposures with a more straightforward treatment for
most ADC loans; (2) simplifying the current regulatory capital
treatment for MSAs, timing difference DTAs, and holdings of regulatory
capital instruments issued by financial institutions; and (3)
simplifying the current limitations on minority interests in regulatory
capital. The agencies would seek industry comment on these amendments
through the normal notice and comment process.
The agencies do not support making changes to the PCA requirements
at this time. These requirements promote timely corrective action to
contain the potential costs of the federal deposit insurance program.
In response to commenter concerns that there is a disparate impact of
PCA requirements between the largest banking organizations and
community banks, the agencies note that larger banks are subject to
heightened capital and liquidity standards \14\ and more frequent
examinations. The agencies note that most formal and informal
enforcement actions are not entered into pursuant to the PCA
authorities but pursuant to the agencies' general safety-and-soundness
authorities.
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\14\ In 2014, the agencies finalized a rule that created a
standardized quantitative minimum liquidity requirement for large
and internationally active banking organizations, requiring such
organizations to maintain an amount of high-quality liquid assets
that is no less than 100 percent of its total net cash outflows over
a prospective 30 calendar-day period. See 12 CFR part 50 (OCC), 12
CFR part 249 (Board), and 12 CFR part 329 (FDIC). In 2016, the
agencies proposed a rule requiring the same large and
internationally active banking organizations to maintain a minimum
level of stable funding relative to the liquidity of its assets,
derivative exposures, and commitments, over a one-year period. See
81 FR 35124 (June 1, 2016).
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Currently, the agencies are not planning to make revisions to the
treatment of ALLL in regulatory capital calculations. However, the
agencies are closely monitoring the implementation of the Financial
Accounting Standards Board's (FASB) recently published Current Expected
Credit Loss, or ``CECL'' standard, which revises the measurement of the
ALLL but, is not required to be adopted before 2020. The agencies have
encouraged banking organizations to take steps to assess the potential
impact of this new accounting standard on capital. Banking
organizations that have issues or concerns about implementing the new
CECL standard should discuss their questions with their primary federal
supervisor. The agencies provided feedback to the FASB during its
development of the CECL standard, conducted informational
teleconferences for bankers, issued a series of CECL standard FAQs, and
plan to work together to address questions from community banks
regarding the implementation of that standard. As the agencies consider
future changes to their respective revised capital rules, they will
consider the impact of the CECL standard on ALLL and related capital
calculations.
Concurrent with the publication of the revised capital rules in
2013, the agencies published a community bank guide to help community
banks understand the sections of the revised capital rules most
relevant to their operations.\15\ The OCC also notes that it has
published a number of guidance documents to assist banks in their
capital planning efforts.\16\ Additionally, the OCC intends to publish
substantial revisions to its capital handbook so that the recent OCC
guidance publications and the recent revisions to the OCC's capital
regulations will be set forth and described in one place. The FDIC also
issued a number of guidance documents on the revised capital rules to
assist community banks in their implementation of the capital rules.
The FDIC published an ``Expanded Community Bank Guide to the New
Capital Rule'' and also filmed video presentations discussing the
capital regulations.\17\ In addition, the Board has issued capital
planning guidance for large and noncomplex banking organizations, large
and complex banking organizations, and for banking organizations
supervised under the Large Institution Supervision
[[Page 15910]]
Coordinating Committee (LISCC) framework.\18\ The Board's guidance
provides core capital planning expectations for these banking
organizations, building upon the capital planning requirements in the
Board's capital plan rule and stress test rule.
---------------------------------------------------------------------------
\15\ ``New Capital Rule; Community Bank Guide,'' www.occ.gov/news-issuances/news-releases/2013/2013-110b.pdf; www.fdic.gov/regulations/capital/capital/Community_Bank_Guide.pdf.
\16\ See, for example, OCC Bulletin 2012-16, (June 7, 2012)
``Capital Planning: Guidance for Evaluating Capital Planning and
Adequacy.''
\17\ See FDIC webpage on ``Regulatory Capital'' www.fdic.gov/regulations/capital/capital/index.html. This webpage provides all
FDIC resources available to assist banks in their implementation of
the capital rules.
\18\ See SR letter 15-18, Federal Reserve Supervisory Assessment
of Capital Planning and Positions for LISCC Firms and Large and
Complex Firms at www.federalreserve.gov/bankinforeg/srletters/sr1518.htm; and SR letter 15-19, Federal Reserve Supervisory
Assessment of Capital Planning and Positions for Large and
Noncomplex Firms at www.federalreserve.gov/bankinforeg/srletters/sr1519.htm.
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2. Call Reports
Background
Section 7(a) of the FDI Act requires each IDI to submit four
``reports of condition'' each year to the appropriate federal banking
agency. Part 304 of the FDIC's regulations requires IDIs to file
quarterly Consolidated Reports of Condition and Income, forms FFIEC 031
and 041 (also known as the Call Report), in accordance with the
instructions for these reports.
EGRPRA Comments
The agencies received comments on Call Reports from over 30
commenters. Most commenters represented banking institutions, a few
commenters represented industry organizations, and one commenter
represented a community organization. Many commenters described the
overall regulatory burden financial institutions encounter when
preparing Call Reports. A number of commenters suggested reducing Call
Report burden by instituting a ``short form'' or an otherwise tiered
Call Report, either for all banks or for community banks. Other
commenters remarked on the difficulties in preparing two particular
Call Report schedules (Schedule RC-R, Regulatory Capital, and Schedule
RC-C, Loans and Lease Financing Receivables), while others commented on
specific Call Report line items or other aspects of the Call Report.
Several commenters argued that Call Report data are too burdensome
and advocated for a review of the report and its simplification and
harmonization to eliminate duplicative or unnecessary items. One
commenter urged the agencies not to add to the information collected in
the Call Report unless it serves an important supervisory purpose that
could not otherwise be met at a lower cost. Another commenter urged the
agencies to allow institutions additional time every quarter to report
information that is not used for safety and soundness, which is
otherwise due 30 days after the end of the quarter. Several other
commenters noted the disparity in the content of the Call Report for
FDIC-insured institutions and the regulatory reports required for
credit unions and other financial institutions.
As noted above, a number of commenters suggested the development of
a short-form Call Report for all institutions or at least for community
banks. Several of the commenters suggested that banks file this short-
form report, which would consist of only a balance sheet, income
statement, and statement of changes in equity capital, for the first
and third quarters with a full regular Call Report for the second and
fourth quarters. Another commenter suggested that banks file only one
full Call Report per year. Other commenters suggested that highly rated
and well-capitalized institutions file the short-form and the full
report in alternating quarters. One commenter suggested that banks file
only those portions of the Call Report relating to high-risk activities
on a quarterly basis, and file the other portions of the report
annually.
A number of commenters raised concerns about the length and
complexity of Schedule RC-R, Regulatory Capital, and requested that the
agencies simplify the schedule because it is excessively burdensome.
Commenters raised concerns about the length of the instructions for
this schedule and that many of the line items are not applicable to
most banks. Several commenters suggested that Schedule RC-C, Loans and
Lease Financing Receivables, is very burdensome because institutions
need to extract certain information manually from other systems. Other
commenters remarked that the process to identify and report loans that
are troubled debt restructurings is labor intensive and time consuming,
and that data on loans to small businesses and small farms are time
consuming to prepare and not useful.
Two commenters requested that the agencies remove the requirement
that three bank directors sign the Call Report, given the difficulty in
obtaining electronic signatures of directors in different locations.
These commenters suggested instead that the agencies permit a
consolidated sign-off by one officer of a BHC on the FRY-8, The Bank
Holding Company Report of Insured Depository Institutions' Section 23A
Transactions with Affiliates. The commenters addressed the need to
provide global formatting and consistent definitions across agency
application forms and regulatory reports.
One commenter supported strengthening the information collected in
the Call Report because of heightened concerns over the safety and
soundness of certain fees and products offered by IDIs.
Agencies' Response
The agencies agree that the Call Report is burdensome for some IDIs
and are taking steps to reduce the Call Report requirements. At its
December 2014 meeting, the FFIEC directed its Task Force on Reports
(TFOR) to undertake a community bank Call Report burden-reduction
initiative, which includes the following five actions:
Issuing a proposal in 2015 to request comment on a number of
burden-reducing changes identified during the agencies' 2012 statutory
review of the Call Report as well as any other readily identifiable
burden-reducing changes; \19\
---------------------------------------------------------------------------
\19\ 80 FR 56539 (September 18, 2015).
---------------------------------------------------------------------------
Accelerating the start of the next statutorily mandated review
of all Call Report data items,\20\ which would not otherwise begin
until 2017, and requiring agency users of Call Report data to provide a
robust justification of the need for the data items they use and deem
essential;
---------------------------------------------------------------------------
\20\ 12 U.S.C. 1817(a)(11). This statute requires the agencies
to review every five years the information required to be filed in
the Call Report and reduce or eliminate any items the agencies
determine are no longer necessary or appropriate.
---------------------------------------------------------------------------
Considering the feasibility and merits of creating a less
burdensome version of the Call Report for institutions that meet
certain criteria, which may include an asset-size threshold or activity
limitations;
Gaining a better understanding, through industry dialogue, of
the aspects of institutions' Call Report preparation process that are
significant sources of reporting burden, including where manual
intervention by an institution's staff is necessary to report
particular information; and
Providing targeted training to bankers via teleconferences and
webinars to explain upcoming reporting changes and provide guidance on
challenging areas of the Call Report.\21\
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\21\ Two FFIEC teleconferences conducted on February 25, 2015,
and December 8, 2015, included presentations to bankers on the
revised Call Report Schedule RC-R regulatory capital reporting
requirements that took effect on March 31, 2015, followed by
question-and-answer sessions.
On September 18, 2015, the agencies, under the auspices of the
FFIEC, requested comment on various proposed revisions to the Call
Report requirements. The proposed reporting changes included certain
burden-
[[Page 15911]]
reducing changes, several new and revised Call Report data items, and a
number of instructional clarifications. The comment period for the
proposal ended on November 17, 2015. After considering the comments
received on the proposal, the FFIEC and the agencies are implementing,
with some modifications, most of the proposed reporting changes. On
July 13, 2016, the agencies published the final version of these Call
Report revisions in the Federal Register, and submitted the revised
Call Report requirements for approval to the OMB.\22\ Following OMB
approval, some of the Call Report revisions took effect September 30,
2016, and others will take effect March 31, 2017.
---------------------------------------------------------------------------
\22\ 81 FR 45357 (July 13, 2016).
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As the foundation for the agencies' statutorily mandated review of
the existing Call Report data items, users of Call Report data items at
the FFIEC member entities are participating in a series of nine surveys
conducted over a 19-month period that began in July 2015. The surveys
asked users to explain fully the need for and use of each Call Report
data item they deem essential to their job functions. Based on the
survey results, the TFOR is identifying data items to be considered for
elimination, less frequent collection, or new or upwardly revised
reporting thresholds.
In addition, the TFOR conducted and participated in outreach
efforts between mid-2015 and early 2016 to obtain feedback from
community bankers about sources of Call Report burden and options for
Call Report streamlining. These targeted outreach efforts were in
addition to the outreach meetings conducted as part of the EGRPRA
review. Furthermore, representatives from the FFIEC member entities
visited nine community banking institutions during the third quarter of
2015. In the first quarter of 2016, two banking trade groups each
organized a number of conference call meetings with small groups of
community bankers in which representatives from the FFIEC member
entities participated. During the visits to banks and the conference
call meetings, the community bankers explained how they prepare their
Call Reports, identified which schedules or data items take a
significant amount of time and/or manual processes to complete, and
described the reasons for this. The bankers also offered suggestions
for streamlining the Call Report.
The FFIEC member entities collectively reviewed the feedback from
the banker outreach efforts completed in 2015 and 2016, the EGRPRA
comments, and the results of the first three surveys of their Call
Report users as they considered whether to proceed with the development
of a Call Report streamlining proposal for community institutions.\23\
In addressing these concerns, the FFIEC and the agencies are aiming to
balance institutions' requests for a less burdensome regulatory
reporting process with FFIEC member entities' need for sufficient data
to monitor the condition and performance, and ensure the safety and
soundness, of institutions; and to carry out agency-specific missions.
---------------------------------------------------------------------------
\23\ The statutorily mandated review of the existing Call Report
data items is an ongoing process. Any burden-reducing reporting
changes resulting from the fourth through ninth surveys will be
included in future Call Report proposals.
---------------------------------------------------------------------------
With these goals in mind, the agencies, under the auspices of the
FFIEC, published an initial Federal Register notice on August 15, 2016,
requesting comment on a proposed separate, streamlined, and noticeably
shorter Call Report to be completed by eligible small institutions,
which has been designated as the FFIEC 051 Call Report.\24\ The
proposal also includes certain burden-reducing revisions to the two
existing versions of the Call Report: the FFIEC 041 for institutions
with domestic offices only and the FFIEC 031 for institutions with
domestic and foreign offices.
---------------------------------------------------------------------------
\24\ 81 FR 54190 (August 15, 2016).
---------------------------------------------------------------------------
This proposal defines ``eligible small institutions'' as
institutions with total assets of less than $1 billion and domestic
offices only.\25\ Such institutions currently file the FFIEC 041 Call
Report. Eligible small institutions would have the option to file the
FFIEC 041 Call Report rather than the FFIEC 051. A small institution
otherwise eligible to file the FFIEC 051 Call Report may be required to
file the FFIEC 041 based on supervisory needs. The agencies anticipate
making such determinations only in a limited number of cases.
---------------------------------------------------------------------------
\25\ As part of the burden-reduction initiative, the agencies
are committed to exploring alternatives to the $1 billion asset-size
threshold that could extend the eligibility to file the FFIEC 051 to
additional institutions.
---------------------------------------------------------------------------
The existing FFIEC 041 Call Report served as the starting point for
developing the proposed FFIEC 051 Call Report for eligible small
institutions. The agencies' streamlining proposal would reduce the
length of the Call Report for such institutions from 85 to 61 pages and
would remove approximately 950, or approximately 40 percent, of the
nearly 2,400 data items currently included in the FFIEC 041 Call
Report. Specifically, the agencies made the following changes to the
FFIEC 041 to create the proposed FFIEC 051:
The addition of a Supplemental Schedule to collect a
limited number of indicator questions and indicator data items on
certain complex and specialized activities as a basis for removing all
or part of six schedules (and other related items) currently included
in the FFIEC 041;
The elimination of data items identified as no longer
necessary for collection from institutions with less than $1 billion in
total assets and domestic offices only during the completed portions of
the statutorily mandated review or during a separate interagency review
that focused on data items infrequently reported by institutions of
this size;
A reduction in the frequency of data collection for
certain data items identified as needed less often than quarterly from
institutions with less than $1 billion in total assets and domestic
offices only; and
The removal of all data items for which a $1 billion
asset-size reporting threshold currently exists.
In addition, a separate shorter Call Report instruction book would
be prepared for the FFIEC 051.
The agencies proposed that these reporting changes take effect
March 31, 2017. The comment period for the proposal ended on October
14, 2016. The agencies collectively received approximately 100 unique
comment letters plus approximately 1,000 form letters advocating for a
short-form Call Report. The TFOR evaluated the comments and considered
additional burden-reducing changes it could recommend making to the
proposed FFIEC 051 Call Report. The most substantive recommended
modification was to reduce the reporting frequency of Schedule RC-C,
Part II, on loans to small businesses and small farms from quarterly to
semiannually for all institutions filing the FFIEC 051 Call Report. On
December 1, 2016, the FFIEC approved moving forward with the proposed
FFIEC 051 Call Report for eligible small institutions and the other
proposed burden-reducing changes to the existing FFIEC 031 and FFIEC
041 Call Reports effective March 31, 2017, including the modifications
recommended in response to comments. On January 9, 2017, the agencies,
under the auspices of the FFIEC, published a final Federal Register
notice finalizing the reporting requirements for the new and
streamlined FFIEC 051 Call Report
[[Page 15912]]
for eligible small institutions, subject to OMB approval.\26\
---------------------------------------------------------------------------
\26\ 82 FR 2444 (January 9, 2017).
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The agencies anticipate that further Call Report streamlining will
be included in future proposals based on the results of the portions of
the statutorily mandated Call Report review that had not been completed
when the August 2016 proposal was issued. In particular, any future
simplification of capital rules may significantly reduce the difficulty
of completing the Call Report's capital schedule, which was viewed as
particularly burdensome by commenters. As described more fully above,
the agencies are developing a proposal to simplify the regulatory
capital rules in order to address industry concerns about excessive
complexity.
3. Appraisals
Background
Title XI of FIRREA (Title XI) requires the federal banking
agencies, along with the NCUA, to adopt regulations regarding the
performance of appraisals used in connection with federally related
transactions to protect federal financial and public policy interests
in such transactions.\27\ Under the regulations that implement
provisions of Title XI,\28\ (Title XI appraisal regulations) an
appraisal conducted by a state-licensed or state-certified appraiser is
required for any federally related transaction. A federally related
transaction is any real estate-related financial transaction entered
into that (1) the agencies engage in, contract for, or regulate; and
(2) requires the services of an appraiser. The Title XI appraisal
regulations specify a number of types of real estate-related financial
transactions that do not require the services of an appraiser and are
therefore exempt from the appraisal requirement.
---------------------------------------------------------------------------
\27\ Financial Institutions Reform, Recovery, and Enforcement
Act of 1989, Public Law No. 101-73, 103 Stat. 183 (codified at 12
U.S.C. 3331 et seq.).
\28\ 12 CFR 34, subpart C (OCC); 12 CFR 208.50 (Regulation H)
and 12 CFR 225, subpart G (Regulation Y) (Board); 12 CFR 323 (FDIC);
and 12 CFR 722 (NCUA).
---------------------------------------------------------------------------
Transactions exempt from the appraisal requirement include those at
or below specified monetary thresholds. Title XI authorizes the setting
of such thresholds under the condition that the agencies determine in
writing that the threshold level does not represent a threat to the
safety and soundness of financial institutions.\29\ The statute also
requires that the agencies receive concurrence from the Consumer
Financial Protection Bureau (CFPB) that the threshold level ``provides
reasonable protection for consumers who purchase 1-4 unit single-family
residences.'' \30\ Under the current thresholds, residential and
commercial real estate loans that are $250,000 or less and certain
business loans secured by real estate \31\ that are $1 million or less
do not require appraisals.
---------------------------------------------------------------------------
\29\ 12 U.S.C. 3341(b).
\30\ Id.
\31\ Specifically, the $1 million threshold applies to business
loans secured by real estate where repayment is not dependent
primarily on the sale of real estate or the rental income derived
from real estate.
---------------------------------------------------------------------------
Among other exemptions, the appraisal regulations also exempt
transactions from the appraisal requirement if:
The transaction is wholly or partially insured or guaranteed
by a U.S. government agency or U.S. government sponsored agency; or
The transaction either:
(1) Qualifies for sale to a U.S. government agency or U.S.
government sponsored agency; or
(2) Involves a residential real estate transaction in which the
appraisal conforms to the Federal National Mortgage Association (Fannie
Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) appraisal
standards applicable to that category of real estate.\32\
---------------------------------------------------------------------------
\32\ 12 CFR 34.43 (OCC), 12 CFR 225.63 (Board), 12 CFR323. 3
(FDIC).
The other federal government agencies that are involved in the
residential mortgage market (such as the U.S. Department of Housing and
Urban Development, the U.S. Department of Veterans Affairs, and the
Rural Housing Service of the U.S. Department of Agriculture), and the
government sponsored enterprises (GSEs), which are regulated by the
Federal Housing Finance Agency (FHFA), have the authority to set
separate appraisal requirements for loans they originate, insure,
acquire, or guarantee, and generally require an appraisal by a
certified or licensed appraiser for residential mortgages regardless of
the value of the loan. Based on 2014 Home Mortgage Disclosure Act
(HMDA) data, at least 90 percent of residential mortgage loan
originations are not subject to the Title XI appraisal regulations, but
the majority of those are subject to the appraisal requirements of
other government agencies or the GSEs.\33\
---------------------------------------------------------------------------
\33\ See www.ffiec.gov/hmda/.
---------------------------------------------------------------------------
For real estate-related financial transactions at or below the
applicable thresholds, and for certain other exempt transactions, the
Title XI appraisal regulations require financial institutions to obtain
an appropriate ``evaluation'' of the real property collateral that is
consistent with safe and sound banking practices. An evaluation, which
may be less structured than an appraisal, should contain sufficient
information and analysis to support the decision to engage in the
transaction. The agencies have provided guidance on the parameters for
conducting evaluations in a safe and sound manner.\34\
---------------------------------------------------------------------------
\34\ Interagency Appraisal and Evaluation Guidelines, 75 FR
77450 (December 10, 2010). See also Interagency Advisory on the Use
of Evaluations in Real-Estate Related Transactions, March 4, 2016;
Federal Reserve SR letter 16-5; OCC Bulletin 2016-8; FDIC FIL-16-
2016, ``Supervisory Expectations for Evaluations.''
---------------------------------------------------------------------------
Agency Dodd-Frank Initiatives
As part of their implementation of the Dodd-Frank Act, the agencies
have published several appraisal-related rules. In 2010, the Board
issued an interim final rule that requires independent property
valuations for consumer credit transactions secured by a consumer's
principal dwelling and payment of customary and reasonable fees to
appraisers.\35\ In February 2013, the federal banking agencies, along
with the NCUA, CFPB, and FHFA, jointly published a final rule
requiring, among other things, that creditors obtain a written
appraisal for certain higher-priced mortgage loans (HPMLs) and provide
loan applicants with a copy of the appraisal(s).\36\ These same
agencies subsequently issued a joint rule with additional exemptions
from the HPML appraisal requirements, including for loans of $25,000 or
less, adjusted annually for inflation.\37\ In June 2015, the federal
banking agencies, along with NCUA, CFPB, and FHFA jointly published a
final rule that (1) establishes minimum requirements for registration
and supervision of appraisal management companies (AMCs) by states
electing to participate in the Title XI regulatory framework for AMCs
(participating states); (2) requires AMCs controlled by IDIs (federally
regulated AMCs) to meet the minimum requirements applicable to AMCs
registered and supervised by participating states (other than state
registration and supervision); and (3) requires that participating
states report certain information on registered AMCs
[[Page 15913]]
to a national registry maintained by the ASC.\38\
---------------------------------------------------------------------------
\35\ See 15 U.S.C. 1639e; 75 FR 66554 (October 28, 2010)
(Interim Final Rule); 75 FR 80675 (December 23, 2010) (Technical
Corrections). These rules are published at 12 CFR 226.42. In
December 2011, the CFPB published an interim final rule
substantially duplicating the rules. See 12 CFR 1026.42.
\36\ 78 FR 10368 (February 13, 2013) (Final Rule); 78 FR 78520
(December 26, 2013) (Supplemental Final Rule).
\37\ 78 FR 78520 (December 26, 2013) (Supplemental Final Rule);
81 FR 86250 (November 30, 2016) (annual exemption threshold
adjustment).
\38\ 80 FR 32657 (June 9, 2015).
---------------------------------------------------------------------------
EGRPRA Comments
The agencies received comments on the subject of appraisal
requirements from over 160 bankers, banking trade associations,
associations of appraisers, and other commenters. As discussed in more
detail below, the majority of these comments focused on whether the
agencies should increase the transaction value thresholds at or below
which an appraisal would not be required by the Title XI appraisal
regulations. The agencies also received comments on the availability of
appraisers in rural areas, evaluations, appraisal requirements for
HPMLs, and AMCs.
Appraisal thresholds
Approximately 25 commenters suggested that the agencies consider
increasing the appraisal thresholds in the Title XI appraisal
regulations. These commenters noted that the current thresholds have
not been adjusted since they were established in 1994, even though
property values have increased, and that the time and cost associated
with the appraisal process negatively impacts completion of real
estate-related transactions. Several commenters suggested that the
agencies raise the existing threshold for residential and commercial
loans from $250,000 to $500,000 and raise the existing threshold for
real estate secured business loans from $1 million to $2 million.
Another commenter suggested that the agencies consider increasing the
threshold to $1 million for loans secured by multiple 1-4 family rental
properties with documented independent sources of cash flow.
Other commenters suggested alternative bases for establishing
thresholds such as the loan-to-value ratio of the transaction, market
location of the property, median house price in the region, or asset
size or the amount of capital retained by the institution. Similarly,
some commenters argued that technological advances, such as the
internet, or involvement of third parties, have resulted in alternative
sources of reliable market and property valuation information that have
reduced the need for appraisals. One commenter also suggested that the
agencies should allow institutions the option of using appraisals
prepared by non-certified appraisers in order to reduce costs and
regulatory burden.
Some commenters also stated that the time and financial costs
attributed to meeting the appraisal requirements at the current
threshold level negatively affect the competitiveness of certain banks,
particularly in rural markets. Commenters specifically noted that the
costs associated with an appraisal on a small residential loan are high
compared to the potential loss on the loan. In addition, some
commenters at the outreach session on rural banking issues indicated
that they believed that the federal banking agencies' examiners require
appraisals, even when evaluations are permissible.
Approximately 125 comments received by the agencies opposed
increasing the appraisal thresholds. One commenter argued that the
agencies should reduce the threshold from $250,000 to $25,000, which is
the threshold for an exemption from the HPML appraisal rule. One
professional appraiser association commented that the agencies should
set the threshold at $100,000. Several professional appraiser
associations argued that raising the threshold could undermine the
safety and soundness of lenders and diminish consumer protection for
mortgage financing. These commenters argued that increasing the
thresholds could encourage banks to neglect collateral risk-management
responsibilities. One professional appraiser association stated that
the agencies should not rely on the policies of other regulators with
appraisal requirements, such as the FHFA, or on the GSEs to fulfill the
safety and soundness and consumer protection purposes of Title XI.
Commenters also stated that higher thresholds would subject the least
sophisticated borrowers to increased risk.
In addition, several commenters argued that alternatives to
appraisals, such as evaluations and automated valuation models (AVMs),
which can be used in evaluations, often result in less reliable
property valuations than appraisals. More specifically, several
commenters stated that AVMs often result in less reliable home
valuations because they do not include a physical inspection of the
property being valued, and inaccurately base calculations on data from
public records. Commenters also suggested that property valuations not
performed by a state-certified or licensed appraiser are unreliable
indicators of the market value of properties. Some of these commenters
noted that certified and licensed appraisers must satisfy rigorous
qualification requirements, and thus, their expertise is helpful in
areas with less property information, such as rural markets. Similarly,
one commenter stated that the expertise of appraisers is needed to
value properties in unique circumstances or special property types.
In addition, commenters noted that there are more quality control
standards for appraisals than for evaluations and suggested that
appraisals impose less regulatory burden and risk on institutions
because the appraisal standards are clearer than the regulatory
expectations for evaluations. The commenters noted instances of
deficient evaluations even though the evaluations aligned with the
agencies' 2010 Interagency Appraisal and Evaluation Guidelines. Several
commenters also claimed that evaluations do not contain sufficient
market information to allow for informed decisions; that the persons
preparing evaluations are not professional appraisers and therefore are
not accountable; and that evaluations are costly.
Several commenters also expressed the belief that raising the
thresholds would hurt the appraisal profession. A commenter noted that
appraisers are unable to compete with valuation services not bound by
the Uniform Standards of Professional Appraisal Practice (USPAP).
A professional association for appraisers and an appraisal firm
claimed that the agencies do not have the authority to raise the
thresholds, asserting that raising the $250,000 threshold would
effectively repeal Title XI and be contrary to congressional intent.
The agencies also received a comment that questioned whether the
agencies have the legal authority to raise the appraisal threshold
prior to a determination by the CFPB regarding the potential impact
such action would have on consumers.\39\
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\39\ See 12 U.S.C. 3341(b). As noted, the statute requires that
the agencies receive concurrence from the CFPB that the threshold
level provides reasonable protection for consumers who purchase 1-4
unit single-family residences.
---------------------------------------------------------------------------
Appraiser shortages in rural areas
Several commenters asserted that there is a shortage of appraisers
in rural areas and that because of this shortage, appraisers are
significantly backlogged and appraisals take much longer to complete.
Some of these commenters asserted that this shortage has brought the
rural housing market to a halt in some rural communities. Other
commenters expressed that there is no appraiser shortage, only a lack
of availability because of the unwillingness of some appraisers to
perform appraisals in rural areas. Some commenters also noted that
there are few subdivisions, similar houses, or similarly sized tracts
of land available for comparison in rural areas. These
[[Page 15914]]
commenters noted that there are often few comparable sales within a
year and that it is not uncommon to have acceptable comparable sales
located 20 or more miles from the appraised property.
Evaluations
At EGRPRA outreach meetings, community bankers, particularly those
in rural areas, raised questions regarding the value and appropriate
use of evaluations. In particular, they questioned how to determine the
market value of real estate through the evaluation process, especially
in rural areas where there have been no or few comparable sales.
Appraisals for HPMLs
As discussed above, the Dodd-Frank Act established appraisal
requirements for HPMLs (termed ``higher-risk mortgages'' in the
statute), which are defined as closed-end consumer credit transactions
secured by a consumer's principal dwelling that have annual percentage
rates above a certain threshold.\40\ The Dodd-Frank Act requires
creditors to obtain a written appraisal performed by a certified or
licensed appraiser who conducts a physical property visit of the home's
interior before making these loans.\41\ The Dodd-Frank Act also
requires creditors to disclose to HPML applicants information about the
purpose of the appraisal and provide consumers with a copy of the
appraisal report(s) at no charge within certain timeframes.\42\
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\40\ See, e.g., 12 CFR 1026.35(a)(1).
\41\ 15 U.S.C. 1639h(a) and (b).
\42\ Id. section 1639h(c) and (d).
---------------------------------------------------------------------------
The agencies received six comments concerning the HPML appraisal
requirements. One small rural bank commenter suggested that the HPML
appraisal requirements impose undue burden on borrowers and lenders.
This commenter stated that, due to the HPML appraisal requirements and
other rules, some community banks are leaving the home lending
market.\43\ The commenter suggested that low-and-moderate income (LMI)
borrowers purchasing homes under $50,000 are affected
disproportionately by the compliance burden of these rules. A commenter
from a state bank trade association argued that the agencies should
expand the HPML exemptions to include an exemption based on the value
of the collateral, and mentioned that, for example, home values in
rural areas of this state are between $40,000 and $50,000 (which is
higher than the current $25,000 exemption). This commenter also
suggested that creditors in rural areas with few appraisers might be
concerned about having to obtain an appraisal conducted by an appraiser
from a distant area and, therefore, might be faced with a decision
about whether to price a loan based on risk in the transaction or to
price it lower to avoid triggering the HPML appraisal requirements. The
commenter asserted that allowing local bank or real estate brokers to
perform valuations for very low value properties would allow rural
borrowers in particular to obtain more accurate and less costly
valuations and would increase credit availability.
---------------------------------------------------------------------------
\43\ The commenter also mentioned home ownership counseling
requirements under the Home Ownership and Equity Protection Act as
well as ``new CFPB housing rules.'' The agencies do not have
authority over these requirements.
---------------------------------------------------------------------------
A national community bank trade association suggested that HPML
appraisal requirements should be the same as non-HPML appraisal
requirements, citing complaints by community banks about having to
comply with more than one set of appraisal rules.
A community bank commenter discussed the disclosure requirements
for valuations under Regulation B (Equal Credit Opportunity Act (ECOA))
\44\ as compared to the HPML appraisal rule.\45\ The commenter pointed
out, for example, that qualified mortgages (QMs) are exempt from the
HPML appraisal rule, but not the Regulation B rule, and that the
Regulation B valuation disclosure rule applies to business and consumer
first-lien loans secured by a 1-4 family property, whereas the HPML
disclosure requirement applies to HPMLs, which are closed-end, first-
or second-lien loans secured by a consumer's principal dwelling (thus,
only consumer loans). The bank commenter also expressed confusion about
timing requirements for Truth in Lending Act-Real Estate Settlement
Procedures Act (TILA-RESPA) mortgage disclosures and the HPML timing
requirement for providing the consumer with a copy of the appraisal
(three business days before closing).
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\44\ 12 CFR 1002.14.
\45\ Another EGRPRA commenter raised concerns specifically about
the CFPB's Regulation B valuation disclosure requirement because it
does not distinguish between consumer-purpose and business-purpose
loans. This commenter did not mention the HPML appraisal disclosure
requirements.
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Finally, one commenter suggested that it would be premature to
change the HPML exemption threshold since it has been in effect only
for a short period of time. This commenter cited heightened consumer
protection risks for consumers of HPMLs and noted that creditors do not
bear the cost of appraisals but pass them along to consumers.
AMCs
Several commenters addressed the role of AMCs in the appraisal
process. Some of these commenters criticized AMCs' role as intermediary
between lenders and appraisers, raising concerns over AMCs' impact on
the increasing cost of appraisals, the extended time period that is
required to complete appraisals, and the quality of appraisals. Several
commenters argued that AMCs circumvent the regulatory process and
appraisers, and that their administration of the appraisal process is
driven by profit and expansion, rather than concern for the appraisal
profession, the mortgage industry, or accurate property valuations.
Several commenters suggested that some AMCs have pressured appraisers
to reach desired property values, and that appraisers risk losing work
if they do not comply. The commenters also suggested that the perceived
shortage of certified appraisers is caused by the low fees that AMCs
pay appraisers to value properties, and that appraisers are leaving the
industry as a result. Two commenters stated that regulations requiring
that creditors and AMCs pay appraisers customary and reasonable fees
are not enforced. Several of the commenters argued that increasing the
appraisal threshold (to exempt more transactions from the Title XI
appraisal requirement) is not necessary, and would only exacerbate
underlying issues in the appraisal process that are attributed to AMCs.
Some commenters also asserted that completion times for appraisals have
become a competitive selling strategy for many AMCs, often at the
expense of appraiser competency for the assignment. As a solution to
these issues, some commenters suggested removing AMCs from the
appraisal process.
Agencies' response
Appraisal thresholds
The agencies considered the appropriateness of the existing
appraisal thresholds in the context of the comments received and the
agencies' prudential standards for safety and soundness. The agencies
also gave special consideration to the issue of appraiser shortages in
rural areas.
The agencies recognize that the thresholds were last modified in
1994. Given increases in property values since that time, in certain
circumstances, the current thresholds may require institutions to
obtain Title XI appraisals
[[Page 15915]]
on a larger proportion of loans than was required in 1994. The agencies
recognize that this proportional increase in the numbers of appraisals
required may contribute to the increased time and cost issues raised by
the EGRPRA commenters. As such, the federal banking agencies, along
with the NCUA, are developing a proposal to increase the threshold
related to commercial real estate loans from $250,000 to $400,000. As
part of that proposal, the agencies plan to gather more information
about the appropriateness of increasing the $1 million threshold
related to real estate-secured business loans.
The agencies also considered the potential burden created by the
current $250,000 threshold for loans secured by residential real
estate.\46\ As noted above, certain other federal government agencies
and the GSEs are involved in the residential mortgage market, and have
the authority to set appraisal requirements for loans they originate,
acquire, or guarantee. Therefore, raising the appraisal threshold for
residential transactions in the Title XI appraisal regulations would
have limited impact on burden, as appraisals would still be required
pursuant to the rules of other entities.
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\46\ Residential real estate transactions typically include 1-4
family consumer loans. Typically, multifamily residential real
estate transactions are considered commercial real estate
transactions for which the agencies intend to propose a threshold
increase.
---------------------------------------------------------------------------
The agencies also considered safety and soundness and consumer
protection concerns that could result from a threshold increase for
residential transactions. The last financial crisis showed that, like
other asset classes, imprudent residential mortgage lending can pose
significant risks to financial institutions. In addition, the agencies
recognize that appraisals can provide protection to consumers by
helping to assure the residential purchaser that the value of the
property supports the mortgage amount assumed. Overall, the agencies
believe that the interests of consumers are better served when
appraisal regulations are coordinated among government agencies.
In considering the EGRPRA comments on this issue, the agencies also
conferred with the CFPB. As noted earlier, changes to the appraisal
threshold require the CFPB's concurrence that the adjusted threshold
level ``provides reasonable protection for consumers who purchase 1-4
unit single-family residences.'' \47\ CFPB staff shared concerns about
potential risks to consumers resulting from an expansion of the number
of residential mortgage transactions that would be exempt from the
Title XI appraisal requirement.
---------------------------------------------------------------------------
\47\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------
Based on considerations of safety and soundness and consumer
protection, the agencies do not currently believe that a change to the
current $250,000 threshold for residential mortgage loans would be
appropriate. The agencies will continue to consider possibilities for
relieving burden related to appraisals for residential mortgage loans,
such as coordination of our rules with the practices of HUD, the GSEs,
and other federal entities in the residential real estate market.
Appraiser shortages in rural areas
The agencies have considered the concerns raised regarding
potential appraiser shortages and related issues in rural areas. Title
XI grants the ASC temporary waiver authority. Specifically, Title XI
grants the ASC the authority, after making certain findings and with
the approval of the FFIEC, to grant temporary waivers of any
requirement relating to certification or licensing of a person to
perform appraisals under Title XI in states or geographic political
subdivisions of a state where there is a shortage of appraisers leading
to significant delays in obtaining an appraisal in connection with
federally related transactions.\48\ These temporary waivers would allow
institutions lending in affected areas access to more individuals
eligible to complete the appraisals required under Title XI, which
would alleviate some of the cost and burden associated with having a
shortage of certified or licensed appraisers in an area. As Council
members of the FFIEC and members of the ASC, the federal banking
agencies participate in this waiver process.
---------------------------------------------------------------------------
\48\ 12 U.S.C. 3348(b).
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Additionally, state appraiser certifying and licensing agencies
have existing authority to recognize, on a temporary basis, the
certification or license of an appraiser issued by another state.\49\
---------------------------------------------------------------------------
\49\ 12 U.S.C. 3351(a).
---------------------------------------------------------------------------
In order to address the concerns related to rural areas, the
agencies will work with the ASC to streamline the process for the
evaluation of temporary waiver requests. The agencies also intend to
issue a statement to regulated entities informing them of the
availability of both temporary waivers and temporary practice permits,
which are applicable to both commercial and residential appraisals, and
may address temporary appraiser shortages. The agencies note that the
waiver option is available for all types of federally related
transactions. In addition to other measures discussed in this report to
relieve burden related to appraisals, the agencies affirm that they
will continue to consider possibilities for relieving burden related to
appraisals for residential real estate loans, such as coordinating our
rules with the practices of HUD and other federal government agencies
that are involved in the residential mortgage market, as well as with
the GSEs.
Evaluations
To address comments and to clarify current supervisory expectations
regarding evaluations, the agencies issued an interagency advisory on
evaluations in March 2016.\50\ The advisory reiterated what
transactions permit the use of evaluations; these include transactions
valued under the dollar thresholds established in the appraisal
regulations and certain refinance or subsequent transactions. The
advisory also explained that the Title XI appraisal regulations do not
require that evaluations be prepared by a state-licensed or state-
certified appraiser or to conform with USPAP, and that there is no
standard format for an evaluation report. Furthermore, the advisory
explained that an evaluation does not need to be prepared only by using
sales of comparable properties to estimate market value. For areas
where comparable sales are in short supply, the advisory reminded
bankers that evaluations may use other valuation approaches.
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\50\ Interagency Advisory on the Use of Evaluations in Real-
Estate Related Transactions, March 4, 2016; Federal Reserve SR
letter 16-5; OCC Bulletin 2016-8; FDIC FIL-16-2016, ``Supervisory
Expectations for Evaluations.''
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Appraisals for HPMLs
Regarding comments about the HPML appraisal rule, the agencies note
that the rule is a joint rule among the federal banking agencies and
agencies that are not part of the EGRPRA process (the NCUA,\51\ CFPB,
and FHFA). The federal banking agencies have determined not to pursue
changes to the HPML appraisal rules at this time, but will continue to
consider the comments offered through the EGRPRA process.
---------------------------------------------------------------------------
\51\ Although not required to by statute, NCUA voluntarily
conducted its own, separate EGRPRA review.
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Regarding the comment that requirements for HPMLs be the same as
for non-HPMLs, the agencies note that the HPML appraisal rules
implement specific statutory provisions that Congress enacted for loans
that they considered to be ``higher-risk.'' \52\ At the same time, the
agencies take seriously
[[Page 15916]]
concerns raised by commenters about the burden of complying with these
rules. In this regard, the federal banking agencies note that many
significant exemptions from the HPML rules are already in place. The
statutory provisions establishing special appraisal rules for HPMLs
exempt all QMs (a large proportion of the mortgage market).\53\
Further, in two separate rulemakings,\54\ the federal banking agencies,
NCUA, CFPB, and FHFA jointly exempted several additional classes of
loans from the HPML appraisal rules, including certain construction
loans, bridge loans, reverse mortgages, refinance transactions meeting
certain criteria, and loans of $25,000 or less, adjusted annually for
inflation ($25,500 for 2016).\55\
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\52\ 15 U.S.C. 1639h.
\53\ 15 U.S.C. 1639h(f)(1).
\54\ 78 FR 10368 (February 13, 2013) (Final Rule); 78 FR 78520
(December 26, 2013) (Supplemental Final Rule).
\55\ See 12 CFR 34.203(b) (OCC); 12 CFR 226.43(b) (Board); 12
CFR 1026.35(c)(2) (CFPB, applies to FDIC-supervised institutions).
---------------------------------------------------------------------------
In establishing the transaction size exemption threshold, the six
agencies issuing the rules carefully considered all of the comments
submitted on the issue, including suggestions that the exemption
threshold be higher.\56\ The six agencies set the threshold bearing
closely in mind the two-pronged statutory standard for establishing
exemptions from the HPML appraisal rules: the agencies must jointly
determine that any exemption ``is in the public interest and promotes
the safety and soundness of creditors.'' \57\
---------------------------------------------------------------------------
\56\ 78 FR 78520, 78528-73532 (December 26, 2013).
\57\ 15 U.S.C. 1639h(b)(4)(B).
---------------------------------------------------------------------------
In addition, the six agencies that jointly issued the rules gave
special study and consideration to manufactured home lending and
endeavored to design rules tailored to address valuation issues unique
to this market segment. In so doing, the agencies sought to craft HPML
appraisal rules that would make sense in that industry, while still
addressing the consumer protection and other risks Congress sought to
mitigate in the Dodd-Frank Act.\58\
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\58\ See 78 FR 78520, 78542-78561 (December 26, 2013).
---------------------------------------------------------------------------
Regarding the comment expressing confusion about overlapping
disclosure requirements, the agencies note that the HPML appraisal rule
provides that compliance with the Regulation B/ECOA valuation
disclosure requirement satisfies the HPML disclosure requirement.\59\
Generally, the timing of the HPML disclosure requirement coincides with
the required timing for providing the TILA-RESPA Loan Estimate
(generally three business days after application).\60\ The timing of
the HPML requirement for providing the consumer with a copy of the
appraisal also coincides with the required timing for providing the
TILA-RESPA Closing Disclosure (generally three business days before
consummation).\61\ The agencies appreciate that confusion can result
from multiple disclosure requirements and will consider further how to
clarify questions regarding them. The agencies conduct regular meetings
with the CFPB regarding implementation of the various mortgage rules,
and will continue to seek interagency coordination on issues concerning
these rules.
---------------------------------------------------------------------------
\59\ See 12 CFR 34.203(e)(1) (OCC); 12 CFR 226.43(e)(1) (Board);
12 CFR 1026.35(c)(5)(i) (CFPB, applies to FDIC-supervised
institutions).
\60\ See 12 CFR 1026.19(e)(1)(iii) (Loan Estimate); 12 CFR
34.203(e)(2) (OCC), 12 CFR 226.43(e)(2) (Board), and 12 CFR
1026.35(c)(5)(ii) (CFPB, applies to FDIC-supervised institutions)
(appraisal disclosure for HPMLs).
\61\ See 12 CFR 1026.19(f)(1)(ii) (Closing Disclosure); 12 CFR
34.203(f)(2) (OCC), 12 CFR 226.43(f)(2) (Board), and 12 CFR
1026.35(c)(6)(ii) (CFPB, applies to FDIC-supervised institutions)
(copy of appraisal for HPMLs).
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AMCs
The agencies also have considered the comments raised regarding
AMCs. The Dodd-Frank Act amended Title XI to require the agencies,
along with the NCUA, CFPB, and FHFA, to develop minimum requirements
for the registration and supervision of AMCs operating in participating
states and to apply certain requirements to federally regulated AMCs.
In addition, the Dodd-Frank Act amendments required that a National
Registry of AMCs be established and administered by the ASC.\62\ In
June 2015, the agencies, along with the NCUA, CFPB and FHFA, issued
joint rules establishing minimum requirements for AMCs. The AMC
regulation integrates AMCs into the existing framework for the
supervision of appraisers and appraisal-related services, and maintains
standards for the development and quality of appraisals. As part of the
system, newly registered AMCs now are responsible for applying minimum
standards to their business activities. Further, AMCs are now required
to engage only certified and licensed appraisers for federally related
transactions and must direct appraisers to perform such assignments in
accordance with USPAP. The agencies believe that the rule addresses the
AMC-related issues raised by the EGRPRA commenters by providing minimum
requirements for state supervision of AMCs and establishing oversight
of federally regulated AMCs.\63\
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\62\ Dodd-Frank Act, section 1473(f)(2), 12 U.S.C. 3353.
\63\ 80 FR 32657 (June 9, 2015).
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The AMC rule establishes minimum requirements for states electing
to register and supervise AMCs covered by the rule to ensure that the
AMCs engage appraisers who are independent and competent for a
particular transaction. The agencies believe that the safety and
soundness of institutions is enhanced when appraisers are given a
reasonable amount of time to complete assignments, so that they can
ensure that the appraisal report has sufficient information to support
the decision to engage in the transaction and that safety and soundness
is served when appraisers are engaged based on their competency for the
assignment.
Title XI allows states up to three years following the finalization
of the AMC rule to establish registration and supervision systems that
meet the regulatory requirements. AMCs that are not either subject to
oversight by a federal financial institution regulatory agency or
registered in a particular state will be prohibited from providing
services for federally related transactions in that state. In any state
which does not adopt a registration and supervision system, all AMCs
that are not subject to oversight by a federal financial institutions
regulatory agency will be prohibited from providing services for
federally related transactions. The ASC, with the approval of the
FFIEC, may delay the implementation deadline for an additional year, if
a state has made substantial progress toward implementing a system that
meets the criteria in Title XI. Because states are still in the process
of implementing the AMC rule, the agencies need additional time to
assess the rule's impact.
Regarding concerns expressed by commenters about appraiser fees,
the Board issued the 2010 interim final rule on valuation independence
and customary and reasonable fees for appraisers within 90 days after
the enactment of the Dodd-Frank Act, as directed by the statute.\64\
Any future rules implementing these statutory provisions must be issued
on an interagency basis by the Board and five other agencies--the OCC,
FDIC, NCUA, CFPB and FHFA.
---------------------------------------------------------------------------
\64\ See www.federalreserve.gov/newsevents/press/bcreg/20101018a.htm (October 18, 2010), 75 FR 66554 (October 28, 2010)
(Interim Final Rule); 75 FR 80675 (December 23, 2010) (Technical
Corrections). These rules are published at 12 CFR 226.42. In
December 2011, the CFPB published an interim final rule
substantially duplicating the rules. See 12 CFR 1026.42.
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[[Page 15917]]
When it issued the 2010 interim final rule, the Board determined
that the statute's requirement for paying ``customary and reasonable''
fees did not authorize the Board to set appraiser fees at a particular
level. Accordingly, the interim final rule gives lenders two market-
based methods to follow. To address appraisers' concerns, the agencies
expect to review the interim rule and study its impact to help
determine whether there are alternative approaches that could be more
effective.
4. Frequency of Safety and Soundness Examinations
Background
Section 10(d) of the Federal Deposit Insurance Act (FDI Act)
generally requires the appropriate federal banking agency for an IDI to
conduct a full-scope, on-site examination of the IDI at least once
during each 12-month period.\65\ However, the statute permits a longer
cycle--at least once every 18 months--for a well capitalized and well
managed IDI that meets certain other supervisory criteria, including
having total assets below a specified threshold.\66\
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\65\ The agencies' implementing regulations for frequency of
safety-and-soundness examinations are set forth at 12 CFR 4.6 (OCC),
12 CFR 208.64 (Board), 12 CFR 337.12, and 12 CFR 347.211 (FDIC).
\66\ 12 U.S.C. 1820(d).
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EGRPRA Comments
Over 30 different banking institutions and industry organizations
addressed the frequency of safety and soundness examinations.
Commenters generally expressed support for an increase in the amount of
time between safety and soundness examinations and for an increase in
the associated asset size threshold for institutions that qualify for
an 18-month examination cycle.
Specifically, the agencies received comments requesting that they
raise the total asset threshold for an IDI to qualify for the extended
18-month examination cycle. Commenters asserted that the $500 million
threshold for 18-month examinations was too low and should be increased
to amounts ranging from $1 billion to $2 billion. The majority of these
commenters advocated raising the total asset threshold for a longer
examination cycle to $1 billion.
The agencies also received several suggestions to extend the amount
of time between examinations for well-capitalized and well-managed
IDIs. These commenters suggested increasing the time between
examinations from 18 months to between 24 and 36 months.
Some commenters also suggested a more tailored approach to
determining the amount of time between safety and soundness
examinations that would be based on examiner judgment and discretion.
These commenters recommended that the agencies consider the activities
of the banking institution in determining the frequency of
examinations, with more traditional community banks receiving more time
between examinations. One commenter, however, suggested that the
agencies should have no discretion in determining which institutions
would qualify for an extended examination cycle and that such extended
examination cycles should be automatic.
Agencies' Response
The agencies indicated support for revisions to the statute
regarding examination frequency. Subsequently, in December 2015,
President Obama signed into law the FAST Act.\67\ Section 83001 of the
FAST Act raised the threshold for the 18-month examination cycle from
less than $500 million to less than $1 billion for certain well
capitalized and well managed IDIs with an ``outstanding'' composite
condition and gave the agencies discretion to similarly raise this
threshold for certain IDIs with an ``outstanding'' or ``good''
composite condition. The agencies exercised this discretion and issued
an interim final rule on February 29, 2016, that, in general, makes
qualifying IDIs with less than $1 billion in total assets eligible for
an 18-month (rather than a 12-month) examination cycle.\68\ On December
16, 2016, the agencies published this rule as a final rule with no
changes.\69\ Agency staff estimate that the final rules increased the
number of institutions that may qualify for an extended 18-month
examination cycle by approximately 611 institutions, bringing the total
number of qualifying institutions to 4,793 IDIs.\70\
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\67\ Public Law 114-94, 129 Stat. 1312 (2015).
\68\ See 81 FR 10063 (February 29, 2016).
\69\ 81 FR 90949 (December 16, 2016).
\70\ Id.
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5. Community Reinvestment Act
Background
The CRA requires the agencies to assess a financial institution's
record of meeting the credit needs of its entire community, including
LMI neighborhoods, consistent with safe and sound operations.\71\ The
CRA also requires the agencies to take the financial institution's CRA
performance record into account in evaluating applications for deposit
facilities. Congress has amended the CRA statute since its enactment to
require written public evaluations and, when a financial institution
has branches in more than one state, ratings in each state where it has
branches or deposit taking ATMs.
---------------------------------------------------------------------------
\71\ 12 U.S.C. 2901 et seq.
---------------------------------------------------------------------------
The agencies have implemented the CRA through interagency
regulations that set forth several evaluation methods for institutions
of different sizes and business strategies.\72\ Large institutions
(those with assets of $1.226 billion or more in 2017) are evaluated
under lending, investment, and service tests. The lending test involves
an analysis of an institution's home mortgage, small business, and
small farm lending. The agencies may evaluate consumer lending under
certain circumstances. The agencies evaluate small institutions (assets
under $307 million in 2017) under a streamlined lending test, which
includes an evaluation of lending based on the bank's major product
lines. The agencies evaluate intermediate small institutions (assets
between $307 million and $1.226 billion in 2017) under the small bank
lending test and a community development test. Wholesale and limited
purpose banks are evaluated using a community development test.
Finally, any financial institution may choose to be evaluated under an
agency-approved strategic plan that sets forth performance goals that
have been developed with community input.
---------------------------------------------------------------------------
\72\ The agencies' CRA regulations are set forth at 12 CFR parts
25, 195, 228 (Regulation BB) and 345.
---------------------------------------------------------------------------
EGRPRA Comments
Over 60 EGRPRA commenters discussed the CRA. These commenters
included primarily banking industry and community and consumer
organizations and included participants at the EGRPRA outreach
sessions. The commenters addressed a variety of issues related to
regulatory burden, but many also addressed broader issues related to
modernizing the CRA regulations and related guidance. Among the most
frequently raised issues were (1) the assessment area definition; (2)
incentives for banks and savings associations (collectively, banks or
financial institutions) to serve LMI, unbanked, underbanked, and rural
communities; (3) regulatory burdens associated with recordkeeping,
reporting requirements, and asset thresholds for the various CRA
examination methods; (4) the need for clarity regarding performance
measures and better examiner training to ensure consistency and rigor
in examinations; and (5) refinement of CRA ratings methodology.
[[Page 15918]]
Assessment area definitions
The largest number of comments received on CRA involved assessment
area definitions. Numerous community group and industry commenters
observed that the assessment area definition no longer reflects the way
in which financial services are delivered and urged the agencies to
revise the definition to ensure the CRA's continued effectiveness.
These commenters noted that technological advances now allow financial
institutions to take deposits and make loans without branches and
suggested that the current requirements for assessment areas have not
kept pace with banking practices that no longer are tied to the
physical location of branches. Many commenters asserted that the
current assessment area definition should move away from branch-based
banking and reflect a world in which banking is increasingly virtual,
national, or global. A few commenters mentioned that CRA requirements
should occur where depositors reside. Others commenters recommended
that regulators should define assessment areas as a metropolitan
statistical area where a bank conducts significant business activity.
One commenter specifically provided the following proposed language
amending the regulatory definition of assessment area: ``the
geographies in which the bank has its main office, its branches, and
where a substantial number of depositors reside, as well as geographies
in which the bank has originated or purchased a substantial portion of
its loans.''
Another commenter suggested that a bank's assessment area should be
based on the market it believes it can reasonably serve and that a bank
should not be inhibited from providing credit to customers outside of
its immediate communities due to artificial restrictions imposed by
CRA. A few commenters also suggested revising the assessment areas to
include deposits from prepaid cards. Two commenters requested more
flexibility for small banks and rural banks. A few commenters suggested
that the agencies should promote community development financial
institutions (CDFIs) by providing favorable treatment for all
investments in CDFIs without regard to assessment areas.
Incentives for banks to serve LMI, unbanked, underbanked, and rural
communities
Industry and community commenters addressed the need for more
effective incentives for financial institutions to serve LMI
individuals and areas, including rural areas. Some commenters suggested
enhanced consideration of CRA activities that require significant
effort and expertise, particularly community development loans,
investments, and services tailored to meet the needs of LMI people,
such as low-cost deposit and transaction accounts. Some commenters
suggested more specific evaluative criteria for certain activities,
while others suggested additional rating categories as performance
incentives.
The commenters argued that banks need incentives to develop
creative solutions to operate in and serve their local communities,
particularly LMI and rural areas. A few commenters urged the agencies
to set measurable goals and metrics for every bank assessment area to
better serve the unbanked and underbanked. Other commenters recommended
that the agencies provide additional CRA consideration for high impact
projects such as opening or maintaining homeownership preservation
offices in LMI neighborhoods. One commenter suggested that the agencies
create a rating of ``outstanding plus'' to reward banks for truly
outstanding CRA efforts to offer innovative low-cost micro-loans to
small businesses.
Several commenters also recommended including an explicit
performance factor on the design of, and access to, transaction and
savings products and consumer education for LMI people. Some commenters
urged the agencies to give CRA consideration to institutions that offer
low-cost, safe accounts (particularly accounts that do not include
overdraft) and credit building products, such as low-cost alternatives
to payday loans. Commenters also suggested additional CRA consideration
for mobile branches, prepaid cards, and alternative delivery systems.
Two commenters recommended that the agencies provide meaningful and
measurable consideration under the service test for alternative
delivery systems that effectively deliver services, particularly to LMI
individuals.
Similarly, commenters suggested that the agencies consider a number
of factors in the evaluation of retail banking services in order to
encourage institutions to serve LMI individuals. These factors included
consideration of changes in branch locations, branch products, and
services resulting from branch closures; LMI customer retention; bank
account products and data; and identification policies. Two commenters
also favored requiring banks to disclose, and the agencies to consider
as part of the CRA exam, demographic information on account holders,
accounts, and transactions, including key variables such as the census
tract of the account holder's residence, number of new accounts opened,
age of account, and percent of bank income generated by fees. One
commenter also encouraged the downgrade of banks for consumer services
that it alleges strip financial capacity and resources, such as
overdraft programs.
Data collection
Commenters also addressed issues related to burden associated with
the CRA regulations' current data retention and reporting requirements.
Industry commenters urged the agencies to update the regulations'
public file requirements by allowing financial institutions to maintain
their files electronically, citing the new HMDA rules as a model. One
commenter requested that regulators eliminate the requirement that a
bank identify all geographies contained in its assessment area due to
expense or alternatively require that the public CRA file refer
interested parties to a government website with census tract
information. One commenter also suggested that the FFIEC manage the
public files of all institutions.
Some commenters also discussed the expense associated with
collecting and reporting data on community development loans and census
tracts within their assessment areas. One commenter suggested raising
the CRA regulations' threshold for small business loans from $1 million
to $3 million in gross annual revenues. By contrast, community
organizations opposed any reduction in CRA reporting requirements. One
community group urged the agencies to require intermediate small banks
to collect and report small business data in order to allow for a more
accurate evaluation of small business credit conditions by the public.
Evaluation thresholds
Several commenters addressed the burden associated with the asset
thresholds for the various evaluation methods. One commenter suggested
thresholds as high as $5 billion for small bank or intermediate small
bank performance standards. Another commenter recommended that the
intermediate small bank evaluation method be eliminated altogether in
favor of the streamlined examination for small banks. A few commenters
addressed the particular needs of small
[[Page 15919]]
rural banks, suggesting further streamlining of the evaluation with one
commenter advocating that small rural banks should be exempt from CRA
altogether. One commenter suggested that the CRA examination threshold
limits should not be asset based but rather focused on the market or
business model of the institution. In addition, a few industry
commenters raised the burden associated with the frequency of
examinations, arguing for longer intervals between examinations for
banks with satisfactory or outstanding ratings. Community organizations
opposed extending the examination cycle, which they believe would
decrease the level of CRA activity in underserved communities.
Other commenters recommended changes for small banks. These
commenters suggested updating the rules related to rural banks
(suggesting that the agencies should look at rules, including
definitions, to consider not only a bank's size but also the bank's
location and relationship to the community). One commenter suggested
that the strategic plan option process is too cumbersome and should be
streamlined for smaller institutions. A commenter recommended an
exemption for any community bank that reinvests a large percentage of
its deposits back into its community.
Examination and compliance standards
Several commenters from both industry and community organizations
raised the need for more clarity in the examination process. Some
commenters focused on more specific standards, with a few suggesting
matrices of requirements by bank size, and others suggesting
performance benchmarks or scorecards. One commenter supported more data
driven performance context information that includes credit needs of an
assessment area. In the case of retail services, a commenter argued
that the test should include a quantitative and qualitative analysis of
how bank services impact LMI communities. Many commenters asserted that
the CRA criteria should place more emphasis on the quality of an
institution's activities and its impact on the communities it serves.
Several commenters stated that the CRA regulations are not applied
consistently and urged the agencies to provide more examiner training
to promote effective and consistent examinations. Commenters mentioned
a need for more consistent treatment of banks within and among the
different agencies regarding performance criteria, performance context,
and application of definitions. One commenter mentioned that the
agencies need to improve and standardize examiner training on CRA to
promote effective examination and consistency.
CRA ratings
Several comments from community and consumer organizations raised
concern that assigned CRA ratings are not assessing properly the degree
to which banks are addressing community credit needs. These commenters
based this conclusion on the fact that a significant proportion of
banks are rated ``satisfactory'' or ``outstanding'' even though
critical community credit needs remain unmet, according to commenters.
Commenters offered a variety of suggestions for revising the CRA
ratings criteria so that they are more rigorous and offer a more
nuanced picture of CRA performance. Several commenters from community
organizations argued that a bank's CRA ratings should be negatively
impacted by harmful lending and services practices in addition to the
illegal or discriminatory lending practices that are currently
considered. Some of these commenters urged the agencies to revise the
regulation as well as the guidance to provide for greater consideration
of harmful and unlawful banking practices. One commenter argued that an
institution should not be eligible to receive a ``satisfactory'' CRA
rating after a Department of Justice discrimination suit or settlement
for violations of fair lending laws. A few commenters suggested that
banks should be downgraded for violations of fair housing laws and
other consumer protections. In contrast, an industry commenter
disagreed with this approach, provided that all other aspects of the
bank's performance are ``satisfactory'' or ``outstanding.'' This
commenter stated that the agencies should not automatically lower CRA
ratings due to an adverse fair lending examination. In addition, some
commenters expressed concern that the fair lending discussion contained
in the CRA public evaluation is not sufficiently detailed to
independently judge the examiners' conclusion.
Commenters also asserted that current ratings do not reflect the
reality of differences in bank performance in serving communities and
recommended replacing the 0- to 24-point scale with a point system of 1
to 100. Some commenters further contended that measures currently used
do not distinguish institutions whose community reinvestment activities
are barely satisfactory and need to be improved. Another commenter
recommended dividing the ``satisfactory'' CRA rating into ``high
satisfactory'' and ``low satisfactory'' ratings as another way to
better distinguish performance. Other commenters noted that CRA
examinations should be rigorous and should evaluate an institution's
process for achieving performance, not just the results of lending,
investment, and service activities.
Treatment of affiliate activities in CRA evaluations
Currently, for CRA evaluation purposes, the agencies may consider
loans made by bank affiliates if requested by the IDI. Some commenters
suggested that the agencies instead should consider affiliate
activities when they have a significant impact on community needs. One
commenter suggested a single evaluation at the holding company level
that would include all CRA-covered subsidiaries.
Role of CRA in merger applications
Several community and consumer groups advocated that the CRA should
play a more significant role in mergers, with consideration given to
both past performance and future plans. A few commenters suggested
specific steps the agencies could take to ensure that merging banks are
attentive to community reinvestment matters, which they alleged can
suffer in a merger situation. One commenter suggested that banks should
be required to make public benefit commitments prior to merger
approvals detailing how the expanded bank will invest in the community.
One community commenter opposed expedited merger procedures for CRA
reasons, and another community commenter favored making a merger
approval contingent on an outstanding CRA rating. Another commenter
suggested that when a large bank leaves a market by merging or closing
branches, the bank should have a continuing obligation to serve that
market.
CRA's consideration of neighborhood stabilization program (NSP)
activities
Two commenters recommended that the CRA definition of ``community
development'' continue to include NSP-related or similar activities. In
2010, the agencies revised their CRA regulations to consider NSP-
eligible activities shortly after the temporary program was created by
Congress and these CRA provisions are scheduled to sunset two years
after the last date appropriated funds for the temporary program are
required to be spent.
[[Page 15920]]
Limited-scope evaluation areas
Some commenters raised concerns about the negative impact of using
limited-scope examination procedures in smaller cities and rural areas.
These commenters suggested that the performance records of limited-
scope assessment areas for each state be aggregated and weighted as one
full-scope assessment area so that performance in these areas would
have more weight on an institution's overall rating. Specifically, two
commenters argued that this approach would boost consideration of
performance in smaller cities and rural counties. A few commenters
contended that limited-scope assessment areas do not receive meaningful
evaluation, which harms smaller cities and rural counties because bank
performance in these areas does not count at all or to a very small
extent in the CRA rating.
Consideration of race and ethnicity
Two commenters suggested that race and ethnicity be an explicit
consideration in evaluating an institution's CRA record. The commenters
opined that if the CRA considered race, lenders would be less likely to
engage in redlining and other racially discriminatory practices, which
would lessen compliance costs for lenders and create a more robust and
competitive lending market in minority communities.
Database of community development activities
One commenter urged the agencies to create a publicly available
database of community development activities to help identify
opportunities and needs for community development financing.
Additional comments
Two commenters also recommended that the agencies provide CRA
consideration for financial education and similar programs regardless
of the economic status of the recipients.
One commenter mentioned the burden associated with finding and
receiving CRA consideration for worthwhile investment projects. The
commenter suggested eliminating the investment test and instead having
investments considered as a performance enhancement by the bank.
Two commenters opined that CRA's coverage should be expanded to
include credit unions.
Agencies' Response
The agencies have revised the Interagency Questions and Answers
Regarding Community Reinvestment (Interagency CRA Q&As), the primary
vehicle for interagency CRA guidance, to address several topics,
including some comments raised in the EGRPRA process.\73\ Specifically,
the recent revisions to the Interagency CRA Q&As made clarifications
designed to improve the consistency of examinations across and within
the agencies; reaffirm that community development activities conducted
in the broader statewide or regional area that includes a bank's
assessment area, but that do not benefit the bank's assessment area,
will be considered (provided that the bank has been responsive to
community development needs and opportunities in its assessment
area(s)); add examples of the activities considered to meet the purpose
test for qualifying economic development activities; distinguish
between community development services and retail products tailored to
meet the needs of LMI people; and add examples of qualifying community
development loans, investments, and community development services to
help illustrate the types of activities that are eligible for CRA
consideration.
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\73\ 81 FR 48506 (July 25, 2016).
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In addition to revising existing guidance, the agencies added new
questions and answers that address how examiners determine the
availability and effectiveness of alternative delivery systems, whether
products and services are tailored to meet the needs of LMI areas and
individuals, and how they weigh quantitative and qualitative evaluative
criteria to evaluate community development services. Still other new
questions and answers were added to explain what the agencies mean by
the terms ``innovativeness'' and ``responsiveness'' in the context of
CRA evaluations.
The agencies believe that this new guidance is responsive to many
of the concerns raised by comments they received through the EGRPRA
process and elsewhere. However, the agencies recognize that more can be
done to improve the CRA evaluation process. To this end, the agencies
are reviewing their current examination procedures and practices to
identify policy and process improvements. The agencies also are
developing new examination tools to support more rigorous performance
evaluations, more nuanced understanding of performance context
information, and more transparency in the written public evaluations of
CRA performance. Moreover, the agencies understand the importance of
providing additional examiner training with regard to CRA and are
committed to working together to develop and deliver interagency
training for the examination staff.
The agencies note that a number of the topics addressed by
commenters might require a statutory change. First, the overall ratings
that the agencies assign are dictated by statute and any changes would
require a statutory amendment. Second, suggestions to expand CRA
coverage to financial institution affiliates might require a statutory
change. Finally, expanding the CRA's coverage to include other non-
depository institutions and credit unions would also require a
statutory amendment.
6. Bank Secrecy Act
Background
The BSA authorizes the Secretary of the Treasury to issue rules, in
consultation with the appropriate federal banking agencies, requiring
financial institutions to establish a BSA compliance program.\74\ The
BSA also authorizes the Secretary to issue rules requiring institutions
to identify and report suspicious activity and to file various reports
regarding currency transactions.\75\ The Secretary has delegated to the
FinCEN the authority to issue regulations implementing these
requirements, which are set forth at 31 CFR Chapter X.
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\74\ 31 U.S.C. 5318(h).
\75\ 31 U.S.C. 5318(g) and 5313.
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In addition, section 8(s) of the FDI Act,\76\ provides that each
appropriate federal banking agency must prescribe regulations requiring
IDIs to establish and maintain procedures reasonably designed to assure
and monitor compliance with the BSA.\77\ The agencies' regulations
implementing section 8(s) provide that IDIs must establish a BSA
compliance program, including establishing and maintaining procedures
to ensure and monitor their compliance with the BSA, and the
regulations issued by Treasury set forth at 31 CFR Chapter X. On May 9,
2003 the agencies published in the Federal Register \78\ an amendment
to the BSA regulations, to require financial institutions to establish
a customer identification program as a part of their BSA compliance
program in accordance with regulations the agencies prescribed jointly
with FinCEN implementing section 326 of the USA PATRIOT Act.\79\ The
customer identification program
[[Page 15921]]
must include reasonable procedures to verify the identity of any person
seeking to open an account. In addition, the agencies have issued
regulations requiring IDIs to file SARs with the appropriate federal
law enforcement agencies and the U.S. Treasury, as required by the BSA
and consistent with FinCEN's regulations.\80\ Specifically, financial
institutions must report known or suspected criminal activity, at
specified thresholds, or transactions over $5,000 that they suspect
involve money laundering or attempts to evade the BSA by filing a
SAR.\81\
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\76\ 18 U.S.C. 1818(s).
\77\ 31 U.S.C. 5311 et seq. (BSA). The agencies' regulations are
set forth at 12 CFR 21, subpart C; 12 CFR 208.63; 12 CFR 326,
subpart B; and 12 CFR 390.354.
\78\ 68 FR 25109 (May 9, 2003).
\79\ Public Law 107-56, codified at 31 USC 5318(l) and 31 CFR
1020.220.
\80\ 31 U.S.C. 5318(g); 31 CFR 1010.320.
\81\ 12 CFR 21.11, 12 CFR 163.180(d), 12 CFR 208.62, 12 CFR 353,
and 12 CFR 390.355.
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EGRPRA Comments
Approximately 40 commenters and outreach meeting participants
addressed the BSA. Recurring BSA comments related to increasing the
threshold for filing CTRs, the SAR threshold, the overall increasing
cost and burden of BSA compliance, and increasing the number of months
between examinations for smaller, non-complex banks. Additional
comments included possible changes to BSA reporting, greater clarity
regarding customer due diligence requirements and supervisory
expectations, and BSA examination consistency.
Because FinCEN also has rules implementing the statutory SAR and
BSA compliance requirements, any increases to the SAR filing threshold
or changes to the BSA compliance program requirement would need to be a
joint effort by FinCEN and the agencies.
Furthermore, all comments on the CTR form or on CTR reporting
relate to FinCEN requirements and are outside the scope of the
agencies' review of their regulations.\82\ Accordingly, FinCEN rather
than the agencies would need to make any changes related to CTRs. The
agencies provided a detailed summary of the EGRPRA comments to the
Department of the Treasury's Office of Terrorism and Financial
Intelligence and FinCEN, and their response is included in appendix 5.
Additionally, FinCEN has published information regarding how
information submitted to them is used.\83\
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\82\ See FinCEN regulation at 31 CFR 1010.310.
\83\ See for example, Prepared Remarks of FinCEN Associate
Director for Enforcement, Thomas Ott, delivered at the National
Title 31 Suspicious Activity & Risk Assessment Conference and Expo,
August 17, 2016. www.fincen.gov/news/speeches/prepared-remarks-fincen-associate-director-enforcement-thomas-ott-delivered-national.
See also SAR statistics contained in FinCEN's SAR Technical
Bulletins at www.fincen.gov/news-room/sar-technical-bulletins.
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Increase the reporting thresholds for CTRs and SARs
The majority of commenters discussing BSA requirements suggested
that the $10,000 threshold for CTRs be raised. For the majority of the
comments, the CTR threshold issue was the only BSA issue identified.
Most of the commenters stated that the current CTR threshold has been
in place since 1970, when Congress enacted the BSA, and that the
$10,000 amount has not kept pace with inflation or the current way cash
is used. Some commenters stated that increasing the threshold would
reduce excess reporting and could make the reports more meaningful to
law enforcement.
In addition, several commenters suggested that the agencies also
review thresholds for SARs. Specifically, commenters noted that there
are different thresholds for SARs depending on the subject identified
and the nature of the activity, and these commenters suggested that the
agencies should consider raising or calibrating thresholds depending on
the activity. Many of the commenters mentioned that increasing the
thresholds would decrease the number of filings for banks and,
therefore, would reduce overall compliance costs and the amount of
resources needed to comply with the BSA.
Costs and burdens of BSA compliance
Commenters on BSA-related regulations also noted the increasing
cost and burden associated with complying with the BSA. A few
commenters noted the high cost of software generally needed or expected
to be used to comply with various aspects of the BSA. One commenter
stated that automated systems are expensive and drain staff resources,
noting that there is often a need to hire dedicated compliance staff to
oversee the conversion to, and running of, the new system. Another
commenter felt that too much time, attention, and resources are
directed toward regulatory compliance instead of providing credit and
financial services to the community. This commenter suggested tailoring
changes to make BSA compliance more commensurate with the risk profile
of institutions of all sizes. Another commenter, a trade association,
suggested that law enforcement and regulators are shifting their
responsibilities associated with BSA, AML, and U.S. Housing and Urban
Development Department data collection onto bank staff.
Reducing the frequency of examinations for smaller, non-complex banks
The agencies are required under 12 USC 1818(s)(2) to include
reviews of BSA compliance programs in their examinations of IDIs. Such
reviews are performed during statutorily required on-site examinations
of IDIs, generally on a 12- to 18- month cycle.\84\ Several commenters
addressed the possibility of extending the examination cycle from 12 to
18 months for well-rated, smaller, non-complex banks. While this issue
is not specific to BSA, several comments did highlight the BSA
examination frequency when discussing examinations in general.
---------------------------------------------------------------------------
\84\ See 12 U.S.C. 1820(d).
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Additional issues
Some commenters suggested additional changes to SAR and CTR
requirements. For the SAR requirement, a few comments suggested
changing the review period for reporting ongoing suspicious activity
from 90 days to 180 days. Other commenters suggested the possibility of
eliminating a SAR requirement for certain activities, such as
structuring transactions to avoid CTR filings. Two comments state that
certain courts have misinterpreted the SAR safe harbor to require
disclosures be made in ``good faith.'' The commenters believe that
failure by the agencies to clarify that a good faith standard is not
required to qualify for the SAR safe harbor could increase uncertainty
by banks to proactively file SARs. For CTRs, several commenters offered
alternatives to filing a CTR on individual transactions. Three
commenters suggested an aggregate filing and one other suggested bulk
data downloads.
Some commenters discussed inconsistent approaches in BSA
examinations. Although examiners follow the FFIEC BSA/AML Examination
Manual,\85\ commenters suggested a need for standard application of
procedures.
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\85\ FFIEC BSA/AML Examination Manual.
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A few comments addressed customer due diligence requirements. One
commenter addressed the potential burden associated with a notice of
proposed rulemaking issued by FinCEN that would require banks to obtain
beneficial ownership information for legal entity customers. Two other
commenters stated that customer due diligence requirements are becoming
overly burdensome and noted that they feel like investigators instead
of bankers.
[[Page 15922]]
Agencies' Response
The comments regarding the CTR threshold cannot be addressed
through the EGRPRA process because changing this threshold would
require an amendment to FinCEN's regulation at 31 CFR 1010.310.
Similarly, an increase in the SAR threshold would require a change to
FinCEN's regulation at 31 CFR 1010.320 as well as to the agencies'
regulations.
With regard to the costs and burdens of BSA compliance, the high
cost of software and the use of automated monitoring systems, the
agencies expect banks to have effective BSA programs commensurate with
their money laundering and terrorist financing risks. Accordingly, the
sophistication of monitoring systems should be dictated by the bank's
risk profile, with particular emphasis on the composition of higher-
risk products, services, customers, entities, and geographies.
While existing regulations do not require banks to use automated
systems, many U.S. banks use them to comply with the BSA due to their
increased efficiencies, effectiveness, and the resulting human resource
benefits and economies of scale. Banks that engage in lower-volume and
lower-risk activities with low risk customers within the institution's
geographic footprint are not expected to have automated systems but
must have an effective BSA compliance program.
As discussed more fully above in section D.1., the agencies have
acted to reduce the examination burden for smaller institutions. On
February 29, 2016, the agencies issued an interim final rule that
raised the asset threshold by which well-capitalized and well-managed
IDIs are eligible for an expanded 18-month examination cycle.
Specifically, the interim final rule raised the total asset threshold
for eligible IDIs from less than $500 million to less than $1 billion.
The agencies published the interim final rule as final and with no
changes on December 16, 2016,\86\ which means that IDIs that qualify
for less frequent safety-and-soundness examinations also will be
eligible for less frequent reviews of BSA program compliance.
---------------------------------------------------------------------------
\86\ 81 FR 90949 (December 16, 2016).
---------------------------------------------------------------------------
The 90-day supplemental time to report continuing suspicious
activity is set forth in FinCEN guidance and not in a regulation.
FinCEN's guidance states that banks may continue to report an ongoing
suspicious activity by filing a report with FinCEN at least every 90
calendar days. Subsequent guidance permits banks with SAR requirements
to file SARs for continuing activity after a 90-day review with the
filing deadline 120 calendar days after the date of the previously
related SAR filing.\87\ With respect to the comments on the SAR safe
harbor, FinCEN notes in their response letter attached as appendix 5
that they provided language to Congress to amend the current safe
harbor provisions. If enacted, FinCEN states in its response that it
will work expeditiously to amend related implementing regulations.
---------------------------------------------------------------------------
\87\ Refer to FAQs Regarding the FinCEN Suspicious Activity
Report, Question 16.
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The agencies also support promoting efforts to increase consistency
in the application of examination procedures across the agencies
through enhanced examiner training. The FFIEC BSA/AML Working Group
meets regularly to share information among its members about various
BSA/AML supervisory and policy matters, including significant issues,
emerging concerns, member initiatives, and projects. In accordance with
the charter of the BSA/AML Working Group, members strive to coordinate
interagency efforts as appropriate to ensure consistent approaches
across the different agencies charged with responsibilities for BSA/AML
supervision, training, guidance, and policy. In addition, the FFIEC
annually holds a BSA/AML Workshop and an Advanced BSA Specialists
Conference for all FFIEC examiners to promote consistency in the
examination process and highlight emerging trends and practices.
The agencies note that in May 2016, FinCEN issued final rules under
the BSA to clarify and strengthen customer due diligence requirements
for banks, credit unions, brokers or dealers in securities, mutual
funds, and futures commission merchants and introducing brokers in
commodities.\88\ The rules contain explicit customer due diligence
requirements and include a new requirement to identify and verify the
identity of beneficial owners of legal entity customers, subject to
certain exclusions and exemptions. Any changes to these due diligence
requirements would need to be made by FinCEN together with the
agencies.
---------------------------------------------------------------------------
\88\ 81 FR 29398 (May 11, 2016).
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E. Other Agency Initiatives to Update Rules and Reduce Burden
During the EGRPRA process, the agencies jointly and individually
undertook efforts to reduce regulatory burden on institutions that they
supervise and regulate. These initiatives took various forms ranging
from regulatory changes, streamlining of supervisory processes, and
revisions of agency handbooks. These efforts collectively contributed
to EGRPRA's main purpose of identifying outdated or otherwise
unnecessary regulatory requirements on financial institutions and
eliminating unnecessary regulations to the extent appropriate.
1. Interagency Initiatives
A. Disclosure and Reporting of CRA-Related Agreements (``CRA
Sunshine'')
Background
Section 48 of the FDI Act imposes disclosure and reporting
requirements on IDIs with respect to certain agreements related to the
CRA.\89\ Specifically, this section requires that each IDI or affiliate
must file, at least annually, a report with the appropriate federal
banking agency detailing agreements made with nongovernmental entities
or persons (NGEPs) pursuant to or in connection with the fulfillment of
the CRA. This section also requires each party to an agreement to make
available the entire agreement to the public and to the appropriate
federal banking agency. In addition, section 48 requires each NGEP to
file an annual report disclosing the use of any funds received pursuant
to each agreement with the appropriate federal banking agency or with
the relevant institution, which then must promptly forward the report
to the agency. The agencies' implementing regulations also require IDIs
and their affiliates to file quarterly reports with the appropriate
federal banking agency disclosing all agreements entered into during
that quarter.\90\
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\89\ 12 U.S.C. 1831y. This section was added by section 711 of
the Gramm-Leach-Bliley Act.
\90\ The agencies' CRA Sunshine rules are set forth at 12 CFR
parts 35, 207, and 346.
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EGRPRA Comments
The agencies received three written comments on the CRA Sunshine
rule, one from an industry trade association and two from community
organizations. In addition, one participant and one audience member
commented on the CRA Sunshine rule during the EGRPRA outreach sessions.
The commenters either recommended total repeal of the reporting
requirement or streamlining of the reporting requirements, which
commenters viewed as burdensome.
Specifically, two community organization commenters recommended the
repeal of the CRA Sunshine statute. Both organizations urged the
agencies to use the EGRPRA process as an opportunity to acknowledge
that the law imposes an unnecessary regulatory
[[Page 15923]]
burden on banks and community organizations.
One community organization asserted that the provision was designed
to discourage business partnerships between banks and community
organizations. Another commenter similarly asserted that the
disclosure, monitoring, and reporting requirements are draconian and
intended to punish organizations for working on reinvestment matters.
Three community organizations and one industry trade association
criticized the paperwork burden associated with the quarterly
disclosure and annual reporting of CRA agreements. The industry trade
organization commenter stopped short of calling for a complete repeal
of the CRA Sunshine statute. Instead, this commenter recommended that
the agencies eliminate the quarterly reporting requirement and limit
disclosures to the annual reporting requirement. The commenter
highlighted the burden associated with creating and providing both
quarterly and annual reports; noting that the dual requirements are
unnecessary, redundant, and time consuming for both the depository
institution and the agencies' staff who must review the reports.
Agencies' Response
The agencies agree with the commenters that the quarterly and
annual reporting of CRA-related agreements and the actions taken
pursuant to those agreements are unduly burdensome on both financial
institutions and the NGEPs that are parties to the agreements.
Therefore, the agencies are considering whether to discontinue the
quarterly reporting requirement, as quarterly reporting is not
statutorily required.
B. Loans in Areas Having Special Flood Hazards
Background
Pursuant to the National Flood Insurance Act of 1968 \91\ and the
Flood Disaster Protection Act of 1973,\92\ the agencies' flood
insurance regulations \93\ provide that a regulated lending institution
(lender) may not make, increase, extend, or renew a loan secured by a
building or mobile home located in a special flood hazard area (SFHA)
in which flood insurance is available under the National Flood
Insurance Program (NFIP), unless the building or mobile home and any
personal property securing the loan is covered by appropriate flood
insurance for the term of the loan. The statute and regulations also
require lenders, or loan servicers acting on the lenders' behalf, to
force place flood insurance if they determine at any time during the
life of a covered loan that the secured property is not adequately
insured. Furthermore, lenders are required to provide notice to
borrowers and servicers of this flood insurance requirement as well as
of the availability of private flood insurance in addition to the NFIP
coverage. The agencies amended their rules to implement the Biggert-
Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) \94\ and
the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) \95\
with respect to the escrow of flood insurance premiums, the force
placement requirements, and an exemption to the mandatory purchase
requirement for detached structures.\96\ The agencies also recently
proposed amendments to implement the Biggert-Waters Act's provisions on
private flood insurance.\97\
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\91\ Public Law 90-448, 82 Stat. 572 (1968).
\92\ Public Law 93-234, 87 Stat. 975 (1973).
\93\ 12 CFR part 22; 12 CFR 208.25 (Reg. H); 12 CFR 339.
\94\ Public Law 112-141, 126 Stat. 916 (2012).
\95\ Public Law 113-89, 128 Stat. 1020 (2014).
\96\ 80 FR 43216 (July 21, 2015).
\97\ 81 FR 78063 (November 7, 2016).
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The agencies received 13 comments from banking industry trade
associations and regulated institutions on the agencies' flood
insurance rules. Several commenters asked that the agencies provide
more guidance to the industry on flood insurance requirements,
particularly with respect to renewal notices for force-placed insurance
policies, the required amount of flood insurance, and flood insurance
requirements for tenant-owned buildings and detached structures. One
commenter specifically requested that the agencies update their
Interagency Flood Q&As \98\ in light of recent statutory amendments to
the flood insurance laws by the Biggert-Waters Act and HFIAA.\99\
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\98\ 74 FR 35913 (July 21, 2009), as revised by 76 FR 64175
(October 1, 2011).
\99\ These comments, as well as additional comments on the
agencies' flood insurance rules, are summarized in detail in section
F of the report.
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Agencies' Response
The agencies agree with these EGRPRA commenters that additional
agency guidance on flood insurance requirements would be helpful to the
banking industry and that the Interagency Flood Q&As should be updated
to address recent amendments to the flood insurance statutes. In fact,
the agencies have begun work on revising the Interagency Flood Q&As to
reflect the agencies' recently issued final rules implementing the
Biggert-Waters Act and HFIAA requirements and to address other issues
that have arisen since the last update in 2011. As part of this
revision, the agencies also plan to address many of the flood insurance
issues raised by EGRPRA commenters. The agencies note that in the past,
the agencies have issued these Interagency Flood Q&As for notice and
comment so that interested parties may provide input and request
further clarification on the proposed Q&As.
C. Other Joint Agency Initiatives
The agencies also are taking action in a number of other areas
where they received a more limited number of comments. These actions
are described below.
Management Official Interlocks
In general, pursuant to the DIMIA,\100\ agency regulations prohibit
a management official of a depository institution or depository
institution holding company from serving simultaneously as a management
official of another depository organization if the organizations are
not affiliated and both either are very large or are located in the
same local area.\101\
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\100\ 12 U.S.C. 3201 et seq.
\101\ 12 CFR part 26; 12 CFR part 212; 12 CFR part 238, subpart
J; 12 CFR part 348.
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The agencies received one comment letter regarding the DIMIA
regulations, from a trade association. Among other things, the
commenter suggested that the agencies update their regulations based on
the asset thresholds in the major assets prohibition in 12 U.S.C. 3203.
In general, this prohibition states that a management official of a
depository organization with total assets exceeding $2.5 billion (or
any affiliate of such organizations) may not serve as a management
official of an unaffiliated depository organization with total assets
exceeding $1.5 billion (or any affiliate of such organizations),
regardless of the location of either organizations. The agencies agree
with this comment and plan to propose amendments to their rules to
update these thresholds. The agencies' DIMIA regulations specifically
provide that the agencies will adjust the $2.5 billion and $1.5 billion
thresholds ``as necessary'' based on inflation or market conditions,
and the agencies have not adjusted these thresholds since the agencies
implemented this provision in 1999. The agencies note that the current
inflation adjusted thresholds would be $3.6 billion and $2.16 billion,
respectively.
[[Page 15924]]
Limits on Extensions of Credit to Executive Officers, Directors and
Principal Shareholders; Related Disclosure Requirements (Regulation O)
The Board's Regulation O \102\ implements sections 22(g) and 22(h)
of the Federal Reserve Act, which places restrictions on extensions of
credit made by a member bank to an executive officer, director,
principal shareholder, of the member bank, of any company of which the
member bank is a subsidiary, and of any other subsidiary of that
company. Federal law also applies these restrictions to state nonmember
banks, FSAs, and state savings associations. OCC and FDIC regulations
enforce these statutory and regulatory restrictions with respect to
national banks and FSAs, and to state nonmember banks and state savings
associations, respectively.\103\ Among other comments, a trade
association suggested that the agencies create a chart that summarizes
the rules and limits of Regulation O, as added guidance for the
industry. The agencies believe that such a chart would be helpful to
the industry and are working to provide a chart or similar guide either
in an interagency issuance or a publication posted on their respective
websites on the statutorily required rules and limits on extensions of
credit made by an IDI to an executive officer, director, or principal
shareholder of that IDI, its holding company, or its subsidiaries.
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\102\ 12 CFR part 215.
\103\ See 12 CFR part 31, 12 CFR 337.3, and 12 CFR 390.338.
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Cybersecurity and Information Technology Coordination
The agencies coordinate regulatory efforts on cybersecurity and
information technology risks so as to ensure consistency in guidance
and expectations of our institutions. For example, over the past two
years the agencies published the FFIEC Cybersecurity Assessment Tool to
assist institutions in identifying their risks and assessing their
cybersecurity preparedness and have issued joint statements notifying
institutions of matters such as risks associated with malware-based
cyberattacks, distributed denials of service, and preparedness alerts
to institutions. The agencies also issued revisions to the FFIEC
Information Technology Examination handbook and provided webinars,
outreach, and other resources to help institutions address
cybersecurity threats and other IT risks.
2. Board Initiatives
During the EGRPRA review period, the Board has undertaken a number
of initiatives to reduce unnecessary regulatory burden on the financial
organizations it regulates and supervises. Such initiatives included
revisions of various aspects of the Board's supervisory, regulatory,
monetary policy, payments, and consumer protection rules, procedures,
and guidance. In connection with its regulations and supervisory
processes, the Board will continue to identify appropriate regulatory
and supervisory revisions to reduce unnecessary burden while ensuring
the safety and soundness of institutions, protecting the integrity of
the financial payment systems, and safeguarding customer protections.
Initiatives Related to Supervision
A. Small BHC/SLHC Policy Statement
Background
On February 3, 2015, the Board invited comment on a proposed rule
to expand the applicability of its Small Bank Holding Company Policy
Statement (policy statement) and also apply it to certain savings and
loan holding companies. Specifically, the proposed rule would have
allowed bank holding companies and savings and loan holding companies
with less than $1 billion in total consolidated assets to qualify under
the policy statement, provided the holding companies also comply with
certain qualitative requirements. At the time of the proposal, only
bank holding companies with less than $500 million in total
consolidated assets that met the qualitative requirements could qualify
under the policy statement.
The Board issued the policy statement in 1980 to facilitate the
maintenance of local ownership of small community banks in a manner
consistent with bank safety and soundness. The Board has generally
discouraged the use of debt by bank holding companies to finance the
acquisition of banks or other companies because high levels of debt can
impair the ability of the holding company to serve as a source of
strength to its subsidiary banks. The Board has recognized, however,
that localized small bank holding companies typically have less access
to equity financing than larger bank holding companies and that the
transfer of ownership of small banks often requires the use of
acquisition debt. Accordingly, the Board adopted the policy statement
to permit the formation and expansion of small bank holding companies
with debt levels that are higher than typically permitted for larger
bank holding companies. The policy statement contains several
conditions and restrictions designed to ensure that small bank holding
companies that operate with the higher levels of debt permitted by the
policy statement do not present an undue risk to the safety and
soundness of their subsidiary banks.
EGRPRA Comments
The Board received 11 comments on the proposed rule. Comments were
submitted by financial trade associations, individuals associated with
financial institutions, and a law firm that represents bank holding
companies and savings and loan holding companies. While each commenter
expressed general support for the proposed rule, some commenters
recommended revisions to the proposed rule. For instance, one commenter
expressed support for raising the asset threshold higher than $1
billion. Another commenter expressed support for the nonbanking and
off-balance sheet activity requirements but suggested that the Board
consider rescinding or revising the requirement relating to outstanding
debt or equity securities registered with the Securities and Exchange
Commission.
Board response
The Board approved a final rule in April 2015 raising the asset
threshold of the Board's Small Bank Holding Company Policy Statement
from less than $500 million to less than $1 billion and expanding its
application to savings and loan holding companies. As a result, 89
percent of all bank holding companies and 81 percent of all savings and
loan holding companies were covered under the scope of the policy
statement. The policy statement reduces regulatory burden by excluding
these small organizations from certain consolidated capital
requirements. It also reduces the reporting burden associated with
capital requirements by eliminating the more complex quarterly
consolidated financial reporting requirements and replacing them with
semiannual parent-only financial statements. As of issuance of the
final rule, the policy statement covered approximately 414 additional
bank holding companies and 197 saving and loan holding companies. In
addition, raising the asset threshold allowed more bank holding
companies to take advantage of expedited applications processing
procedures.
[[Page 15925]]
B. Collection of Checks and Availability of Funds (Regulation CC)
Background
The Board received numerous comments related to the regulations
governing collection of checks and availability of funds. Regulation CC
was promulgated to implement the Expedited Funds Availability Act
(EFAA).\104\ The EFAA requires banks to (1) make funds deposited in
transaction accounts available to their customers within certain time
frames, (2) pay interest on interest-bearing transaction accounts not
later than the day the bank receives credit, and (3) disclose their
funds-availability policies to their customers.\105\
---------------------------------------------------------------------------
\104\ Regulation CC, 12 CFR part 229.
\105\ 12 U.S.C. 4001 et seq.
---------------------------------------------------------------------------
EGRPRA Comments
Many commenters suggested that the Board allow extended hold times
for checks, in part, due to check fraud concerns. Several other
commenters argued that the Board should modernize its hold periods, for
example, by reducing the maximum hold period for nonproprietary ATM
deposits and reducing the reasonable hold extension period for non-``on
us'' checks to two business days. Many commenters suggested that
Regulation CC should be amended to account for changes in technology
such as remote deposit capture and mobile deposits. In addition, a few
commenters argued that the concept of nonlocal checks is outdated and
should be removed from Regulation CC.
Board response
The Board and the CFPB have joint rulemaking authority over subpart
B of Regulation CC pertaining to funds-availability and disclosure
provisions of the EFAA. The Board and CFPB will take the comments
received relating to subpart B into account when making amendments in
the future. In particular, the Board expects that provisions that are
outdated and no longer applicable will be updated or removed
accordingly.
In response to the comments received on the remaining subparts of
Regulation CC, the Board will take these into account when considering
future amendments to these provisions. Specifically, the Board has
proposed to amend Regulation CC to reflect today's virtually all-
electronic environment by amending check collection and return rules to
create a regulatory framework for the collection and return of
electronic checks. These proposed changes include defining the terms
``electronic check'' or ``electronic check return.'' The Board has
received many comments in support of these newly defined terms as well
as the proposal to apply existing check collection and return rules to
electronic checks. Reflecting broad input by the industry, the Board
believes its proposed changes reflect the modern environment and will
encourage the remaining banks using paper to send and receive checks
electronically instead.
C. Board Regulation II (Debit Card Interchange Fees and Routing)
Background
The Board received several comments from banks, retailers,
community organizations, and others concerning Regulation II.\106\ The
majority of these comments concerned provisions in the regulation that
cap the interchange fee that a debit card issuer with over $10 billion
in consolidated assets may either charge or receive from a merchant for
an electronic debit transaction.
---------------------------------------------------------------------------
\106\ 12 CFR 235.
---------------------------------------------------------------------------
Regulation II implements section 920 of the Electronic Fund
Transfer Act (EFTA), which was added by the Dodd-Frank Act. Regulation
II sets forth standards for reasonable and proportional interchange
transaction fees (interchange fees) for electronic debit transactions,
standards for receiving a fraud-prevention adjustment to interchange
fees, exemptions from the interchange fee limitations, prohibitions on
evasion and circumvention of the interchange fee limitations, and
prohibitions on payment card network exclusivity arrangements and
routing restrictions for debit card transactions. Specifically,
Regulation II establishes a cap on the base level interchange fee that
an issuer with consolidated assets of $10 billion or more may either
charge or receive from a merchant for an electronic debit transaction.
The regulation allows for a fraud-prevention adjustment to the cap on
an issuer's debit card interchange fee if the issuer develops and
implements policies and procedures reasonably designed to achieve the
fraud-prevention standard set out in the regulation. Certain small
debit card issuers, government-administered payment programs, and
reloadable general-use prepaid cards are exempt from the interchange
fee limitations. Regulation II also prohibits all issuers and networks
from restricting the number of networks over which debit transactions
may be processed to less than two unaffiliated networks and from
inhibiting a merchant's ability to direct the routing of a debit
transaction for processing over any payment card network that may
process such transactions.
EGRPRA Comments
Interchange fee cap
Several commenters suggested that the cap on interchange fees has
been effective in introducing transparency and competition in the debit
card market. The commenters suggested that the fee cap has allowed
merchants to accurately assess the fees they are charged for debit card
transactions and pass any savings they receive to consumers. The
commenters asserted that consumers have reaped benefits from these
measures, particularly in industries with low profit margins. In these
industries, the commenters said, companies have a greater economic
incentive to pass cost savings to consumers. Some of these commenters
also noted that the majority of banks are exempt from the cap on
interchange fees, and thus, may continue to collect fees above the cap
set forth in Regulation II.
Some commenters discussed whether the cap on interchange fees
should be lowered or removed. Several commenters representing retail
trade organizations suggested that, while merchants and consumers have
realized some savings, the Board's current cap level offers issuers
high profit potential, and as a result, has become a de facto floor.
Some of these commenters suggested that the cost for accepting debit
card transactions has continued to decline for issuers and, therefore,
recommended a reduction in the cap. Some commenters also argued that
the cap on interchange fees has resulted in a net-negative effect for
consumers. Most of these commenters asserted that retailers do not have
an economic incentive to pass their cost savings from lower interchange
fees to consumers. Furthermore, some commenters contended that the cap
has increased the cost of banking, as issuers have sought to offset
losses in interchange fees by increasing the prices they charge
consumers for banking services. Several commenters suggested that this
outcome has increased the number of unbanked and underbanked
individuals. For these and other reasons, several commenters argued
that Congress should pass legislation that removes the cap on
interchange fees under Regulation II.
Board response
In late 2016, the Board published a report containing summary
information on costs incurred by issuers for 2015.
[[Page 15926]]
This data as well as any other industry developments, will inform any
future consideration by the Board as to whether changes to the
interchange fee standard are appropriate.
Exemption to the cap on interchange fees for prepaid cards
The Board received several comments concerning the exemption to the
cap on interchange fees for eligible prepaid cards. Commenters noted
that banks subject to the cap, in an effort to conform their prepaid
card products to the exemption, have eliminated features in the prepaid
cards they offer consumers, including access to online bill payments.
Several commenters argued that this outcome has impeded the
functionality of prepaid fees offered by large banks, and as a result,
has negatively impacted consumers with limited access to basic banking
services.
As a solution, several commenters suggested that the Board redefine
prepaid cards for purposes of the exemption under Regulation II, and
remove certain criteria that impede the functionality of prepaid cards.
They argued that a revision would be consistent with the Board's policy
concerns relating to the exemption, since many of the prohibited
features relating to the functionality of prepaid cards do not generate
interchange fees, and therefore, would not allow banks to evade the cap
under Regulation II. In addition, several commenters also suggested
that the Board consider using the definition of ``prepaid accounts'' in
the CFPB's proposed rule on prepaid accounts.
Board response
Under Regulation II, a prepaid card that provides access to the
funds underlying the card through check, Automated Clearing House
(ACH), wire transfer or other method (except when all remaining funds
are provided to the cardholder in a single transaction) is not eligible
for the exemption because such a prepaid card would function nearly in
the same manner as a debit card. As stated in the preamble to the final
rule, prepaid cards that provide access to underlying funds through
alternative payment methods would not meet the requirements of section
920(a)(7)(A)(ii)(II) of the EFTA.\107\ That section provides that an
exempt prepaid card may not be issued or approved for use to access or
debit any account held by or for the benefit of the cardholder.
---------------------------------------------------------------------------
\107\ 76 FR 43394, 43438 (July 20, 2011).
---------------------------------------------------------------------------
Fraud prevention adjustment to the interchange fee standard
A commenter representing a retail organization suggested that, in
light of the migration by U.S. card issuers to chip-enabled card
technology intended to reduce fraudulent transactions, the Board should
revisit the appropriateness of the fraud-prevention adjustment to the
interchange fee standard under Regulation II. The commenter suggested
that maintaining the fraud-prevention adjustment once chip-enabled
cards have been widely adopted would allow issuers to charge
interchange fees in excess of the reasonable costs they incur for
electronic debit transactions.
Board response
In late 2016, the Board published a report containing summary
information on fraud-prevention costs for 2015. This data, as well as
any other industry developments will inform any future consideration by
the Board as to whether changes to the fraud-prevention standard are
appropriate.
Limitations on payment card restrictions
One commenter stated that Regulation II goes beyond the statutory
requirement under section 920(b)(1)(A) of the EFTA. That section
provides that an issuer shall not restrict the number of payment card
networks on which an electronic debit transaction may be processed to
fewer than two unaffiliated networks. The Board interpreted that
section to require issuers to ensure that the debit cards they issue
are enabled on at least two unaffiliated networks.\108\ The commenter
argued that the statutory provision does not require the Board to
impose such an affirmative obligation on the issuer. The commenter
suggested that the requirement imposes an economic burden on issuers,
particularly smaller banks, and makes it more difficult for issuers and
payment card networks to deploy innovative technologies or otherwise
improve their services. The Board also received several comments in
support of its interpretation. The commenters suggested that requiring
at least two unaffiliated networks on each debit card increases
competition among payment card network providers by allowing
competitors to invest in technologies that increase the efficiency of
transactions; they also suggested that it allows merchants to choose
the most cost-effective route for processing a debit transaction.
---------------------------------------------------------------------------
\108\ See paragraphs 7(a)-1 and 7(a)-5 of the commentary to
Regulation II.
---------------------------------------------------------------------------
Board response
The Board addressed this concern in the preamble to the final rule.
Some commenters had argued that the statute does not mandate a minimum
number of payment card networks to be enabled on a debit card as long
as an issuer or payment card network does not affirmatively create any
impediments to the addition of unaffiliated payment card networks on a
debit card. The Board stated that, by its terms, the statute's
prohibition on exclusivity arrangements is not limited to those that
are mandated or otherwise required by a payment card network. The Board
stated that individual issuer decisions to limit the number of payment
card networks enabled on a debit card to a single network or affiliated
networks are also prohibited as a ``direct'' restriction on the number
of such networks in violation of the statute.\109\ The Board stated
that to conclude otherwise would enable an issuer to eliminate merchant
routing choice for electronic debit transactions with respect to its
cards, contrary to the overall purpose of section 920(b) of the
EFTA.\110\
---------------------------------------------------------------------------
\109\ 76 FR 43394, 43451 (July 20, 2011).
\110\ Id.
---------------------------------------------------------------------------
D. Other initiatives
Initiatives related to the safety and soundness supervisory process
The Federal Reserve has developed various technological tools for
examiners to improve the efficiency of both off-site and on-site
supervisory activities, while ensuring the quality of supervision is
not compromised. For instance, the Federal Reserve has automated
various parts of the community bank examination process, including a
set of tools used among all Reserve Banks to assist in the pre-
examination planning and scoping. Central to this effort, the Federal
Reserve uses forward-looking risk analytics and Call Report data to
identify high- and low-risk community banks, allowing the Federal
Reserve to focus its supervisory response on the areas of highest risk
and reduce the regulatory burden on low-risk community banks.
Additionally, the Board issued SR letter 16-8, ``Off-site Review of
Loan Files,'' announcing the Federal Reserve's off-site loan review
program to state member banks and U.S. branches and agencies of foreign
banking organizations with less than $50 billion in total assets. Under
the off-site loan review program, covered institutions have the option
to have Federal Reserve examiners review loan files off site during
full-scope or target
[[Page 15927]]
examinations if they maintain electronic loan records and have invested
in technologies that would allow Federal Reserve examiners to do so.
The Board has issued rules and guidance, and made program changes
to clarify and tailor expectations surrounding certain aspects of the
safety-and-soundness supervisory process. For example, the Board:
Issued SR letter 16-4, ``Relying on the Work of the Regulators
of the Subsidiary Insured Depository Institution(s) of Bank Holding
Companies and Savings and Loan Holding Companies with Total
Consolidated Assets of Less than $50 Billion,'' to reinforce and
formalize the Federal Reserve's existing practice of relying on the
work of IDI regulators when supervising consolidated holding companies
with assets of less than $50 billion.
Issued SR letter 16-11, ``Supervisory Guidance for Assessing
Risk Management at Supervised Institutions with Total Consolidated
Assets Less than $50 Billion,'' which sets forth an update to the
Federal Reserve's supervisory guidance for assessing risk management at
supervised institutions with less than $50 billion in total
consolidated assets, and provides clarification on and distinguishes
supervisory expectations for the roles and responsibilities of the
board of directors and senior management for an institution's risk
management.
Revised the rule implementing the Dodd-Frank Act-required
company-run stress testing for bank holding companies with total
consolidated assets of more than $10 billion but less than $50 billion
and savings and loan holding companies with more than $10 billion in
total consolidated assets.\111\ The changes to the Board's rule provide
additional flexibility with respect to required assumptions that these
companies must include in their company-run tests and extend the amount
of time that savings and loan holding companies have to perform and
report test results. The Board eliminated its requirement that these
covered companies use fixed assumptions regarding dividend payments and
other capital actions over the planning horizon. The change in the rule
allows these covered companies to incorporate their own capital action
assumptions into their Dodd-Frank Act-required company-run stress
tests. Further, the Board delayed the application of the company-run
stress test requirements to savings and loan holding companies until
January 1, 2017.
---------------------------------------------------------------------------
\111\ 80 FR 75419 (December 2, 2015).
---------------------------------------------------------------------------
Published for public comment a proposed rule to modify its
capital plan and stress testing rules for large and noncomplex firms
(e.g., bank holding companies and U.S. intermediate holding companies
with total consolidated assets between $50 billion and $250 billion,
on-balance sheet foreign exposure of less than $10 billion, and total
consolidated nonbank assets of less than $75 billion). Under the
proposal, large and noncomplex firms would no longer be subject to the
qualitative assessment of the Comprehensive Capital Analysis and Review
(CCAR).\112\ The proposal would reinforce the Board's less stringent
expectations for these less systemic firms, which are generally engaged
in traditional banking activities.\113\ The proposed rule would also
reduce certain reporting requirements for large and noncomplex firms.
Under the proposal, large and noncomplex firms would continue to be
subject to the quantitative requirements of CCAR, as well as normal
supervision by the Federal Reserve regarding their capital planning.
The proposed rule would take effect for the 2017 CCAR.
---------------------------------------------------------------------------
\112\ CCAR evaluates the capital planning processes and capital
adequacy of bank holding companies with $50 billion or more in total
consolidated assets. In the current CCAR process, the Federal
Reserve conducts a qualitative assessment of the strength of each
firm's capital planning process in addition to a quantitative
assessment of each firm's capital adequacy based on hypothetical
scenarios of severe economic and financial market stress.
\113\ See Board of Governors of the Federal Reserve System,
Division of Banking Supervision and Regulation, ``Federal Reserve
Supervisory Assessment of Capital Planning and Positions for LISCC
Firms and Large and Complex Firms,'' SR letter 15-18 (December 18,
2015), www.federalreserve.gov/bankinforeg/srletters/sr1518.htm (SR
letter 15-18); Board of Governors of the Federal Reserve System,
Division of Banking Supervision and Regulation, ``Federal Reserve
Supervisory Assessment of Capital Planning and Positions for Large
and Noncomplex Firms,'' SR letter 15-19 (December 18, 2015),
www.federalreserve.gov/bankinforeg/srletters/sr1519.htm (SR letter
15-19).
---------------------------------------------------------------------------
Collaborated with the FDIC, and the state banking agencies
(coordinated through the Conference of State Bank Supervisors (CSBS))
to develop an information technology (IT) risk examination program
(referred to as InTREx). In working together, the agencies are
promoting the common goals of enhancing the identification and
assessment of technology risks in financial institutions and ensuring
these risks are properly addressed by management. This examination
program provides supervisory staff with risk-focused and efficient
examination procedures for conducting IT reviews and assessing IT and
cybersecurity risks at supervised institutions. Further, under the
InTREx program, comprehensive IT examinations are conducted at
institutions that present the highest IT risks and more targeted IT
examinations are conducted at institutions with lower IT risks. The
InTREx program applies to state member banks with less than $50 billion
in total assets and foreign banking organizations' U.S. branches and
agencies with less than $50 billion in assets. This program also
applies to certain bank holding companies and savings and loan holding
companies with less than $50 billion in total consolidated assets.
The Board periodically reviews its existing supervisory guidance to
assess whether the guidance is still relevant and effective. We
completed a policy review of the supervision programs for community and
regional banking organizations to make sure that these programs and
related supervisory guidance are appropriately aligned with current
banking practices and risks. The project entailed an assessment of all
existing supervisory guidance that applies to community and regional
banks to determine whether the guidance is still appropriate. As a
result of this review, SR letter 16-9, ``Inactive Supervisory
Guidance,'' was released to announce the elimination of 78 guidance
letters that are no longer relevant.
Initiatives related to consumer compliance
The Board has taken several actions aimed at providing regulatory
relief for its supervised financial institutions with regard to
consumer compliance, which are discussed below.
The Board adopted a new consumer compliance examination framework
for community banks in January 2014.\114\ While we have traditionally
applied a risk-focused approach to consumer compliance examinations,
the new program more explicitly bases examination intensity on the
individual community bank's risk profile, weighed against the
effectiveness of the bank's compliance controls. In addition, we
revised our consumer compliance
[[Page 15928]]
examination frequency policy at the same time to lengthen the time
frame between on-site consumer compliance and CRA examinations for many
community banks with less than $1 billion in total consolidated assets.
These actions have increased the efficiency of our supervision and
reduce regulatory burden on many community banks.
---------------------------------------------------------------------------
\114\ See the Board's Consumer Affairs (CA) letter 13-19
(November 18, 2013), ``Community Bank Risk-Focused Consumer
Compliance Supervision Program'' www.federalreserve.gov/bankinforeg/caletters/caltr1319.htm and CA letter 13-20 (November 18, 2013),
``Consumer Compliance and Community Reinvestment Act (CRA)
Examination Frequency Policy'' www.federalreserve.gov/bankinforeg/caletters/caltr1320.htm.
---------------------------------------------------------------------------
Initiatives related to the processing of applications
In 2010, the Board introduced an electronic applications filing
system, ``E-Apps,'' an Internet-based system for financial institutions
to submit regulatory filings. The introduction of E-Apps allowed firms
and their representatives to file applications online, eliminating the
time and expense of printing, copying, and mailing the documents. E-
Apps is designed to ensure the confidentiality of the data and the
identity of individual filers. This electronic tool is provided free of
any fees to supervised institutions.
In 2014, the Board introduced a semiannual public report on banking
applications activity regarding the applications filed by banking
organizations and reviewed by the Board as of the most recent reporting
period ending on June 30 and December 31 of each calendar year. The
report aims to increase transparency about applications filings, while
providing useful information to bankers to help them gain efficiency.
Communications and outreach to the industry
The Board continues to make special efforts to explain requirements
that are applicable to community banks. The Board provides a statement
at the top of each Supervision and Regulation letter and each Consumer
Affairs letter that clearly indicates which banking entity types are
subject to the guidance. These letters are the primary means by which
the Federal Reserve issues supervisory and consumer compliance guidance
to bankers and examiners, and this additional clarity allows community
bankers to focus efforts only on the supervisory policies that are
applicable to their banks.
The Federal Reserve also developed several platforms to improve our
communication with community bankers and to enhance our industry
training efforts. For example, we have developed two programs --``Ask
the Fed'' and ``Outlook Live''-- as well as the publication of periodic
newsletters and other communication tools such as Community Banking
Connections, Consumer Compliance Outlook, and FedLinks. These platforms
highlight information about new requirements and examiner expectations
to address issues that community banks currently face and provide
resources on key supervisory policies.
The Board's Subcommittee on Small Regional and Community Banking
Organizations has been encouraging research on community banking issues
to inform our understanding of the role of community banks in the U.S.
economy and the effects that regulatory initiatives may have on these
banks. This effort includes co-sponsorship of an annual community
banking research and policy conference, ``Community Banking in the 21st
Century,'' along with the Conference of State Bank Supervisors (CSBS).
Research discussion topics at past conferences have included community
bank formation, behavior, and performance; the effect of government
policy on bank lending and risk taking; and the effect of government
policy on community bank viability.
3. Office of the Comptroller of the Currency Initiatives
The OCC has a broad-based, historical perspective on bank
regulation and supervision, especially with respect to community banks.
With this perspective in mind, the OCC is committed to updating its
regulations, removing unnecessary regulatory requirements, and reducing
regulatory burden where consistent with statutory requirements and the
safety and soundness of, and fair access to financial services and fair
treatment of customers by, national banks and FSAs. The OCC has in the
past conducted various reviews of its regulations to meet this
commitment. Furthermore, the OCC is cognizant of this commitment when
issuing new rules, amending existing regulations, and examining and
supervising institutions.
In particular, the OCC understands that regulations often
disproportionately affect community banks and savings associations
because of their different business models and more limited resources.
For these smaller institutions, a one-size-fits-all approach to
supervision and regulation may not be appropriate. Therefore, where
statutorily permitted, the OCC tries to tailor its regulations to
accommodate a bank's size and complexity by providing alternative ways
to satisfy regulatory requirements, using regulatory exemptions or
transition periods, and explaining and organizing its rulemakings so
that community banks and savings associations can better understand the
rule's scope and application.
EGRPRA affords the OCC yet another opportunity to update its rules
and reduce unnecessary regulatory burden, especially for community
banks. In light of the EGRPRA mandate and in response to many of the
EGRPRA comments received, the OCC has taken the following actions prior
to the end of the EGRPRA review process.
A. Regulatory Amendments
The OCC has acted to reduce burden on national banks and FSAs,
including community institutions, prior to issuing this report by
issuing two final rules amending regulations that further the goals of
EGRPRA and that address suggestions made by EGRPRA commenters. These
rulemakings also include amendments that address a recent OCC internal
review of its rules that identified outdated or unnecessary provisions
in addition to those suggested by EGRPRA commenters. As described
below, the OCC plans to propose additional amendments to address other
EGRPRA comments. Furthermore, the OCC has reduced regulatory burden and
updated its regulatory requirements by integrating many of its national
bank and FSA rules.
OCC licensing final rule
In May 2015, the OCC published a final rule revising national bank
and FSA licensing rules (OCC licensing final rule) that included a
number of amendments directly responsive to comments the OCC received
through the EGRPRA process.\115\ This final rule also reduced burden by
simplifying OCC licensing procedures and removing outdated or
unnecessary provisions. Furthermore, this final rule integrated the FSA
licensing rules with those rules for national banks, thereby
eliminating a number of unnecessary former OTS rules applicable to
FSAs.
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\115\ 80 FR 28346 (May 18, 2015).
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Among other things, this final rule:
Makes available expedited processing procedures for a number
of transactions, such as certain reorganizations to become a subsidiary
of a BHC, fiduciary applications from eligible FSAs, and certain de
novo FSA charters;
Replaces the application process with a more expedited notice
process for certain FSA business combinations;
Removes and simplifies the public notice requirement for
certain transactions;
[[Page 15929]]
Simplifies the application process for conversions from an FSA
to a national bank;
Removes the requirement that a majority of a de novo savings
association's board of directors must be representative of the state in
which the association is located;
Removes the requirement that an FSA shareholder meeting must
be held in the state in which the association has its principal place
of business;
Removes the requirement for staggered terms for certain
directors of FSAs; and
Simplifies FSA charter and bylaw requirements.
OCC EGRPRA final rule
The OCC recently issued a second rule based in part on comments
received through the EGRPRA process (OCC EGRPRA final rule).\116\ Among
other things, this final rule responds to EGRPRA comments by: (1)
Removing the requirement for FSAs to notify the OCC before establishing
a transactional website; (2) providing for the electronic submission of
securities-related filings; (3) removing the requirement that a
national bank make a copy of its collective investment fund plan
available for public inspection at its main office during all banking
hours; and (4) adjusting for inflation the asset threshold for mini-
funds (a type of collective investment fund) from $1 million to $1.5
million.
---------------------------------------------------------------------------
\116\ 82 FR 8082 (January 23, 2017).
---------------------------------------------------------------------------
This final rule also made a number of other changes to OCC rules to
reduce regulatory burden and update regulatory requirements that go
beyond addressing comments received from the EGRPRA process. Among
other things, this final rule
Simplifies certain business combinations involving federal
mutual savings associations;
Exempts national banks from the prior approval, notification,
and certification requirements for certain changes to permanent
capital;
Clarifies national bank director oath requirements;
Permits a national bank to deposit securities required to be
pledged by a state with the Federal Home Loan Bank of which the bank is
a member, in addition to the appropriate Federal Reserve Bank;
Removes unnecessary reporting, accounting, and management
policy provisions for FSAs;
With respect to fidelity bonds:
--Removes the requirements that FSAs: (1) maintain fidelity bonds
for directors who also do not serve as officers or employees; (2)
maintain fidelity bond coverage for any agent who has exposure to
associations assets, instead providing that the association consider
any such exposure when determining its amount of fidelity bond
coverage; and (3) annually review the association's bond coverage; and
--Permits a committee of the board of directors of an FSA to assess
fidelity bond coverage instead of the entire board of directors.
With respect to securities recordkeeping and confirmations
--Replaces the more detailed procedures for record maintenance and
storage for FSAs with the less burdensome requirements applicable to
national banks;
--Permits national banks to use a third party to provide record
storage or maintenance;
--Eliminates the requirement that a national bank send a copy of a
securities transaction confirmation to a customer when such
confirmation is sent by a registered broker/dealer, provided that an
appropriate written compensation agreement exists with the customer;
and
--Provides that an FSA that has previously determined compensation
in a written agreement with a customer does not need to provide a
remuneration statement for each securities transaction with that
customer;
With respect to securities offering disclosure rules
--Provides FSAs with the additional communication and registration/
prospectus exemptions under SEC rules currently available to national
banks;
--Removes the FSA mandatory escrow requirement;
--Increases the threshold for the application of the periodic
reporting requirement for FSAs from associations with securities that
are held of record by 300 or more persons to associations with total
assets exceeding $10,000,000 and a class of equity security held of
record by 2,000 or more persons; and
--Removes the requirement for FSAs to file Securities Sales Reports
with the OCC.
These changes take effect on April 1, 2017.
Additional regulatory changes to address EGRPRA comments
The OCC plans to propose additional regulatory amendments in one or
more future rulemakings, or to revise licensing guidance, to address
other EGRPRA comments as follows:
Financial subsidiaries. A trade association stated that
the OCC should clarify how to convert a financial subsidiary to an
operating subsidiary. The OCC agrees that this clarification would be
helpful and plans to add procedures for this transaction by either
amending 12 CFR 5.39 or by adding this clarification to the OCC's
Licensing Manual.
Fiduciary activities. The OCC plans to consider further
changes to its fiduciary rules to reflect additional EGRPRA comments.
First, one commenter requested that the OCC provide additional
flexibility with respect to the retention of fiduciary records. The
OCC's current rule, 12 CFR 9.8(b), requires a national bank to maintain
fiduciary records for a minimum of three years. The OCC agrees that it
would be useful to consider better aligning this requirement with state
statutes of limitations. Second, this commenter requested that the OCC
expand the list of acceptable collateral in 12 CFR 9.10, which requires
a national bank to set aside collateral for any non-FDIC-insured funds
it holds awaiting investment or distribution. The OCC agrees that this
list could be expanded and plans to amend this provision to allow other
assets as determined appropriate by the OCC.
Employment contracts. One commenter requested that the OCC
eliminate 12 CFR 163.39, which sets forth specific requirements for
employment contracts between an FSA and its officers or other
employees. Although the OCC finds merit in retaining this rule, the OCC
does agree that the requirement that an FSA's board of directors
approve all employment contracts between the FSA and its officers and
employees is overly burdensome. Therefore, the OCC plans to remove the
requirement for board approval of employment contracts with all
employees, and limit the approval requirement only to contracts with
senior executive officers.
One commenter, a nonprofit organization, requested that the OCC
permit national banks to adopt a benefit corporation or mission-aligned
status, which requires directors to address the
[[Page 15930]]
concerns of all stakeholders, not just shareholders. The OCC plans to
review whether such an option for national banks and FSAs would be
appropriate, and if so, whether a regulatory change would be necessary
to allow this status.
Integration of national bank and FSA rules
As a result of title III of the Dodd-Frank Act,\117\ the OCC is
integrating rules for national banks and FSAs into a single set of
rules, where possible. The key objectives of this integration process
are to reduce regulatory duplication, promote fairness in supervision,
eliminate unnecessary burden consistent with safety and soundness, and
create efficiencies for both national banks and savings associations.
These objectives are similar to those contained in the EGRPRA review.
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\117\ Public Law 111-203, 124 Stat. 1376 (2010). Among other
things Title III transferred to the OCC all functions of the former
OTS relating to FSAs.
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To date, the OCC has completed the integration of many national
bank and FSA rules.\118\ In so doing, the OCC has updated provisions,
eliminated numerous unnecessary regulatory requirements, and amended
many rules to make them less burdensome to both national banks and
FSAs. The OCC continues to review its rules and expect to issue
additional integration proposals that would further modernize its rules
and make them less burdensome to its regulated entities.
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\118\ See 78 FR 37944 (June 25, 2013) (lending limits); 78 FR
62018 (October 11, 2013) (capital); 79 FR 29393 (May 16, 2014)
(interagency rules); 79 FR 54518 (September 11, 2014) (safety-and-
soundness standards); 79 FR 64518 (October 30, 2014 (flood
insurance); 80 FR 28346 (May 18, 2015) (OCC licensing final rule);
and 82 FR 8082 (January 23, 2017) (municipal securities dealers,
Securities Exchange Act disclosures, securities offering
disclosures, and insider and affiliate transactions).
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B. Legislative Proposals
The OCC has supported a number of legislative changes to reduce
regulatory burden on financial institutions. First, the OCC advocated
for an increase in asset size for the community bank examination cycle
which, as indicated previously, President Obama signed into law as the
FAST Act last year.\119\
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\119\ See Testimony of Toney Bland, OCC Senior Deputy
Comptroller for Midsize And Community Bank Supervision, before the
U.S. Senate Committee on Banking, Housing and Urban Affairs,
September 16, 2014, https://occ.gov/news-issuances/congressional-testimony/2014/pub-test-2014-124-written.pdf.
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Second, the OCC supports a community bank exemption to the Volcker
rule. Specifically, in response to concerns raised by community
institutions and issues that have arisen during its ongoing Volcker
rule implementation efforts, the OCC drafted a legislative proposal to
exempt from the Volcker rule banks with total consolidated assets of
$10 billion or less. However, any community bank exception should
reserve the OCC's authority to apply the Volcker rule to a community
bank that conducts activities that would otherwise be covered by the
rule if the OCC determines that the bank's activities are: (i)
inconsistent with traditional banking activities; or (ii) due to their
nature or volume, pose a risk to the safety and soundness of the bank.
Such an exception would eliminate unnecessary burden for small banks
while ensuring that the OCC is able to address the risks the Volcker
rule sought to eliminate. Based on its analysis, the OCC estimates that
this amendment could exempt more than 6,000 small banks, including
small banks regulated by the OCC, from the requirement to comply with
the regulations implementing the Volcker rule.
Third, the OCC has developed a proposal to provide FSAs with
greater flexibility to expand their business model without changing
their governance structure. Specifically, this proposal would authorize
a basic set of powers that both FSAs and national banks can exercise,
regardless of their charter. This would allow savings associations to
adapt to changing economic and business environments and meet the needs
of their communities without having to convert to a bank.
The OCC also supports four additional legislative changes
recommended by EGRPRA commenters. First, one commenter recommended that
Congress amend the shareholder requirement for subchapter S
corporations, 26 U.S.C. 1361(b)(1). Subchapter S corporations are
corporations that elect to pass corporate income, losses, deductions,
and credits through to their shareholders for federal tax purposes.
Among other requirements, to be a subchapter S corporation, the entity
may have no more than 100 shareholders. This commenter specifically
requested that the number of allowable shareholders be increased from
100 to 200. The commenter noted that this change would better allow
community banks to attract outside capital. The OCC supports this
legislative amendment as it would provide additional flexibility to
community banks.
Second, 12 U.S.C. 72 requires, among other things, that a majority
of directors of a national bank must have resided in the state,
territory, or District in which the bank is located, or within 100
miles of the bank, for at least one year immediately preceding their
election and during their continuance in office. The Comptroller may
waive this residency requirement. Two trade associations recommended
that Congress update the ``representative'' requirement for directors
of national banks because of the evolution of the market and the need
for qualified directors. The OCC supports the removal of the residency
requirement in section 72. Given advances in technology and their
effect on both communication methods and banking in general, as well as
the continued importance of identifying qualified directors, the OCC
believes that there is no longer a need for an individual to reside
within a close proximity to a bank to perform successfully as a
director.
Third, 31 U.S.C. 5318(g)(3) provides a financial institution that
files a SAR with a safe harbor from civil liability. However, as
indicated by EGRPRA commenters and noted above, courts have disagreed
with respect to whether a bank or bank official must have a ``good
faith'' belief that a violation occurred before filing a SAR in order
to qualify for the safe harbor. Commenters maintain that failure by the
agencies to clarify that a good faith standard is not required to
qualify for the SAR safe harbor could increase uncertainty and
discourage banks from proactively filing SARs. The OCC was aware of
this issue prior to the EGRPRA process and has actively supported and
continues to support legislative proposals clarifying that a ``good
faith belief'' that a violation occurred is not necessary to qualify
for the SAR safe harbor.
Fourth, section 165(i)(2) of the Dodd-Frank Act requires certain
financial companies, including national banks and FSAs, with more than
$10 billion in total consolidated assets to conduct annual stress
tests.\120\ Two EGRPRA commenters requested that this stress testing
threshold be increased. The OCC agrees with these commenters, and
supports legislative efforts to increase this threshold from $10
billion to $50 billion. However, the OCC believes it is important to
retain supervisory authority to require stress testing if warranted by
a banking organization's risk profile or condition. Along with the
Board and the FDIC, the OCC issued interagency stress testing guidance
in 2012 applicable to banking organizations with more than $10 billion
in total consolidated assets.\121\
[[Page 15931]]
This guidance did not implement, and is separate from, the stress
testing requirements imposed by the Dodd-Frank Act. The OCC would
continue to rely on this guidance and believes that stress testing can
be a useful tool to analyze the range of a banking organization's
potential risk exposures and capital adequacy.
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\120\ 12 U.S.C. 5365(i)(2)(A).
\121\ Supervisory Guidance on Stress Testing for Banking
Organizations with More than $10 Billion in Total Consolidated
Assets, 77 FR 29458 (May 17, 2012).
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Section 165(i)(2) also requires covered financial companies to
disclose their stress testing results. One EGRPRA commenter noted that
this disclosure requirement is particularly problematic for smaller
banks and recommended that it be eliminated. The OCC notes that
increasing the stress testing threshold to $50 billion would exclude
banking organizations under $50 billion in assets from all Dodd-Frank
Act stress testing requirements, including the requirement to disclose
their stress testing results. However, if the statutory threshold in
section 165(i)(2) is not increased to $50 billion, the OCC would
support a separate legislative change exempting banking organizations
with total consolidated assets between $10 and $50 `billion from the
disclosure requirement.
In addition to legislative amendments requested by EGRPRA
commenters, the OCC supports the following additional statutory changes
that would reduce unnecessary regulatory burden and update the banking
laws.
Stock ownership requirement. In general, 12 U.S.C. 72 requires
every director of a national bank to own capital stock in the bank, or
its holding company, in a par value amount of not less than $1000 or an
equivalent interest as determined by the OCC. Any director who ceases
to be the owner of the required shares must vacate his position. The
OCC recommends that Congress repeal this stock ownership requirement.
The amount of $1000 does not represent a meaningful ownership stake,
but the requirement can sometimes be a compliance burden, especially
because there is no statutory waiver for this requirement.
Waiver of publication of notice of shareholders meetings.
Section 214a of Title 12 of the United States Code (conversions,
mergers, or consolidations resulting in a state bank), 12 U.S.C. 215
(consolidation of banks resulting in a national bank), and 12 U.S.C.
215a (merger of banks resulting in a national bank) contain different
provisions for waiver of the publication of notice to shareholders of
the shareholder meeting and internally conflicting provisions regarding
when the publication may be waived. The OCC recommends that Congress
amend these provisions so that they contain the same notification
requirements, to eliminate the technical issues, and to make these
notification requirements less burdensome.
Shareholder actions. Various statutory provisions specify that
shareholders of a national bank must approve a permissible action at a
meeting of the shareholders. For example, 12 U.S.C. 21a requires that
shareholders must vote on amendments to the bank's articles of
association at a meeting, 12 U.S.C. 71 provides for the election of
directors by shareholders at a meeting, and 12 U.S.C. 214a(a), 215(a),
215a(a) provide that shareholders must vote to approve a merger (or a
conversion of a national bank to a state bank) at a duly called
shareholder meeting. The OCC recommends that Congress amend these
statutes to permit shareholders to take action by means other than at a
meeting, such as by mail or email, as permitted by many state
corporation laws (such as New York and Delaware) and by the Model
Business Corporation Act.
Savings association branching in the District of Columbia.
Section 5(m)(1) of the HOLA, 12 U.S.C. 1464(m)(1), requires savings
associations to obtain the OCC's prior written approval before
establishing or moving any branch in the District of Columbia or moving
its principal office in the District of Columbia. No such prior
approval is required for establishing or moving a savings association
branch in any other jurisdiction. The OCC recommends that Congress
remove this prior approval requirement.
OCC jurisdiction over District of Columbia-chartered savings
associations. The OCC recommends that Congress amend 12 U.S.C. 1466a,
and elsewhere, to eliminate the authority of the OCC for savings
associations chartered by the District of Columbia or state savings
associations doing business in the District of Columbia. This change
would be equivalent to the amendments made by section 8 of the ``2004
District of Columbia Omnibus Authorization Act,`` which removed the
OCC's jurisdiction over banks established under the Code of Law for the
District of Columbia and thereby treating District of Columbia banks
the same as state chartered banks.
C. OCC Examination and Supervisory Process
In addition to regulatory changes, the OCC has incorporated into
its examination process responses to comments received from bankers at
EGRPRA and other outreach meetings. First, the OCC is further tailoring
its Examination Request letter to remove redundant or unnecessary
information national banks and FSAs are asked to provide to the OCC in
the examination process.
Second, the OCC has directed its examiners to better plan
examination work using on-site and off-site techniques while leveraging
technology. These techniques offer more flexibility in determining
which components of an examination can best be completed off site,
unbundled as a separate smaller activity, or be included as part of a
horizontal review. Many banks and savings associations now provide the
majority of the information requested by the OCC electronically prior
to their examination instead of in paper form. This approach allows
bankers and the OCC to share information more securely and examiners to
perform more analysis off site, lessening the disruption an examination
may have on bank and savings association staff. The OCC has instructed
its examiners to detail the specific techniques and practices that will
be used in each examination activity in the individual bank supervisory
strategies. Examiners must tailor the practices to the risk profile of
the institution and OCC supervisory goals with a focus on minimizing
the impact and disruption to bank staff.
Third, the OCC continues to stress the importance of effective
communication and has set communication standards on supervisory
products to ensure banks receive official communication of supervisory
activities findings in a timely manner.
Fourth, the OCC is continuing to review its supervisory and
examiner guidance to align it to current practices and risks and to
eliminate unnecessary or outdated guidance. The OCC has eliminated
approximately 125 outdated or duplicative OCC guidance documents and
updated and/or revised approximately 25 OCC guidance documents since
2014.\122\
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\122\ See https://occ.gov/news-issuances/bulletins/rescinded/index-rescinded.html for a list of rescinded OCC guidance documents.
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Furthermore, the OCC has published guidance to assist its regulated
institutions, especially community banks, with new rules and policy,
such as:
[[Page 15932]]
A Common Sense Approach to Community Banking--This booklet
presents the OCC's view on how a board of directors and management can
implement a common sense approach to community banking. It shares
fundamental banking best practices that the OCC has found to prove
useful to boards of directors and management in successfully guiding
their community banks through economic cycles and environmental
changes. The booklet focuses on three long-standing, underlying
concepts: (1) accurately identifying and appropriately monitoring and
managing a community bank's risks; (2) plotting a shared vision and
business plan for a community bank with sufficient capital support; and
(3) understanding the OCC's supervisory process and how a community
bank may extract helpful information from this supervisory
process.\123\
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\123\ www.occ.gov/publications/publications-by-type/other-publications-reports/common-sense.pdf.
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The Director's Book: Role of Directors for National Banks and
Federal Savings Associations--This document provides an overview of the
OCC, outlines the responsibilities and role of national bank and FSA
directors and management, explains basic concepts and standards for
safe and sound operation of national banks and FSAs, and delineates
laws and regulations that apply to national banks and FSAs.\124\
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\124\ www.occ.gov/publications/publications-by-type/other-publications-reports/the-directors-book.pdf.
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Mutual FSAs: Characteristics and Supervisory Considerations
(OCC Bulletin 2014-35)--In response to a recommendation from the
members of the Mutual Savings Association Advisory Committee
(MSAAC),\125\ the OCC issued guidance in July 2014 to highlight unique
characteristics and enhance understanding of mutual institutions.\126\
This guidance has clarified expectations for both OCC examiners and
mutual FSAs in risk assessments and in corporate governance.
Specifically, the guidance describes the considerations examiners
factor into the OCC's risk-based supervision process as they examine
mutual FSAs, describes the mutual governance structure and mutual
members' rights, outlines traditional operations of mutual FSAs, and
identifies important structural and operational considerations in
assessing risks at mutual FSAs. In particular, the guidance highlights
distinctions in the areas of capital adequacy and earnings that
supervisors and others should consider when examining mutual FSAs.
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\125\ The OCC established the MSAAC to provide advice to the
Comptroller about mutual FSAs and to assess the current condition of
mutual FSAs, regulatory changes that may promote mutual FSA health
and viability, and other issues affecting these institutions. The
committee includes officers and directors of mutual FSAs of all
types, sizes, operating strategies, and geographic areas, as well as
from FSAs in a mutual holding company structure.
\126\ https://occ.gov/news-issuances/bulletins/2014/bulletin-2014-35.html (July 22, 2014).
In the area of regulatory capital, as indicated above in section
I.D., the OCC has published a number of documents to assist banks in
their capital planning efforts, such as OCC Bulletin 2012-16, ``Capital
Planning: Guidance for Evaluating Capital Planning and Adequacy.''
\127\ In order to assist community banks in particular, the OCC
published a quick reference tool, New Capital Rule Quick Reference
Guide for Community Banks.\128\ This document is a high-level summary
of the aspects of the new rule that are generally relevant for smaller,
non-complex banks that are not subject to the market risk rule or the
advanced approaches capital rule. Additionally, the OCC intends to
publish substantial revisions to its capital handbook so that the
recent OCC guidance publications and the recent revisions to the OCC's
capital regulations will be set forth and described in one place.
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\127\ OCC Bulletin 2012-16 (June 7, 2012) www.occ.gov/news-issuances/bulletins/2012/bulletin-2012-16.html.
\128\ www.occ.gov/news-issuances/news-releases/2013/2013-110c.pdf.
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In addition, to assist community banks with new rules and guidance,
the OCC has added a ``Note for Community Banks'' box to all OCC
bulletins that explains if and how the new guidance or rulemaking
applies to them. This box provides community banks with the information
they need at the beginning of the guidance document so they know
whether to expend any time or resources on the guidance.
D. Electronic Submission of Reports and Applications
Several comments received during the EGRPRA review process
requested that the OCC permit national banks and FSAs to submit forms
and reports to the OCC electronically. The OCC agrees that electronic
filings are more efficient and less costly for national banks and FSAs,
are more efficient for the OCC to review, and provide a quicker
response time for banks and savings associations. The OCC currently
permits the electronic filing of many of its required forms and reports
though BankNet, the OCC's secure website for communicating with and
receiving information from national banks and FSAs. As indicated above,
the OCC's EGRPRA final rule permits national banks and FSAs to now file
various securities-related filings electronically through BankNet.
Furthermore, the OCC has developed a web-based system for submitting
and processing Licensing and Public Welfare Investment filings called
the Central Application Tracking System (CATS). Beginning in January
2017, the OCC began a phased rollout of CATS to enable authorized
national bank and FSA employees to draft, submit, and track filings,
and allow OCC analysts to receive, process, and manage those filings.
E. Industry Outreach, Training, and Other Resources
The OCC conducts numerous industry outreach and training activities
that are particularly helpful to community banks. These outreach events
promote awareness and understanding of the OCC's mission, objectives,
policies, and programs; educate bankers on legal and regulatory
requirements and agency processes; and enable OCC staff to obtain
feedback from the banking industry, as well as consumer and community
groups, on the issues that are important to them. This outreach
consists of live events, webinars, conference calls or other virtual
events, and participation at banking associations and industry
conferences. Presentation materials, transcripts, and recordings of
past events are available through BankNet.
In fiscal year 2016, the OCC participated in or hosted nearly 800
outreach events globally. In particular, the OCC conducted 36 Community
Bank Director Workshops on issues such as compliance risk, credit risk,
risk governance, and operational risk in various locations across the
country with approximately 1,000 attendees. The OCC also staffed
information tables at 22 industry association events, reaching over
10,000 attendees, where bankers could speak directly with OCC staff to
ask questions, obtain information, or provide feedback on OCC
requirements and processes. In addition, the OCC hosted over 1,000
bankers from 35 state banking associations at its Washington, D.C.
headquarters and held four ``Meet the Comptroller'' meetings with
bankers reaching approximately 64 attendees where bank staff could
directly interact with senior OCC staff and learn more about OCC
initiatives. In addition to
[[Page 15933]]
providing compliance guidance to community banks, all of these events
enable the OCC to receive continual feedback on its rules, policies,
and processes, and to adjust its rules, policies, and procedures as
appropriate.
The OCC also provides support for community banks though its online
BankNet portal, which includes a wealth of information, resources, and
analytical tools for national banks and FSAs, especially community
institutions, on federal banking laws and regulations, OCC supervision,
and industry trends. BankNet also contains a question and answer forum
designed to facilitate communication between OCC-regulated institutions
and the OCC that provides direct access to Washington, DC, and OCC
senior management for answers to general bank regulatory and
supervisory questions. In addition, BankNet contains a ``Director
Resource Center,'' which collects information on OCC supervision most
pertinent to national bank and FSA directors, and includes a
``Directors Toolkit'' for further assistance in carrying out the
responsibilities of a national bank or FSA director.
F. Other Initiatives
Collaboration guidance
As it continually looks for ways to reduce community bank
regulatory burden, the OCC also is studying other less conventional
approaches to help community banks thrive in the modern financial
world. One approach involves collaboration between community banks and
is the subject of a paper the OCC published on January 13, 2015, titled
An Opportunity for Community Banks: Working Together
Collaboratively.\129\
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\129\ www.occ.gov/publications/publications-by-type/other-publications-reports/pub-other-community-banks-working-collaborately.PDF.
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The principle behind this approach, which grew out of productive
and ongoing discussions between the OCC and its community banks, is
that by pooling resources community banks can manage regulatory
requirements, trim costs, and serve customers who might otherwise lie
beyond their reach. The OCC already has seen examples of successful
collaboration, such as community banks forming an alliance to bid on
larger loan projects and banks pooling resources to finance community
development activities. There are many other opportunities of this
nature that can increase efficiencies and save money, including
collaborating on accounting, clerical support, data processing,
employee benefit planning, and health insurance. Other examples of
potential collaboration between community banks could include using a
shared resource to assist in a variety of basic elements of required
BSA programs such as training and the development of effective policies
and procedures. Sharing BSA resources could reduce regulatory
compliance costs through efficiencies gained under such arrangements
and, at the same time, assist depository institutions in meeting the
requirements of the BSA and effectively manage the risk that illicit
financing poses to the broader U.S. financial system.
The OCC is committed to encouraging these collaboration efforts to
the extent they are consistent with applicable law and safety and
soundness.
Another approach the OCC uses to help community banks thrive in the
modern financial world involves sharing best practices for managing
risk that the OCC has observed through its supervisory work. Such best
practices are the subject of a bulletin issued by the OCC on October 5,
2016, titled, Risk Management Guidance on Periodic Risk Reevaluation of
Foreign Correspondent Banking.\130\ This guidance focuses particularly
on risk-management practices for foreign correspondent bank accounts,
and describes corporate governance best practices for banks'
consideration when conducting their periodic evaluations of risk and
making account retention or termination decisions relating to foreign
correspondent accounts.
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\130\ See OCC Bulletin 2016-32 www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-32.html.
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The principle behind this approach is that by sharing observations
of different methods some institutions are using to effectively manage
risk, other institutions, and particularly community banks may have a
roadmap for shaping their own risk controls that increases efficiencies
and saves money. This guidance is designed to provide such efficiencies
by communicating best practices observed by the OCC to aid all OCC
supervised banks in developing practices suitable for conducting risk
reevaluations of their foreign correspondent accounts. The OCC is
committed to continuing to provide helpful guidance going forward that
will reduce unnecessary burdens while maintaining safe and sound
banking practices.
Fintech
Technological advances, together with evolving consumer
preferences, are rapidly reshaping the financial services industry.
While these changes are challenging traditional bank models, innovation
can help community banks scale operations efficiently to compete in the
future marketplace. In 2015, the OCC launched its initiative focused on
financial innovation to better understand emerging industry trends and
to develop a framework to support responsible innovation in the federal
banking system. The OCC's framework, announced in October 2016, is
designed to make certain that institutions with federal charters, in
particular community banks, have a regulatory framework that is
receptive to responsible innovation and supervision that supports it.
The OCC also established an Office of Innovation where community banks
can have an open and candid dialogue outside of the supervision process
on innovation and emerging developments in the industry. When fully
operational in 2017, the Office of Innovation will provide value to
community banks through outreach and technical assistance to help
community banks work through innovation-related issues and understand
regulatory concerns early. The Office of Innovation also will assist
banks in explaining regulatory expectations to the fintech companies
with whom they partner. In addition, the Office of Innovations will
share success stories, lessons learned, and hold ``office hours'' where
bankers and others in the industry can consult OCC experts directly.
4. Federal Deposit Insurance Corporation Initiatives
The FDIC recognizes the regulatory burden facing banks and of the
importance of achieving safety and soundness and consumer protection
interests without imposing undue burden on the industry. As the primary
federal regulator of the majority of community banks, the FDIC is
especially aware of the effect of the costs of regulations on those
banks, particularly smaller community banks and those located in rural
communities. As described more fully below, in addition to specific
changes made in response to written and oral comments received during
the EGRPRA process and other outreach efforts, the FDIC has been
engaged in a multiyear effort to review our supervisory processes to
make them more efficient and to provide technical assistance and useful
research and data to community bankers and their stakeholders.
[[Page 15934]]
A. Changes Made By FDIC in Response to EGRPRA Comments and Other
Outreach Efforts
Rescinded enhanced supervisory procedures for de novo banks
In response to concerns raised in the EGRPRA process regarding FDIC
procedures for monitoring de novo institutions, on April 6, 2016, the
FDIC announced the rescission of FIL50-2009, the Enhanced Supervisory
Procedures for Newly Insured FDIC-Supervised Depository Institutions,
eliminating the seven-year monitoring period for de novo
institutions.\131\
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\131\ FDIC FIL-24-2016: Supplemental Guidance Related to the
FDIC Statement of Policy on Applications for Deposit Insurance
(April 6, 2016).
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Clarified guidance on deposit insurance filings and provided technical
assistance
Some EGRPRA commenters and others indicated that there was some
confusion about the FDIC's existing policies on deposit insurance
filings and suggested that a clarification of existing policies would
be helpful. In November 2014, the FDIC issued guidance in the form of
questions and answers to assist applicants in developing proposals for
federal deposit insurance.\132\ The guidance addresses four distinct
topics: the purpose and benefits of pre-filing meetings, processing
timelines, initial capitalization requirements, and business plan
requirements. Then in April 2016, the FDIC issued additional guidance
in the form of supplemental questions and answers regarding developing
business plans in the deposit insurance application process.\133\ Also
in April 2016, the FDIC announced that subject matter experts have been
designated in the FDIC regional offices to serve as points of contact
for deposit insurance applications. Moreover, in 2016, three outreach
meetings with the banking industry have been conducted to assist
industry participants in understanding the FDIC's de novo application
approval processes.\134\ The FDIC also issued for public comment a
handbook for organizers of de novo institutions, describing the process
of applying for federal deposit insurance and providing instruction
about the application materials required.\135\ The FDIC is also
expanding its existing internal procedures for reviewing and processing
applications for deposit insurance and will make the final product
available to the industry to provide additional transparency to the
review process.
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\132\ FDIC FIL-56-2014: Guidance Related to the FDIC Statement
of Policy on Applications for Deposit Insurance (November 20, 2014).
\133\ FDIC FIL-24-2016: Supplemental Guidance Related to the
FDIC Statement of Policy on Applications for Deposit Insurance
(April 6, 2016).
\134\ FDIC Community Banking Initiative, de novo Outreach
Meetings www.fdic.gov/news/conferences/communitybanking/2016/DeNovo/index.html.
\135\ FDIC Press Release ``FDIC Seeking Comment on New Handbook
for De Novo Organizers Applying for Deposit Insurance,'' December
22, 2016, www.fdic.gov/news/news/press/2016/pr16110.html.
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Eliminated most part 362 applications for LLCs
In November 2014, the FDIC issued new procedures that eliminate or
reduce applications to conduct permissible activities (part 362 of the
FDIC rules and regulations) for certain bank subsidiaries organized as
LLCs, subject to some limited documentation standards.\136\ The prior
procedures dated back to the time when the LLC structure was first
permitted for bank subsidiaries. Commenters in the EGRPRA process and
during general outreach sessions remarked, and the FDIC agreed, that
the LLC structure is no longer novel. Commenters also indicated that
the approval process was too lengthy. When the FDIC eliminated the
filing procedure in 2014, it was estimated that in the 10 previous
years, the FDIC processed over 2,200 part 362 applications relating to
bank activities. Since the vast majority of those involved subsidiaries
organized as LLCs, the change in procedure will result in significant
reductions in filing requirements going forward.
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\136\ FDIC FIL-54-2014: Filing and Documentation Procedures for
State Banks Engaging, Directly or Indirectly, in Activities or
Investments That Are Permissible for National Banks (November 19,
2014).
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B. Clarified Capital Rules and Provided Related Technical Assistance
The agencies received many comments from community banks that are
organized S-corporation banks and their shareholders regarding the
capital conservation buffer. In response, in July 2014 the FDIC issued
FIL-40-2014 to FDIC-supervised institutions that described how the FDIC
would treat certain requests from S-corporation institutions to pay
dividends to their shareholders to cover taxes on their pass-through
share of bank earnings when those dividends are otherwise not permitted
under the new capital rules.\137\ The FDIC told banks that unless there
were significant safety-and-soundness issues, the FDIC would generally
approve those requests for well-rated banks. Further, to assist bankers
in complying with the revised capital rules the FDIC conducted outreach
and technical assistance designed specifically for community banks that
included publishing a community bank guide; releasing an informational
video on the revised capital rules; and conducting face-to-face
informational sessions with bankers in each of the FDIC's six
supervisory regions to discuss the revised capital rules applicable to
community banks.\138\
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\137\ FDIC FIL-40-2014, Requests from S-Corporation Banks for
Dividend Exceptions to the Capital Conservation Buffer (July 21,
2014).
\138\ See the FDIC's website for a complete list of technical
assistance resources related to regulatory capital, www.fdic.gov/regulations/capital/index.html.
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C. Improving Communication with Bank Boards of Directors and Management
On July 29, 2016, in response to commenters who provided input
during the EGRPRA review as well as matters identified by the Office of
Inspector General in its February 2016 report,\139\ the FDIC issued a
series of guidelines to improve supervisory policies and practices to
make them more transparent and easy-to-understand and to improve
communication with directors and management of financial institutions.
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\139\ FDIC Office of the Inspector General, 2015 Annual Report,
www.fdic.gov/about/strategic/report/2015annualreport/2015AR_Final.pdf.
Enhancing the appeals process. The FDIC published for public
comment a proposal to amend its Guidelines for Appeals of Material
Supervisory Determinations so that institutions have additional avenues
of redress with respect to these determinations and for greater
consistency with the appeals processes of the other federal banking
agencies. The comment period ended on October 3, 2016, and comments are
being reviewed.\140\
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\140\ See 81 FR 51441 (August 4, 2016).
Updated guidance regarding communications with bankers. The
FDIC updated and replaced FIL-13-2011, Reminder on FDIC Examination
Findings, dated March 1, 2011, to re-emphasize the importance of open
communications regarding supervisory findings.\141\ An open dialogue
with bank management is critical to ensuring the supervisory process is
effective in promoting an institution's strong financial condition and
safe-and-sound operation. The FDIC encourages bank management to
provide feedback on FDIC supervisory activities and engage FDIC
personnel in discussions
[[Page 15935]]
to ensure full understanding of the FDIC's supervisory findings and
recommendations.
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\141\ See FDIC FIL-51-2016.
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Improved transparency regarding developing guidance and
supervisory recommendations. The FDIC also issued two statements by the
FDIC Board of Directors that set forth basic principles to guide FDIC
staff in developing and reviewing supervisory guidance and in
developing and communicating supervisory recommendations to financial
institutions under its supervision.\142\ The principles are intended to
improve transparency in the supervisory process.
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\142\ See FDIC Governance--Statement of the FDIC Board of
Directors on the FDIC's Code of Conduct (www.fdic.gov/about/governance/conduct.html) and Statement of the FDIC Board of
Directors on the Development and Review of Supervisory Guidance
(www.fdic.gov/about/governance/guidance.html).
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D. Electronic Submission of Reports
Several commenters during the EGRPRA process and in general
outreach sessions indicated a desire to submit and receive reports to
and from the FDIC in a secure electronic manner. Through FDICconnect, a
secure, transactions-based website, the FDIC has provided alternatives
for paper-based processes and allows the submission of various
applications, notices, and filings required by regulation. There are
5,977 institutions registered to use FDICconnect, which ensures timely
and secure access for bankers and supervisory staff, including state
supervisors. Twenty-seven business transactions have been made
available through FDICconnect. Most recently, capability was added that
will permit voluntary electronic filings of audit reports required
under Part 363.\143\
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\143\ See FIL-71-2016, Electronic Filing of Part 363 Annual
Reports and Other Reports and Notices, October 25, 2016.
www.fdic.gov/news/news/financial/2016/fil16071.html.
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E. Burden-Reducing Changes to Examination and Supervisory Processes
On an ongoing basis, the FDIC looks for ways to change examination
and general supervisory processes to improve efficiencies and minimize
burdens on community banks. Below are a few concrete examples of
initiatives in this regard.
Improved pre-examination planning processes. The FDIC has
implemented an electronic pre-examination planning tool for both risk
management and compliance examinations that allows request lists to be
tailored to ensure that only those items that are necessary for the
examination process are requested from each institution to minimize
burden. Receiving information ahead of time also allows examiners to
review certain materials off site, reducing the on-site burden on
bankers.
Enhanced information technology examination processes. In June
2016, the FDIC updated its IT examination procedures to provide a more
efficient, risk-focused approach.\144\ The updated examination program
includes a streamlined IT Profile that financial institutions will
complete in advance of examinations that replaces the ITOQ. The IT
Profile is intended to provide examination staff with more focused
insight on a financial institution's IT environment and includes 65
percent fewer questions than appeared on the FDIC's legacy ITOQ. This
enhanced program also provides a cybersecurity preparedness assessment
and discloses more detailed examination results using component
ratings.
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\144\ See FIL-46-2016: Information Technology Risk Examination
(InTREx) Program. www.fdic.gov/news/news/financial/2016/fil16043.html.
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Reduced examiner guidance documents. During 2016, the FDIC
reviewed approximately 650 examiner guidance documents and identified
approximately 300 documents that are no longer needed. The FDIC is in
the process of eliminating the outdated guidance as well as updating
examiner guidance to align with current examination practices.
Eliminating outdated guidance will help to ensure consistent
examinations across regions and that all examinations are being
conducted using current examination policies and procedures.
Tested offsite loan review process. Piloted an automated
process with certain Technology Service Providers to obtain
standardized downloads of imaged loan files to facilitate offsite loan
review, thereby reducing the amount of examiner time in financial
institutions. The pilot is continuing with additional technology being
developed by FDIC to enable the secure and simple transfer of files.
Changed consumer compliance and CRA examination approach. The
FDIC takes a forward-looking approach to supervision and has adopted
supervisory strategies that focus on the risk of consumer harm in an
institution's compliance management system. In November 2013, the FDIC
revised its frequency schedule for small banks (those with assets of
$250 million or less) that are rated favorably for compliance and have
at least a Satisfactory rating under the CRA. Previously, small banks
that received a Satisfactory or Outstanding rating for CRA were subject
to a CRA examination no more than once every 48 to 60 months,
respectively. Under the new schedule, small banks with favorable
compliance ratings and Satisfactory CRA ratings are examined every 60
to 72 months for joint compliance and CRA examinations and every 30 to
36 months for compliance only examinations. This revised schedule has
reduced the frequency of onsite examinations for community banks with
satisfactory ratings.
Subsequently, in April 2016, the examination frequency for the
compliance and CRA examinations of de novo institutions and charter
conversions was changed. As a result of the FDIC's supervisory focus on
consumer harm and forward-looking supervision, the de novo period,
which had required annual on-site presence for a period of five years
was reduced to three years.
Focused banker attention on applicable guidance and
supervisory information. When communicating rules and guidance to the
banking industry through Financial Institution Letters (FILs), the FDIC
has a prominent community bank applicability statement so community
bankers can immediately determine whether the content of the FIL is
relevant to them. The FDIC has also created a regulatory calendar that
alerts stakeholders to critical information as well as comment and
compliance deadlines relating to new or amended federal laws,
regulations, and supervisory guidance.
F. Community Bank Initiative--Technical Assistance and Enhanced
Research and Data Regarding Community Banks
The FDIC is the primary federal supervisor for the majority of
community banks, in addition to being the insurer of deposits held by
all U.S. banks and thrifts. Accordingly, the FDIC has a particular
responsibility for the safety and soundness of community banks, as well
as a particular interest in, and commitment to, the role they play in
the banking system and the challenges and opportunities they face. In
2009, the FDIC established the FDIC Advisory Committee on Community
Banking to provide the FDIC with advice and guidance on a broad range
of important policy issues impacting community banks throughout the
[[Page 15936]]
country, as well as the local communities they serve, with a focus on
rural areas. In 2011, the FDIC launched an initiative to study those
challenges and opportunities and, where feasible, provide resources to
community bankers to navigate the current environment. As part of the
Community Bank Initiative, the FDIC completed the FDIC Community
Banking Study, a data-driven effort to identify and explore issues and
questions about community banks.\145\ This study has been followed by a
series of papers aimed at topics of importance to community banks, such
as branching trends, closely held banks, efficiencies and economies of
scale, community bank earnings, minority-owned banks, rural
depopulation, and consolidation. The FDIC also created a section of the
Quarterly Banking Report focusing exclusively on community bank
performance. Most recently, in April 2016, the FDIC conducted a
conference entitled, FDIC Community Banking Conference, Strategies for
Long-Term Success that focused on successful community bank business
models, key regulatory developments, opportunities and challenges in
managing technology, and ownership structure and succession planning.
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\145\ See FDIC Community Banking Study Reference Data,
www.fdic.gov/regulations/resources/cbi/data.html.
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The FDIC has also provided greater technical resources to bank
directors and management, including the establishment of a Directors'
Resource Center on the FDIC website,\146\ as a one-stop site for
Directors to obtain useful and practical information to help them in
fulfilling their responsibilities. Since 2013, the FDIC has issued over
25 technical assistance videos that provide in-depth, technical
training for bankers to view at their convenience. The FDIC also offers
additional technical training opportunities by hosting Directors'
Colleges in each of its six regions. These Colleges are typically
conducted jointly with state trade associations and address topics of
interest to community bank directors and officers.
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\146\ FDIC Directors' Resource Centers, https://fdic.gov/regulations/resources/director/index.html.
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In 2016, the FDIC conducted 55 directors' colleges through its six
regional offices. The FDIC has also held teleconferences and other
training seminars with bankers to discuss new rules or emerging topics
in the industry. In 2016, the FDIC conducted eight teleconferences for
bankers covering such topics as accounting issues, Call Reports, and
capital. In addition, the FDIC, in coordination with other bank
regulatory agencies, conducted three interagency webinars for bankers
covering such topics as CRA, overdraft program practices, and the
Military Lending Act.
Also in 2016, the FDIC developed and distributed to all FDIC-
supervised institutions a Community Bank Resource Kit, containing a
copy of the FDIC's Pocket Guide for Directors, reprints of various
Supervisory Insights articles relating to corporate governance,
interest rate risk, and cybersecurity, two cybersecurity brochures that
banks may reprint and share with their customers to enhance
cybersecurity savvy, a copy of the FDIC's Cyber Challenge exercise, and
several pamphlets that provide information about the FDIC resources
available to bank management and board members.
G. Deposit Insurance Coverage
The FDIC receives thousands of calls each year on deposit insurance
coverage by both consumers and bank employees. The FDIC regularly holds
series of banker teleconferences to provide a better understanding of
deposit insurance coverage. In April 2016, the FDIC revised the
Financial Institution Employee's Guide to Deposit Insurance (Guide)
that primarily is for bank employees.\147\ The Guide includes
comprehensive examples for the nine most-common deposit ownership
categories and clarifies many misconceptions regarding deposit
insurance coverage.
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\147\ FDIC FIL-30-2016: Updated Financial Institution Employee's
Guide to Deposit Insurance: Latest Version Includes Multiple
Examples to Better Understand Deposit Insurance Ownership Categories
(April 27, 2016).
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H. Enhanced Awareness of Emerging Cybersecurity Threats
The FDIC has conducted cybersecurity awareness outreach sessions in
each of the FDIC's six regional offices and hosted a banker webinar to
share answers to the most commonly asked questions. The FDIC also has
developed cybersecurity awareness technical assistance videos to assist
bank directors with understanding cybersecurity risks and related risk-
management programs, and to elevate cybersecurity discussions from
technical personnel to the board. The FDIC also developed and
distributed to FDIC-supervised financial institutions Cyber Challenge,
a program designed to help financial institution management and staffs
discuss events that may present operational risks and consider ways to
mitigate them.
I. OTS Rule Integration
Under section 316(b) of the Dodd-Frank Act, rules transferred from
the OTS to the FDIC and other successor agencies remain in effect
``until modified, terminated, set aside, or superseded in accordance
with applicable law'' by the relevant successor agency, by a court of
competent jurisdiction, or by operation of law. When the FDIC
republished the transferred OTS regulations as new FDIC regulations
applicable to state savings associations, the FDIC stated in the
Federal Register notice that its staff would evaluate the transferred
OTS rules and might later recommend incorporating the transferred OTS
regulations into other FDIC rules, amending them, or rescinding them.
This process began in 2013 and continues, involving publication in the
Federal Register of a series of proposed and final rulemakings. The
FDIC has removed 16 transferred OTS rules and has issued one notice of
proposed rulemaking to remove Minimum Security Procedures while making
technical amendments to related FDIC rules for applicability to state
savings associations.\148\ The FDIC will continue its evaluation of the
remaining 14 transferred regulations. Below are three examples of how
the FDIC streamlined and clarified regulations through the OTS rule
integration process.
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\148\ 81 FR 75753 (November 1, 2016).
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Repeal and remove 12 CFR part 390 subpart L, electronic
operations. On November 27, 2015, the final rule to repeal and remove
12 CFR part 390 subpart L, Electronic Operations became effective.\149\
This rule required state savings associations to file a written notice
with the FDIC at least 30 days before establishing a transactional
website. The FDIC had no corresponding rule for other FDIC-supervised
institutions that required IDIs to notify the respective agency if they
intend to establish transactional websites.\150\ Rescinding and
removing the Electronic Operations rule served to eliminate an obsolete
and unnecessary regulation.
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\149\ See 80 FR 65612 (October 27, 2015).
\150\ As indicated in section E of this report, the OCC EGRPRA
final rule removes this transactional website notice requirement.
See 80 FR 8082 (January 23, 2017).
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Recordkeeping and confirmation requirements for securities
transactions. On December 10, 2013, the FDIC issued a final rule that
amended part 344 to increase the threshold for Small Transaction
Exceptions applicable to all FDIC-
[[Page 15937]]
supervised institutions effecting securities transactions for a
customer from an average of 200 transactions to 500 transactions per
calendar year over the prior three-year period while removing part 390,
subpart K (formerly OTS part 551), which governs recordkeeping and
confirmation requirements for securities transactions effected for
customers by state savings associations.\151\ The threshold for part
390, subpart K's Small Transaction Exception was an average of 500 or
fewer transactions over the prior three calendar-year period.
Increasing the threshold for the Small Transaction Exception recognizes
that the volume of securities activities of FDIC-supervised depository
institutions has increased over the three decades since the FDIC
established the original scope of the Small Transaction Exception and
ensures parity for all FDIC-supervised institutions. The final rule
became effective on January 21, 2014.
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\151\ See 78 FR 76721 (December 19, 2013).
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Filing requirements and processing procedures for changes in
control. In October 2015, the FDIC approved a final rule that amends
part 303 of the FDIC Rules and Regulations for filing requirements and
processing procedures for notices filed under the Change in Bank
Control Act (notices).\152\ The final rule consolidated into one
subpart the requirements and procedures for notices filed with respect
to state nonmember banks and state savings associations and eliminated
part 391, subpart E. The final rule also adopted certain practices of
related regulations of the OCC and the Board. The final rule clarifies
the FDIC's requirements and procedures based on its experience
interpreting and implementing the existing regulation.
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\152\ See 80 FR 65889 (October 28, 2015).
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J. Legislative Proposal
Section 165(i)(2) of the Dodd-Frank Act requires certain financial
companies, including state nonmember banks and state savings
associations, with more than $10 billion in total consolidated assets
to conduct annual stress tests.\153\ Two EGRPRA commenters requested
that this stress testing threshold be increased. The FDIC agrees with
these commenters, and supports legislative efforts to increase this
threshold from $10 billion to $50 billion. However, the FDIC believes
it is important to retain supervisory authority to require stress
testing if warranted by a banking organization's risk profile or
condition. Along with the Board and the OCC, the FDIC issued
interagency stress testing guidance in 2012 applicable to banking
organizations with more than $10 billion in total consolidated
assets.\154\ This guidance did not implement, and is separate from, the
stress testing requirements imposed by the Dodd-Frank Act. The FDIC
would continue to rely on this guidance and believes that stress
testing can be a useful tool to analyze the range of a banking
organization's potential risk exposures and capital adequacy.
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\153\ 12 U.S.C. 5365(i)(2)(A).
\154\ Supervisory Guidance on Stress Testing for Banking
Organizations with More than $10 Billion in Total Consolidated
Assets, 77 FR 29458 (May 17, 2012).
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Section 165(i)(2) also requires covered financial companies to
disclose their stress testing results. One EGRPRA commenter noted that
this disclosure requirement is particularly problematic for smaller
banks and recommended that it be eliminated. The FDIC notes that
increasing the stress testing threshold to $50 billion would exclude
banking organizations under $50 billion in assets from all Dodd-Frank
Act stress testing requirements, including the requirement to disclose
their stress testing results. However, if the statutory threshold in
section 165(i)(2) is not increased to $50 billion, the FDIC would
support a separate legislative change exempting banking organizations
with total consolidated assets between $10 and $50 billion from the
disclosure requirement.
F. Rule by Rule Summary of Other EGRPRA Comments
In addition to the comments raising significant issues addressed in
section D of this report, the agencies received other comments
pertaining to the rules published for comment. A summary of these
comments, organized by rule in each of the 12 categories, is set forth
below. The comments are summarized in each category first by
interagency rules, then by agency-specific rules. The agencies note
that although the agencies published all of their rules (aside from
rules that only affect agency internal processes), some of these rules
did not generate any public comments.
1. Applications and Reporting
Interagency Regulations or Regulations Implementing the Same Statute
A. Bank Merger Act
In general, the Bank Merger Act \155\ and the agencies'
implementing regulations require the prior written approval of the FDIC
whenever IDIs want to merge, consolidate, assume liabilities, or
transfer assets from or with a noninsured depository institution.\156\
The statute also requires the prior written approval of the appropriate
federal banking agency before any IDI may merge or consolidate with,
purchase or otherwise acquire the assets of, or assume any deposit
liabilities of, another IDI. The agencies received two comment letters
and a number of comments from outreach meeting participants on the Bank
Merger Act application process. Several commenters suggested that the
agencies change how they process applications under the Bank Merger
Act, including specific requests that the agencies process applications
more rapidly or increase the number of institutions that qualify for
expedited processing of their applications. Yet other commenters
suggested that the Bank Merger Act's comment period is too short and
that the expedited merger process should be eliminated. Commenters also
suggested that the agencies make definitions more uniform. Other
commenters questioned how the agencies consider banks' CRA records or
suggested that the agencies develop a faster process of reviewing the
appeals of decisions made under the Bank Merger Act. These comments are
discussed in more detail, below.\157\
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\155\ Section 18(c) of the FDI Act (12 U.S.C. 1828(c)).
\156\ The agencies' implementing regulations for the Bank Merger
Act are set forth at 12 CFR 5.33; 12 CFR 262.3 (processing and
notice); 12 CFR part 225, subpart B; 12 CFR part 303, subpart D; 12
CFR part 390, subpart E. The OCC integrated its Bank Merger Act
regulation transferred from the OTS, so that 12 CFR 5.33 now applies
to both national banks and FSAs. See discussion of the OCC licensing
final rule in section E.3 of this report.
\157\ The OCC notes that many of these comments are discussed in
the preamble to the OCC licensing final rule. The OCC issued the
proposal for this rulemaking during the start of the EGRPRA process
and issued the final rule in May 2015. When the OCC published this
proposed rule, the OCC noted that it also would consider any EGRPRA
comments received on part 5 when finalizing the proposal. This
rulemaking is discussed in more detail in section E.3. of this
report.
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Uniform definitions of ``eligible'' financial institutions
Two trade associations suggested that the agencies adopt a uniform
definition of an institution eligible for expedited
[[Page 15938]]
processing. The commenter asserted that this would provide greater
clarity and reduce regulatory burden.
Appeals process for Bank Merger Act applications
One commenter recommended that the appeals process take place
earlier in the applications process.
More expedited processing of mergers
Several trade associations and institutions stated that there is a
need for more expedited processing of mergers because the process is
cumbersome, noting that sometimes financial institution employees leave
jobs because of the uncertainty. Bankers expressed concern that banks'
applications for an acquisition, merger, or change of control are often
delayed for extended periods of time, stating that sometimes the
applications are not accepted as complete. They also stated that many
delays often result from a single protest letter by a community group.
One commenter suggested increasing asset thresholds associated with
expedited processing, with a particular recommendation to increase the
$7.5 billion threshold in 12 CFR 225.14 to $10 billion and to index it.
Other commenters suggested expediting mergers for banks that are well
capitalized with high CAMELS ratings and satisfactory CRA ratings.
Less expedited processing of mergers
Several commenters representing community or veterans'
organizations suggested that mergers need to be carefully considered to
make sure CRA considerations are addressed and that the statutory
convenience and needs factor is satisfied before approval is granted.
One commenter suggested that the Bank Merger Act's 30-day comment
period is too short to allow people to navigate regulatory Web sites
and legal notices to determine when a merger is contemplated and
whether it affects their communities. Another commenter suggested that
the expedited merger process should be eliminated so that no bank can
merge without explicitly outlining the public benefits resulting from
the merger.
Consideration of CRA in mergers
A commenter representing community groups stated that banks should
have to demonstrate a record of strong community development, not just
a satisfactory rating or above on the most recent CRA exam, and be
required to demonstrate a clear public benefit to both the current and
the expanded assessment areas, ideally in conjunction with a formal CRA
agreement with the local community. Another commenter recommended that
regulators should conduct interviews and public hearings to evaluate
how community needs are being and will be served in a merger, in
addition to accepting public comments. In addition, a commenter noted
that, in the context of mergers, regulators should consider that banks
that focus on online banking and ATM access do not rebuild communities
the way brick-and-mortar operations do. Comments from banks and their
trade associations suggested that a bank should be judged by its most
recent CRA exam, or by other clear objective standards. One commenter
stated that requiring public hearings and interviews would be
tremendously expensive and time-consuming.
Delegated approvals for acquisitions and mergers
Several banks suggested that the agencies delegate more approval
decisions to the appropriate regional office, rather than making the
decision at headquarters.
Office closings as a result of mergers
Two bank trade associations recommended that the agencies be
required to balance consideration of office closings with consideration
of an institution's use of alternative technologies to serve customers
in assessing convenience, needs, and CRA factors as part of
mergers.\158\
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\158\ The agencies note that the recently issued Interagency CRA
Q&As provide additional guidance on how agency examiners evaluate
alternative systems for delivering retail banking services. 81 FR
48505 (July 25, 2016).
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Consideration of the ratio of loans to deposits in processing of
mergers
One commenter representing a veterans' organization suggested that
when out-of-state banks merge with California banks, the ratio of loans
to deposits should be relatively equitable when compared to the ratio
prior to the merger.
Public notice provisions
One commenter suggested amending the regulations to allow
alternative forms of public notice, not just the newspaper notice
required by 12 U.S.C. 1828(c)(3)(D), given advances in technology and
communications.\159\
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\159\ The agencies note that regulations do not prohibit an
institution from providing alternative forms of public notice, such
as on its Web site, in addition to newspaper publication.
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Herfindahl-Hirschman Index
One commenter suggested that the Herfindahl-Hirschman Index (HHI
index) is not an appropriate metric for measuring the effect on
competition of applications by small banks in rural areas. Another
commenter suggested that the HHI index is outdated and does not
consider new innovations and trends in the banking industry.
B. Change in Bank Control
The Change in Bank Control Act (CBCA) requires that the acquisition
of control of any IDI by any person (either individually or acting in
concert with others) be subject to prior notice and non-disapproval by
the primary federal regulator of the institution to be acquired.\160\
The agencies received two comment letters from trade associations and
several comments from outreach meeting participants on the agency's
CBCA rules.\161\ Several commenters suggested that changes be made in
how the agencies process notices under the CBCA, including specific
requests that the agencies process notices more rapidly or limit the
processing period by ceasing to ask for additional information.
Commenters also recommended that the agencies revise or provide
additional guidance in several specific regulatory areas to alleviate
regulatory burden. Other commenters questioned definitions used for
provisions in the regulations or asked for a process by which the
agencies could issue binding interpretations determining when a filing
is not required.\162\ These comments are detailed below.\163\
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\160\ 12 U.S.C. 1817(j).
\161\ The agencies CBCA rules are set forth at 12 CFR 5.50; 12
CFR part 225, subpart E (Reg. Y); 12 CFR part 238, subpart D; 12 CFR
part 303, subpart E; 12 CFR part 308, subparts D and E; 12 CFR part
391, subpart E.
\162\ The FDIC issued a final rule on December 16, 2015, that
among other things consolidates and conforms the change in control
regulation and guidance transferred from the OTS. See FIL-60-2015
(announcing Final Rule Amending the Filing Requirements and
Processing Procedures for Changes in Control). The OCC also has
integrated its change in control regulation transferred from the
OTS, so that 12 CFR 5.50 now applies to both national banks and
FSAs. See discussion of the OCC licensing final rule in section E.3
of this report.
\163\ As indicated above, many of these comments are discussed
in the preamble to the OCC licensing final rule, discussed in more
detail in section E. 3. of this report.
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Definitions of ``acting in concert'' and ``immediate family''
Two trade associations and a banker asserted that the agencies
should use uniform definitions of ``acting in concert'' and ``immediate
family.'' These commenters also stated that the presumption that two or
more institutions that acquire 10 percent or more of a bank's stock are
acting in concert makes it more difficult for some
[[Page 15939]]
institutional investors to enter the market, thus impairing community
banking.
Limiting requests for additional information
One commenter advocated for establishing a cut-off date beyond
which regulators cannot ask for more information about a notice of
change in bank control. The commenter noted that keeping the timeframe
running indefinitely by stating that the filing is not informationally
complete delays the transaction and creates uncertainty.
Binding interpretations
One commenter stated that banks should be able to ask for a binding
interpretation of what constitutes a change in control so they know
when filing is necessary.\164\
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\164\ With respect to the OCC, national banks and FSAs can, and
often have, asked OCC staff for a legal opinion or interpretation of
the statute and regulation regarding whether a change in control
filing is required in the facts and circumstances described in the
request.
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Definition of acceptance of application for change in control filings
A banker stated that there is no clear definition of what the
acceptance of an application means, and that there needs to be more
transparency about what is required and more honesty about delays.
Speed of processing
One commenter asserted that a change of control notice should be
approved within 30 days because it is usually a response to a capital
issue that needs to be addressed quickly.
Reduction in the burden of change of control filings
One commenter stated that, although not required by Board
regulations, banks are required to follow a change in control rule
every time even one single share changes hands. The commenter stated
that this is tremendously expensive and time-consuming and that it
would make sense if there were a threshold, in that reporting would be
required if 5 or 10 percent of shares changed hands within the control
group.
C. Notice of Addition or Change of Directors
Section 914 of FIRREA requires certain institutions to notify the
appropriate federal banking agency of the proposed addition of any
individual to the board of directors or the employment of any
individual as a senior executive officer of such institution and
provides the appropriate federal banking agency with the authority to
disapprove the proposed individual on the basis of the individual's
competence, experience, character, or integrity.\165\ The agencies each
have promulgated regulations pursuant to section 914.\166\
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\165\ 12 U.S.C. 1831i.
\166\ 12 CFR 5.51; 12 CFR part 225, subpart H (Reg. Y); 12 CFR
part 303, subpart F; 12 CFR 390.360-.368; 12 CFR part 225, subpart
H; 12 CFR 238, subpart H. The OCC has integrated its regulation
relating to changes in directors or senior executive officers
transferred from the OTS, so that 12 CFR 5.51 now applies to both
national banks and FSAs. See discussion of the OCC Licensing final
rule in section E.3 of this report.
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Two banking trade associations addressed the agencies' section 914
rules. The commenters suggested that the agencies amend their
respective regulations to adopt uniform definitions of key terms,
notice requirements, and appeals provisions. The commenters also
suggested that the agencies adopt a common question and answer format
for their respective regulations. These comments are detailed below.
Uniform definitions of ``Director'' and ``Senior Executive Officer''
The commenters noted that the agencies' regulations do not include
uniform definitions of ``director'' and ``senior executive officer.''
The commenter suggested that the agencies amend their regulations to
adopt uniform definitions.
Uniform prior notice requirement for changes in directors or senior
executive officers
One commenter asked the agencies to adopt a common time period for
which an institution must provide prior notice before adding or
replacing a director or senior executive officer. The commenter
recommended that the agencies uniformly require 30 days prior
notice.\167\
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\167\ The preamble to the OCC licensing final rule discusses
this comment.
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Appeals of a section 914 notice
One commenter noted that the agencies' regulations are not uniform
in providing for a procedure to appeal the disapproval of a FIRREA
section 914 notice. The commenter recommended that each agency include
an appeal provision in its regulation.\168\
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\168\ As discussed in the preamble to the OCC final licensing
rule, the OCC rule includes an appeals process for section 914
decisions with respect to national banks and FSAs.
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Adopt a question and answer format for the changes in directors and
senior executive officers regulation
One commenter recommended that the agencies each adopt a question
and answer format for its section 914 regulation similar to the format
adopted by the former OTS for this regulation.
D. General Comments on Application Process
A number of commenters suggested changes or offered opinions on the
application process that apply more generally to the agencies'
application processes and not necessarily to an interagency rule.
One commenter, a community group, asserted that information about
applications subject to public comment on agency Web sites is hard to
find and difficult to understand and that community groups often
experience delays in receiving important communications, such as
acknowledgement of the receipt of their comments and decisions
regarding extension of the comment period.
One commenter, a bank, expressed a need for more guidance on the
business planning process. The commenter stated that there needs to be
very clear direction and specific guidance on what constitutes a
deviation from the business plan, and what resulting actions need to
occur by the bank if there is a deviation. This commenter also stated
that the agencies should provide more guidance about the approval
process for these planned or unexpected deviations from the business
plan.
One commenter, a community group, suggested that the agencies
should employ conditional approvals for applications to ensure that
public benefits are realized.
One commenter suggested that the agencies should expand the
examination procedures for branch closings to give significant weight
to CRA considerations and discount the use of census tracts for rural
communities.
Board Regulations
Holding companies--formations, acquisitions and nonbanking activities
The Board received comments on various aspects of its regulations
related to applications and reporting.\169\
[[Page 15940]]
Comments regarding Call Reports are separately addressed in section
I.D. of this report. The comments discussed the Board's regulations and
procedures for Bank Holding Company Act (BHC Act) filings, SLHC filings
under the Home Owners Loan Act (HOLA), as well as Bank Merger Act
filings.
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\169\ The Board's regulations relating to formations,
acquisitions, and nonbanking activities of holding companies are set
forth at 12 CFR part 225 (Regulation Y), subparts A, B, C, D, I, and
appendix C; 12 CFR 262.3; 12 CFR part 238 (Regulation LL) subparts
A, B, C, E, F; 12 CFR part 239 (Regulation MM); 12 CFR 262.3.
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BHC and SLHC reporting requirements comments
One commenter recommended that the Board streamline its FR Y-9
report form for shell holding companies of community banks. The
commenter noted that the current form requires more information than is
necessary in cases where the holding company has no assets except for
the bank's stock. A commenter from a public meeting suggested that the
agencies re-evaluate their reporting requirements in regulations and
manuals in light of the banks' increasing and evolving use of
technology. The commenter identified the check processing section of
the operations handbook as an example where the manual should be
updated in light of banks' reliance on technology. In addition, the
commenter suggested that the Board consider whether all of the
information required in its FR 2900 report, regarding transaction
accounts, other deposits and vault cash, could be entirely automated
and eliminate the need for banks to provide further explanation about
those particular balances. The commenter also suggested that the
inspection and annual site visit requirements in the retail payment
systems handbook for banks to inspect businesses with which they pair
to provide remote deposit capture be considered for elimination because
of industry experience in establishing those business relationships.
A different commenter suggested reviewing the Board's FR Y-11
(Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding
Companies), FR Y-6 (Annual Report of Holding Companies), and FR Y-8
(The Bank Holding Company Report of Insured Depository Institutions'
Section 23A Transaction with Affiliates) and adjusting the reporting
requirements of some of those reports from quarterly to annually if
there are no actions in the interim that would merit quarterly
reporting. The commenter specifically noted that the FR Y-8 could be
changed to an annual reporting requirement if there were no
transactions between the holding company and bank. A commenter
recommended that the Board allow institutions to file electronically
the Board's report FR 2052(b), the Liquidity Monitoring Report, so as
to be able to attach spreadsheets and reduce the potential for human
error involved in manually creating the report. The commenter also
suggested that it would help institutions to be relieved from having to
file by 7:00 a.m. daily Parts A, AA, and B of the Board's FR 2420
report (Selected Money Market Rates) and allowing them to provide those
portions at a later time.
BHC Act, HOLA, and Bank Merger Act applications requirements comments
Commenters presented a variety of suggestions regarding the Board's
application and filing requirements for banks, bank holding companies,
and savings and loan holding companies. One commenter suggested
eliminating the H(e) application forms used by savings and loan holding
companies to engage in formations and acquisitions and replace it with
the Board's FR Y-3 forms used by bank holding companies for similar
activities. The commenter noted that the H(e) forms were developed
decades ago, before the Board became the primary regulator of SLHCs and
does not seem to have been revised to eliminate unnecessary burden. The
commenter also noted that any missing information that a savings and
loan holding company would be required to provide under a FR Y-3 form
could be supplemented with a short form to the extent necessary for a
filing. The same commenter also recommended that the Board's Regulation
Y and LL provisions regarding waivers of application filing
requirements be amended to permit acquisitions of both banks and
savings associations where a Bank Merger Act is necessary and other
conditions are met. The commenter also suggested expanding the waiver
provision in Regulations Y and LL to except from an application
requirement direct mergers by savings associations with other savings
associations or banks, and mergers by banks with savings associations
in situations where a Bank Merger Act application is filed and the
acquiring holding company does not merge or acquire the shares of the
target institution at any time. The same commenter also urged the Board
to carefully consider incorporating features of the former OTS control
analysis, such as passivity agreements and rebuttal commitments, into
the Board's current regulations applicable to both bank and savings and
loan holding companies. The commenter asserted that the OTS's
regulation provided the benefit of more certainty and efficiency in
certain cases, given the detailed control factors and explicit
regulatory procedures for rebutting control, than the Board's current,
less formal regulatory determinations. The commenter also suggested
that the Board incorporate in Regulation LL the former OTS's exception
to the filing of a change in bank control notice for a tax-qualified
employee stock ownership plans (ESOP) and also provide an exception in
Regulation Y for ESOPs of bank holding companies.
A commenter suggested that providing notice to the Board for a
dividend waiver by an SLHC should be informational only and the Board
should not be able to deny the notice as the primary regulator of the
depository institution already has oversight of capital distributions.
With respect to BHC Act and Bank Merger Act applications, a
commenter suggested that the Board not allow the pre-filing review
process to be used to negotiate or otherwise discuss details of a
proposed transaction and to automatically and promptly provide the
public with detailed documentation of pre-filing communications. In
addition, the commenter recommended that the agencies establish clear
guidelines and expectations about what constitutes a public benefit
arising from an acquisition or merger. Another commenter stated that a
single comment letter regarding an application should not require the
Board to act on the proposal instead of a Reserve Bank, particularly
when the acquirer is financially sound and has a solid record under the
CRA. One commenter recommended that the effectiveness of an
institution's AML efforts should be included as a factor for
applications under section 3 of the BHC Act.
OCC Regulations
Rules, policies, and procedures for corporate activities
Six EGRPRA commenters addressed 12 CFR part 5, the OCC licensing
rules, and various other OCC licensing-related rules for FSAs. As
indicated above, some of these commenters also addressed the OCC's
proposal to amend part 5,\170\ which the OCC issued during the start of
the EGRPRA process and finalized in May 2015.\171\ When the OCC
published this proposed rule, the OCC noted that it also would consider
any EGRPRA comments received on part 5 when finalizing the proposal,
and most of these comments are discussed in the preamble to the OCC
licensing final rule. This rulemaking is discussed
[[Page 15941]]
in more detail in section E. 3. of this report.
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\170\ 79 FR 33260 (June 10, 2014).
\171\ 80 FR 28346 (May 18, 2015).
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Directors
Two trade associations recommended that 12 U.S.C. 72 be amended to
update the ``representative'' requirement for directors of national
banks given the evolution of the market and the need for qualified
directors. These commenters stated that it would be appropriate to
eliminate this requirement. These trade associations also recommended
that the OCC eliminate the requirement under 12 CFR 143.3(d) that the
majority of a de novo savings association's board of directors be
representative of the state in which the association is located, given
the ease of communication facilitated by technology and an increasingly
interdependent finance market.\172\
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\172\ The OCC has eliminated this requirement. It is not
included in revised 12 CFR 5.20, which now applies to FSAs in place
of part 143.
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Public benefit corporations
A nonprofit organization raised the possibility of banks becoming
public benefit corporations. This commenter stressed that public
benefit corporations do not pose safety-and-soundness concerns.
Approval process: fiduciary activities
Two trade associations recommended that the OCC revise 12 CFR
150.70(b) so that once the OCC has granted an institution permission to
exercise some fiduciary powers, the institution may exercise all
fiduciary powers without further approval. The commenter noted that
this change would streamline the process.
Misleading titles
A trade association supported the provision in the OCC licensing
proposed rule that would prohibit national banks from adopting a
misleading title.\173\
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\173\ The OCC adopted this provision in the OCC licensing final
rule.
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Expiration of preliminary charter application approval
A trade association supported the provision in the OCC licensing
proposed rule that would provide FSAs with a lengthier expiration of
preliminary approval for charter applications.\174\
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\174\ The OCC adopted this provision in the OCC licensing final
rule.
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Expedited review--definition of eligible bank
A trade association stated that the OCC should not require national
banks and FSAs to have an OCC compliance rating of 1 or 2 to qualify
for expedited review, as in 12 CFR 5.3(g) of the OCC licensing proposed
rule, noting that because the compliance rating is already included in
the CAMELS composite rating the new requirement would be redundant.
Furthermore, the commenter stated that there would be no greater
certainty for national banks regarding eligibility for expedited review
because the OCC still has the discretion to remove filings from
expedited review.
Acquisitions
A trade association stated that the proposed amendment to 12 CFR
5.33 in the OCC licensing proposed rule to require an application for
acquisitions conducted by national banks or thrifts that engage in a
purchase and assumption transaction resulting in an increase in the
asset size of the institution by 25 percent or more is a new
substantive requirement for both banks and thrifts that is not
connected to the task of integration.\175\
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\175\ The OCC licensing final rule did not include this proposed
application requirement. Instead, the application provision of 12
CFR 5.53 now applies.
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Branches
One banker suggested that if a national bank has a satisfactory
rating and CRA compliance, it should not need prior approval from the
OCC to open each branch.\176\ This same banker noted that the OCC
should revisit the 1000 foot rule for branch relocations. Two trade
associations suggested that the OCC clarify that mobile phones and
similar devices are not branches.\177\ One trade association opined
that the OCC should retain the different branching regimes for national
banks and FSAs, as proposed in the OCC licensing proposed rule. The
commenter strongly supported this approach over the first alternative
described in the preamble to the licensing proposed rule, which would
require both national banks and FSAs to file an application to
branch.\178\
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\176\ This change would require a legislative change to 12
U.S.C. 36(i).
\177\ The preamble to the OCC licensing final rule clarifies the
application of the branching rules to mobile phones and similar
devices.
\178\ The OCC licensing final rule did not require FSAs to file
an application to establish a branch.
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Necessity for new association
Two trade associations stated that the OCC should no longer
consider whether a ``necessity exists'' for a federal stock association
in the community to be served when deciding whether to approve an
application under 12 CFR 152.1, now included in 12 CFR 5.20. They
stated that necessity is duplicative of other factors the OCC
considers, such as probability of usefulness and success under 12 CFR
152.1(b)(ii).\179\
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\179\ Section 5(e) of HOLA, 12 U.S.C. 1464(e), requires the OCC
to consider whether a ``necessity exists.''
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Operating subsidiaries
A trade association stated that the proposed amendment to 12 CFR
5.34(e) in the OCC licensing proposed rule, which stated that ``no
other person or entity has the ability to control the management or
operations of the subsidiary'' for a national bank to invest in an
operating subsidiary, will create uncertainty for joint venture
arrangements organized as national bank operating subsidiaries. Without
a definition of ``control,'' the commenter stated that it will be
unclear whether the influence of a stakeholder with special expertise
would prevent national banks from entering into joint ventures
organized as operating subsidiaries, and that the current requirements
already ensure that banks have sufficient control. This same commenter
also stated that the OCC should change 12 CFR 5.34(e)(5)(ii) to ensure
that joint ventures organized as operating subsidiaries are eligible
for expedited notice treatment.\180\
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\180\ The OCC licensing final rule includes clarifying
amendments that address these comments.
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Furthermore, this trade association stated that the proposed 12-
month expiration for OCC approvals of operating subsidiaries for
national banks in 12 CFR 5.34(e)(5)(viii) of the licensing proposed
rule is a new substantive requirement for both national banks and FSAs.
This commenter also opposed proposed 12 CFR 5.34(e)(2)(iii) in the
OCC licensing proposed rule, which requires that national banks have
policies and procedures to preserve the limited liability of the bank
and its subsidiaries, a requirement currently applied to FSAs. The
commenter stated that the proposal did not provide sufficient analysis
to explain why national banks should be subject to this requirement and
that the change is not a clarifying change.
Two trade associations requested that the OCC clarify that a
national bank may continue to invest in a joint venture or partnership
that qualifies as an operating subsidiary under 12 CFR 5.34(e)(2) if
the bank has the ability to control the management and operations of
the subsidiary and no other party controls more than 50 percent of the
voting (or similar type of controlling) interest in the subsidiary.
These commenters requested that the OCC make a corresponding change to
the
[[Page 15942]]
proposed expedited notice procedures, 12 CFR 5.34(e)(5)(ii), to allow
an investment in an operating subsidiary that is a joint venture or
partnership to continue to be eligible for expedited notice treatment.
They argued that the language in the licensing proposed rule is a
significant departure from OCC precedent.
Bank service companies
A trade association stated that proposed 12 CFR 5.35(f)(2) included
in the OCC licensing proposed rule is more burdensome than an after-
the-fact notice requirement. The proposed provision required a prior
notice with expedited review with notice deemed approved within 30 days
unless the OCC notifies the filer otherwise instead of the current
after-the-fact notice for investments in bank service companies.
Reporting
A trade association stated that the proposed requirement that FSAs
submit annual reports to the OCC for certain operating subsidiaries and
bank service corporations adds a new compliance burden without
sufficient analysis or justification.\181\
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\181\ The OCC licensing final rule did not include this
reporting requirement.
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Control of FSA operating subsidiary
Proposed 12 CFR 5.38(e)(2)(B) provides that an FSA can only invest
in an operating subsidiary if it ``controls more than 50 percent of the
voting interest of the operating subsidiary'' or ``otherwise controls
the operating subsidiary.'' A trade association stated that, while a
comparable standard has been in place for national banks under 12 CFR
5.34, this provision would be a new standard for FSAs and it would be
helpful for the OCC to provide clarity on how an FSA would be deemed to
``otherwise control the operating subsidiary.''
Conversion
A trade association stated that the OCC should provide greater
clarity on how to convert a financial subsidiary back to an operating
subsidiary under 12 CFR 5.39.
Calculation of time
A trade association supported the proposed provision in the OCC
licensing proposed rule that would calculate time for national bank
filings by no longer allowing weekends or federal holidays to be filing
due dates.\182\
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\182\ The OCC licensing final rule includes this change.
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OCC licensing proposed rule, in general
One commenter, a trade association, provided general comments on
the OCC licensing proposed rule.
FDIC Regulations
Deposit insurance filing procedures
The agencies received two written comments and one oral comment on
the FDIC's deposit insurance filing procedures, but no comments were
received concerning FDIC or other agency regulations pertaining to de
novo applications. The commenters' concerns centered on the view that
the FDIC's policies and practices, principally, the Enhanced
Supervisory Procedures for Newly Insured FDIC-Supervised Depository
Institutions (Financial Institution Letter (FIL) 50[dash]2009),
discourage the formation of new depository institutions. Other comments
focused on the duration of the review process with respect to
applications for deposit insurance. The most frequent suggestions
involved removing (1) the requirements for prior approval of a material
change in business plan for a de novo institution's fourth through
seventh years of operation, and (2) the perceived requirement to fund
the bank's capital accounts at organization sufficiently to maintain
capital at the level of 8 percent through the initial seven-year
period. Other suggestions included issuing a new FIL to help dispel
misconceptions and affirm FDIC's support for the formation of de novo
institutions. The FDIC considered these comments in revising processes
related to deposit insurance filing procedures, which are described on
pages 129-31 of this report.
2. Powers and Activities
Interagency Regulations or Regulations Implementing the Same Statute
A. Proprietary Trading and Relationships with Covered Funds (the
Volcker rule)
Section 619 of the Dodd-Frank Act, known as the Volcker rule,
prohibits banking entities from engaging in proprietary trading and
from investing in, sponsoring, or having certain relationships with
``covered funds.'' \183\
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\183\ 12 U.S.C. 1851. Implementing agency regulations are set
forth at 12 CFR part 44; 12 CFR part 211, subpart D; 12 CFR part
248; and 12 CFR part 347.
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Two commenters, both industry trade associations, addressed this
rule. One commenter suggested that because banks may be subject to one
or more regulators who have separate rule-writing authority,
supervision and enforcement authority for the rule, banks need to
receive examination guidance on how to comply with the rule. This
commenter also stated that the definition of a ``covered fund'' under
the rule is too broad and that the agencies should clarify the
definition to be either a ``hedge fund'' or a ``private equity fund''
and provide clear definitions of both terms. By changing the
definition, the commenter asserted that banks would be able to have or
continue relationships with ordinary corporate vehicles and other
entities that the commenter stated are not ``covered funds'' that were
intended to be subject to the rule. The commenter also stated that the
Volcker rule should not be applied where systemic risk is absent.
Another commenter suggested that the agencies should expand and clarify
the scope of activities that qualify under the exclusion for liquidity
management and clarify the requirements for documenting reliance on the
exclusion. The commenter also stated that the Volcker rule should be
amended to make clear that a violation of the proprietary trading
prohibition does not arise when a covered entity acts to correct
trading errors. The commenter also suggested that the agencies raise
the threshold for the requirement that covered entities adopt a
compliance program, reduce certain provisions of the compliance
program, and create a ``safe harbor'' from imposition of compliance
program requirements that takes into account the business model of a
covered institution.
B. Community and Economic Development Entities, Community Development
Projects, and Public Welfare Investments
12 CFR part 24 sets forth the standards and procedures that apply
to national bank public welfare investments,\184\ as provided by 12
U.S.C. 24 (Eleventh). Three EGRPRA commenters specifically addressed
this rule.
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\184\ 12 CFR part 24.
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In general
Two commenters, a law firm and a nonprofit lender, recommended that
the OCC consider ways to increase the opportunity for banks to make
public welfare investments, which would help CDFIs grow and would in
turn help low-income communities. One of the commenters, the law firm,
further noted the need for clarification of what constitutes the
investment amount for the public welfare investment limit.
Additionally, the commenter recommended that in addition to the
[[Page 15943]]
general investment limit, certain investments, including small business
investment corporations, CDFIs, and community development corporations,
should have separate limits. Further, the commenter suggested that the
OCC should change the current investment authority containing a non-
exclusive list of public welfare investment vehicles to a separate
investment authority for individual public welfare investment vehicles.
The commenter also noted inconsistencies among the agencies about
public welfare investments, such as whether an investment includes a
loan, and differing capital and surplus investment percentages for
public welfare investments. Lastly, the commenter recommended that the
OCC clarify the difference between an equity investment and a loan, and
that the OCC should incorporate OCC Interpretive Letter #1076 (December
2006) into its regulations.
Capital charge for community development and public welfare investments
One commenter, a CDFI, suggested lowering the amount of capital
stock and surplus charged when banks make community development and
public welfare investments. The commenter suggested that regulators
become more familiar with business models of the community economic
development entities that are insuring depositories making community
development and public welfare investments. The commenter noted that
AERIS, S&P, or other organizations rate CDFIs and therefore, the level
of capital charged should not be dollar-for-dollar, but 50 or 75
percent.
OCC Regulations
A. Activities and Operations
Subpart A of 12 CFR part 7 contains a nonexclusive list of national
bank and FSA powers. Subpart E of 12 CFR part 7 contains the OCC's
rules related to a national bank's use of technology to deliver
services and products consistent with safety and soundness. One
commenter, a banker, noted that when a customer elects to receive
statements and notices electronically, banks are required to confirm
the customer's consent electronically in a manner that reasonably
demonstrates the customer can access the information in the electronic
format that it is sent. This commenter requested that the term
``reasonably'' be further defined.\185\
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\185\ This consumer consent requirement is not required by OCC
regulations, but by the Electronic Signatures in Global and National
Commerce Act (E-Sign Act). See 15 U.S.C. 7001(c)(1)(C)(ii). The E-
Sign Act does not define ``reasonably'' but required the Department
of Commerce and the Federal Trade Commission to provide a report on
this consumer consent provision. See ibid. section 7005(b). This
report was published in 2001. See https://www.ftc.gov/sites/default/files/documents/public_statements/prepared-statement-federal-trade-commission-esign/esign7.pdf.
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B. Debt Cancellation Contracts and Debt Suspension Agreements
12 CFR part 37 governs the issuance of debt cancellation contracts
and debt suspension agreements (DCCs) by national banks. Nine EGRPRA
commenters addressed this rule.
Preemption
One commenter, representing consumer groups, suggested that the OCC
revise part 37 to roll back preemption of state insurance laws and
further strengthen part 37. The commenter noted that the CFPB's first
enforcement actions were against credit card issuing national banks for
abuses in the sale of debt suspension products and that the CFPB
actions indicate a need to bolster the protections for consumers with
respect to DCCs.
Enforcement actions
A trade association stated that consent orders have effectively
created regulations without the due process required by the
Administrative Procedures Act because they expand or conflict with OCC
regulations.
Prohibited practices
One commenter, a trade association, suggested that the OCC amend 12
CFR 37.3 to add a general statement that any description of the product
must be accurate and not deceptive or misleading. Another trade
association suggested that the OCC expand 12 CFR 37.3(b) to apply to
any description of the product, not just the required disclosure.
Refund of fees
One commenter, a trade association, suggested that the OCC delete
the sentence in 12 CFR 37.4 that reads, ``A bank may offer a customer a
contract that does not provide for a refund only if the bank also
offers that customer a bona fide option to purchase a comparable
contract that provides for a refund.'' The commenter stated that this
sentence is unnecessary and burdensome because it prevents banks from
offering less expensive debt protection products to customers who
cannot afford more expensive contracts.
Payment of fees
One commenter, a trade association, suggested that the OCC delete
the language in 12 CFR 37.5 that states a ``bank may offer a customer
the option of paying the fee for a contract in a single payment,
provided the bank also offers the customer a bona fide option of paying
the fee for that contract in monthly or other periodic payments.'' The
commenter asserted that this language is unnecessary because the
purchase of debt protection products almost exclusively is financed.
Incentive compensation
Two trade associations addressed the issue of incentive
compensation and DCCs. One commenter said the OCC should prohibit
incentive compensation and the other said banks should be encouraged to
establish and adhere to internal guidelines and metrics on incentive
compensation.
Disclosure
Two trade associations addressed disclosure in debt cancellation
contracts. Both commenters recommended that the disclosure rules should
cross-reference Federal Trade Commission guidelines on clear and
conspicuous digital disclosures and other existing standards. The
commenters also suggested that the disclosure provisions should require
that the following key disclosures be made before enrollment: (a)
optional nature of product; (b) all fees relating to product; (c)
eligibility requirements; (d) material limitations and exclusions; and
(e) when cancellation or termination is permitted. One commenter
recommended that the required disclosures also include contact
information for the bank. Finally, both commenters recommended that the
short-form disclosure should not be required for in-person
transactions.
CFPB Bulletin
Three trade associations asked the OCC to amend its rules to
provide clear guidance in light of CFPB Bulletin 2012-06 and
enforcement orders by the CFPB, FDIC, and OCC.\186\ Two trade
associations recommended that the rules incorporate language on
rebuttals from the CFPB Bulletin and specify that customer service
manuals must provide clear guidance and language for rebuttals.
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\186\ See, http://files.consumerfinance.gov/f/201207_cfpb_bulletin_marketing_of_credit_card_addon_products.pdf.
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Telemarketing
Two trade associations offered recommendations on the rules
governing telemarketing. Both recommended that the rules should clarify
that deviations from the script
[[Page 15944]]
are permitted for the assistance of customers, for natural transitions,
to enhance consumer understanding, or to avoid misrepresentation. Both
commenters also recommended that telemarketers make the purpose of a
sales call clear before engaging in a solicitation. One commenter also
recommended that telemarketing should be subjected to quality assurance
reviews and that the format of telemarketing call information should be
complete and clear enough to avoid deception or being misleading.
Oversight
Two trade associations said the rule should require providers to
have strong management oversight, with cross-references to the OCC
vendor management guidance, OCC Bulletin 2013-29.\187\
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\187\ https://occ.gov/news-issuances/bulletins/2013/bulletin-2013-29.html.
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Cancellation
One trade association recommended that when a customer calls to
cancel, the rules should allow the provider to provide a full
explanation of the product and make inquiries about eligibility for
benefits.
Claims processing
One trade association stated that the rules should require that
claims be processed in a timely manner.
Complaints
One trade association noted that the rules should require a system
for receiving, investigating, and resolving customer complaints,
including management review.
C. National Bank Fiduciary Activities
12 CFR part 9 sets forth the standards that apply to the fiduciary
activities of national banks. The OCC received EGRPRA comments on these
rules from two trade associations.\188\
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\188\ As indicated in section E of this report, the OCC EGRPRA
final rule made several amendments to part 9 to eliminate regulatory
burden and remove outdated or obsolete provisions. Some of these
amendments incorporate these EGRPRA comments on part 9 and are
discussed in the preamble to this final rule. See 82 FR 8082
(January 23, 2017).
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Retention of documents
One commenter, a trade association, requested that the OCC amend 12
CFR 9.8 to expressly permit the electronic retention of documents to
satisfy regulatory requirements. The commenter stated that electronic
retention would modernize the fiduciary rules and provide some burden
relief while supporting the fiduciary duty to keep adequate records and
render accounts. The commenter suggested specific regulatory language.
This same commenter requested that the OCC amend 12 CFR 9.8(b) to
require that documents be retained for a ``necessary period'' or to
refer to applicable law on the retention of documents, instead of the
current three-year requirement. The commenter explained that three
years may be inadequate in some situations, such as when a suit by a
beneficiary against a predecessor trustee filed more than three years
after the account is closed but before the state statute of limitations
has run.
Collateralized deposits
A trade association commenter recommended that the OCC amend 12 CFR
9.10 to state that a bank ``may'' collateralize deposits if the
deposits are directed by a third party or in the governing instrument.
This same commenter also recommended expanding the acceptable
collateral allowed in 12 CFR 9.10(b)(2)(iv) to include not just surety
bonds but other instruments that provide similar protection from loss.
Custody of fiduciary assets
Section 9.13(a) requires a national bank to place assets of
fiduciary accounts in joint custody or control of not fewer than two of
the fiduciary officers or employees designated for that purpose by the
board of directors. Further, 12 CFR 9.13(a) states that a national bank
may maintain the investments of a fiduciary account off premises, if
consistent with applicable law and if the bank maintains adequate
safeguards and controls. One commenter, a trade association, explained
that the requirements in 12 CFR 9.13(a) are inconsistent, and in order
to reconcile the first and second sentences of the current 12 CFR
9.13(a) the OCC should amend the rule to accommodate a situation in
which a separate custodian is selected before an account is established
with a fiduciary. The commenter suggested specific regulatory language
to replace paragraph (a).
Deposits of securities with state authorities
One commenter, a trade association, recommended that the OCC amend
12 CFR 9.14 to provide that if a bank makes a best effort to comply
with this provision's requirement to deposit securities with state
authorities or the appropriate Federal Reserve Bank, yet is unable to
meet the deposit requirement because of a state's refusal or inaction,
the bank will be deemed to have complied. The commenter noted that
banks have been unable to comply because of states refusing deposits or
failing to file necessary paperwork.\189\
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\189\ The OCC EGRPRA final rule amends this provision to permit
national banks to make these deposits with the appropriate Federal
Home Loan Bank in addition to a Federal Reserve Bank.
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Collective investment funds
12 CFR 9.18(b)(5)(iii) provides that a bank administering a
collective investment fund that is invested primarily in real estate or
other assets that are not readily marketable may require a prior notice
period for withdrawals from the fund, not to exceed one year. One
commenter, a trade association, recommended amending 12 CFR
9.18(b)(5)(iii), to replace references to ``real estate'' with
references to ``assets that are illiquid or otherwise not readily
marketable.'' The commenter suggested that the rule should recognize
other types of illiquid assets, like guaranteed investment contracts,
synthetic investment contracts, or separate account contracts with
limits on transferability. The commenter noted that this change also
would be consistent with OCC Interpretive Letter 1121 (June 18, 2009),
which allows an individual bank to require a longer advance notice
period when appropriate and disclosed to investors, and with the
Collective Investment Funds Handbook. The commenter also stated that
this amendment would allow banks not to have to apply to the OCC on a
case-by-case basis for permission for advance notice requirements. The
commenter suggested specific regulatory language to replace 12 CFR
9.18(b)(5)(iii).
This same commenter recommended amending 12 CFR 9.18(b)(6) to allow
flexibility in the timing of a final audit when a collective investment
fund is terminated shortly after the 12-month audit period ends because
the cost of a stub-period audit can be substantial. Specifically, the
commenter suggested allowing a bank terminating a fund within 15 months
after the last audit to wait until the fund has terminated to complete
the final audit.
This commenter also requested that the OCC periodically adjust the
total asset limit in 12 CFR 9.18(c)(2) for mini-funds in light of
inflation and economic growth. (A mini-fund is a fund that a bank
maintains for the collective investment of cash balances received or
held by the bank in its capacity as trustee, executor, administrator,
guardian, or custodian under the Uniform Gifts to Minors Act that the
bank considers too small to be invested
[[Page 15945]]
separately in an economically efficient manner.) The commenter
specifically stated that the OCC should raise the current threshold of
$1 million to at least $1.5 million, which is the inflation-adjusted
value of $1 million in 1996 dollars (the last time the threshold was
revised).\190\
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\190\ As indicated in section E of this report, the OCC EGRPRA
final rule amends 12 CFR 9.18(c)(2) to increase the threshold to
$1.5 million with an annual adjustment for inflation, in response to
this comment.
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Furthermore, this commenter recommended that the OCC amend 12 CFR
9.18(b)(1), which requires the bank to make a copy of its written
collective investment plan available for public inspection at its main
office during all banking hours and to provide a copy of the plan to
any person who requests it, to allow a bank to provide an electronic
copy of the plan, as an alternative to mailing the plan, and to require
that the bank provide a paper copy upon request. This commenter also
requested that the OCC remove the requirement that a copy of the plan
be available for public inspection at the bank's main office.\191\
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\191\ As indicated in section E of this report, the OCC EGRPRA
final rule amends 12 CFR 9.18 to require that the national bank make
a copy of the plan available to the public either at its main office
or on its website. The final rule also clarifies that a bank may
satisfy the requirement to provide a copy of the plan to any person
who requests it by providing it in either written or electronic
form.
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Edge Act corporations
One commenter, a trade association, stated that part 9 should not
be applied to Edge Act corporations because they are covered by
Regulation K, which is inconsistent with part 9. The commenter stated
that there should be a clear statement that the fiduciary and
investment advisory services offered by Edge Act corporations are
exclusively subject to Regulation K and other Board guidance.
D. National Bank Real Estate Lending
12 CFR part 34 sets forth standards for real estate-related lending
and associated activities by national banks. The OCC received two
EGRPRA comment letters representing a number of nonprofit organizations
discussing the applicability of state law as set forth in 12 CFR 34.4.
The commenters raised the same issues with 12 CFR 34.4 (applicability
of state law) as they raised with 12 CFR part 7, subpart D. (See
below.) In particular, they stated that the OCC's preemption rule in 12
CFR 34.4 ignores the intent of Congress with respect to the ``prevents
or significantly interferes with'' standard articulated in the Dodd-
Frank Act and the Act's ``case-by-case'' determination and CFPB
consultation requirements. One commenter provided specific amendatory
text. It noted that this amendatory text would restore the states'
ability to protect consumers from some of the abusive practices that
led to the 2008 financial crisis.
E. National Bank Sales of Credit Life Insurance
12 CFR part 2 sets forth the principles and standards that apply to
a national bank's provision of credit life insurance and the
limitations that apply to the receipt of income from those sales by
certain individuals and entities associated with the bank. A trade
association stated that it supports 12 CFR part 2 in its current form,
without change or amendment.
F. Electronic Operations of Savings Associations
12 CFR part 155 sets forth how an FSA may provide products and
services through electronic means and facilities. Three EGRPRA
commenters addressed this rule. One bank requested that the OCC
eliminate the requirement that an FSA file a written notice with the
OCC prior to establishing a transactional website. Two trade
associations suggested that the OCC allow FSAs to notify the OCC after
they establish a transactional website in order to reduce delays with
launching the website.\192\
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\192\ As indicated in section E of this report, the OCC EGRPRA
final rule removes this transactional website notice requirement.
See 82 FR 8082 (January 23, 2017).
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G. Fiduciary Powers of FSAs
12 CFR part 150 sets forth the standards that apply to the
fiduciary activities of FSAs.\193\ Two trade associations and one
nonprofit organization commented on this rule.
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\193\ As indicated in section E of this report, the OCC EGRPRA
final rule amended this rule.
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Ancillary activities
12 CFR 150.60 provides an illustrative list of activities that are
ancillary to the fiduciary activities of an FSA. Two trade associations
requested that the OCC amend this section to make clear that ancillary
activities are not in and of themselves ``fiduciary activities.'' For
example, some trust departments serve exclusively as directed trustee
or custodian of a pension plan. They argued that if a trust department
is not engaged in fiduciary activities, OCC examiners should not
document that an institution is performing fiduciary activities, since
that documentation can create fiduciary liability exposure (e.g., under
the Employee Retirement Income Security Act of 1974).
Scope/Authority
A commenter representing consumer groups argued that 12 CFR
150.136, which describes how an FSA may conduct fiduciary activities in
multiple states and the extent to which state laws apply to these
fiduciary activities, is outside the OCC's authority and not justified
by HOLA or the Dodd-Frank Act.
H. FSA Lending and Investment
In general, 12 CFR part 160 sets forth the lending and investment
authority of FSAs and establishes specific standards and requirements
for this activity. One commenter, a law firm, suggested that the OCC
support the repeal of the statutory limits on consumer lending for
FSAs, currently required in 12 U.S.C. 1461(c)(2)(D) and 12 CFR 160.30.
The commenter stated that in recent years, because congressional action
has tended toward consistency and uniformity in the powers and
authorities granted to banking organizations regardless of charter
type, the consumer lending authority of federal savings banks should be
equal to that of commercial banks with which they compete. The
commenter further explained that because credit card accounts (which
are not secured) are not included in the consumer loan limit, the OCC
should remove the consumer loan limit to promote safety and soundness
by encouraging investment in secured consumer loans.\194\
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\194\ As indicated in section E of this report, the OCC has
developed a proposal to provide FSAs with greater flexibility to
adapt to changing economic and business environments and to meet the
needs of their communities without having to change their governance
structure by converting to a bank.
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I. Preemption of State Due-On-Sale Laws (implementation of Garn-St.
Germain Act)
12 CFR part 191, which implements section 341 of the Garn-St.
Germain Depository Institutions Act of 1982 (Garn-St. Germain),\195\
preempts state laws prohibiting due-on-sale clauses or the enforcement
of such clauses, prohibits lenders from exercising due-on-sale clauses
in certain transactions, and prohibits prepayment penalties in certain
transactions. One commenter, a consumer group, stated that the OCC
should maintain the protections against lenders exercising due-on-sale
clauses for the kinds of transfers listed in 12 CFR 191.5(b)(iii), (v),
and (vi) and provide additional protections to ensure
[[Page 15946]]
post-transfer continuity of homeownership. This commenter also stated
that OCC regulations should specify that servicers must recognize the
assumption of a mortgage by a successor in interest pursuant to an
exempt transfer under 12 CFR 191.5(b) regardless of the default status
of the loan and without additional credit screening. Finally, this
commenter stated that OCC regulations should require servicers to
provide information to successors and evaluate them for loan
modifications before assuming the loan.
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\195\ Public Law 97-320, 96 Stat. 1469, 1505-1507.
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J. Preemption
12 CFR part 7, subpart D; 12 CFR 7.5002; and 12 CFR 160.110 address
the applicability of state law to national banks and FSAs and set out
the scope of the OCC's visitorial powers. Fifteen commenters addressed
this rule.
A number of nonprofit organizations disagreed with the OCC's
interpretation or implementation of the preemption provisions and
visitorial powers provisions in the National Bank Act, the Dodd-Frank
Act, and the Supreme Court's interpretation of visitorial powers and
the standard for federal preemption. A nonprofit organization commenter
noted that preemption of state laws such as the California Homeowners
Bill of Rights is harmful to communities and wrong on the merits and
that the OCC should consider and issue guidance on whether national
banks are subject to state laws when they service loans originated by
federally chartered thrifts. Commenters stated that the OCC should
revise Sec. 7.4002, regarding non-interest fees, and Sec. 7.5002(c),
regarding electronic services, to ensure that these provisions are not
read to preempt state laws in a manner inconsistent with the Dodd-Frank
Act or are not outdated. A commenter argued that the OCC should revisit
its definition of ``interest'' in Sec. 160.110 because it
unnecessarily preempts state laws governing fees that are not
``interest'' in any real sense. Finally, a non-profit organization
suggested that (i) the concept of the exclusive visitorial authority
with respect to national banks is outdated in some aspects,
particularly as it relates to the CRA, and (ii) states, cities, and
municipalities should have the power to examine banks and bank
practices as they relate to their local communities.
Two trade associations stated that the OCC's preemption regulations
are an accurate interpretation of the Dodd-Frank Act and there is no
need for any review or changes at this time.
FDIC Regulations
Activities of insured state banks and insured savings associations
Section 24 of the FDI Act and its implementing regulation, 12 CFR
part 362, generally limit the activities and investments of state banks
(and their subsidiaries) to those permitted for national banks (and
their subsidiaries), absent application to and the approval of the
FDIC. The FDIC may approve such applications only if the FDIC
determines that the activity would pose no risk to the Deposit
Insurance Fund and if the state bank meets applicable capital
standards.
One comment was received regarding the activities of insured state
banks and insured savings associations. The commenter objected to the
FDIC's requirement of an application before a state bank may enter into
a lease of mineral interests originally acquired in connection with
debts previously contracted (DPC).
3. International Operations
Interagency Regulations or Regulations Implementing the Same Statute
A. International Lending Supervision
12 CFR part 28, subpart C; 12 CFR part 211, subpart D (Regulation
K); and 12 CFR part 347, subpart C set forth the OCC's, Board's, and
FDIC's rules, respectively, implementing the International Lending
Supervision Act of 1983. Specifically, these rules require entities
regulated by the agencies to establish reserves against the risks
presented in certain international assets and set forth the accounting
for various fees received by these entities when making international
loans. These rules also provide for the reporting and disclosure of
international assets. Although implementing the same statute, the
agencies did not issue these rules jointly.
The agencies received one comment, from a banking trade
association, with respect to this category of rules. This commenter
stated that the Board's Regulation K should be the subject of a
comprehensive review because of developments in international and
domestic banking since 2001. In such a review, the commenter requests
the following changes:
International Investment Thresholds
U.S. banking organizations are able to make investments abroad,
subject to certain conditions. As required by 12 CFR 211.9(a), direct
and indirect investments can be made without submitting prior notice if
they are made in accordance with the general consent and limited
general consent (both defined in statute) of the Board. Currently, the
definition of ``general consent'' in 12 CFR 211.9(b)(4) does not allow
a portfolio investment to exceed $25 million. Under 12 CFR 211.9(c)(1),
the Board also grants ``limited general consent'' to investors that are
not well capitalized and well managed, so long as it is the lesser of
$25 million or certain thresholds tied to the investor's tier 1
capital. The commenter requested that the Board update the ``general
consent'' and ``limited general consent'' thresholds from $25 to $50
million to make these fixed thresholds more consistent with current
market values.
Dissolution under the Edge Act
The commenter stated that the Board should expressly permit banks
to use other corporate transactions that effectively result in the
dissolution of Edge Act corporations, such as the merger of Edge and
agreement corporations, in addition to voluntary liquidations.
Currently, banks that wish to wind down Edge Act corporations may do so
under 12 CFR 211.7 only through voluntary liquidation, which involves,
according to this commenter, a ``long and costly process.'' This
commenter further stated that in practice, this means that banks slowly
unravel these corporations by phasing out creditors and shifting
liabilities away from the corporation until it can be legally
dissolved.
Investments and activities abroad
Currently, under 12 CFR 211.8(b), member banks can make direct
investments in certain entities, including foreign banks, domestic or
foreign organizations formed to hold shares of a foreign bank, and
subsidiaries established under 12 CFR 211.4(a)(8). The commenter noted
that this regulation does not expressly address whether it is
permissible to hold stock of an Edge Act or agreement corporation, and
requested that the Board amend its regulation to reflect the
established Board practice that permits a member bank to hold the stock
of an Edge Act or agreement corporation.
Consistency of standards
Several commenters argued that the Board should enhance regulatory
consistency with foreign regulators. Commenters specifically pointed to
capital and liquidity requirements as regulatory standards that should
be consistent across jurisdictions. A commenter stated that the Board
should employ in its resolution planning efforts
[[Page 15947]]
to the Financial Stability Board's Key Attributes of Effective
Resolution Regimes for Financial Institutions. Another commenter stated
that disclosure requirements should be as consistent as possible across
jurisdictions and sufficiently detailed to allow users to perform
meaningful comparisons across national regimes. A commenter suggested
that the Board should release better and simpler guidance regarding who
is a foreign correspondent, and regarding filing expectations for and
exemptions from the Report of Foreign Bank and Financial Accounts.
Deposit and credit products
Commenters suggested that the Board clearly affirm in Regulation K
the ability of Edge Act corporations to offer deposit and credit
products to foreign persons who choose to hold business or personal
assets in entities that are disregarded for federal income tax purposes
under Regulation K.
Safe Act
A commenter argued that Regulation K or the CFPB's Regulation G
should clearly indicate that Edge Act corporations are not subject to
the SAFE Act and Regulation G.
FDIC Regulations
Foreign banking and investment by insured state nonmember banks
Section 109 to subpart A of part 347 authorizes state nonmember
banks to make indirect investments in nonfinancial foreign
organizations, but this authorization is subject to limitations. The
rule states that a bank, through an authorized subsidiary or an
authorized Edge Act corporation, may acquire and hold equity interests
in foreign organizations that are not foreign banks or foreign banking
organizations and that engage generally in activities beyond those
listed in section 105(b) of the rule. Additionally, the investment in
the foreign organization through the subsidiary or Edge Act Corporation
cannot exceed 15 percent of the bank's tier 1 capital.
The objective of the limitations in Sec. 347.109 is to protect
insured banks from risks arising from the activities or investments of
an affiliate. A primary risk that arises from the activities of a
foreign organization, and that can cause losses to the bank, is country
risk, i.e., the risk that economic, social, and political conditions in
a foreign country, including expropriation of assets, exchange
controls, and currency devaluation, will adversely affect an
institution's financial interests.
The agencies received one comment letter pertaining to 12 CFR part
347, subpart A, which, in part, addresses limitations on indirect
investments in nonfinancial foreign organizations. The commenter
recommended that the capital-based limits on investments in foreign
organizations generally be raised. More specifically, the commenters
argued that extensive capital requirements and calculations imposed on
banks by the rules implemented under the Basel III Accord should allow
for more lenient capital-based limits on investment in foreign
organizations.
4. Banking Operations
Board Regulations
A. Collection of Checks and Other Items by Board and Funds Transfers
Through Fedwire (Regulation J)
Regulation J provides the legal framework for IDIs to collect
checks and other items and to settle balances through the Federal
Reserve System.\196\ The regulation specifies terms and conditions
under which Federal Reserve Banks will receive items for collection
from, and present items to, depository institutions. In conjunction
with Regulation CC, Regulation J establishes rules under which
depository institutions may return unpaid checks through Federal
Reserve Banks. The regulation also specifies terms and conditions under
which Federal Reserve Banks will receive and deliver transfers of funds
over Fedwire, the Federal Reserve's wire transfer system, from and to
depository institutions.
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\196\ Regulation J, 12 CFR part 210.
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One commenter, a trade association that represents federal credit
unions, expressed concerns with the Board's changes to Regulation J
that were effective in July 2015, which changed the check settlement
time for paying banks to as early as 8:30 a.m. eastern time. The
commenter stated that the earlier time would lead to an increased
number of daylight overdrafts for credit unions in their Federal
Reserve accounts, thereby increasing fees to those credit unions,
because they often do not have the same access to sources of early
morning funding as other financial institutions. The commenter noted
that holding higher balances or paying higher daylight overdraft fees
would affect returns to credit union members.
B. Reimbursement for providing financial records (Regulation S)
Regulation S establishes rates and conditions for reimbursement to
financial institutions for providing customer records to a government
authority and prescribes recordkeeping and reporting requirements for
IDIs making domestic wire transfers and for IDIs and nonbank financial
institutions making international wire transfers.\197\ Regulation S was
revised shortly before 2010, and the revision became effective on
January 1, 2010. The revisions to Regulation S changed the regulation
in several ways. Most significantly, the personnel fees chargeable for
searching and processing document requests are increased substantially.
The amendments also encourage electronic document productions by not
allowing a $0.25 per page fee to be charged by a financial institution
for printing electronically stored information without the requesting
agency's consent. The amended regulation also includes a mechanism for
automatically updating the labor rates found in the regulation every
three years, and makes other technical changes to the rule.
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\197\ Regulation S, 12 CFR part 219.
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A few commenters recommended that the Board should increase the
current reimbursement structure under Regulation S to account for the
current costs of complying with the regulation. Specifically,
commenters suggested that the Board should revise appendix A to Sec.
219.3 to update and modernize the regulation to account for the changes
in today's labor costs and to narrow the exceptions so that community
banks can be reimbursed adequately for the burden of complying with
government requests for documents. One commenter noted that the Board
committed to update the reimbursement rate for personnel costs by
relying on the Occupational Employment Statistics program maintained by
the Bureau of Labor Statistics, which is updated every three years.
However, the commenter indicated that the Board has not provided an
update since 2009.
C. Reserve requirements of depository institutions (Regulation D)
The Board received many comments on reserve requirements for
depository institutions. Regulation D imposes uniform reserve
requirements on all depository institutions with transaction accounts
or nonpersonal time deposits, defines such deposits, and requires
reports to the Federal Reserve.\198\
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\198\ Regulation D, 12 CFR part 204.
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[[Page 15948]]
Reserve Requirements
Numerous commenters suggested changes to Regulation D. Most
commenters suggested eliminating or increasing the numeric limit on the
number of convenient withdrawals and transfers per month that may be
made from a savings deposit (six[dash]transfer limit). Other comments
included reducing the deposit reporting requirements and eliminating
Regulation D altogether. Specifically, the majority of commenters
suggested that the Board revise the six[dash]transfer limit. Some
commenters suggested that the Board eliminate all transfer limitations,
while others suggested that the Board expand the category of unlimited
transfers to include computer, online, and mobile platforms, as well as
permit bank-initiated transfers to facilitate overnight sweeps. Some
commenters suggested that, at a minimum, the Board increase the numeric
limit on convenient transfers from six to a higher number, such as 10,
12, or 20.
Reduce deposit reporting requirements
One commenter suggested that the reserve requirement be based on
``actual dollar volume clearing'' and that the Board should require
depository institutions to maintain a collateralized line of credit
instead of reserve requirements.
Additional Regulation D Comments
A few commenters made additional suggestions for amendments to
Regulation D. One commenter generally stated that the Board should
clarify the definitions for the different types of accounts,
particularly the term ``savings deposit'' and the rules for automatic
transfers. Another commenter requested that the Board better define the
term ``occasional basis'' as it relates to depositors who exceed the
six[dash]transfer limit. One commenter also suggested that Regulation D
be eliminated altogether because reserves are no longer necessary.
OCC Regulations
Banking Operations
12 CFR 7.3000 provides the rules regarding the establishment of a
national bank's hours of operation and ceremonial and emergency
closings. 12 CFR 7.3001 provides the rules regarding the sharing of
national bank and FSA space and employees. One commenter, a trade
association, strongly urged the OCC to keep its rules relating to bank
hours and shared space and employees simple and basic with additional
criteria provided in guidance. It stated that these rules provide
important flexibility to banks to set their hours and to innovate in
the delivery of products and services to their customers.
FDIC Regulations
Assessments
Part 327 sets out the rules for determining deposit insurance
assessments for certain insured institutions. The FDIC charges
quarterly, risk-based assessments based on separate systems for large
banks (generally, those with $10 billion or more in assets) and small
banks. Assessments are calculated as an assessment rate multiplied by a
bank's assessment base. A bank's assessment base generally is equal to
its average consolidated total assets less its average tangible equity.
In May 2016 the FDIC adopted a final rule that revised the
calculation of deposit insurance assessments for established small
banks. The May 2016 rule bases assessments for these banks on an
underlying model that estimates the probability of failure over three
years, and eliminates risk categories for these banks.
The FDIC received two comments during the EGRPRA review on its
assessments rule. Both comments pertained to a notice of proposed
rulemaking that was published in the Federal Register in July
2015.\199\ A second, revised notice of proposed rulemaking was
published in the Federal Register in February 2016,\200\ and a final
rule was published in the Federal Register in May 2016.\201\
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\199\ 80 FR 40838 (July 13, 2015).
\200\ 81 FR 6108 (February 4, 2016).
\201\ 81 FR 32180 (May 20, 2016).
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The first comment suggested that the definition of brokered
deposits used in the proposed assessments rule was an inaccurate
indicator of risk, and that banks should not be penalized (via a
brokered deposits ratio in the proposed rule) for having brokered
deposits. The second comment suggested that the proposed assessments
rule could negatively affect community banks and commercial real estate
lending by community banks. The substance of both comments was
considered during the rulemaking process.
5. Capital
Interagency Regulations or Regulations Implementing the Same Statute
A. Annual Stress Tests
Section 165(i)(2) of the Dodd-Frank Act requires certain banks with
total assets greater than $10 billion to conduct annual stress
tests.\202\ The agencies received seven comments from four banks, two
trade organizations, and one individual related to their annual stress
testing requirements. Some commenters requested that traditional banks
(albeit with different definitions) should be excluded from the FDIC's
rule on stress testing. Additionally, commenters said that the public
disclosure requirement in the rule was not helpful for midsize
institutions and could put unwarranted pressure on the banking system.
Lastly, a commenter made various technical requests related to the CCAR
program that is run by the Board.
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\202\ The agencies implementing regulations for stress tests are
set forth at 12 CFR part 46; 12 CFR part 325, subpart C.
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Exempt traditional and smaller banks from stress testing
Two commenters suggested that the agencies not apply stress testing
requirements to community banks. One commenter specifically suggested
that the agencies not subject banks below $50 billion in assets to
stress testing. These commenters argued that stress testing is not
appropriate for institutions with simplistic balance sheets and that
the costs outweigh the benefits. One commenter requested that the
agencies provide more information on how community banks can conduct
stress testing to show that they have an appropriate amount of capital
for their risks.
Stress test disclosure requirements
One commenter suggested that the disclosure requirements related to
stress testing are problematic and that the agencies should remove them
to the extent possible. Additionally, the commenter stated that
Congress should repeal the statutory basis for this requirement. The
commenter was concerned that midsize bank disclosures could be
misinterpreted, and in times of financial stress, could add unwarranted
pressure on the banking system. The commenter asserted that the stress
testing results are not directly comparable to those of CCAR
institutions, are difficult to compare to other mid-size institutions,
and are based on hypothetical scenarios that are not necessarily
grounded in reality.
Stress testing scenarios/modifications to CCAR
One commenter suggested that the agencies should make various
modifications to the CCAR process. First, the commenter suggests that
certain parts of the CCAR regulations
[[Page 15949]]
lack clarity and contain duplicative and redundant requirements that
require an unnecessary expenditure of resources. In particular,
duplication and redundancy in capital planning scenarios creates
significant additional costs without corresponding supervisory
benefits. The commenter was skeptical that the use of an ``adverse''
scenario in the CCAR process provides any material supervisory benefit
beyond that already provided by the ``severely adverse'' scenario.
Another commenter suggested that the agencies should have the ability
not to require the ``adverse'' scenario. This commenter asserted that
the adverse scenario does not provide much analytical and supervisory
benefit.
FR Y-14 reports
One commenter suggested that the FR Y-14 reports contain
duplicative or inconsistent requirements that result in significant
duplication in the information submissions that are provided as part of
the CCAR process. The commenter stated that these duplicative or
unnecessary requirements increase the size of these submissions and
increase the amount of time necessary to prepare and finalize them. The
commenter suggested that the regulatory transitions template should not
be required beginning in 2017.
Extension of time between release of scenarios and filing date
One commenter suggested that there should be more time between when
the agencies release CCAR scenario information and require capital plan
submissions. The commenter contended that the current timeframe
unnecessarily limits the amount of thought and planning that can go
into the submissions.
Mid-year cycle
One commenter suggested that CCAR should not require an additional
idiosyncratic stress test during the mid-cycle timeline. The commenter
argued that the Board should have discretion as to whether or not to
require such test.
Agencies should disclose more
One commenter suggested that the Board should share the results of
their DFAST scenarios prior to requiring banks to submit their annual
capital plans. The commenter suggested that the current practice
creates an element of uncertainty when banks develop their planned
capital actions. Another commenter suggested that the agencies should
provide more information about the models that they use for stress
tests. One commenter, however, strongly supported the current CCAR
process, and opposed the disclosure of agency models because disclosure
would impact the efficacy of the tests and models by allowing banks to
modify their processes in advance of the tests.
6. Community Reinvestment Act
Comments on CRA and CRA Sunshine are discussed in this report at
sections I. D. and I.E., respectively.
7. Consumer Protection
Interagency Regulations or Regulations Implementing the Same Statute
A. Fair Housing
The OCC and FDIC have separate regulations relating to fair housing
protections.\203\ For the OCC, 12 CFR part 27 generally requires
national banks to obtain certain information in their taking of
applications for home loans. Part 27 was promulgated in 1979, before
HMDA required collection of race and gender data on home mortgage loan
borrowers. Even after HMDA required collection of information about
home mortgage loan borrowers, part 27 has required banks to maintain in
their files reasons for loan denials, while HMDA regulations have made
this data element optional. The CFPB recently amended its HMDA rule, 12
CFR part 1003 (Regulation C),\204\ to require all HMDA reporters to
maintain denial reasons beginning on January 1, 2018. 12 CFR part 128
imposes nondiscrimination requirements for FSAs with respect to
lending, applications, advertising, employment, appraisals,
underwriting, and other services. 12 CFR 128.6 specifically requires
savings association HMDA reporters to enter the reason for all home
loan denials.
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\203\ 12 CFR part 27; 12 CFR part 128 (including other
nondiscrimination requirements); 12 CFR part 202; 12 CFR part 338;
12 CFR part 390, subpart G.
\204\ 80 FR 66127 (October 28, 2015).
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For the FDIC, 12 CFR part 338, subpart A, prohibits insured state
nonmember banks from engaging in discriminatory advertising with regard
to residential real estate-related transactions. 12 CFR part 338,
subpart B, notifies all insured state nonmember banks of their duty to
collect and retain certain information about a home loan applicant's
personal characteristics in accordance with Regulation B, 12 CFR part
1002, in order to monitor an institution's compliance with the ECOA.
Subpart B also notifies certain insured state nonmember banks of their
duty to maintain, update, and report a register of home loan
applications in accordance with Regulation C. 12 CFR part 390, subpart
G, is similar to 12 CFR part 128, described above, with respect to
state savings associations.
Several commenters commented on fair housing requirements. One
consumer group stated that, under the Fair Housing Home Loan Data
System, banks may be required to keep a fair housing log if the data
show a variation in the loans between people based on race or national
origin. This commenter also noted that it is very difficult for the
average citizen to make a complaint because there is no way for them to
tell how their loan compares to the loan issued to another person in a
similar economic circumstance but with a different race or national
origin.
This same consumer group also stated that the regulations need to
be stronger because it seems that the only repercussion for
discriminatory practices is to keep the fair housing log. An individual
or a fair housing organization can file a discrimination complaint
under the fair housing laws, but this requires resources that are not
always available.
One commenter, an attorney, suggested that the OCC can reduce
burden by removing 12 CFR part 27, which the OCC has not updated since
1994. This commenter stated that part 27 is duplicative of the HMDA and
Fair Housing Act. The commenter also stated that the rule is outdated
because it refers to the Board's Regulation C and not to the new CFPB
HMDA rule.
One financial institution suggested that the Fair Housing Act and
ECOA regulations should be merged into a single regulation.
One consumer group stated that the most valuable tool in fighting
redlining is data; attempts to reduce paperwork or burdensome
regulations might result in efforts to hide redlining.
One commenter recommended that the agencies adopt a more relaxed
standard for the number of inadvertent mistakes in submitted HMDA/Loan
Application Register (LAR) data that would require resubmission of the
data.
One commenter, a state banking association, indicated that
corporations, limited liability companies, and partnerships ought to be
exempted from Regulation B's spousal signature requirements in order to
both better align the regulation with the ECOA and assist banks to take
an appropriate interest in collateral securing a loan.
B. Loans in Areas Having Special Flood Hazards
Background
As indicated in section E of the report, the agencies received over
10 comments from banking industry trade
[[Page 15950]]
associations and regulated institutions on the agencies' flood
insurance rules. Some of these comments noted that the current flood
insurance system should be changed and that lenders should not bear the
responsibility for requiring that property be covered by flood
insurance. Some commenters requested that certain types of properties
be excluded from the mandatory flood insurance requirement. One
commenter specifically requested that the current $5,000 original loan
principal value threshold for the flood insurance requirement to apply
be increased. Some commenters also requested that certain types of
loans (renewals and extensions) be exempted from required flood
insurance notices. Several commenters asked that the agencies provide
more guidance to the industry on flood insurance requirements and that
the agencies update their Interagency Flood Q&As. These comments are
detailed below.
Flood insurance--generally
Several commenters stated that the federal government needs to
reconsider the federal flood insurance regime. One commenter, a banking
industry trade association, stated that the flood insurance
requirements in general are burdensome for bankers and that the duty to
monitor flood insurance should be placed on the insurance industry and
not the banking industry. This commenter noted that the current
monitoring process, which is based on property financing, does not
capture all properties in a flood zone because buildings without a
mortgage from a regulated lending institution are not required to have
flood insurance. One commenter noted that banks should be permitted to
manage flood risk in the same manner as other property risks insured by
a hazard insurance policy. Another commenter stated that banks need to
be, but the commenter does not believe they should have to be, experts
in flood insurance because the penalties are so severe that banks
cannot risk error. Another bank commenter argued that flood insurance
should be private and not subsidized by taxpayers. Another commenter
questioned why flood insurance is required, while earthquake insurance
is not, when the risk of earthquakes in some states, like California,
poses a greater risk of loss than floods.
Flood insurance--exemption
By statute, flood insurance is not required for loans with an
original principal balance of $5,000 or less and a repayment term of
one year or less. One banker recommended that this $5,000 exemption
should be raised to reflect inflation.\205\ The banker stated that when
the threshold was established, the average price of a home was
approximately $24,000.
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\205\ The agencies note that if Congress were to increase this
$5,000 exemption for inflation, the amount of the exemption would be
approximately $10,600 in 2016.
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Required amount of flood insurance
The agencies' regulations state that the maximum amount of
insurance available is limited by ``the overall value of the property
securing the designated loan minus the value of the land on which the
property is located.'' \206\ Two banking industry trade associations
commented that determining the insurable value of a property is
difficult for bankers. One trade association specifically noted that,
although the Interagency Flood Q&As sought to define ``overall value''
and provide additional guidance to the industry on regulatory
expectations for making and documenting insurable value determinations,
in practice, the Interagency Flood Q&As do not provide adequate
clarity, and banks report that examiners increasingly challenge lender
insurable value calculations. This trade association recommended that
the agencies work with the Federal Emergency Management Agency (FEMA)
to require insurance agents to provide the insurable value of a
building on the declarations page for any NFIP policy, and that the
agencies issue guidance informing lenders that they may rely on this
valuation unless they have reason to believe that the figure clearly
conflicts with other available information.
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\206\ 12 CFR 22.3; 12 CFR 208.25(c); 12 CFR 339.3.
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Detached structures
A banking industry trade association suggested that the regulators
provide more guidance on the new exemption from the mandatory flood
insurance purchase requirement for detached structures, as provided by
HFIAA.\207\
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\207\ The agencies issued final regulations implementing this
exemption in July 2015, 80 FR 43216 (July 21, 2015), after this
commenter submitted its letter in September 2014. The preamble to
the final rule provides guidance to the industry on this provision.
Furthermore, the agencies addressed the detached structures
provision in a webinar that the agencies hosted in October 2015 and
in a newsletter article in April 2016. The materials and transcript
of this webinar, ``Interagency Flood Insurance Regulation Update,''
may be found at https://consumercomplianceoutlook.org/outlook-live/2015/interagency-flood-insurance-regulation-update/; https://consumercomplianceoutlook.org/2016/first-issue/interagency-flood-insurance-regulation-update-webinar-questions-answers/.
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Unused, dilapidated, low-value, or worthless buildings
A banking industry trade association, as well as a banker, stated
that flood insurance regulations should not require borrowers to insure
unused, dilapidated, low-value, or worthless buildings located in a
SFHA.\208\
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\208\ The agencies note that Interagency Flood Q&A 24 provides a
suggestion for lenders with respect to buildings with limited
utility or value. Furthermore, recent changes to the flood insurance
law under HFIAA, which provided a new exemption for certain
residential detached structures and which the agencies implemented
in a final rule in July 2015, 80 FR 43216 (July 21, 2015), should
further alleviate these concerns for residential properties.
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Tenant-owned buildings
A trade association stated that borrowers should not be required to
procure flood insurance when a tenant of the borrower has erected a
building on the real property securing the borrower's loan, and the
tenant claims to retain ownership of the building.\209\
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\209\ The agencies note that, under the federal flood insurance
statutes, if a building secures a borrower's loan, flood insurance
is required if the building is in an SFHA in which flood insurance
is available under the NFIP. If the building does not secure the
borrower's loan, then the borrower is not required to obtain flood
insurance for that building. Whether a building built by a tenant
secures the borrower's loan will depend on the borrower's loan
documents.
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Collateral taken by the lender in an ``abundance of caution''
A banking industry trade association noted that the agencies'
appraisal regulation includes an exception to the requirement for an
appraisal if the collateral is taken by the lender in an ``abundance of
caution.'' The Flood Disaster Protection Act (FDPA), in contrast,
requires lenders to obtain flood insurance on all property located in
an SFHA taken as collateral for a loan, which includes property held as
collateral in an ``abundance of caution.'' The commenter notes that
lenders are therefore required to determine the valuation of this
collateral for flood insurance purposes even though they are not
required under the appraisal rules to obtain an appraisal. The
commenter recommends that the agencies provide an exception from the
flood insurance purchase requirement for buildings taken as collateral
in an ``abundance of caution'' in order to be consistent with the
appraisal rules.\210\
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\210\ The agencies note that Interagency Flood Q&A 41 clarifies
that both the FDPA and the agencies' regulations look to the
collateral securing the loan. If the lender takes a security
interest in improved real estate located in an SFHA in which flood
insurance is available under the NFIP, then flood insurance is
required.
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[[Page 15951]]
Force placement of insurance
One commenter noted that the regulation does not address when a
lender should send to the borrower the renewal letter if the force-
placed insurance will be coming up for renewal and the loan is not
maturing. The commenter stated that the agencies need to clarify
whether the lender should send the letter 45 days prior to the
expiration of the force-placed policy or at the expiration date. The
commenter also requested that the agencies define the difference
between requirements in connection with a Mortgage Portfolio Protection
Program policy (the NFIP force-placed flood insurance product available
to lenders) and a private force-placed insurance policy when defining
the 45-day renewal letter. Some force-placed insurance policies are
obtained from private insurers.
Notices for loan renewals and extensions
Two banking industry trade associations questioned the purpose of
the flood insurance notice in the case of renewals and extensions,
especially if the renewal is with the same lender, the property in
question is already covered by flood insurance, and the flood insurance
requirements remain unchanged from the original loan because the amount
of the existing loan will not change. A bank commented that sending a
new notice for renewals and extensions with no changes confuses the
borrower and could delay the transaction. These commenters suggested
that the agencies revise the flood regulations to remove the notice
requirements with respect to such loan renewals and extensions. Another
commenter noted that the supplementary notice required for commercial
loan properties in flood zones for every renewal, increase, or
extension is not beneficial as long as the existence of the current
flood insurance is verified by the bank, and the lender obtains life of
loan determinations at inception.\211\
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\211\ These notices are statutorily required. See 42 U.S.C.
4104a(a)(1).
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Flood insurance--guidance
A number of bankers and banking industry trade associations stated
that the industry needs clearer and more comprehensive guidance on
flood insurance. Bankers specifically requested guidance on the escrow
and force-placed insurance provisions, especially since the enactment
of the Biggert-Waters Act and HFIAA. One bank specifically noted that
it was challenging to know the effective dates of new requirements
included in these laws. A number of commenters requested that FEMA and
the agencies work together in issuing guidance, and that enhanced
communication is needed among FEMA, the agencies, and banking
institutions. Two banking industry trade associations suggested that
the agencies work with FEMA to update and maintain the Mandatory
Purchase of Flood Insurance Guidelines (guidelines), a FEMA publication
that FEMA rescinded in 2013. One trade association specifically noted
that although the banking industry appreciates the guidance provided by
the Interagency Flood Q&As as specific questions and answers, it lacks
the comprehensiveness of the guidelines. One banker stated that it
relied upon the guidelines to comply and that lenders ``desperately
need updated guidelines.''\212\
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\212\ The agencies note that the preamble to the agencies' final
rule to implement the escrow and force-placed insurance provisions
of the Biggert-Waters Act, 80 FR 43216 (July 21, 2015), and the
Interagency Flood Q&As provide additional guidance on these
provisions. The agencies also note that on March 29, 2013, they
issued an interagency statement to inform financial institutions
about the effective dates of the Biggert-Waters Act provisions. (See
OCC Bulletin2013-10; CA letter 13-2 (Board); FIL-14-2013 (FDIC)),
and held an interagency webinar that discussed these matters (see
reference to webinar materials and transcript in footnote 206).
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Interagency Flood Q&As--in general
One banking industry trade association noted that the Interagency
Flood Q&As are outdated and in need of reworking. A banker also noted
that the Interagency Flood Q&As have not been updated to reflect the
Biggert-Waters Act and HFIAA changes.\213\
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\213\ As noted in section E of the report, the agencies have
begun revisions on the Interagency Flood Q&As. The agencies will
continue work on these revisions as they finalize the recently
proposed private flood insurance rule.
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Loan syndications and participations
Interagency Flood Q&A 4 addresses the flood insurance obligations
of lenders for loan syndications and participations.\214\ It states
that examiners will look to see whether the participating lender
engaged in due diligence to determine whether the lead lender ensures
that the borrower obtains appropriate flood insurance and monitors for
ongoing maintenance of flood insurance. A banking industry trade
association suggested that the responsibility for flood requirements
should be only on the lead agent or lender, and that participants
should not be required to demonstrate that they have exercised due
diligence and adequate controls over the lead lender. This commenter
specifically requested that the agencies revise this Q&A to remove the
language expressly providing for an examination of each participating
lender as duplicative and unnecessarily burdensome.
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\214\ 74 FR at 35935 (July 21, 2009).
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Consumer Outreach
One banking industry trade association suggested that the agencies
do a better a job of educating consumers on the reasons for, and
requirements of, flood insurance.\215\
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\215\ The agencies note that FEMA provides various guidance for
consumers on flood insurance requirements. See https://www.fema.gov/information-property-owners, https://www.floodsmart.gov/floodsmart/,
and www.fema.gov/national-flood-insurance-program-flood-insurance-advocate.
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C. Safeguarding Customer Information
The Interagency Guidelines Establishing Information Security
Standards (interagency guidelines) set forth standards pursuant to
sections 501 and 505 of the Gramm-Leach-Bliley Act \216\ and section 39
of the FDI Act.\217\ These interagency guidelines address standards for
developing and implementing administrative, technical, and physical
safeguards to protect the security, confidentiality, and integrity of
customer information.\218\ The guidelines also address standards with
respect to the proper disposal of consumer information, pursuant to
sections 621 and 628 of the Fair Credit Reporting Act (FCRA).\219\
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\216\ 15 U.S.C. 6801 and 6805.
\217\ 12 U.S.C. 1831p-1.
\218\ 12 CFR part 30, appendix B; 12 CFR part 208, appendix D-2;
12 CFR part 225, appendix F; 12 CFR part 364, appendix B.
\219\ 15 U.S.C. 1681s and 1681w.
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One commenter asserted that core processors should be required to
get their supervisory reports faster and provide banks with copies of
their internal audits, so the banks can identify the core processor's
deficiencies and remediation plans. The commenter also asserted that
core processors should be required to timely notify banks when the core
processor's system has been compromised. The commenter had not been
successful in requiring this information by contract from the bank's
core processor.
D. Fair Credit Reporting Act
Subpart I of the agencies' regulations that implement section 615
of the FCRA imposes duties on the user of a consumer credit report with
respect to disposal of consumer information.\220\ Subpart J of the
agencies' regulations
[[Page 15952]]
implements the Identity Theft Prevention Program (Identity Theft Red
Flags Program) requirements and the duties of card issuers regarding
changes of address that are mandated by the FCRA.\221\ These
regulations require that each financial institution and creditor that
offers or maintains one or more covered accounts develop and provide
for the continued administration of a written program to detect,
prevent, and mitigate identity theft in connection with the opening of
a covered account or any existing covered account. An appendix to this
subpart contains guidelines to assist financial institutions and
creditors in the formulation and maintenance of this program.\222\ The
regulations also require a card issuer to establish and implement
reasonable policies and procedures to assess the validity of a change
of address and prohibit a card issuer from issuing an additional or
replacement card until it notifies the cardholder or otherwise assesses
the validity of the change of address in accordance with its policies
and procedures.
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\220\ 12 CFR part 41, subpart I; 12 CFR part 222, subpart I; 12
CFR part 334, subpart I.
\221\ 12 CFR part 41, subpart J; 12 CFR part 222, subpart J; 12
CFR part 334, subpart J.
\222\ 12 CFR part 41, appendix J; 12 CFR part 222, appendix J;
12 CFR part 334, appendix J.
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One commenter expressed the opinion that community banks are held
to a higher standard than nonbanks with regard to FCRA notice
requirements generally, because banks are regularly examined for
compliance.
One commenter opposed the requirement that a bank provide an annual
report to its board of directors summarizing the bank's Identify Theft
Red Flags Program. The commenter expressed the opinion that the
requirement is obsolete because a bank's board of directors should
already be aware of significant issues that arise under the Identify
Theft Red Flags Program.
FDIC Regulations
Deposit Insurance Coverage
Part 330 clarifies the rules and defines the terms for deposit
insurance coverage pursuant to the FDI Act. The insurance coverage
provided by the act and part 330 is based upon the ownership rights and
capacities in which deposit accounts are maintained at IDIs. In
accordance with the statutory and regulatory framework, all deposits in
an IDI that are maintained in the same right and capacity (by or for
the benefit of a particular depositor or depositors) are added together
and insured.
The agencies received two comments regarding the FDIC's rule on
deposit insurance coverage, 12 CFR part 330. The first comment was a
general comment suggesting that the FDIC simplify the deposit insurance
rules, noting that the deposit insurance rules for trust accounts are
particularly complex. The second comment suggested a 24-hour turnaround
time for the FDIC to answer a bank's request for advice on account
structures with regard to deposit insurance.
8. Directors, Officers, and Employees
Interagency Regulations or Regulations Implementing the Same Statute
A. Limits on extensions of Credit to Executive Officers, Directors and
Principal Shareholders; Related Disclosure Requirements
The Board's Regulation O \223\ implements sections 22(g) and (22(h)
of the Federal Reserve Act, which places restrictions on extensions of
credit made by a member bank to an executive officer, director,
principal shareholder, of the member bank, of any company of which the
member bank is a subsidiary, and of any other subsidiary of that
company. Federal law also applies these restrictions to state nonmember
banks, FSAs and state savings associations. OCC and FDIC regulations
enforce these statutory and regulatory restrictions with respect to
national banks and FSAs, and to state nonmember banks and state savings
associations, respectively.\224\ The agencies received numerous
comments on their regulations related to directors and officers,
summarized below.
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\223\ 12 CFR part 215.
\224\ See 12 CFR part 31; 12 CFR 337.3; and 12 CFR 390.338.
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Raise the Regulation O threshold extension of credit limit, both with
and without prior approval
Several commenters suggested that the de minimis transaction limit
in Regulation O be increased. One suggested increasing the threshold to
$250,000. Several suggested that the amount be indexed for inflation.
Many commenters suggested raising the prior-approval threshold to
$750,000 or $1.2 million depending on the location of the bank. One
commenter suggested expanding the applicability of the threshold
limitations to principal shareholders, directors, and executive
officers.
Additional comments on Regulation O
The agencies received other comments on Regulation O. One commenter
suggested that the agencies should create a Regulation O summary chart
to communicate limitations.\225\ Two commenters indicated that the
overdraft restriction provision was no longer necessary and should be
eliminated. One commenter suggested that Regulation O is difficult to
interpret and can cause unintended violations. The commenter suggested
clarifying (1) what constitutes control of an entity for determining
which entities are related entities and which entities are affiliates
of the bank; (2) who is an executive officer who ``participates or has
authority to participate (other than in the capacity of a director) in
major policymaking functions of the company or bank''; (3) how the
application of 12 CFR 215.5(c)(2) applies to Texas home equity and
construction liens; and (4) the scope and applicability of the
``tangible economic benefit rule.''
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\225\ As indicated in section E of the report, the agencies are
working to provide a chart or similar guide on the statutorily
required rules and limits on extensions of credit made by an IDI to
an executive officer, director, or principal shareholder of that
IDI, its holding company, or its subsidiaries.
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B. Management Official Interlocks
In general, pursuant to the DIMIA,\226\ agency regulations prohibit
a management official of a depository institution or depository
institution holding company from serving simultaneously as a management
official of another depository organization if the organizations are
not affiliated and both either are very large or are located in the
same local area.\227\
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\226\ 12 U.S.C. 3201 et seq.
\227\ 12 CFR part 26; 12 CFR part 212; 12 CFR part 238, subpart
J; 12 CFR part 348.
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The agencies received one comment letter regarding the management
interlock regulations, from a trade association. The commenter
suggested that because non-U.S. affiliates of the depository
organizations are included in the major assets prohibition there should
be an exception to the interlocks rule for depository organizations'
foreign affiliates that are not engaged in business activities in the
United States. The commenter also suggested that the agencies update
the asset thresholds in the major assets prohibition to reflect the
changes in the banking industry since the regulations were
promulgated.\228\
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\228\ As indicated in section E of the report, the agencies plan
to propose amending their management interlocks rules to adjust
these thresholds.
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OCC Regulations
A. National Bank Activities and Operations--Corporate Practices
12 CFR part 7, subpart B, sets forth corporate governance
procedures that are consistent with safe and sound
[[Page 15953]]
banking practices. The agencies received two comments on this subject.
One commenter, a nonprofit organization, noted that 12 CFR 7.2000,
which explains the OCC's general corporate governance procedures, may
limit the ability of national banks to adopt a benefit corporation or
mission-aligned status. The commenter stated that there is no reason to
treat entities with mission-aligned structures differently than
corporations formed in jurisdictions with constituency statutes. The
commenter also stated that mission-aligned structures: (1) Give
directors more, rather than less, power to consider safety and
soundness; (2) make directors accountable with respect to such
considerations unlike constituency statutes; and (3) gives corporations
a greater ability to serve the community and meet CRA goals. The
commenter suggested that the OCC clarify the application of 12 CFR
7.2000 to mission-aligned structures.
Another commenter, a federal savings bank, recommended that there
should be a transition period if an institution falls below the five-
director minimum to allow the institution to fill the vacancy without
having a violation of law.
B. FSA Employment Contracts, Compensation, Pension Plans
12 CFR 163.39 sets forth specific requirements for employment
contracts between an FSA and its officers or other employees. One
commenter, a financial institution, commented on these regulations.
This commenter stated that the OCC should eliminate its employment
contract regulation as it applies only to FSAs and there is no reason
to distinguish FSAs from banks. It noted that the requirement for board
approval of all employment contracts is unnecessary given the existence
of comprehensive guidance on compensation.
FDIC Regulations
Golden Parachute and Indemnification Payments
The Crime Control Act of 1990 authorized the FDIC to prohibit or
limit indemnification payments (as well as golden parachute payments).
Consistent with the statute, the FDIC's regulations\229\ define a
``prohibited indemnification payment'' as any payment for the benefit
of a covered institution's current or former directors to pay or
reimburse those individuals for (1) any civil money penalty or
judgment; or (2) any other liability or legal expense. The regulations
also identify circumstances where payments are not prohibited
indemnification payments. The OCC and Board apply part 359 to their
regulated institutions and holding companies.
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\229\ 12 CFR part 359.
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Two commenters participating in the EGRPRA outreach sessions
addressed the restrictions on indemnification payments, focusing their
remarks on the effect of the indemnification payment restrictions on
directors. Specifically, the two commenters maintained that in order to
ensure that IDIs and IDI holding companies can keep qualified
individuals as their directors, and effectively attract and persuade
others to become directors, institutions must be able to assure these
individuals that they can insure or reimburse them for the full range
of liabilities to which the directors might be exposed in serving in
that important role. In particular, they stated, a director should be
insured for all of a director's expected liabilities, to specifically
include the payment of, or insurance coverage for, civil money
penalties that might be imposed on a director.
9. Money Laundering
Comments on money laundering-related rules are discussed in this
report at section I.D.
10. Rules of Procedure
Interagency Regulations or Regulations Implementing the Same Statute
Civil Money Penalties and Rules of Practice and Procedure
One commenter addressed the assessment of civil money penalties
under 12 USC 1818 and the agencies implementing regulations.\230\ This
commenter stated that the agencies should reassess the civil money
penalty rules so that the amount of an agency-assessed civil money
penalty is in line with the damage done by the underlying
violation.\231\
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\230\ 12 CFR part 19, 12 CFR part 109, 12 CFR part 263, 12 CFR
part 308, 12 CFR 390.30.
\231\ Current law and agency process already take into account
the damage inflicted by the underlying violation in setting the
amount of a civil money penalty. See 12 U.S.C. 1818(i).
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11. Safety and Soundness
Interagency Regulations or Regulations Implementing the Same Statute
A. Real estate lending standards
Section 304 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) requires the agencies to adopt uniform
regulations prescribing standards for real estate lending.\232\ In
establishing these standards, the agencies are to consider the risk
posed to the deposit insurance funds by such extensions of credit; the
need for safe and sound operation of IDIs; and the availability of
credit.
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\232\ 12 CFR part 34, subpart D; 12 CFR part 208, subpart E and
appendix C (Reg. H); 12 CFR part 365; 12 CFR 160.100; 12 CFR
163.101; 12 CFR part 390, subpart P.
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The agencies issued subpart A of the Real Estate Lending Standards
in 1992 pursuant to section 304 of FDICIA. The rule requires each IDI
to adopt and maintain comprehensive written real estate lending
policies that are consistent with safe and sound banking practices and
that meet specified standards for loan-to-value (LTV). The
institution's board of directors must review and approve these policies
at least annually. In order to supplement and clarify the standards
stated in the subpart A, the agencies adopted Interagency Guidelines
for Real Estate Lending Policies (guidelines). The guidelines describe
the criteria and specific factors that the agencies expect insured
institutions to consider in establishing their real estate lending
policies.
The agencies received comments from two bankers and one trade
association relating to real estate lending standards. One commenter
suggested that the supervisory LTV ratio for raw land is too low. The
same commenter noted the existing supervisory LTV for commercial real
estate is 85 percent, and suggested a new supervisory LTV threshold of
90 percent and that a 10 percent down payment on commercial real estate
would be sufficient in rural communities. The commenter suggested that
performing loans whose LTV ratio exceeds the supervisory LTV threshold
based on a new appraisal received after the loan's origination should
be exempt from reporting requirements.
One commenter suggested that the regulations should incorporate
real estate exposures in the investment portfolio. The commenter also
suggested that banks with limited exposure (in the investment
portfolio) should be evaluated differently than banks with
collateralized debt obligations or other off-balance-sheet real estate
exposures.
Another commenter requested that the agencies remove the annual
board approval requirement (noted above) if there has not been a change
in bank procedure or policy or if the bank has not introduced new
products or entered new geographic locations.
[[Page 15954]]
B. Transactions with affiliates
Sections 23A and 23B of the Federal Reserve Act \233\ and the
Board's Regulation W \234\ provide the framework for transactions
between all IDIs and their affiliates. Regulation W specifically sets
forth the regulatory requirements for transactions between IDIs and
their affiliates for the agencies, and OCC rules \235\ refer to this
Board rule. The agencies received several comments related to this
regulation.
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\233\ 12 U.S.C. 371c and 371c-1.
\234\ 12 CFR 223.
\235\ 12 CFR part 31 (national banks), 12 CFR 163.41 (FSAs).
(The OCC EGRPRA final rule removes 12 CFR 163.41 and applies 12 CFR
part 31 to FSAs, effective April 1, 2017.) 12 U.S.C. 18(j) applies
sections 371c-1 to nonmember insured banks ``in the same manner and
to the same extent'' as member banks.
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A few commenters suggested that the form FR Y-8 (Bank Holding
Company Report of Insured Depository Institutions Section 23A
Transactions with Affiliates) should not be required if no affiliate
transactions subject to Section 23A have occurred or if relevant
information has not changed since the previous quarter's report. A
commenter also suggested that the Board issue a simplified version of
Regulation W for non-complex community banking organizations. Finally,
a commenter argued that the lack of clarity concerning the definition
of ``control'' for purposes of Regulation W may cause banking
organizations to over-report or under-report the occurrence of
affiliate transaction subject to Regulation W.
C. Safety-and-Soundness Standards
Pursuant to section 39 of the FDI Act, the agencies have
established safety-and-soundness standards in guidelines adopted after
notice and comment relating to (1) operation and management; (2)
compensation; and (3) asset quality, earnings, and stock
valuation.\236\ One commenter, a bank, requested the agencies to
clarify the concept of ``excessive compensation'' in these guidelines.
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\236\ Safety-and-soundness standards--12 CFR part 30, appendix
A; 12 CFR part 209, appendix D-1 (Regulation H); 12 CFR part 364; 12
CFR part 170.
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OCC Regulations
Lending Limits
In general, section 5200 of the Revised Statutes \237\ provides
that the total loans and extensions of credit by a national bank to a
person outstanding at one time shall not exceed 15 percent of the
unimpaired capital and unimpaired surplus of the bank if the loan is
not fully secured plus an additional 10 percent of unimpaired capital
and unimpaired surplus if the loan is fully secured. Section 5(u)(1) of
the HOLA \238\ applies section 5200 of the Revised Statutes to savings
associations. OCC regulations at 12 CFR part 32 implement these
statutes for national banks and state savings associations and
FSAs.\239\
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\237\ 12 U.S.C. 84.
\238\ 12 U.S.C. 1464(u)(1).
\239\ The OCC has rulemaking authority for lending limit
regulations applicable to national banks and to all savings
associations, both state- and federally chartered. However, the
FDIC, not the OCC, enforces these rules as to state savings
associations.
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The agencies received two comments on the OCC's lending limits rule
from bankers who both stated that there is a need for consistency in
the legal lending limits area with respect to federal and state lending
limits.\240\ They also noted that the lending limits rules can hinder
participation with small banks, particularly given new capital
requirements.
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\240\ The lending limits for national banks and for federal and
state savings associations are statutory. Lending limits for state
chartered banks are set by the appropriate state regulator. The OCC
notes that its rule at 12 CFR 32.7, pursuant to 12 U.S.C. 84(d)(1),
provides a ``Supplemental Lending Limit Program'' to provide some
parity with state lending limits.
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FDIC Regulations
A. Annual Independent Audits and Reporting Requirements
Part 363 of the FDIC's regulations implements section 36 of the FDI
Act and imposes annual audit and reporting requirements on IDIs with
$500 million or more in consolidated total assets (covered
institution). Section 36 grants the FDIC discretion to set the asset
size threshold for compliance with these statutory requirements, but
states that the threshold cannot be less than $150 million.
Specifically, part 363 requires each covered institution to submit to
the FDIC and other appropriate federal and state supervisory agencies
an annual report comprised of (1) audited financial statements and (2)
a management report containing specified information. The management
report for an institution with $1 billion or more in consolidated total
assets must include additional specified information.
Two commenters requested revision of the annual audit and reporting
requirements to (1) exclude IDIs that are public companies or
subsidiaries of public companies that file annual and other periodic
reports with the SEC and that are subject to the requirements of the
Sarbanes-Oxley Act of 2002 (SOX); (2) raise the asset size threshold
for complying with part 363 from $500 million to $1 billion; and (3)
conform the internal control over financial reporting requirements of
part 363 with the SEC's requirements under section 404(b) of SOX.
B. Unsafe and Unsound Banking Practices, Brokered Deposits
The agencies received input from 12 commenters on the FDIC's rule
on brokered deposits. Brokered deposits are defined by statute as a
deposit accepted through a deposit broker.\241\ Some commenters
suggested that certain statutory definitions be updated and that the
FDIC update its interpretations on whether certain deposits are
classified as brokered or not. In addition, some commenters suggested
that the FDIC exclude reciprocal deposits, and other types of brokered
deposits, including deposits placed by exclusive third-party agents and
deposits in transaction accounts, from being classified as brokered
deposits. Another commenter suggested that the FDIC clarify whether
certain entities (described below) are considered deposit brokers. The
FDIC's May 2016 final rule on deposit insurance assessments for
established small banks addressed another EGRPRA comment related to
brokered deposits. In June 2016, the FDIC finalized updates to the
Frequently Asked Questions on Brokered Deposits that considered
definitional and other issues raised by EGRPRA commenters.\242\
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\241\ 12 U.S.C. 1831f.
\242\ FDIC FIL-42-2016, ``Frequently Asked Questions on
Identifying, Accepting and Reporting Brokered Deposits,''
www.fdic.gov/news/news/financial/2016/fil16042.html.
---------------------------------------------------------------------------
Four commenters argued that the definition of brokered deposits
needs to be updated in light of modern banking requirements.
Another commenter recommended that the FDIC clarify that a dual-
hatted employee (one that is employed exclusively by the bank but
performs functions for an affiliate or an associated party) is not a
``deposit broker'' when the employee receives compensation that is
primarily in the form of a salary and does not share his/her salary
with an affiliate or an associated party; exclude call center employees
or a bank employees that share office space with a broker-dealer from
the definition of deposit broker; and exclude government agencies that
administer benefits programs from the definition of deposit broker.
Five commenters suggested four different areas where the FDIC
should reduce the impact of the brokered deposit classification. Two
commenters recommended that the FDIC reduce the assessment and run-off
rates associated with certain specified brokered deposit products
because they provide liquidity
[[Page 15955]]
to banks and allow small banks to compete. Another commenter
recommended that ``adequately capitalized'' banks should have fewer
limitations on their ability to accept brokered deposits. A commenter
suggested that if the FDIC does not exclude reciprocal deposits from
its definition of brokered deposits, the FDIC should loosen its
criteria for brokered deposit waivers in recognition of the difference
between reciprocal deposits and regular brokered deposits. Another
commenter recommended that brokered deposits should not retain its
classification as a brokered deposit permanently, particularly when a
deposit is renewed.
Further, another commenter recommended that the FDIC review its
application of the primary purpose exception to brokered deposits to
determine whether the exception has been applied consistently in the
past and whether it can be applied more broadly moving forward while
still achieving the purpose of the statute.
12. Securities
Interagency Regulations or Regulations Implementing the Same Statute
A. Banks as securities transfer agents
Section 17A (15 U.S.C. 78q-l) of the Securities and Exchange Act of
1934 requires all transfer agents to register with the appropriate
regulatory agency. Depending on the case, the appropriate regulatory
agency may be one of the agencies or the SEC. The agencies each have
issued separate rules adopting registration and reporting requirements
consistent with section 17A.\243\
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\243\ 12 CFR 9.20; 12 CFR 208.31 (Reg. H); 12 CFR part 341.
---------------------------------------------------------------------------
The only commenter on these rules, a banking trade association,
requested that the agencies make clear that SEC Rule 17Ad-16 is
intended to require the filing of a particular notice with the
Depository Trust Company (DTC) only in cases where there is a change of
name or address or where the filing transfer agent is the successor to
a previous transfer agent. The commenter asserted that SEC staff and
the FDIC have interpreted SEC Rule 17Ad-16 as requiring transfer agents
to provide the notice to the DTC for every new engagement even though
that interpretation is inconsistent with the plain language of the
rule. The commenter also asserted that the interpretation results in a
waste of both time and money because the DTC does not need the notice
and simply disposes of it. The commenter stated that it intends to seek
an identical interpretation of the scope of this rule directly from the
SEC in response to a recent SEC advance notice of proposed
rulemaking.\244\
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\244\ 80 FR 81948 (December 31, 2015).
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B. Recordkeeping and Confirmation of Securities Transactions Effected
by Banks
The agencies each have issued substantively similar rules to
require institutions under their respective jurisdictions to establish
uniform procedures and recordkeeping and confirmation requirements with
respect to effecting securities transactions for customers.\245\ The
agencies' rules each contain exceptions for institutions affecting a
small number of securities transactions per year. The agencies
patterned their requirements on the SEC's rules applicable to broker-
dealers.
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\245\ 12 CFR part 12; 12 CFR part 151; 12 CFR 208.34 (Reg. H);
12 CFR part 344.
---------------------------------------------------------------------------
Two commenters, both trade associations, addressed the agencies'
rules. Both commenters requested the reduction and/or simplification of
specific notification requirements. More specifically, one of the
commenters requested that the agencies permit banks to send securities
transaction statements less frequently and the other commenter raised
concerns with statements and disclosures required for certain sweep
accounts.
Frequency of securities transaction statements
One commenter requested that the agencies reduce the frequency of
securities transaction statements required by 12 CFR 12.5(c), 12 CFR
208.34(e)(3), 12 CFR 344.6 (c)(1), and 12 CFR 151.100(e). Under these
provisions, banks that effect securities transactions in an agency
capacity are required to send itemized statements at least every three
months to their customers specifying the securities in the custody of
the bank at the end of the reporting period, as well as debits,
credits, and transactions during the period. The commenter stated that
many bank customers have requested that they receive the statements
less frequently because ``they do not wish to be inundated with paper
statements and feel that they already receive too many from various
sources.'' The commenter asked the agencies to lengthen reporting
periods, such as an annual statement, if selected by the customer.
Notification and disclosure requirements for sweep accounts under 12
CFR 344.6 (and analogous rules)
Section 344.6 requires every FDIC-supervised institution effecting
a cash management sweep to make certain disclosures to its customers
for each month in which a purchase or sale of securities takes place,
and not less than once every three months if there are no securities
transactions in the account. One commenter, a banking trade
association, raised concerns with these notification and disclosure
requirements for these sweep accounts set forth in 12 CFR 344.6. The
commenter asserted that some community bankers question ``the necessity
and burden'' of the notification requirements under 12 CFR 344.6 that
deal with cash management sweep accounts. The letter does not request a
specific type of relief. The Board's and OCC's rule for national banks
is similar to 12 CFR 344.6. However, the OCC's rule for FSA, 12 CFR
151.100, originally adopted by the former OTS, allows a FSA to satisfy
its disclosure obligations under 12 CFR 151.70 for sweep accounts on a
quarterly basis. The FDIC's and Board's rules, as well as the OCC's
rule for national banks, are intended to mirror substantially the
reporting requirements under the SEC's Rule 10b-10.\246\
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\246\ 17 CFR 240.10b-10. See 61 FR 63962 (December 2, 1996).
Rule 10b-10 required monthly reporting when 12 CFR 12.5(e) was
adopted and continues to require monthly reporting today.
---------------------------------------------------------------------------
Reduce and/or simplify the notification and disclosure requirements for
sweep accounts under 12 CFR 360.8
12 CFR 360.8 \247\ requires IDIs to disclose whether funds in sweep
accounts are deposits and, if not, whether the funds would have general
creditor or secured creditor status in the event of a failure. This
rule also requires disclosures to be made each time a sweep agreement
is renewed. FDIC FIL-39-2009 (July 6, 2009) clarifies the requirements
for properly executing certain sweeps and provides that certain of the
disclosure requirements in 12 CFR 360.8 apply on a transactional basis.
Thus, for certain daily sweeps (i.e. repo sweeps) a bank must make
daily disclosures.
---------------------------------------------------------------------------
\247\ 12 CFR 360.8 is an FDIC rule with no OCC or Board analog.
---------------------------------------------------------------------------
A banking trade association raised concerns with the notification
and disclosure requirements for certain sweep accounts discussed in
FIL-39-2009. Specifically, the commenter asserted that some community
bankers believe that the disclosure requirements described in FIL39-
2009 are
[[Page 15956]]
burdensome and that customers often request that daily confirmation
notices be ``turned off'' when sweeps take place on a daily basis. The
commenter suggested that the FDIC simplify sweep account disclosure
requirements so that community banks can automatically renew daily
sweeps without having to confirm each renewal on a daily basis.
C. Securities Offerings
The agencies securities offering rules set forth securities
offering disclosure requirements and are based on the Securities Act
and certain SEC rules.\248\ One commenter, a banking trade association,
recommended that the agencies establish a mechanism by which banks may
electronically file registration statements, offering documents,
notices and other documents related to the sale of securities issued by
a bank. The commenter asserted that the agencies' regulations should
keep pace with changes in technology and noted that an electronic
filing mechanism would align the agencies with the SEC and the
Municipal Securities Rulemaking Board, both of which have long allowed
securities issuers to file offering documents electronically.\249\
---------------------------------------------------------------------------
\248\ 12 CFR part 16; 12 CFR part 390, subpart W.
\249\ As indicated in section E of this report, the OCC EGRPRA
final rule incorporates this comment.
---------------------------------------------------------------------------
Board Regulations
Regulation U
A commenter who represented a bank suggested that the Board
increase the threshold value of margin stock that triggers the
requirement under 12 CFR 221.3(c) of the Board's Regulation U that a
bank's customer file Form FR U-1 (OMB No. 7100-0115) in connection with
an extension of credit by a bank that is secured directly or directly
by margin stock.\250\ In general under Sec. 221.3(c) of Regulation U,
a borrower that enters into an extension of credit with a bank or with
certain nonbank lenders (1) for the purpose of buying or carrying
margin stock--i.e., stocks listed on exchanges, stocks designated for
trading in the National Market System, certain convertible bonds, and
most mutual fund shares--and (2) secured directly or indirectly by any
margin stock must execute a statement of purpose for an extension of
credit in the form prescribed by the Board. The commenter suggested
that the Board increase the threshold value of margin stock that
triggers the filing requirement from $100,000 to $500,000.
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\250\ 12 CFR part 221.
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13. Additional Comments Received From the EGRPRA Review
The agencies received other comments that were not within the 12
categories of rules published for comment. This section summarizes
these comments.
A. EGRPRA Process
The agencies received several comments recommending changes to the
EGRPRA review process. Some commenters suggested that the review
process should be expanded to include the CFPB and FinCEN. Other
commenters suggested that the agencies modify the review process to
allow the public greater access to outreach meetings and the ability to
track key issues and comments received from the public. The agencies
also received comments on other issues, such as whether newly issued
rules should be included as part of the EGRPRA review, and whether
there should be an independent EGRPRA director in charge of the review
process or an ``EGRPRA czar'' to handle disputes.
Furthermore, one commenter suggested that the agencies conduct an
EGRPRA review each year. Two commenters suggested that the agencies
should review not just each regulation specifically, but the overall
burden of rules. Finally, one commenter suggested that the EGRPRA
review also should consider where regulations need to be strengthened.
B. Increase Dollar Thresholds
The agencies received several comments suggesting that the agencies
increase all dollar thresholds in their regulations. Two trade
associations urged that all regulatory thresholds should be regularly
updated for inflation or tied to a pricing index. One bank specifically
suggested that the agencies should raise the threshold for a loan
examined in the Shared National Credit program.
C. Regulate Shadow Banking
The agencies received several comments recommending that the
agencies regulate the shadow banking industry. ``Shadow banking''
generally refers to a diverse set of entities and markets that
collectively carry out traditional banking functions outside of, or in
ways loosely connected to, the traditional banking system regulated by
the agencies. As shadow institutions typically do not have banking
licenses and do not take deposits, they are not subject to the same
regulations as traditional IDIs. These commenters argued that nonbank
entities that offer products that compete with banks should be subject
to regulatory requirements similar to that of banks. Some commenters
suggested that the Dodd-Frank Act has benefited the shadow banking
system by increasing the regulatory burden on community banks without
subjecting shadow banking entities to similar requirements.
D. Regulatory Structure
The agencies received several comments suggesting that the agencies
take steps to simplify the federal regulatory oversight of banks. One
commenter suggested that each bank have just one regulator. Some
commenters proposed simplifying the federal oversight of banks through
legislation that reduces the number of federal banking regulators. The
agencies also received several comments suggesting that the agencies
could improve the federal regulatory oversight of banks and reduce
unnecessary burden if they developed a stronger working relationship
with the entities that they regulate and with other federal agencies.
Several other commenters suggested that the agencies should review
regulations to make sure they are written clearly.
Some commenters suggested that the agencies be required to follow a
cost-benefit analysis when issuing regulations. These commenters stated
that the agencies only should issue new regulations if the benefits of
a proposed rule outweigh the costs and unintended consequences of such
a proposed rule.
One commenter suggested that the agencies allow more public
participation in rulemakings. The commenter asserted that involving
more people within the banking industry to participate in the
rulemaking process in addition to the traditional notice-and-comment
process would provide the agencies with a variety of perspectives.
E. Responsibilities of Boards of Directors
Several commenters suggested that the agencies consider the burden
many regulations place on a bank's board of directors and distinguish
between board and management responsibilities.
One commenter recommended that, for future rulemakings, the Board
consider the impact of the rule on bank directors and that the Board
should not implement regulations unless the benefits outweigh the
burdens on banks' boards. The commenter also suggested that the Board
clearly identify and provide guidance on the specific burdens that each
new regulation will impose on banks' boards. Four commenters suggested
that the Board
[[Page 15957]]
should provide public notice of any regulations that impact a board of
directors.
Three commenters suggested that restrictive regulations are making
it difficult to hire talented workers.
One commenter recommended that, for future rulemakings, the Board
consider the impact of the rule on bank directors and that the Board
should not implement regulations unless the benefits outweigh the
burdens on banks' boards. The commenter also suggested that the Board
clearly identify and provide guidance on the specific burdens that each
new regulation will impose on banks' boards.
Eight commenters suggested that the Board should avoid implementing
regulations that ``blur the line'' between director responsibilities,
and management responsibilities. A commenter cited as an example the
Board's Commercial Bank Examination Manual regarding board
responsibilities for contingency plans for computer services.
One commenter also stated that there should be governance clarity
between the board of directors and management. Currently, directors
make policy and approve actions, such as loans, which is an overreach
of good board governance.
F. Fair Lending
One commenter, a bank, indicated that ``[b]anks, the real estate
and automotive industries are pawns in this controversial political
football,'' with supervisory agencies second guessed by internal and
external parties. This commenter proposed that Congress strive ``to
create legislative clarity on this important topic on which we all
waste vast resources.'' Another commenter, also a bank, indicated that
although fair lending laws are well intended, the laws increase costs
to borrowers. This commenter also indicated that it often is unable to
lend to prospective borrowers because imposing higher charges on these
borrowers based on their higher credit risk would amount to
discrimination.
One consumer group indicated that some mortgage originators
continue to target minority borrowers for higher-cost loans without
regard to their qualifications and that bank redlining continues to
result in the denial of residential mortgage credit to qualified
minority borrowers. This commenter indicated that fair lending
regulations need to be enhanced and enforced, adding that the Congress
should not weaken the CFPB. Another consumer group indicated that the
repercussions for fair lending violations need to be strengthened. This
commenter also indicated that fair lending regulations also need to
address what happens after residential lending foreclosure. Another
commenter indicated that the agencies should publicly post the results
of fair lending examinations, including when a fair lending complaint
does not result in a fair lending referral or enforcement action.
One commenter, a bank, indicated that experienced specialists
rather than field examiners should review fair lending referrals to the
U.S. Department of Justice (DOJ). Another commenter, also a bank,
stated that the requirement to refer to DOJ all apparent or possible
fair lending violations should be eliminated where violations are de
minimis or inadvertent. A third commenter, a state banking association,
indicated that subjective interpretations of fair lending practices
that involve isolated acts or omissions, rather than an actual pattern
of discrimination, are costly to banks in terms of reputation, legal
and related fees, and fines.
G. Community Development
The agencies received a number of comments regarding community
development, CDFIs, and increasing access to banking services in
underserved areas.
One commenter, a nonprofit lender, explained that CDFI assessment
and rating systems offer no special consideration for EQ2s (equity
equivalents). The commenter recommended incentives for banks to convert
EQ2s to true equity or grants over time, and to reward banks that
increase the EQ2 maturity to 15 years or more. Another commenter, a law
firm, recommended that EQ2 authority should be expanded, and that the
OCC should permit banks to make EQ2 investments in CDFIs. It suggested
that such investments should count as equity rather than debt.
Currently, CDFIs carry EQ2s on the balance sheet as liabilities. Both
commenters recommended that EQ2s should be treated as equity in key
asset ratios because if EQ2s are treated as part of assets rather than
debt, it would make it possible to add new borrowed capital to balance
sheets with no change to the net balance ratio or debt to equity ratio,
which would lead to additional business loans, and in turn would create
new jobs. Another commenter, a nonprofit, noted that banks are not
sufficiently rewarded for making EQ2 public welfare investment anymore
because regulators no longer view EQ2s as innovative and complex.
One commenter, a for-profit community development corporation,
recommended that new banks acquiring CDFI stock should be permitted to
convert outstanding stock to newly acquired stock if a new substantial
amount of investment accompanied that stock.
One commenter, a university professor, explained that regulations
should increase access to capital in underserved communities, and that
CDFIs need help to increase their manufacturing portfolio or promotion
value activity, including the value of the supply chain in regional and
local systems. Further, the commenter suggested that regulators should
examine the tax credit regulations to take into consideration the tax
credit markets in different cities that have different densities. The
commenter noted that regulators should consider breaking the critical
linkage between place-based and people-based development.
H. Rule Writing Process
One trade association suggested that proposed rules should include
a table of contents at the beginning of the document for reference.
Five commenters, including banks, trade associations, and community
groups encouraged more simplicity and plain language in regulations,
noting that the increased complexity of rules is hurting banks and
driving them out of certain businesses. Several commenters suggested
that the agencies review the clarity of their regulations. Some
commenters recommended that the agencies reduce the burden associated
with keeping track of rulemaking proposals through procedural measures
designed to make regulatory updates easier for the public to access and
follow.\251\
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\251\ The FDIC cites to the ``FDIC Statement of Policy:
Development and Review of FDIC Regulations and Policies'' as its
guide for conducting regulatory analysis. See https://www.fdic.gov/regulations/laws/rules/5000-400.html.
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I. Tiered Regulation
Four commenters, including banks and trade associations, encouraged
regulators to advance the concept of tiered regulation. Seven
commenters, including banks and trade associations, highlighted burdens
on community banks, including access to capital, and urged the agencies
to treat community banks differently than larger institutions. One bank
suggested that the agencies move away from defining requirements
strictly by asset size.
J. Harmonization and Consistency
Five commenters, including banks and trade associations, encouraged
the
[[Page 15958]]
agencies to harmonize regulations and standards across jurisdictions in
order to level the playing fields and allow for useful comparisons. Two
commenters suggested that regulators consider the need for more parity
between state and national banking institutions. One bank commented
that examiners apply standards inconsistently, and that the agencies
should provide more examiner training to improve consistency.
K. Other Comments Applicable to Multiple Regulations or to Agency
Practices
One commenter suggested that the agencies should consider easing
regulatory requirements for community banks with CAMELS composite
ratings of ``1'' or ``2'' and management ratings of not lower than
``2.'' One commenter asserted that the agencies should not implement
enterprise risk management unilaterally on smaller community banks and
suggested that the agencies recognize a bank's risk-management
practices as satisfactory if the bank has a good CAMELS rating. One
commenter stated that the agencies should reduce the number and
frequency of third-party audits when the management of a bank is
satisfactory.
One trade association noted that the agencies should review and
amend regulations to protect against the fraudulent misuse of the
payment system.
One law firm suggested that the agencies should include Regulation
Y's exception for well-capitalized, well-managed organizations in
almost every regulation that requires a notice or approval.
One bank suggested that the agencies update their regulations to
account for technological advancements in order to increase efficiency.
One bank suggested that rules should include incentives for good
behavior as well as penalties for improper behavior.
One banker cautioned against the use of the term ``best practices''
because rules that start out as requirements for the largest banks
become best practices for smaller banks, putting smaller banks at a
disadvantage.
Two commenters suggested a need for streamlining disclosures.
L. Additional EGRPRA Comments
The agencies received a number of comments regarding a variety of
additional issues.
A few commenters discussed the tax exempt status of credit unions.
These commenters suggested that credit unions that perform and provide
largely the same services as banks should not have an advantage over
banks by being tax exempt.
One commenter suggested that banks should be able to apply to the
Small Business Lending Fund of 2010 despite negative retained earnings.
One commenter recommended that Congress amend 26 U.S.C.
1361(b)(1)(B) to increase the number of allowable shareholders for Sub-
Chapter S banks from 100 to 200 so that community banks can attract
outside capital.
One commenter suggested that the agencies create an independent
body with the power to receive, investigate, and resolve complaints
against the agencies. The commenter suggested that this independent
body should handle complaints quickly and confidentially and should
allow banks to file complaints without retribution from the agencies
and their examiners.
One commenter sought additional guidance from the agencies
regarding lending and providing banking services to individuals and
businesses involved in the medical marijuana industry. The commenter
stated that there are inconsistencies between state and federal laws
and that current guidance does not provide sufficient clarity and
confidence to conduct activities in connection with the medical
marijuana industry.
One commenter suggested that the agencies examine a bank's earnings
in the context of the current historically low interest rate
environment. The commenter stated that low interest rates have
compressed earnings and banks should not receive unsatisfactory
earnings ratings if all other aspects of the bank are in satisfactory
condition.
One commenter suggested that institutions be allowed to use media
other than newspapers, such as an accessible public website, to satisfy
a public notice requirement.
One commenter requested that the agencies provide responses to
requests under the Freedom of Information Act more quickly in order to
allow for more public participation and comment on applications.
One commenter suggested that community banks facilitate meetings
between their consumer compliance officers and members of the community
in order to gain a better understanding of the needs of their
communities. Another community group suggested that regulators and
community groups should gather to share ideas.
One commenter recommended that the agencies implement regulations
that require banks to better maintain foreclosed-upon properties in
their possession.
One commenter suggested that the U.S. Postal Service should be
allowed to conduct small dollar lending in order to respond to the
needs of consumers who don't have access to a local bank branch.
One commenter encouraged the agencies to make all agency forms
available electronically and to allow banks to submit forms
electronically.
One bank suggested that the agencies provide additional
clarification on how the risk-assessment process is conducted prior to
examination and on how bank policies should be construed.
One banker recommended that the Ombudsman's office be expanded to
include bankers instead of just examiners.
One law professor and one community group suggested that regulators
should evaluate whether banks have sufficient products available and
accessible to people with unconventional profiles or prior banking
issues.
Two commenters recommended that regulators consider ways to make it
easy for all bank customers, including non-English speakers, to file
comments on specific banks and their policies.
One bank noted that loan servicing charges are driving up the cost
of servicing all loans.
One commenter suggested that the threshold for systemic importance
should be at least $100 billion.
Two commenters asserted that the number of disclosures given to
consumers should be reduced. The commenters stated that the volume of
disclosures provided to consumers for a home loan was too large and
resulted in consumers not reading the information provided. Both
commenters stated that disclosures were difficult for consumers to
comprehend. One commenter agreed with disclosing information to
consumers, but suggested that the disclosures be simplified so that
consumers can understand the information provided.
Appendices
Appendix 1: State Liaison Committee Letter
February 27th, 2017
The Honorable Daniel Tarullo
Governor, Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
The Honorable Martin J. Gruenberg
Chairman, FDIC
Washington, DC
The Honorable Thomas J. Curry
Comptroller, OCC
Washington, DC
Dear Governor Tarullo, Chairman Gruenberg and Comptroller Curry:
As the Federal Financial Institutions Examination Council
(FFIEC) prepares to
[[Page 15959]]
finalize the second Economic Growth and Regulatory Paperwork
Reduction Act (EGRPRA) \1\ review and deliver a report to Congress
detailing efforts made by the Federal banking agencies (the
agencies), the State Liaison Committee \2\ (SLC) offers its
perspective on certain issues raised through the process. The SLC
would like to underscore its priorities with respect to the matters
at hand and offer suggestions to further EGRPRA efforts made by the
Board of Governors of the Federal Reserve System (FRB), the Federal
Deposit Insurance Corporation (FDIC) and the Office of the
Comptroller of the Currency (OCC).\3\
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\1\ See 12 U.S.C. 3311. The stated goal of the statute is to
identify outdated, unnecessary, or unduly burdensome regulations,
and consider how to reduce regulatory burden on insured depository
institutions while, at the same time, ensuring their safety and
soundness and the safety and soundness of the financial system.
\2\ Pursuant to 12 U.S.C. 3306, the SLC is comprised of five
representatives of State agencies that supervise financial
institutions, including the SLC Chair who is a voting member of the
Council.
\3\ The SLC commends the NCUA for its voluntary participation in
the EGRPRA process. As the NCUA is not statutorily mandated by the
EGRPRA, this letter only addresses the federal banking agencies
within the framework of the FFIEC. State regulators filed comments
directly with the NCUA, pursuant to the public request for comment
throughout the NCUA's voluntary EGRPRA review.
---------------------------------------------------------------------------
The SLC serves as a conduit through which state regulators can
share their regulatory and supervisory perspectives with its fellow
FFIEC members. As the chartering and supervisory authorities for
over 75% of the banks in the United States, state regulators are
charged with protecting consumers, ensuring safety and soundness,
and encouraging economic prosperity in their states. State bank
regulators, represented by the SLC, charter approximately 4,713
banks with $5.3 trillion assets under supervision, and license and
supervise over 177,000 mortgage companies, branches and individual
mortgage loan originators. In addition to commercial banks and
mortgage entities, state regulators supervise credit unions, savings
banks, savings and loan associations, bankers' banks, credit card
banks, industrial loan companies, and non-depository trust
companies.
SLC members and other state bank supervisors participated in
several EGRPRA Outreach meetings held during 2014 and 2015. Based on
these discussions and conversations with industry and regulator
stakeholders, state regulators have identified opportunities to
fulfill EGRPRA's stated goals, without compromising safety and
soundness or consumer protections, including:
1. The simplification of capital rules for smaller and less-
complex institutions;
2. A continuation and expansion of Call Report burden reduction
efforts;
3. A reexamination of regulatory appraisal thresholds for
federally related transactions; and
4. A reevaluation of the use of the Herfindahl-Hirschman Index
in determining market concentration.
I. Capital Rule Simplification
State banking regulators strongly support requiring sufficient,
quality capital. However, the costs associated with the complexity
of the current rules disproportionately impact smaller institutions,
and potentially inhibit community banks from serving the credit
needs of their markets. We urge the agencies to hasten efforts to
devise a more practical approach to regulatory capital for small,
non-complex banks. In both written and in-person comments at the
EGRPRA Outreach meetings, small bank stakeholders and industry
representatives raised concerns regarding how various aspects of the
revised capital rules--such as high volatility commercial real
estate and the treatment of mortgage servicing assets- are affecting
small bank operations. In addition to specific concerns, commenters
expressed that the general complexity of the rules requires
institutions to redirect resources that could otherwise be employed
to serve the financial needs of their communities. SLC members
recognize that simplifying the capital rules will be a significant
undertaking, and are prepared to support the agencies' efforts to
tailor capital requirements commensurate with smaller and less
complex institutions.
II. Call Report Burden Reduction
Regulators agree that the complexity of the capital rules
complicate Call Report preparation, and recognize that simplifying
the capital standards will meaningfully reduce the burden associated
with reporting Schedule RC-R (Regulatory Capital). As it stands,
significant resources are required to interpret lengthy, complicated
instructions and gather data necessary to complete the Schedule. In
addition to the capital schedule, further simplification of the Call
Report is necessary to reduce burden on smaller and less complex
banks.
SLC members participated in and acknowledge the deliberate
efforts of the FFIEC members that resulted in the creation of the
new Consolidated Reports of Condition and Income for Eligible Small
Institutions (FFIEC 051). A more streamlined Call Report was a
requisite first step; however, industry reaction indicates that this
work needs to accelerate and broaden in scope. Small and less
complex institutions continue to comment on the time-consuming
effort and cost associated with completing several Schedules, as
well as line items that require a high degree of manual
intervention. Even after the burden reduction process that resulted
in FFIEC 051, the aforementioned capital Schedule RC-R remains
fourteen pages long and comprises a significant portion of the full
Call Report.
To further reduce Call Report-related burden on small and less
complex banks, we look forward to working with our fellow FFIEC
members to expand eligibility criteria for FFIEC 051. Currently,
domestically-based institutions with assets less than $1 billion
will be eligible to file FFIEC 051. We recommend consideration of an
indexed, multi-factor set of criteria such as the FDIC's Community
Bank Research definition from its 2012 Community Banking Study.\4\
In addition to the adoption of a broader eligibility threshold for
FFIEC 051, we look forward to participating in further Call Report
improvement efforts while striving to ensure that simplification
does not unduly compromise the ability of regulators to monitor
financial performance and risk.
---------------------------------------------------------------------------
\4\ See https://www.fdic.gov/regulations/resources/cbi/report/CBSI-1.pdf. The FDIC Community Banking Study (December 2012) defines
an institution with assets over $1 billion as a community bank if
loans to assets are greater than 33%, core deposits to assets are
greater than 50%, it operates more than one office but no more than
the indexed maximum number of offices, it serves equal to or less
than two large MSAs with offices, it serves equal to or less than
three states with offices, and no single office has more deposits
than the indexed maximum branch deposit size.
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III. Appraisals for Federally Related Transactions
The SLC members find the appraisal regulation thresholds,
established by the agencies to implement the Financial Institutions
Reform Recovery and Enforcement Act (FIRREA) \5\ to be outdated and
are concerned they may unnecessarily impede credit availability,
particularly in rural and underserved urban markets. The current
threshold of $250,000 for both residential and nonresidential
(commercial) real estate transactions has not been adjusted since
1994.\6\ Real estate loans over the dollar threshold must be
supported by an appraisal performed by a licensed or certified
appraiser, while loans below the threshold may have the market value
of the property determined by an evaluation \7\ that conforms to
published regulatory guidelines.\8\ In many instances, the costs
associated with an appraisal on a relatively small real estate loan
are high in comparison to the property's purchase price.
---------------------------------------------------------------------------
\5\ See 12 CFR 34.43.
\6\ See 12 CFR 323.3(a)(1).
\7\ See 12 CFR 323.3 (b). An evaluation provides an estimate of
the property's market value but does not have to be performed by a
state licensed or certified appraiser.
\8\ See https://www.fdic.gov/news/news/financial/2010/fil10082a.pdf and https://www.fdic.gov/news/news/financial/2010/fil10082a.pdf. Regulatory expectations for evaluations are detailed
within the December 10, 2010 Interagency Appraisal and Evaluation
Guidelines, and the March 4, 2016 Interagency Advisory on Use of
Evaluations in Real Estate-Related Financial Transactions.
---------------------------------------------------------------------------
Further, the lack or limited number of qualified appraisers in
numerous markets throughout the country can lead to even higher
appraisal costs and delays in the real estate transaction process.
Costs, appraiser shortages, outdated thresholds, as well as the
inflexible nature of the appraisal thresholds, impact credit
availability. These issues, singly or in combination, can hamper
real estate lending activity. The SLC also notes that while real
estate transactions in rural areas may comprise a low volume of the
total transactions nationwide, each rural transaction can have
significant impact on the local community.
State regulators support updating the dollar thresholds for
federally related transactions requiring an appraisal to reflect
inflation. We also suggest indexing the thresholds to account for
changes in real estate value over time. SLC members believe
[[Page 15960]]
a reasonable increase in the threshold level does not present an
undue threat to the safety and soundness of institutions, and that
real estate evaluations conforming with regulatory guidance provide
reasonable support for market values as well as protection for
consumers. Evaluations also offer cost control for both financial
institutions and borrowers.
The SLC recognizes that FIRREA requires Consumer Financial
Protection Bureau (CFPB) concurrence that the threshold level
provides reasonable protection for consumers purchasing 1-4 unit
single-family residences.\9\ We also acknowledge that the appraisal
requirements of the Government-Sponsored Enterprises (GSEs) are
unaffected by the dollar thresholds set by the agencies. However,
action by the agencies to update the residential real estate
threshold would provide flexibility for institutions to make and
retain a greater number of such loans, which would still be subject
to the agencies' criteria for evaluations as well as safety and
soundness examination by bank regulatory authorities.
---------------------------------------------------------------------------
\9\ See 12 U.S.C 3341(b).
---------------------------------------------------------------------------
In addition to raising the appraisal dollar thresholds, we
suggest the agencies consider a transaction-based, de-minimis test
for real estate loans. A de-minimis test presents a simple option
for relief that would significantly reduce regulatory burden for
banks that retain a limited number of real estate loans exempt from
the appraisal requirements. SLC members urge the agencies to
consider the effective, simple, and lasting solutions discussed
above.
Agencies' Options for Relief
The agencies have offered a solution to the appraiser shortage
whereby requests may be made to the Appraisal Subcommittee \10\ for
temporary waivers of any requirement relating to certification or
licensing of a person to perform appraisals.\11\ This would not
waive the appraisal requirement for real estate transactions above
the thresholds, but suspend the requirement that appraisals be
performed by certified or licensed individuals. SLC members question
the feasibility of this option. Instituting waiver proceedings to
address widespread appraiser shortages is untested. The related
regulatory process is not expedient, and provisions for waiver
termination are required. It is unclear whether this option creates
a third category of estimating the market value of real property: a
USPAP-conforming appraisal performed by individuals otherwise
unauthorized to do so.
---------------------------------------------------------------------------
\10\ The Appraisal Subcommittee (ASC) of the Federal Financial
Institutions Examination Council (FFIEC) was created on August 9,
1989, pursuant to Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (Title XI). Title XI's purpose
is to ``provide that Federal financial and public policy interests
in real estate transactions will be protected by requiring that real
estate appraisals utilized in connection with federally related
transactions are performed in writing, in accordance with uniform
standards, by individuals whose competency has been demonstrated and
whose professional conduct will be subject to effective
supervision.''
\11\ See 12 CFR part 1102.
---------------------------------------------------------------------------
In addition to the waiver option, the agencies also emphasize
that state appraiser certifying and licensing agencies may
temporarily recognize the credentials of an appraiser issued by
another state under certain conditions.\12\ This transfer of
certifications across state lines is outside the authority of the
agencies, presents limited potential relief, and assumes the
incoming appraiser has sufficient familiarity with the market to
make a reasonable determination of value. Based on the experience of
state regulators, the greatest factor impacting the reliability of
real estate market value estimates--whether in the form of an
appraisal or an evaluation--is the preparer's familiarity with the
specific market.
---------------------------------------------------------------------------
\12\ See 12 U.S.C. 3351(a).
---------------------------------------------------------------------------
After considering both options, the SLC has concluded neither is
likely to materially improve the state of appraiser availability in
affected markets. Both are temporary, unclear, and do not address
the persistent nature of the issue. The associated cost to borrowers
is also unknown.
IV. Herfindahl-Hirschman Index
The SLC recommends a reevaluation of how the Herfindahl-
Hirschman Index (HHI) is used when considering the effects on market
competition of proposed mergers. This topic was heavily discussed at
the Federal Reserve Bank of Kansas City EGRPRA Outreach meeting. The
HHI serves as the principle measure of market concentration, and its
efficacy is highly dependent upon both the definition of the
market(s) and the products or services considered in determining
market share. The agencies focus on branch networks and deposit
shares of depository institutions in a local banking market. Unless
specified on a case-by-case basis, non-depositories' market
influence is not factored into HHI calculations, and credit union
deposits must fulfill specific conditions to be included, albeit
often at a lower weight.\13\ SLC members recognize that due to the
reliance on deposits and the discounting of credit unions' deposit
influence on the market, the resultant HHI calculation does not
offer a representative assessment of market concentration.
Consequently, as currently employed, use of the HHI may impede in-
market merger and acquisition activity in markets populated by small
institutions.
---------------------------------------------------------------------------
\13\ See here. Credit unions are typically included in these
calculations if two conditions are met: (1) the field of membership
includes all, or almost all, of the market population, and (2) the
credit union's branches are easily accessible to the general public.
In such instances, a credit union's deposits will generally be given
50% weight. Commercial bank deposits are weighted at 100%, and
deposits of thrifts are weighted at 50%. Thrifts may receive 100%
weight under certain conditions.
---------------------------------------------------------------------------
The HHI's reliance on deposit market-share to determine market
concentration is problematic, as non-depositories with substantial
market influence are not considered. There are numerous examples of
institutions that, despite engaging in a considerable degree of
activity, are not accounted for. Because of its reliance on deposits
as a proxy for activity, the HHI does not consider the market share
of a wide breadth of financial firms, including: specialty lenders
in mortgages and credit cards, commercial lending finance companies,
accounts receivable finance companies, and money market mutual funds
for deposits. SLC members have found that, without consideration of
the market influence of non-depository financial firms, the HHI
cannot provide a realistic representation of market concentration.
For example, in many rural markets, Farm Credit Associations
(FCAs) hold nearly as much agricultural loan market-share as their
insured depository counterparts, but are not considered in HHI
calculations. Researchers at the Federal Reserve Bank of Kansas City
\14\ found that, in assessments of market concentration in rural
areas, non-depository FCA market influence was not considered
because of a lack of deposits. Hypothetical inclusion of FCA market
influence in HHI calculations indicates a lower degree of market
concentration. Researchers also found that when measures of market
concentration include FCAs, in-market mergers are less likely to be
halted because of competitive concerns. This example illustrates
that the HHI's dependence on deposits as the measure of market
influence not only provides a limited view of the market, but that
this practice has a demonstrable effect on in-market merger and
acquisition activity.
---------------------------------------------------------------------------
\14\ See here. The Farm Credit System makes loans to their
member borrowers through 76 Farm Credit Associations. Farm Credit
Associations originated about 40% of agricultural loans in 2014.
---------------------------------------------------------------------------
The SLC recommends that, if deposits remain the primary data
used to construct market shares, credit union deposits be weighted
commensurate with their market influence. Generally, if a credit
union is included in HHI calculations, its deposits are applied a
weight of 50%, which suggests their competitive influence in the
deposit market is half that of another institution. SLC members find
that the general weight applied to credit union deposits
underestimates their market influence.
The HHI's reliance on deposits as a proxy for market share could
inhibit small firms from engaging in in-market merger and
acquisition activity. Furthermore, this disadvantages in-market
mergers of peer institutions and could result in the entry of a
large, deposit-gathering branch of a nationwide institution. In-
market acquisitions better serve consumer preference, as the
majority would rather hold deposits at a community bank.\15\ The SLC
recommends that the agencies reconsider the HHI's reliance on
deposits and the weight applied to credit union deposits, as it may
place smaller institutions at a disadvantage.
---------------------------------------------------------------------------
\15\ See here. According to the 2015 Consumer Banking Insights
Study, if everything were equal, 66% of U.S. adults would rather
bank at a community bank or credit union than a larger competitor.
---------------------------------------------------------------------------
We appreciate the efforts made by the Federal banking agencies
over the two-year EGRPRA process. State regulators agree there is
much to be done to better tailor the current regulatory environment
to the diversity of the financial services industry. In the spirit
of fulfilling the goals of the Economic Growth and Paperwork
Reduction Act, SLC members
[[Page 15961]]
offer these straightforward and practical recommendations to address
certain persistent regulatory challenges. We look forward to
continued discussion and coordination with the agencies and our
---------------------------------------------------------------------------
other fellow FFIEC members.
Sincerely,
[Karen K. Lawson, signed]
Karen K. Lawson, Chair
State Liaison Committee
Appendix 2: Economic Growth and Regulatory Paperwork Reduction Act of
1996
12 U.S.C. Sec. 3311
United States Code Annotated
Title 12. Banks and Banking
Chapter 34. Federal Financial Institutions Examination Council
Section 3311. Required review of regulations
(a) In general
Not less frequently than once every 10 years, the Council and
each appropriate federal banking agency represented on the Council
shall conduct a review of all regulations prescribed by the Council
or by any such appropriate federal banking agency, respectively, in
order to identify outdated or otherwise unnecessary regulatory
requirements imposed on insured depository institutions.
(b) Process
In conducting the review under subsection (a) of this section,
the Council or the appropriate federal banking agency shall--
(1) categorize the regulations described in subsection (a) of
this section by type (such as consumer regulations, safety and
soundness regulations, or such other designations as determined by
the Council, or the appropriate federal banking agency); and
(2) at regular intervals, provide notice and solicit public
comment on a particular category or categories of regulations,
requesting commentators to identify areas of the regulations that
are outdated, unnecessary, or unduly burdensome.
(c) Complete review
The Council or the appropriate federal banking agency shall
ensure that the notice and comment period described in subsection
(b)(2) of this section is conducted with respect to all regulations
described in subsection (a) of this section not less frequently than
once every 10 years.
(d) Regulatory response
The Council or the appropriate federal banking agency shall--
(1) publish in the Federal Register a summary of the comments
received under this section, identifying significant issues raised
and providing comment on such issues; and
(2) eliminate unnecessary regulations to the extent that such
action is appropriate.
(e) Report to Congress
Not later than 30 days after carrying out subsection (d)(1) of
this section, the Council shall submit to the Congress a report,
which shall include--
(1) a summary of any significant issues raised by public
comments received by the Council and the appropriate federal banking
agencies under this section and the relative merits of such issues;
and
(2) an analysis of whether the appropriate federal banking
agency involved is able to address the regulatory burdens associated
with such issues by regulation, or whether such burdens must be
addressed by legislative action.
CREDIT(S)
(Pub. L. No. 104-208, Div. A, Title II, Section 2222, September 30,
1996, 110 Stat. 3009- 414.)
Appendix 3: Notices Requesting Public EGRPRA Comment on Agency Rules
(four)
1. 79 FR 32172 (June 4, 2014) \1\
---------------------------------------------------------------------------
\1\ See, https://www.gpo.gov/fdsys/pkg/FR-2014-06-04/pdf/2014-12741.pdf.
---------------------------------------------------------------------------
Notice of regulatory review; request for comments.
2. 80 FR 7980 (February 13, 2015) \2\
---------------------------------------------------------------------------
\2\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-02-13/pdf/2015-02998.pdf.
---------------------------------------------------------------------------
Notice for regulatory review; request for comments.
3. 80 FR 32046 (June 5, 2015) \3\
---------------------------------------------------------------------------
\3\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-06-05/pdf/2015-13749.pdf.
---------------------------------------------------------------------------
Notice for regulatory review, request for comments.
4. 80 FR 79724 (December 23, 2015) \4\
---------------------------------------------------------------------------
\4\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-12-23/pdf/2015-32312.pdf.
---------------------------------------------------------------------------
Notice for regulatory review, request for comments.
Appendix 4: Notices Announcing EGRPRA Outreach Meetings (six)
(1) 79 FR 70474 (November 26 2014) \1\
---------------------------------------------------------------------------
\1\ See, https://www.gpo.gov/fdsys/pkg/FR-2014-11-26/pdf/2014-27969.pdf.
---------------------------------------------------------------------------
Notice of outreach meeting, Los Angeles, CA.
(2) 80 FR 2061 (January 15, 2015) \2\
---------------------------------------------------------------------------
\2\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-01-15/pdf/2015-00516.pdf.
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Notice of outreach meeting, Dallas, TX.
(3) 80 FR 20173 (April 15, 2015) \3\
---------------------------------------------------------------------------
\3\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-04-15/pdf/2015-08619.pdf.
---------------------------------------------------------------------------
Notice of outreach meeting, Boston, MA.
(4) 80 FR 39390 (July 9, 2015) \4\
---------------------------------------------------------------------------
\4\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-07-09/pdf/2015-16760.pdf.
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Notice of outreach meeting, Kansas, MO.
(5) 80 FR 60075 (October 5, 2015) \5\
---------------------------------------------------------------------------
\5\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-10-05/pdf/2015-25258.pdf.
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Notice of outreach meeting, Chicago, IL.
(6) 80 FR 74718 (November 30, 2015) \6\
---------------------------------------------------------------------------
\6\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-11-30/pdf/2015-30247.pdf.
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Notice of outreach meeting, Washington, DC.
BILLING CODE 4810-33-P
[[Page 15962]]
[GRAPHIC] [TIFF OMITTED] TN30MR17.036
[[Page 15963]]
[GRAPHIC] [TIFF OMITTED] TN30MR17.037
[[Page 15964]]
[GRAPHIC] [TIFF OMITTED] TN30MR17.038
[[Page 15965]]
[GRAPHIC] [TIFF OMITTED] TN30MR17.039
BILLING CODE 4810-33-C
II. NCUA Report
ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT
NATIONAL CREDIT UNION ADMINISTRATION BOARD
REPORT TO CONGRESS
Introductory statement by National Credit Union Administration Acting
Chairman J. Mark McWatters
I. Executive Summary
II. Overview of NCUA Participation
III. Summary of Comments Received
IV. Significant Issues; Agency Response
V. Other Agency Initiatives
VI. Legislative Recommendations
VII. Conclusion
VIII. Appendices
Chart of Agency Regulations
Notices Requesting Public EGRPRA Comment on Agency
Rules
Regulatory Relief Initiative
Introductory Statement by National Credit Union Administration Acting
Chairman
J. Mark McWatters
The EGRPRA review process designed by Congress provides a useful
framework for the NCUA Board to assess the impact of its rules on
the operations of federally insured credit unions and their
communities, a process that as acting chairman of the agency I have
welcomed.
While the NCUA is first and foremost a prudential regulator for
credit unions and the manager of the National Credit Union Share
Insurance Fund (NCUSIF), the Board recognizes the significant
regulatory burdens credit unions face. If we can minimize those
burdens without jeopardizing safety and soundness or ignoring
congressional directives, it is reasonable for us to do so.
For public policy reasons, the NCUA Board has chosen to
participate in the regulatory review process provided by EGRPRA,
although our regulatory review includes other agency initiatives to
assess credit union compliance costs and benefits. The EGRPRA review
process enhances the agency's comprehensive annual review of one-
third of its regulations. It also facilitates the NCUA's overall
regulatory approach, which is to implement statutory requirements
through regulations, guidance, policies, and practices that
accomplish the goals of Congress in an efficient and effective
manner, imposing the minimum burden necessary to promote the safety
and soundness of credit unions and their members' deposits. As set
out more fully in this report, the EGRPRA review process has led to
several important improvements and modifications to the NCUA's
regulations.
The NCUA Board is committed to providing effective, targeted
regulation and appropriate supervision while containing requirements
that impede innovation at our nation's credit unions. The NCUA Board
continues to look for ways to strengthen its capabilities to
identify emerging concerns in a timely way even as we review our
rules to help limit credit union compliance burdens. More and more
rules not only curtail credit unions and their members, but also
impose growing costs and resource allocation dilemmas on the NCUA.
Consistent with the goals of EGRPRA, the NCUA Board looks
forward to continuing our efforts to fulfill congressional mandates
while affording well managed credit unions important flexibility and
discretion, consistent with safety and soundness, in order to help
them meet the changing financial needs of their members now and into
the future.
Without limitation, we intend to substantially revise the risk-
based net worth rule; permit credit unions to issue supplemental
capital for risk-based net worth purposes; revise and finalize the
proposed field of membership and securitization rules; and modernize
the central liquidity facility, stress-testing, and corporate credit
union rules, among others; all in strict compliance with the Federal
Credit Union Act and other applicable law. We will also work with
Congress to update the FCUA to facilitate credit union operations
and growth so as to ensure the safety and soundness of the NCUSIF.
[J. Mark McWatters, signed]
J. Mark McWatters
Acting Chairman
I. Executive Summary
Congress enacted EGRPRA as part of an effort to minimize
unnecessary government regulation of financial institutions
consistent with safety and soundness, consumer protection, and other
public policy goals.\1\ Under EGRPRA, the appropriate federal
banking agencies (Office of the Comptroller of the Currency, Board
of Governors of the Federal Reserve System, and Federal Deposit
Insurance Corporation; herein agencies \2\) and the Federal
Financial Institutions Examination Council must review their
regulations to identify outdated, unnecessary, or unduly burdensome
requirements imposed on insured depository institutions. The
agencies are required, jointly or individually, to categorize
regulations by type, such as ``consumer regulations'' or ``safety-
and-soundness'' regulations. Once the categories have been
established, the agencies must provide notice and ask for public
comment on one or more of these regulatory categories.
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\1\ EGRPRA, Public Law 104-208, Div. A, Title II, section 2222,
110 Stat. 3009 (1996); codified at 12 U.S.C. 3311.
\2\ The Office of Thrift Supervision was still in existence at
the time EGRPRA was enacted and was included in the listing of
agencies. Since that time, the OTS has been eliminated and its
responsibilities have passed to the agencies and the Consumer
Financial Protection Bureau.
---------------------------------------------------------------------------
NCUA is sympathetic to the need for regulatory compliance burden
reduction on behalf of the credit unions we regulate. At
[[Page 15966]]
the same time, the agency is cognizant and respectful of its
responsibility as a safety-and-soundness regulator. The financial
crisis of 2008 and the Great Recession that ensued thereafter
underscored the need for effective, prudential regulation within the
U.S. financial sector. As is documented throughout this report, the
agency is guided by the need to strike a balance between these
competing considerations. The agency has worked diligently within
the EGRPRA process to identify needed regulatory changes and then
take quick action, where possible, to adopt those reforms. We also
have identified several statutory issues that Congress may want to
consider acting on to provide credit unions with more regulatory
relief going forward.
NCUA looks forward to continuing its approach as a responsive
regulator, continually re-examining and re-considering its rules and
regulations to assure that compliance burden remains within
reasonable limits, with significant flexibility and discretion
afforded well managed credit unions consistent with safe and sound
operations.
Since 1987, NCUA has followed a well-delineated and deliberate
process to continually review its regulations and seek comment from
stakeholders, such as credit unions and their representatives.
Through this agency-initiated process, NCUA conducts a rolling
review of one-third of its regulations each year--we review all of
our regulations at least once every three years.
This long-standing regulatory review policy helps to ensure
NCUA's regulations:
accomplish what Congress intended;
minimize compliance burdens on credit unions, their
members, and the public;
are appropriate for the size and risk profile of the
credit unions regulated by NCUA;
are issued only after public participation in the
rulemaking process, consistent with the Administrative Procedure
Act; and
are clear and understandable.
This rolling review is intended to be transparent for
stakeholders. NCUA publishes on our website a list of the applicable
regulations under review each year and invites public comment on any
or all of the regulations.
II. Overview of NCUA Participation
NCUA is not required to participate in the EGRPRA review
process, because NCUA is not defined as an ``appropriate Federal
banking agency'' under EGRPRA.\3\ Nonetheless, the current board
embraces the objectives of EGRPRA and in keeping with the spirit of
the law, the Board has participated in the review process. (The NCUA
also participated in the first EGRPRA review, which ended in 2006).
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\3\ See 12 U.S.C. 1813(q).
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The categories used by NCUA to identify and address issues are:
Agency Programs;
Applications and Reporting;
Capital;
Consumer Protection;
Corporate Credit Unions;
Directors, Officers, and Employees;
Money Laundering;
Powers and Activities;
Rules of Procedure; and
Safety and Soundness.
These categories are comparable, but not identical, to the
categories developed jointly by the banking agencies covered by
EGRPRA but they reflect some of the fundamental differences between
credit unions and banks. For example, `corporate credit unions' is a
category unique to NCUA's chart. For the same reason, NCUA decided
to publish its notices separately from the joint notices used by the
banking agencies, although all of the notices were each published at
around the same time. NCUA included in its EGRPRA review all rules
over which NCUA has drafting authority, except for certain rules
that pertain exclusively to internal operational or organizational
matters at the agency, such as NCUA's Freedom of Information Act
rule.
Copies of the four notices the NCUA published in the Federal
Register in connection with the EGRPRA process are attached as an
appendix to this report.\4\
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\4\ Dates of publication were as follows: June 4, 2014, (79 FR
32,191); December 19, 2014, (79 FR 75,763); June 24, 2015, (80 FR
36,252); and December 23, 2015, (80 FR 79,953).
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NCUA did not elect to participate in the outreach sessions
sponsored by the agencies, because the sessions were targeted
directly to banks, and understandably, much of the discussion
focused on issues of principal applicability to banks. NCUA
routinely conducts town-hall meetings, listening sessions, and other
outreach activities, during which views from stakeholders are
solicited and discussed. In addition to providing information on
agency proposals, rules, personnel contact information and board
members' travel schedules, since 1987 NCUA has invited public
comment on one-third of its existing rules each year.\5\ The result
is a review of the agency's rules completed within rolling three-
year cycles. Comments received during this rolling one-third review
are blended in with and considered as applicable along with comments
submitted in response to the EGRPRA notices.
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\5\ Interpretive Ruling and Policy Statement (IRPS) 87-2, 52 FR
35,231 (September 8, 1987), as amended by IRPS 03-2, 68 FR 32,127
(May 29, 2003).
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NCUA is also mindful that credit unions are subject to certain
rules issued or administered by other regulatory agencies, such as
the Consumer Financial Protection Bureau (CFPB) and the Department
of the Treasury's Financial Crimes Enforcement Network. Because we
have no independent authority and limited ability to change such
rules, our notices--as do the joint notices prepared by the other
agencies--advise that comments submitted to us but focused on a rule
administered by another agency will be forwarded to that other
agency for appropriate consideration.
III. Summary of Comments Received Under the NCUA EGRPRA Review
1. Applications and Reporting
Field of Membership and Chartering
Two commenters addressed this topic; \6\ each of whom suggested
that NCUA expand its definition of ``rural district'' and provide
greater flexibility to federal credit unions seeking to add a rural
district to their field of membership. Two commenters also requested
that NCUA eliminate or modify quality assurance reviews for
associational common bond, including extending the ``once a member
always a member'' principle into this area. One commenter proposed
that NCUA simplify procedures for conversion from one type of
charter to another and allow federal credit unions converting to
community charter to continue serving their pre-existing field of
membership, including new members. One commenter proposed that NCUA
should allow a credit union converting to a federal charter to
accept new members from associational groups that had been served
prior to the conversion. One commenter requested that NCUA simplify
the process for adding underserved areas, and another commenter
proposed that NCUA should add to the list of associations for which
automatic approval is available. This commenter also proposed that
NCUA eliminate the threshold determination concerning membership
eligibility for certain associational groups. As discussed more
thoroughly later in this report, the Board did propose and adopt
several significant changes in this area in 2016.
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\6\ Applications and reporting--79 FR 32,191 (June 4, 2014);
Field of membership and chartering--12 CFR 701.1; IRPS 03-1.
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Fees Paid by Federal Credit Unions
One commenter addressed this topic and suggested that NCUA
provide clearer disclosure to credit unions as to how fees paid to
the agency are managed.\7\ The commenter requested that NCUA provide
non-aggregated components of the expenditures from the several funds
NCUA manages, such as how monies from the National Credit Union
Share Insurance Fund are allocated to the NCUA budget.
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\7\ Fees paid by federal credit unions, 12 CFR 701.6.
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Applications for Insurance
One commenter addressed this matter,\8\ focusing on provisions
governing interest rate risk pursuant to 12 CFR 741.3. Specifically,
the commenter asked that the rules in this particular area be
clarified and simplified.
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\8\ Applications for insurance, 12 CFR 741.0, 741.3, and 741.4.
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Financial, Statistical, and Other Reports
One commenter wrote on these provisions.\9\ The commenter
suggested that NCUA conduct a comprehensive review and evaluation of
the current Call Report protocol, with a view toward making the 5300
Call Report more in line with the Federal Financial Institutions
Examination
[[Page 15967]]
Council model. The agency is considering ways to streamline the call
report.
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\9\ Financial, statistical, and other reports, 12 CFR 741.6.
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Purchase of Assets and Assumption of Liabilities
One commenter addressed this provision and recommended that NCUA
ease restrictions on the purchase of assets and assumption of
liabilities by federally insured, state-chartered credit unions from
federally insured, non-credit union depository institutions.\10\
Specifically, the commenter proposed that NCUA change its rule to
simply require notice to, rather than approval by, NCUA's regional
offices for purchase and assumption transactions undertaken by
federally insured, state-chartered credit unions. As an alternative
suggestion, the commenter advocated including in the rule a 30-day
deadline for action by the regional office on requests for approval.
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\10\ Purchase of assets and assumption of liabilities, 12 CFR
741.8.
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Conversion of Insured Credit Union to Mutual Savings Bank
Two commenters addressed this provision.\11\ Both commenters
urged NCUA to clarify and streamline the process under which
conversions are approved. One commenter also proposed that NCUA
should support legislative changes to enable a state-chartering
authority, rather than NCUA, to review and approve requests by
federally insured, state-chartered credit unions to convert to
another form of federally insured depository institution.
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\11\ Conversion of insured credit union to mutual savings bank,
12 CFR part 708a.
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Mergers of Federally Insured Credit Unions; Voluntary Termination
or Conversion of Insured Status
Three stakeholders commented on this process.\12\ One commenter
criticized NCUA by noting that the agency has been too selective in
designating which credit unions may be merger partners for
distressed credit unions. Another requested that NCUA provide more
comprehensive and up-to-date guidance on how to execute and complete
a merger, focusing on operational concerns; in doing so, the
commenter suggested, NCUA should solicit and obtain input from
stakeholders. Another suggested that NCUA should clarify which
aspects of the merger and conversion rules apply to federally
insured, state-chartered credit unions.
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\12\ Mergers of federally insured credit unions, 12 CFR part
708b.
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2. Powers and Activities
a. Lending, Leasing, and Borrowing
Loans to Members and Lines of Credit to Members
Two commenters addressed this rule.\13\ One proposed that NCUA
liberalize its policy about rental of real estate-owned properties
and mandatory marketing efforts. The other commenter suggested that
NCUA remove a requirement that state laws governing prohibited fees
and non-preferential loans be ``substantially equivalent'' before
federally insured, state-chartered credit unions are exempted from
NCUA's rule. The commenter proposed that NCUA should replace this
with the standard of minimizing risk.
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\13\ 79 FR 32,191, (June 4, 2014) and 12 CFR 701.21.
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Loan Participations
One commenter addressed this section. The commenter suggested
that NCUA should exempt federally insured, state-chartered credit
unions from 12 CFR 701.22 where state law provides for adequate
safety-and-soundness controls. Alternatively, the commenter
proposed, NCUA should streamline the rule by focusing on safety-and-
soundness considerations and removing intricately detailed
regulatory requirements.
Share, Share Draft, and Share Certificate Accounts
One commenter addressed this rule and proposed that NCUA should
allow for pass-through insurance coverage on shares comprising
lawyers' trust accounts, involving client funds held in trust by
attorneys (subsequent to this comment, Congress amended the Federal
Credit Union Act to specifically allow for this).\14\ The commenter
also proposed that NCUA should provide pass-through coverage for
prepaid debit card accounts established to accept government
benefits through a pooled automatic clearinghouse arrangement.
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\14\ Share, share draft, and share certificate accounts, 12 CFR
701.35.
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Member Business Loans
Four commenters addressed this provision.\15\ It should be noted
that NCUA conducted a comprehensive review of this rule in 2015,
with final changes adopted in February 2016, subsequent to the
receipt of these comments. Many of the issues identified by the
commenters were considered and addressed during this revision
process.
---------------------------------------------------------------------------
\15\ 12 CFR part 723.
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One commenter proposed that NCUA should:
eliminate all regulatory requirements for member
business loans not specifically required by statute;
re-interpret the agency's posture on the exception for
credit unions with a history of primarily making member business
loans; and
liberalize guidance in Letter to Credit Unions 13-CU-02
concerning waiver options.\16\
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\16\ The entire waiver system has been eliminated from the
revised rule.
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Another commenter proposed that NCUA should:
broaden agency interpretation of federal credit unions
with a history of primarily making member business loans;
simplify and make more flexible the procedures for
obtaining individual and blanket waivers; and
support statutory changes that would liberalize the
current member business loan restrictions.
A third commenter proposed that NCUA should:
support legislative change to raise the 12.25 percent
of assets limit on aggregate member business loans;
raise the small loan exception from the member business
loan definition to $100,000;
distinguish between underwriting considerations and the
statutory limit in the member business loan definition;
eliminate the waiver requirement from the rule and
simply supervise to established safety-and-soundness standards;
distinguish in the rule between seeking forbearance
about an existing loan and waiver for a prospective loan; and
eliminate the two-year experience requirement in 12 CFR
723.5(a).
A fourth commenter suggested that NCUA should:
enlarge to 20 percent of net worth the amount of
construction and development loans that may be held;
extend the exemption for construction loans for which
the borrower has contracted to purchase the property to include
financing land for residential builders where infrastructure is
already in place;
expand the categories of parties not required to
provide a personal guarantee of repayment, and allow in some cases
for a guarantee to be limited to ownership interest in the corporate
borrower;
increase to $500,000 the aggregate limit on loans to
members or groups of associated members, and exclude the limit
altogether in cases in which a loan has been transferred to
``special assets,'' with an established reserve;
eliminate or clarify the references in the definition
of construction and development loans to ``major renovations,''
which is potentially subject to different interpretation; and
streamline and automate the waiver process, using
standardized documents.
Maximum Borrowing
One commenter addressed this provision, and suggested that NCUA
change the requirement that federally insured, state-chartered
credit unions must request approval for a waiver from the regional
office so that only notice, not approval, is required.\17\ As an
alternative, the commenter proposed that NCUA develop and impose a
30-day deadline for action by the regional office on requests for
approval.
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\17\ Maximum borrowing provision, 12 CFR 741.2.
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Leasing
One commenter commented on this section.\18\ The commenter
suggested that NCUA allow credit unions to determine for themselves
whether to obtain a full assignment. The commenter also proposed
that NCUA add more flexibility to the rule in terms of residual
value limits.
---------------------------------------------------------------------------
\18\ 12 CFR part 714.
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b. Investment and Deposits
Designation of Low-Income Status
Receipt of Secondary Capital Accounts by Low-Income Designated Credit
Unions
One commenter addressed this issue and proposed that NCUA
eliminate the compliance burden on federally insured, state-
chartered credit unions regarding limits
[[Page 15968]]
on secondary capital accounts by leaving this issue to state
law.\19\
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\19\ 12 CFR 701.34.
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Payment on Shares by Public Units
One commenter addressed this provision and recommended that NCUA
eliminate compliance burden on federally insured, state-chartered
credit unions by allowing limitations on the receipt of public unit
deposits to be determined exclusively by applicable state law.\20\
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\20\ 12 CFR 701.32.
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Fixed Assets
One commenter addressed this provision.\21\ The commenter
proposed that NCUA raise the regulatory exemption in the current
rule from $1 million to $50 million, and also add a de minimis
exception for occupancy and raw land ownership.
---------------------------------------------------------------------------
\21\ 12 CFR 701.36.
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Investment and Deposit Activity
One commenter addressed this provision and suggested that NCUA
allow federal credit unions to purchase mortgage servicing rights as
an investment.\22\
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\22\ 12 CFR part 703.
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Credit Union Service Organization
Three stakeholders commented on this provision.\23\ One
questioned whether NCUA had legitimate authority to regulate credit
union service organizations, CUSOs, directly. This commenter
proposed that NCUA should remove the extra regulatory requirements
affecting CUSOs engaged in complex or high-risk activities. The
commenter further suggested that NCUA scale back the application of
the rule to federally insured, state-chartered credit unions.
Another commenter proposed the elimination of the regulatory
requirement that CUSOs submit financial reports directly to NCUA.
This commenter also requested that NCUA change the rule to increase
the amount a federal credit union may invest in a CUSO and expand
the scope of permissible CUSO activities. A third commenter
cautioned that NCUA should use existing registration systems to
capture CUSO data, rather than developing a new system, which the
commenter indicated has the potential of being very burdensome.
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\23\ 12 CFR part 712.
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c. Miscellaneous Activities
Federal Credit Union Bylaws
Two commenters addressed this topic; \24\ both urged that NCUA
update and streamline the bylaws to assure maximum flexibility and
ease of use; one of the commenters identified specific changes to
articles IV, V, and VII of the federal credit union bylaws.
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\24\ 12 CFR 701.2; appendix A to part 701.
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3. Agency Programs
Community Development Revolving Loan Program
One commenter requested a change in the language of this
section,\25\ to the extent that it calls for the state regulatory
authority to ``concur'' in a state-chartered credit union's
application for membership in this program. Instead, the commenter
suggested that the language in the rule be changed so as not to
imply that the state regulator was validating the application, but
rather simply recognizing it.
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\25\ 12 CFR parts 705 and 725; and 12 CFR 701.34 79 (FR 75,763
(December 19, 2014)).
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Central Liquidity Facility
Three commenters characterized as burdensome the requirement of
purchasing stock in the Central Liquidity Facility as a prerequisite
to membership and borrowing.\26\ Two commenters also recommended
that the Central Liquidity Facility be authorized to make short-term
loans, and all three commenters encouraged NCUA to identify and
support necessary legislative changes regarding the CLF to Congress.
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\26\ 12 CFR part 725.
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Low-Income Designation
Four commenters addressed the low-income designation
program.\27\ Three advocated liberalizing the program, urging
exercise of the authority to the fullest extent possible, along with
expanding the universe of credit unions that are eligible for the
designation. Suggestions included improving transparency, redefining
the concept of ``low income'' to include other flexible standards
relating to total median earnings, extending the statistical
approach to include military personnel and other low-salaried
people, permitting credit unions to self-designate their status as
low income, expanding the benefits available to qualifying credit
unions, and permitting a credit union that has achieved the
designation to continue with it without having to requalify at a
subsequent date. Two commenters advocated making the designation
permanent. Two commenters advocated permitting credit unions to
achieve the designation without having to resort to a statistical
analysis, for example by permitting reference to historical
performance, a certified mission statement, or based on offering
products tailored specifically to meet the needs of low-income
people.
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\27\ 12 CFR 701.34.
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One commenter suggested changing the rules applicable to
federally insured, state-chartered credit unions so that NCUA, not
the state regulatory authority, makes the initial designation, with
the state then concurring. The same commenter noted that currently
the federally insured, state-chartered credit union designation is
covered by guidance, not a rule, and suggested that this disparity
be addressed so that both state and federal charters get similar
treatment under the rule. The commenter noted that coverage of
federally insured, state-chartered credit unions in general is not
clear under the current rule, which refers only to federal credit
unions. This commenter also sought clarification under the rule for
the mechanics of how credit unions that no longer meet the
designation criteria are to be handled. The commenter suggested that
compliance should be determined over four consecutive quarters; if a
credit union during that time falls out of compliance, it should be
given five years to come back into compliance before being treated
as a non-designated institution. The commenter recommended that 12
CFR 701.34(a)(5) be eliminated from the rule, insofar as the time
period identified therein has elapsed.
With regard to secondary capital for low-income designated
credit unions, one commenter suggested that the issue should be
governed by state law for federally insured, state-chartered credit
unions; another commenter requested greater flexibility with respect
to secondary capital, including permitting natural persons to make
investments in the form of secondary capital, and to allow a
committee of the board of directors to approve the redemption of
secondary capital.
4. Capital Requirements
Focusing on 12 CFR part 702, prompt corrective action, several
commenters noted that, in view of the agency's determination to re-
issue its risk-based capital rule, they would stand by their
separate comments submitted in response to that initiative. One
commenter did note, however, that the recent final rule governing
capital planning and annual stress testing for credit unions with
assets over $10 billion was ``inappropriate, costly, and
unnecessary.'' \28\ This commenter argued that the rule was
burdensome and did little to enhance the security of the National
Credit Union Share Insurance Fund. Two others complained that NCUA
had not demonstrated why a risk-based capital rule is necessary.
Another commenter advocated a change in the law so as to allow
contributed capital to count toward net worth. This commenter also
argued that, in terms of risk-based net worth, $100 million presents
a threshold that is too low to support the ``complex credit union''
designation; rather, the proper threshold should be $500 million. In
addition, according to this commenter, consideration should be given
to factors other than just asset size.
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\28\ Capital--12 CFR part 702 and 12 CFR 741.3 (79 FR 75,763
(December 19, 2014)).
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One commenter sought clarification in 12 CFR 702.206 that, with
respect to federally insured, state-chartered credit unions, NCUA
would share its reasoning with the state regulator concerning the
adequacy of a net worth restoration plan and allow the regulator to
provide its feedback, not just tell the regulator of its decision.
This commenter expressed similar views with respect to NCUA's
evaluation of a federally insured, state-chartered credit union's
business plan. Finally, this commenter noted that it would be
submitting several comments directly in response to NCUA's issuance
in January 2015 of proposed amendments on the subject of capital
planning and stress testing. Previewing those comments, this
commenter suggested that the rule be changed to include a definition
of capital policy, clarify the standards under which a credit union-
administered stress test will be evaluated, include criteria under
which NCUA will allow self-testing, and clarify how the agency
expects institutions to conduct the stress tests on their own once
that is permissible under the rule.
[[Page 15969]]
5. Consumer Protection
Truth in Savings
One commenter stated that the current disclosure form in use for
this rule is outdated, costly, and burdensome, and does not work
with currently available technologies.\29\ The commenter noted that,
given that many people now do their shopping online, credit unions
need to be able to provide required disclosures in electronic
format. The commenter observed that development and use of required
disclosures may require the involvement of and coordination with the
CFPB and the Federal Reserve Board. The commenter also recommended
that credit unions be allowed to offer their members the opportunity
to elect to receive disclosures electronically within 10 days of
account opening or the assessment of fees. The commenter also
advocated disclosures to be provided in electronic format as well as
paper disclosures. Two commenters advocated that the rule be revised
to permit the use of abbreviated statements when using electronic
media. Two commenters advocated elimination of the requirement in 12
CFR 707.5 mandating the advance issuance of certain disclosures. One
commenter noted that citations in current staff interpretation to 12
CFR 707.2 are incorrect. One commenter advocated that the language
in 12 CFR part 707 make clear that references to dividends include
interest.
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\29\ Consumer Protection--12 CFR parts 707, 717 (subpart J),
740, 745, and 760; 12 CFR 701.3, 701.31, 717.82, 717.83, 741.5,
741.9, and 741.10. (79 FR 75,763 (December 19, 2014)).
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Advertising
One commenter noted the ambiguity in the rule, for example with
respect to minimum font size and style, as it relates to
advertisements accessed through the Internet. This commenter
included several examples of signage and logos that it uses or
proposes to use. The commenter seeks clarification in the rule as to
how it would apply in the texting arena, which presents challenges
in terms of available space, among other things. The commenter noted
a similar concern with respect to the application of the rule to its
computerized telephone teller system. One commenter noted that
applying 12 CFR part 740 to social media is ``unclear, complicated,
and burdensome.'' Three commenters expressed similar, generalized
concerns that application of 12 CFR part 740 to the various
electronic and social media that are available needs streamlining,
updating, and clarification, and one sought elimination altogether
of the font size requirement for print media. In a similar vein, one
commenter asked for liberalization of the required use of the
advertising notice so that it need not be used except in cases in
which the radio or television ad is at least 30 seconds in duration.
This commenter also sought implementation of a mechanism by which
translations into a foreign language could be standardized and
approved in advance and thus readily available. This commenter also
noted that implementation of the Federal Financial Institutions
Examination Council's approved social media policy is quite
difficult and possibly in conflict with part 740. Another commenter
noted a difficulty in discerning whether NCUA or CFPB rules take
precedence in this area, for example with respect to Regulation Z
and its interaction with part 740, and encouraged NCUA to work
closely with the CFPB to coordinate and communicate each agency's
respective authority. The commenter urged NCUA to persuade the CFPB
to provide safe harbor to credit unions following NCUA rules.
National Credit Union Share Insurance Coverage for IOLTAs
Three commenters urged NCUA to work with the national trade
associations to implement a recent statutory change by which
lawyers' trust accounts may now qualify for pass-through insurance
coverage,\30\ including the expansion to other types of escrow
accounts such as ones used by realtors and funeral directors, as
well as to stored value cards and prepaid cards.
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\30\ Share insurance, 12 CFR part 745.
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Flood Insurance
One commenter requested greater clarification in this rule
concerning the delineation of responsibility between the lender and
the insurer.\31\ Noting some areas of flexibility in the rule, the
commenter asked that it be amended to provide more flexibility with
respect to the delivery and timing of required notices. This
commenter noted with approval the various areas in the rule in which
sample notices are provided, and asked that NCUA expand this
universe to include others, such as an ``acknowledgement of
receipt'' form. One commenter asked that NCUA review and simplify
the escrow requirements in the rule, and also encouraged NCUA to
assure that the provisions and requirements in this rule are
compatible with Regulation Z.
---------------------------------------------------------------------------
\31\ Flood insurance, 12 CFR part 760.
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Uninsured Membership Shares
One commenter characterized the required reporting of this item
in the form 5300 Call Report as needlessly tedious and time
consuming, and advocated that NCUA simplify the rule to require that
reporting be done on an annual, not quarterly, basis.\32\ One
commenter advocated that NCUA specifically allow federally insured,
state-chartered credit unions to accept uninsured share deposits if
approved by the pertinent state regulatory authority.
---------------------------------------------------------------------------
\32\ Uninsured membership shares, 12 CFR 741.9.
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Fair Credit Reporting--Identity Theft Red Flags
One commenter suggested that NCUA amend its rule to reflect more
thoroughly that most of the provisions in 12 CFR part 717 have been
transferred to the CFPB.
6. Corporate Credit Unions
Acknowledging the importance of the corporate credit union
system, and that rule changes were necessary in 2010 in response to
the financial crisis,\33\ two commenters urged NCUA to find ways to
modernize and liberalize the requirements imposed by that rule
change. For example, one commenter recommended an increase in the
secured borrowing limit from 180 days to two years to enable
corporates to offer true liquidity lending. In a similar vein, two
commenters suggested that the rule be changed to allow for an
outright suspension of the limit during periods of economic stress.
One commenter also advocated that NCUA be more transparent in its
description of how assets acquired from the failed corporates will
be disposed of, and in its description of its strategy and timeline
for satisfying the agency's obligations to the Temporary Corporate
Credit Union Stabilization Fund.
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\33\ Corporate credit unions, 12 CFR part 704, 80 FR 36,252
(June 24, 2015).
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Other suggestions involving the corporate rule included moving
the voting-record requirement currently contained in 12 CFR 704.13
to the bylaws, and reviewing and liberalizing the requirements in 12
CFR 704.15 regarding audit and reporting requirements, which were
characterized by two commenters as overly strict and unnecessary for
corporates. One commenter stated that NCUA's approach under 12 CFR
part 704 has had the result of homogenization of the corporate
industry. Regulatory control over corporates has been monopolized at
the federal level, leaving no room for diversification of approaches
and possible innovation to occur at the state level, even though six
corporates are state-chartered, the commenter stated. According to
this commenter, a change in approach, like what has occurred with
natural person credit unions and the member business lending rule,
would enhance safety and soundness.
7. Directors, Officers, and Employees
General Authorities and Duties of Federal Credit Union Directors
Commenters sought greater clarity and specificity concerning the
agency's expectations in this area.\34\ For example, one commenter
noted that the requirement in the rule for directors to act without
discrimination against any member is too uncertain in its meaning
and its application. Another commenter suggested that all
requirements in this area be collected and codified in an appendix
to this section of the rule. The commenter also suggested that NCUA
should update the Examiner's Guide to clearly articulate which
``major policies'' need board approval. Noting that federal credit
union board members are generally volunteers, two commenters urged
that NCUA be as clear as possible about supervisory expectations,
including identifying policies that require board approval. One
commenter expressed concern that the requirements in the rule are
already covered by applicable state law governing fiduciary duties
of directors and so are redundant, and questioned whether
``financial literacy'' was sufficiently defined. The commenter also
questioned why this was included as a duty, and also suggested that
NCUA should require only one director to meet the financial literacy
requirement.
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\34\ 12 CFR parts 711, 713 and 750; 12 CFR 701.4, 701.19,
701.21(d), and 701.33. 80 FR 36,252 (June 24, 2015).
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[[Page 15970]]
Loans and Lines of Credit to Officials
One commenter, after noting general support for the restrictions
and safeguards in the rule governing loans to insiders, suggested
that a change to 12 CFR 701.21(c)(8) was warranted. This section
prohibits credit union officials, employees, and family members from
receiving incentive payments or outside compensation from loans
issued by credit unions. The rule contains an exception, and permits
such compensation if based on the credit union's ``overall financial
performance.'' The commenter suggested that the section be amended
to include loan growth as an acceptable measure of overall financial
performance, and also to direct examiners to exhibit more
flexibility when determining what constitutes ``overall financial
performance'' within the meaning of the rule.
Reimbursement, Insurance and Indemnification of Officials and
Employees
One commenter has noted that NCUA has issued numerous opinions
over the years interpreting permissible ``compensation'' for the one
federal credit union board member who may be compensated for his or
her work as a director. The commenter suggests these letters should
be codified into an appendix to 12 CFR 701.33. One commenter stated
that the provisions governing indemnification of federal credit
union officials, 12 CFR 701.33, are confusing, onerous, and
potentially in conflict with state law provisions governing the same
topic. In addition, the commenter noted a potential conflict that
could exist for a federal credit union that elected not to adopt
NCUA's 2007 version of the federal credit union bylaws. Three
commenters noted, generally, that the rules governing
indemnification are cumbersome and vague, and may well have the
unintended consequence of discouraging capable individuals from
serving on federal credit union boards.
Fidelity Bonds and Insurance Coverage
One commenter specifically asked that NCUA codify separately
those elements of 12 CFR part 713 that apply to federally insured,
state-chartered credit unions, instead of the current approach, in
which a cross reference to part 713 is set out in 12 CFR 741.201.
Golden Parachutes; Indemnification
Two commenters suggested that the provisions of 12 CFR part 750
are cumbersome, with standards that are too vague and that enable
too much second guessing on the part of examiners. These commenters
suggested that NCUA should liberalize the rule, revising it so that
it meets agency objectives while still protecting worthy officers
and directors.
8. Anti-Money Laundering
While acknowledging the importance of the Bank Secrecy Act, four
commenters urged greater cooperation and coordination between NCUA
and the Financial Crime Enforcement Network, or FinCEN, to ensure
sensible regulations and exams that are tailored to actual risks
affecting credit unions.\35\ Two commenters also suggested that NCUA
should work closely with the FinCEN and the Office of Foreign Assets
Control to minimize the regulatory burden on credit unions, reduce
the incidence of required production of duplicate information,
provide greater flexibility for credit unions, and curtail the
continuous due diligence requirements. These two commenters also
sought to enlist NCUA's support for increases in the thresholds for
filing currency transaction reports and reductions in the amount of
required suspicious activity reporting, both of which are, according
to these commenters, of limited usefulness to law enforcement.\36\
Another commenter requested that NCUA provide a more clear and
thorough explanation of examination policies in this area. The
commenter also suggested that examiners be allowed more autonomy and
flexibility in this area, instead of the current practice (according
to this commenter) which requires immediate reporting through the
NCUA chain of command.
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\35\ Anti-money laundering--12 CFR part 748 (80 FR 36,252 (June
24, 2015)).
\36\ The gist of the comments has been forwarded to FinCEN.
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Under 12 CFR 748.1(c)(4), a credit union must promptly notify
its board of directors, or designated committee, of any suspicious
activity report filed. NCUA has defined ``promptly'' in this context
to mean at least monthly. One commenter suggested a liberalization
of the rules to allow ``promptly'' to mean at the next board
meeting, to allow a credit union to be in compliance even where its
board typically meets every other month. Another commenter suggested
NCUA clarify or amend its policy, as reflected in the federal credit
union bylaws, to enable a federal credit union to expel a member who
has engaged in illegal activity such as money laundering. This would
simply require a policy statement to the effect that such a member
may be deemed by the federal credit union to be ``non-
participating'' within the meaning of the bylaws.
9. Rules of Practice and Procedure
Examination Appeals
Three commenters expressed concern about the process by which an
appeal of an examination finding may be pursued.\37\ All three
commenters advocated a more formalized and established appeals
procedure for the resolution of examination disputes. One commenter
suggested NCUA issue an advance notice of proposed rulemaking to
generate comments and ideas on how best to proceed in this area,
noting that the current procedures are underutilized. The consensus
of the three commenters addressing this area was that NCUA should
develop and implement a process that is transparent, neutral, and
effective in providing a forum for credit unions to dispute
examination findings.
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\37\ Rules of practice and procedure--12 CFR parts 709, 710, and
747 (80 FR 79,953 (December 23, 2015)).
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One commenter requested a clarification or amendment to 12 CFR
747.202, which presently provides that NCUA might seek a charter
revocation in the event a federal credit union is found to have
committed ``any violation'' of its bylaws or charter. The commenter
noted that this language could benefit from the addition of a
qualifier so that potential exposure to such an action would only be
in the case of a ``material violation,'' as opposed to a technical
one.
Liquidation Payout Priorities
One commenter recommended NCUA take action now to amend its
rules governing liquidation to establish the creditor payout
priority that will become applicable if supplemental capital becomes
an available option for all credit unions.\38\ The commenter noted
that, although federal law controls in determining whether
supplemental capital counts toward regulatory capital, the issuance
itself is a function of state law for federally insured, state-
chartered credit unions.
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\38\ 12 CFR part 709.
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10. Safety and Soundness
Lending
Three commenters addressed the NCUA Payday Alternative Loan
rule.\39\ Two recommended that NCUA refrain from using prescriptive
requirements in the rule, such as aggregate limits, minimum balance
and maturity requirements, and minimum length of time for members to
qualify for the loans. One commenter urged NCUA to resist efforts by
the CFPB to regulate credit union programs, for example by
establishing a maximum number of times a loan may be rolled over.
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\39\ Safety and soundness--12 CFR parts 703, 715, 722, 741, 748
(including appendices), and 749; 12 CFR 701.21 (80 FR 79,953
(December 23, 2015)).
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One commenter sought clarification in the lending rule
concerning how the term ``overall financial performance,'' which may
be considered in compensating loan officers, squares with the
prohibition on the payment of incentive pay. Another recommended
NCUA modify the approach it currently takes in the lending rule
concerning its evaluation of whether to permit federally insured,
state-chartered credit unions to comply with state law for
exceptions relating to prohibited fees and non-preferential loans.
The commenter recommended that, in evaluating such state laws, NCUA
focus on the substantive impact on safety and soundness and not on
requiring the state law to be identical in order for NCUA to accept
it. The commenter recommended NCUA resurrect the approach formerly
taken in the member business loan rule in which NCUA focused on
substantive safety-and-soundness considerations and did not require
that a state rule be identical in order to be approved.\40\ Another
commenter advocated that NCUA adopt a principles-based approach to
the provisions in 12 CFR 701.21(h), pertaining to acquiring
interests in
[[Page 15971]]
auto loans being serviced by third parties, as opposed to the
prescriptive measures currently in the rule.
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\40\ The commenter noted its objection to the mechanism NCUA
settled upon in the recently finalized member business loan rule, in
which the agency has indicated its review of state laws purporting
to govern business lending will focus on whether the state rule
covers all aspects addressed in NCUA's rule and is ``no less
restrictive'' than NCUA's rule.
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One commenter noted the need for clarification under 12 CFR
701.22 (which was not included in the categories covered by the
fourth notice) as to the status of an automobile dealer who
originates and transfers loans to a credit union. The commenter
suggested that 12 CFR 701.22 clarify that a dealer acting in that
capacity be characterized in the rule as an agent of the credit
union. The commenter also recommended the rule be cross-referenced
in 12 CFR part 741 as being applicable to federally insured, state-
chartered credit unions.
Investments and Deposits
One commenter suggested NCUA permit credit unions, if necessary
on a pilot basis, to purchase mortgage servicing rights from other
lenders, including other credit unions. The commenter argued that
this would help smaller credit unions that originate mortgages but
are not able to hold them in portfolio. The commenter also advocated
an expanded use of the pilot program option, with a view toward
greater innovation and better alignment with what is permissible
under the Federal Credit Union Act. The commenter believes this will
encourage development of safe, innovative investment products that
will ultimately be beneficial to the members. One commenter noted
that references in 12 CFR part 703 to the National Association of
Securities Dealers, or NASD, should be changed to the Financial
Industry Regulatory Authority, or FINRA.
Supervisory Committee Audits
One commenter advocated amending the applicability threshold of
the rule from $10 million to $100 million, to align with recent
changes to the definition of ``small credit union'' in other rules.
Another commenter identified a need for clarification as to which
aspects of 12 CFR part 715 are made applicable to federally insured,
state-chartered credit unions through 12 CFR part 741. The commenter
noted that the rule (as well as elsewhere), would benefit from
inclusion in part 741, rather than a cross reference as in the
current rule.
CyberSecurity Programs and Related Issues
Three commenters urged NCUA to encourage action by FinCEN to
reduce burden by liberalizing its rules concerning reporting and
related obligations under the Bank Secrecy Act, such as to increase
the reporting threshold for wire transfers, currency transactions,
and suspicious activity reports. Two commenters sought clarification
under appendix B to 12 CFR part 748 as to what the obligation of a
credit union is, if any, in the case of a breach affecting sensitive
member information that occurs at a third party, such as a merchant,
and not at the credit union itself. Three commenters requested that
NCUA clarify and confirm that use by credit unions of the cyber
assessment tool recently developed by the Federal Financial
Institutions Examination Council is voluntary, not mandatory. Along
this line, two commenters urged that NCUA not make the tool a
benchmark in IT exams.
Recordkeeping
Three commenters noted burdens associated with the requirement
in 12 CFR part 749 that certain records be maintained indefinitely.
These commenters assert the costs associated with this requirement
significantly outweighs any benefit. For example, keeping member
statements indefinitely serves no real purpose, particularly after
any applicable statute of limitations has expired. Instead, these
commenters urge that NCUA revise the rule so that retention periods
are consistent with applicable statutes of limitations or other
guidelines, such as the five-year retention requirement described in
appendix P of the FFIEC's ``Bank Secrecy Act Examination Manual.''
One commenter noted that the retention obligation for member
statements should conform to that which governs canceled checks
(characterized by the commenter as being seven years). These
commenters noted that there are real costs associated with
compliance with the current rule, despite the ability to convert
records to electronic format. One commenter also requested
clarification in the rule as to what each listed record must
include.
Examinations
Three commenters expressed general concern about examiners and
the exam process.\41\ One noted that, on some occasions, examiners
may become overly defensive and insistent that guidance is actually
mandatory. Three commenters urged NCUA to place greater reliance on
state examinations and reports of examination in connection with
federally insured, state-chartered credit unions, such that federal
examiners need not participate in every exam. Another suggestion was
to have annual exams alternate between state and federal, with the
state's one year and NCUA's the next. One commenter noted that,
within the last five years, the addition of the CFPB as a regulatory
authority has added a degree of urgency to reducing burdens in this
area.
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\41\ 12 CFR 741.1.
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Two commenters also requested that NCUA conduct exams less
frequently; one of these urged NCUA to move to an 18-month exam
cycle, especially for smaller credit unions and those with a low
risk profile. Such an approach, according to these commenters, would
provide NCUA with greater flexibility in balancing staff and
resources and would result in significant burden reduction for
credit unions. One commenter urged that NCUA implement this move
before the effective date of the risk-based capital rule. One
commenter offered support for revisions to the Call Report for non-
complex credit unions, as well as updates and improvements to the
protocol for the Automated Integrated Regulatory Examination System,
or AIRES, with one likely result being less time spent on-site by
examiners.
Appraisals
One commenter proposed that NCUA revise its rule in the
appraisal area to conform to that which applies to banks by
eliminating the requirement of an appraisal for business loans under
$1 million for which repayment is not dependent on sales of real
estate parcels or income generated by the property.\42\ The same
commenter encouraged NCUA to include a waiver process in the rule
for business loans that exceed this threshold. Another commenter
noted that the federal bank regulatory agencies may be considering
raising the threshold (currently $250,000) at which loans must
include an appraisal by a licensed or certified appraiser. The
commenter recommended that NCUA follow suit if the bank regulators
decide to raise the threshold.
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\42\ Appraisals, 12 CFR part 722.
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Liquidity and Contingency Funding
One commenter proposed that NCUA consider liberalizing its
current rule by raising the threshold for applicability of the rule
from $50 million in assets to $100 million.\43\ Another commenter
proposed periodic review and revision as appropriate to the asset
size category in the rule of between $50 million and $250 million.
One commenter additionally questioned the need to add an ``S'' for
market sensitivity to the CAMEL rating system, noting that credit
unions differ significantly from banks and that NCUA may not need to
add the separate market sensitivity indicator to its exam protocol.
One commenter, noting that interpretation of the rule had become
rigid and complicated, urged NCUA to provide more flexibility in the
rule to enable credit union management to take a greater role in
managing their own risk.
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\43\ Liquidity and contingency funding, 12 CFR 741.12.
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Regulations Codified Elsewhere
One commenter urged NCUA to conduct a thorough review and
revision of 12 CFR part 741, to minimize potential confusion for
credit unions in determining which aspects of rules pertain to them.
For example, 12 CFR part 741 includes a cross reference to 12 CFR
part 715, pertaining to supervisory committee audits, but does not
specify what sections of part 715 are applicable. Similar issues
exist, according to this commenter, with NCUA rules on appraisals,
bond requirements, and loan participations.
This commenter recommended a reorganization of part 741 so that
all regulations or portions thereof that are applicable to federally
insured, state-chartered credit unions are set out in one place,
rather than simply cross-referenced. This commenter also suggests a
clarification in 12 CFR 741.204 to provide that NCUA is allowed to
act regarding a low-income designation for a federally insured,
state-chartered credit union when state law does not provide express
authority to the state regulator to act. Similarly, according to
this commenter, 12 CFR 741.206 should make allowance for corporate
credit unions to be chartered at the state level, and 12 CFR 741.208
should be amended to specify that state law should govern the
conversion of a federally insured, state-chartered credit union to
non-federal insurance. Finally,
[[Page 15972]]
according to this commenter, 12 CFR 741.214 should be amended to
reflect that, in cases where the board of directors meets every
other month, notice to the board of security incidents on that same
basis will be considered sufficiently prompt for compliance
purposes.
Total Comments Received, by Type
In response to its four published notices soliciting comment on
its 10 categories of rules, NCUA received a total of 25 comments. Of
these, eight were generated by national trade associations, four by
a national association representing state credit union regulators,
six by regional trade associations, two by state trade associations,
and five by credit unions.
Following the conclusion of the comment solicitation process,
EGRPRA calls for the agencies to review and evaluate the comments
and to eliminate unnecessary regulations to the extent that such
action is appropriate. The process concludes with a report to
Congress. As discussed more fully below, the NCUA Board has already
taken steps to consider and reduce when possible and appropriate,
credit unions' regulatory burdens.
IV. Significant Issues; Agency Response
The NCUA Board's efforts to identify credit union compliance
burdens and adapt policies and regulations to address those burdens
have never been a higher priority than they are now. To that end,
the Board's EGRPRA review and its rolling three-year assessment of
all NCUA regulations combine with other initiatives to help achieve
the Board's objectives for greater supervisory efficiencies while
providing fair yet effective oversight that will mitigate compliance
costs for well-run credit unions. At their core, the Board's
regulatory relief actions today and into the future must rest on a
strong and reinforced safety and soundness foundation.
The issues covered in these initiatives were often addressed by
commenters in response to one or more of the Federal Register
notices issued by the Board consistent with EGRPRA. The agency's
principal regulatory relief actions, categorized by broad subject
matter, are discussed in greater detail below.
Field of Membership
Credit unions are limited to providing service to individuals
and entities that share a common bond, which defines their field of
membership. The NCUA Board diligently implements the Federal Credit
Union Act's directives regarding credit union membership.
In October 2016, the NCUA Board modified and updated its field
of membership rule addressing issues such as:
the definition of a local community, rural district,
and underserved area;
multiple common-bond credit unions and members'
proximity to them;
single common-bond credit unions based on a trade,
industry, or profession; and
the process for applying to charter or expand a federal
credit union.
At the same time it approved the final rule, the Board issued a
new proposed rule covering several additional issues pertaining to
chartering and field of membership to seek further public comment.
Included among the enhancements that are being considered for
adoption by the agency is a procedure under which persons or
entities wishing to register public comments regarding a proposed
community-based field of membership application may do so prior to
definitive action by the agency.
Plans are also being implemented to upgrade the NCUA's
technology platform to allow credit unions seeking a field of
membership expansion to track the status of their applications
online throughout the application and approval process. The NCUA
Boards intends that the updated system will be operational by April
2017.
Member Business Lending
Congress has empowered the Board to implement the provisions in
the Federal Credit Union Act that address member business loans.
A final rule adopted by the NCUA Board in February 2016 was
challenged by the Independent Community Bankers of America, but was
affirmed by the District Court for the Eastern District of Virginia
in January 2017. The final rule, approved unanimously by the Board,
is wholly consistent with the Act as the Court reinforced and
contains regulatory provisions which:
give credit union loan officers the ability, under
certain circumstances, to no longer require a personal guarantee;
replace explicit loan-to-value limits with the
principle of appropriate collateral and eliminating the need for a
waiver;
lift limits on construction and development loans;
exempt credit unions with assets under $250 million and
small commercial loan portfolios from certain requirements; and
affirm that non-member loan participations, which are
authorized under the Federal Credit Union Act, do not count against
the statutory member business lending cap.
Federal Credit Union Ownership of Fixed Assets
In April 2016, the NCUA Board issued a proposed rule that would
eliminate the requirement that federal credit unions must have a
plan by which they will achieve full occupancy of premises within
some explicit timeframe. The proposal would allow for federal credit
unions to plan for and manage their use of office space and related
premises in accordance with their own strategic plans and risk-
management policies. The proposal, which remains pending, would also
clarify that, under the rule, ``partial occupancy'' means occupation
of 50 percent of the relevant space.
Expansion of National Credit Union Share Insurance Coverage
With the enactment by Congress of the Credit Union Share
Insurance Fund Parity Act in December 2014, NCUA was expressly
authorized to extend federal share insurance coverage on a pass-
through basis to funds held on deposit at federally insured credit
unions and maintained by attorneys in trust for their clients
without regard to the membership status of the clients.\44\
Many industry advocates, including some EGRPRA commenters, urged
NCUA to consider ways to expand this type of pass-through treatment
to other types of escrow and trust accounts maintained by other
professionals on behalf of their clients. The NCUA Board issued a
proposed rule in April 2015, inviting comment on ways in which the
principles articulated in the Parity Act might be expanded into
other areas and types of account relationships.
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\44\ Public Law 113-252.
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Reviewing the numerous comments received in response to this
invitation, the agency undertook extensive research and analysis and
concluded that some expansion of this concept into other areas was
warranted and legally permissible. Accordingly, in December 2015,
the NCUA Board unanimously approved the issuance of a final rule by
which expanded share insurance coverage on a pass-through basis
would be provided under which a licensed professional or other
fiduciary holds funds for the benefit of a client or principal as
part of a transaction or business relationship. As noted in the
preamble to the final rule, examples of such accounts include, but
are not limited to, real estate escrow accounts and prepaid funeral
accounts.
Improvements for Small Credit Unions
The credit union system is characterized by a significant number
of small, minority, and women owned credit unions. NCUA is acutely
aware that the compliance burden on these institutions can become
overwhelming, leading to significant expense of staff time and
money, strain on earnings, and, ultimately, consolidation within the
industry as smaller institutions are unable to maintain their
separate existence.\45\ While this is a difficult, multi-faceted
problem, NCUA is committed to finding creative ways to ease that
burden without unduly sacrificing the goal of safety and soundness
throughout the credit union system.
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\45\ Along these lines, the agency is considering whether
enhanced disclosure requirements in the merger context are
appropriate, particularly in relation to payments made to merging
credit union officials in connection with the change of control.
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The agency has approached this problem from several different
angles. Among the adjustments and improvements implemented within
the more recent past are the following:
Responding to requests from commenters and other
representatives of credit unions, NCUA considered whether to raise
the asset threshold for defining a small credit union under the
Regulatory Flexibility Act. In February 2015, the NCUA Board
unanimously approved a proposed rule that would raise the
definitional threshold from $50 million to $100 million. Doing so,
the Board determined, would lay the groundwork for potential
regulatory relief for three-fourths of all credit unions in future
rulemakings. The Board adopted the rule in September 2015. At the
time, the change made an additional 733 federally insured credit
unions eligible for special consideration of regulatory relief in
future rulemakings, and these institutions are
[[Page 15973]]
eligible to receive assistance from NCUA's Office of Small Credit
Union Initiatives, including training and consulting. With this
latest adjustment, the asset ceiling for small credit unions is now
10 times higher than what it was in 2009.
Responding to requests to facilitate access to and use
of secondary capital by low-income credit unions (of which a
significant percentage are also small), the agency has developed a
more flexible policy. Investors can now call for early redemption of
portions of secondary capital that low-income credit unions may no
longer need. These changes also were designed to provide investors
greater clarity and confidence.\46\
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\46\ See https://www.ncua.gov/newsroom/Pages/NW20150406NSPMSecondaryCapital.aspx for more information about the
low-income credit union secondary capital announcement.
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The process by which credit unions may claim the low-
income designation has also been streamlined and improved. Now,
following an NCUA examination, credit unions that are eligible for
the designation are informed by NCUA of their eligibility and
provided with a straightforward opt-in procedure through which they
may claim the low-income designation. During the five-year period
ending December 31, 2015, the number of low-income credit unions
increased from 1,110 to 2,297, reflecting an increase over that time
frame of 107 percent, with more than a third of credit unions
receiving the low-income designation. Together, low-income credit
unions had 32.5 million members and more than $324.7 billion in
assets at year-end 2015, compared to 5.8 million members and more
than $40 billion in assets at the end of 2010.
Explicit regulatory relief: Small credit unions have
been expressly exempted from the NCUA's risk-based capital
requirements. Small credit unions have also recently received a
reprieve from compliance with NCUA's rule pertaining to access to
sources of emergency liquidity.
Expedited exam process: NCUA has created an expedited
exam process for well-managed credit unions with CAMEL ratings of 1,
2, or 3 and assets of up to $50 million. These expedited exams
require less time by examiners on site, and focus on issues most
likely to pose threats to the smallest credit unions.
CDFI enhancements: NCUA signed an agreement in January
2016 with the Department of the Treasury's Community Development
Financial Institutions Fund to double the number of credit unions
certified as Community Development Financial Institutions within one
year. NCUA is leveraging data it routinely collects from credit
unions to provide a pre-analysis and to assist in the streamlining
of the CDFI application process. In addition, NCUA recently adopted
several technical amendments to its rule governing the Community
Development Revolving Loan Fund. The amendments update the rule and
make it more succinct, improving its transparency, organization, and
ease of use by credit unions.
Expanded Powers for Credit Unions
Enhanced powers for regulated institutions, consistent with
statutory requirements, can have a significant beneficial effect
that is similar in some ways to the impact of reducing compliance
burden. The NCUA has taken several recent steps to provide federal
credit unions with broader powers. These enhancements, as discussed
below, have positioned credit unions to take better advantage of the
activities Congress has authorized to strengthen their balance
sheets.
In January 2014, the NCUA Board amended its rule
governing permissible investments to allow federal credit unions to
invest in certain types of safe and legal derivatives for hedging
purposes. This authority enables federal credit unions to use simple
``plain vanilla'' derivative investments as a hedge against interest
rate risk inherent in their balance sheet.
In February 2013, the NCUA Board amended its investment
rule to add Treasury Inflation Protected Securities to the list of
permissible investments for federal credit unions. These securities
provide credit unions with an additional investment portfolio risk-
management tool that can be useful in an inflationary economic
environment.
At its open meeting in March 2016, the NCUA Board
further amended its investments rule to eliminate language that
unduly restricted federal credit unions from investing in bank notes
with maturities in excess of five years. With the change, credit
unions are now able to invest in such instruments regardless of the
original maturity, so long as the remaining maturity at the time of
purchase is less than five years. This amendment broadens the range
of permissible investments and provides greater flexibility to
credit unions consistent with the Federal Credit Union Act.
In December 2013, the NCUA Board approved a rule change
to clarify that federal credit unions are authorized to create and
fund charitable donation accounts, styled as a hybrid charitable and
investment vehicle, as an incidental power, subject to certain
specified regulatory conditions to ensure safety and soundness.
Consumer Complaint Processing
Responding to comments received by interested parties, NCUA
conducted a thorough review of the way in which it deals with
complaints members may have against their credit union. In June
2015, the agency announced a new process, as set out more fully in
Letter to Credit Unions 15-CU-04. The new process refers consumer
complaints that involve federal financial consumer protection laws
or regulations for which NCUA is the primary regulator to the credit
union, which will have 60 days to resolve the issue with its member
before NCUA's Office of Consumer Financial Protection and Access
considers whether to initiate a formal investigation of the matter.
Results of the new process have been excellent, with the majority of
complaints resolved at the level closest to the consumer and with
minimal NCUA footprint.
Interagency Task Force on Appraisals
Twelve CFR part 722 of NCUA's rules establishes thresholds for
certain types of lending and requires that loans above the
thresholds must be supported by an appraisal performed by a state
certified or licensed appraiser. The rule is consistent with an
essentially uniform rule that was adopted by the banking agencies
after the enactment of FIRREA. The rule covers both residential and
commercial lending.\47\
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\47\ In contrast to the agencies, NCUA's rule contains no
distinction, with respect to the appraisal requirement, between
commercial loans for which either sales of real estate parcels or
rental income derived from the property is the primary basis for
repayment of the loan, and loans for which income generated by the
business itself is the primary repayment source. Under 12 CFR part
722, the dollar threshold for either type of commercial loan is
$250,000; loans above that amount must be supported by an appraisal
performed by a state certified appraiser. By contrast, the banking
agencies' rule creates a separate category for the latter type of
commercial loan and establishes a threshold of $1 million; loans in
this category but below that threshold do not require an appraisal.
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In response to comments received through the EGRPRA process,
NCUA joined with the banking agencies to establish an interagency
task force to consider whether changes in the appraisal thresholds
are warranted. Work by the task force is underway, including the
development of a proposal to increase the threshold related to
commercial real estate loans from $250,000 to $400,000. Any other
recommendation developed by the task force will receive due
consideration by NCUA.
V. Other Agency Initiatives
The foregoing discussion reflects actions already taken by NCUA
to address credit unions compliance and regulatory costs and to
update and improve to its regulations. Several additional, related
initiatives are under active consideration by the NCUA Board and are
likely to be implemented within the relatively near term. Each of
these proposed program or regulatory changes is discussed below.
Possible Temporary Corporate Credit Union Stabilization Fund Proposal
for Early Termination
Congress authorized the creation of the Temporary Corporate
Credit Union Stabilization Fund in 2009.\48\ The availability of
this Fund allowed the agency to respond to the insolvency and
failure of five large corporate credit unions without immediate
depletion of the share insurance fund, which protects the deposits
and savings of credit union members. This Fund also enabled the
agency to fund massive liquidation expenses and guarantees on notes
sold to investors backed by the distressed assets of the five failed
corporate credit unions. Current projections are that the distressed
assets underlying the notes will perform better than initially
expected. In addition to improved asset performance, significant
recoveries on legal claims have created a surplus that may
eventually be returned to insured credit unions. NCUA intends to
explore ways to speed up this process, principally by closing
[[Page 15974]]
the Fund and transferring its remaining assets to the share
insurance fund more quickly than initially anticipated. Doing so
would bolster the equity ratio of the share insurance fund, leading
eventually to a potential distribution of funds in excess of the
insurance fund's established equity ratio to the credit union
industry.
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\48\ Public Law 111-22 (May 20, 2009), section 204(f).
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Call Report Enhancements
NCUA intends to conduct a comprehensive review of the process by
which it conducts its off-site monitoring of credit unions, namely
through the Form 5300 Call Report and Profile. As the data reflected
in these reports affect virtually all of NCUA's major systems, the
agency's exploration of changes in the content of the Call Report
and Profile will be on the front end of NCUA's recently announced
Enterprise Solutions Modernization initiative, which will be a
multi-year process taking place in stages. As started in the summer
of 2016, this effort is comprehensive, ranging from the content of
the Call Report and Profile to the systems that collect and use
these data such as CU Online and the Automated Integrated Regulatory
Examination System, or AIRES. Throughout the process, we will seek
input from external stakeholders to ensure our overarching goals are
met.
The imperative driving this modernization effort is, quite
simply, that credit unions--like other depository institutions--are
growing larger and more complex every day. At the same time, smaller
credit unions face significant competitive challenges. In such an
environment, it is incumbent on NCUA to ensure its reporting and
data systems produce the information needed to properly monitor and
supervise risk at federally insured credit unions while leveraging
the latest technology to ease the burden of examinations and
reporting on supervised institutions. For these reasons, three of
the other FFIEC agencies--the FDIC, OCC, and Federal Reserve--are
currently reviewing their Call Report forms with an eye to reducing
reporting burden.
NCUA's goals in reviewing its data collection are:
enhancing the value of data collected in pre-exam
planning and off-site monitoring;
improving the experience of users;
protecting the security of the data collected; and
minimizing the reporting burden for credit unions.
NCUA will review all aspects of data collection for federally
insured credit unions. This review will go beyond reviewing the
content of the Call Report and Profile, to look at the systems
credit unions use to submit data to NCUA--namely CU Online.
The agency has already conducted a broad canvassing of internal
and external stakeholders to obtain their feedback on potential
improvements in the Call Report and Profile. We have attempted to
engage all these stakeholders through a variety of methods,
including a request for information published in the Federal
Register with a 60-day comment period.\49\ The comment period was
intended to provide all interested parties an opportunity to provide
input very early in the process. We also developed a structured
focus group process to aid in assessing ideas (to complement
internal NCUA and state regulatory agency input), and we have
created data-collection systems that can be used to activate the
focus group.
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\49\ 81 FR 36,600 (June 7, 2016).
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Supplemental Capital
NCUA plans to explore ways to permit credit unions that do not
have a low-income designation to issue subordinated debt instruments
to investors that would count as capital against the credit union's
risk-based net worth requirements. At present, only credit unions
having a low-income designation are allowed to issue secondary
capital instruments that count against their mandatory leverage
ratios. For credit unions that are not so designated by NCUA, only
retained earnings may be used to meet the leverage requirements in
the Federal Credit Union Act.\50\ Consistent with its regulatory
review objectives, NCUA issued an advance notice of proposed
rulemaking to inform possible rulemaking that will describe certain
constraints that, if applied to subordinated debt instruments issued
by the credit union, will enable the credit union to count those
instruments as capital for purposes of the risk-based capital rule.
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\50\ 12 U.S.C. 1790d(o)(2); see Legislative Recommendations,
infra, for additional discussion about this requirement and NCUA's
support for amending this provision.
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Risk Based Capital
NCUA intends to revisit its recently finalized risk-based
capital rule \51\ in its entirety and to consider whether
significant revision or repeal of the rule is warranted.
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\51\ 12 CFR part 702, subpart A.
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Examination Flexibility
In response to the financial crisis and the Great Recession that
ensued thereafter, NCUA determined in 2009 to shorten its
examination cycle to 12 months.\52\ The agency also hired dozens of
new examiners at that time. Since then, the agency policy has been
that every federal credit union, and every state-chartered,
federally insured credit union with assets over $250 million, should
undergo an examination at least once per calendar year.
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\52\ Although the exam cycle immediately prior to 2009 had been
in the 18-month range, for most of its history NCUA has followed an
exam cycle of approximately one year.
---------------------------------------------------------------------------
In an effort to implement regulatory relief and to address some
inefficiencies associated with the current program, the agency has
undertaken a comprehensive review of all issues associated with
examiner time spent onsite at credit unions, including both
frequency and duration of examinations. The relatively strong health
of the credit union industry at present supports addressing exam
efficiencies. A working group within the agency was established, and
it solicited input from the various stakeholders with interests in
this issue, including from within the agency, state regulatory
authorities, and credit union representatives. The working group
issued recommendations, which the Board incorporated into the
agency's upcoming 2017-18 budget. These included the recommendation
that the agency provide greater flexibility in scheduling exams of
well-managed and well-capitalized credit unions, consistent with the
practices of other federal financial regulators and the agency's
responsibility to protect the safety and soundness of the share
insurance fund. Other objectives for consideration include
evaluating the feasibility of incorporating a virtual examination
approach, as well as improvements to examiner training and a
movement away from undue reliance on ``best practices'' that are
unsupported by statute or regulation. In addition, the agency
intends to revisit its recently enacted rule on stress testing for
the largest credit unions to consider whether it is properly
calibrated, and also to explore whether to move this important
function in-house and out of the realm of expensive third-party
contractors. The ultimate goal of NCUA's examination review and
other initiatives has been and remains that safety and soundness
will be assured with minimal disruptive impact on the well managed
credit unions subject to examination.
Enterprise Solutions Modernization
NCUA's Enterprise Solutions Modernization program is a multi-
year effort to introduce emerging and secure technology that
supports the agency's examination, data collection and reporting
efforts in a cost effective and efficient way. The changes in our
technology and other systems will improve the efficiency of the
examination process and lessen, where possible, examination burdens
on credit unions, including cost and other concerns identified
during our EGRPRA review.
Over the course of the next few years, the program will deploy
new systems and technology in the following areas:
Examination and Supervision--Replace the existing
legacy examination system and related supporting systems, like the
Automated Integrated Regulatory Examination System or AIRES, with
modernized tools allowing examiners and supervisors to be more
efficient, consistent, and effective.
Data Collection and Sharing--Define requirements for a
common platform to securely collect and share financial and non-
financial data including the Call Report, Credit Union Profile data,
field of membership, charter, diversity and inclusion levels, loan
and share data, and secure file transfer portal.
Enterprise Data Reporting--Implement business
intelligence tools and establish a data warehouse to enhance our
analytics and provide more robust data reporting.
Additionally, NCUA envisions introducing new or improved
processes and technology to improve its workflow management,
resource and time management, data integration and analytics,
document management, and customer relationship management.
Consistent with this vision, NCUA intends to consider ways to more
transparently streamline its budget and align its priorities with
its budget expenditures.
[[Page 15975]]
Outreach and Coordination with Other Government Offices
Credit unions are affected by regulations and guidance issued by
entities other than NCUA, at both the state and the federal level.
In some cases, an appreciation of the unique aspects of credit
unions, including their cooperative structure and not-for-profit
orientation, may be lacking. NCUA can and should work with such
entities to help assure that these unique aspects are not
overlooked, both in the development and the application of rules and
policies. At the state level in particular, NCUA intends to work
more closely with state credit union regulators to enhance and
preserve the dual chartering system, which has served the industry
well for many years. Efficiencies in the joint examination process
can also be improved.
Additional Areas of Focus
Several other areas present opportunities for NCUA to focus on
improving and enhancing its body of regulations and its oversight of
the industry it oversees. These include:
Appeals procedures. At present, the procedures by which
a credit union or other entity aggrieved by a determination by an
examiner or other agency office may seek redress at the level of the
NCUA Board are inconsistent and poorly understood. The agency
intends to develop uniform rules to govern this area, both with
respect to material supervisory determinations and other significant
issues warranting the review by the Board.
Corporate rule (Part 704). Reform and stringent control
over the corporate credit union sector was necessary during the
financial crisis that began in 2008. Nine years later, a
reconsideration of the corporate rule and an evaluation of whether
restrictions therein may be loosened is altogether appropriate.
Credit Union Advisory Council. Development of such a
Council would enable the agency to listen to and learn from industry
representatives more directly, enhancing our efforts to identify and
eliminate unnecessarily burdensome, expensive, or outdated
regulations.
VI. Legislative Recommendations
NCUA is very appreciative of the efforts in Congress during
recent years to provide regulatory relief by passing such laws as
the Credit Union Share Insurance Fund Parity Act and the American
Savings Promotion Act in the 113th Congress. The agency also
appreciates recent efforts to enact into law provisions modifying
the annual consumer privacy notifications found in the Gramm-Leach-
Bliley Act.
In terms of issues that are ripe for congressional review and
consideration, NCUA's most recent testimony before the Senate
Banking and House Financial Services committees included
recommendations regarding regulatory flexibility, raising statutory
limits on member business lending for federally insured credit
unions, providing supplemental capital authority for leverage ratio
purposes to credit unions without the low-income designation, and
revisiting field-of-membership requirements for federal credit
unions. Each topic is discussed more fully below.
Regulatory Flexibility
Today, there is considerable diversity in scale and business
models among financial institutions. Many credit unions are very
small and operate on extremely thin margins. They are challenged by
unregulated or less-regulated competitors, as well as limited
economies of scale. They often provide services to their members out
of a commitment to offer a specific product or service, rather than
a focus on any incremental financial gain.
The Federal Credit Union Act contains a number of provisions
that limit NCUA's ability to revise regulations and provide relief
to such credit unions. Examples include limitations on the
eligibility for credit unions to obtain supplemental capital, field-
of-membership restrictions, curbs on investments in asset-backed
securities, and the 15-year loan maturity limit, among others. To
that end, NCUA encourages Congress to consider, consistent with
maintaining safety and soundness, providing regulators like NCUA
with flexibility to write rules to address the needs of smaller
credit unions that pose little risk, rather than imposing rigid
requirements on them. Such flexibility would allow the agency to
effectively limit additional regulatory burdens, consistent with
safety and soundness.
NCUA continues to modernize existing regulations with an eye
toward balancing requirements appropriately with the relatively
lower levels of risk smaller credit unions pose to the credit union
system. By allowing NCUA discretion to scale and time the
implementing of new requirements, we could mitigate the cost and
administrative burdens of these smaller institutions while balancing
consumer and prudential priorities.
We also would like to work with Congress so that all our rules
going forward could be tailored to fit the risk presented and even
the largest credit unions could achieve regulatory relief if their
operations are well managed, consistent with legal requirements.
Member Business Lending
NCUA reiterates the agency's long-standing support for
legislation to adjust the member business lending cap, such as H.R.
1188, the Credit Union Small Business Jobs Creation Act, introduced
by Congressmen Royce and Meeks, or the Senate companion bill, S.
2028, the Small Business Lending Enhancement Act, introduced by
Senators Paul, Whitehouse, and Reed. As introduced in the 114th
Congress, these bipartisan bills contain appropriate safeguards to
ensure NCUA can protect safety and soundness as qualified credit
unions gradually increase member business lending.
For federally insured credit unions, the Federal Credit Union
Act currently limits member business loans to the lesser of 1.75
times the level of net worth required to be well-capitalized or 1.75
times actual net worth, unless the credit union qualifies for a
statutory exemption.\53\ For smaller credit unions with the
membership demand and the desire to serve the business segments of
their fields of membership, the restriction makes it very difficult
or impossible to successfully build a sound member business lending
program. As a result, many credit unions are unable to deliver
business lending services cost effectively, which denies small
businesses in their communities access to an affordable source of
credit and working capital.
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\53\ 12 U.S.C. 1757a.
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These credit unions miss an opportunity to support the small
business community and to provide a service alternative to the small
business borrower. Small businesses are an important contributor to
the local economy as providers of employment, and as users and
producers of goods and services. NCUA believes credit union members
that are small business owners should have full access to financial
resources in the community, including credit unions, but this is
often inhibited by the statutory cap on member business loans.
NCUA additionally supports H.R. 1422, the Credit Union
Residential Loan Parity Act, introduced by Congressman Royce and the
Senate companion bill, S. 1440, which Senator Wyden introduced. As
introduced in the 114\th\ Congress, these bills address a statutory
disparity in the treatment of certain residential loans made by
credit unions and banks. When a bank makes a loan to purchase a 1-
to 4-unit, non-owner-occupied residential dwelling, the loan is
classified as a residential real estate loan. If a credit union were
to make the same loan, it is classified as a member business loan;
therefore, it is subject to the member business lending cap. To
provide parity between credit unions and banks for this product,
H.R. 1422 and S. 1440 would exclude such loans from the member
business loan cap. The legislation also contains appropriate
safeguards to ensure NCUA will apply strict underwriting and
servicing standards for these loans.
Supplemental Capital
A third area in which congressional action is warranted involves
legislation that would allow more credit unions to access
supplemental capital, such as H.R. 989, the Capital Access for Small
Businesses and Jobs Act. Introduced by Congressmen King and Sherman
in the House in the 114th Congress, this bipartisan bill would allow
healthy and well-managed credit unions to issue supplemental capital
that will count as net worth, to meet statutory requirements. This
legislation would result in a new layer of capital, in addition to
retained earnings, to absorb losses at credit unions.
The high-quality capital that underpins the credit union system
is a bulwark of its strength and key to its resiliency during the
recent financial crisis. However, most federal credit unions only
have one way to raise capital--through retained earnings, which can
grow only as quickly as earnings. Thus, fast-growing, financially
strong, well-capitalized credit unions may be discouraged from
allowing healthy growth out of concern it will dilute their net
worth ratios and could trigger mandatory prompt corrective action-
related supervisory actions.
A credit union's inability to raise capital outside of retained
earnings limits its ability
[[Page 15976]]
to grow its field of membership and to offer greater options to
eligible consumers and small businesses. In light of these concerns,
NCUA encourages Congress to authorize healthy and well-managed
credit unions to issue supplemental capital that will count as net
worth under conditions determined by the NCUA Board. Enactment of
H.R. 989 would lead to a stronger capital base for credit unions and
greater protection for taxpayers.
Field-of-Membership Requirements
The Federal Credit Union Act currently permits only federal
credit unions with multiple common-bond charters to add underserved
areas to their fields of membership. We recommend Congress modify
the Federal Credit Union Act to give NCUA the authority to
streamline field-of-membership changes and permit all federal credit
unions to grow their membership by adding underserved areas. H.R.
5541, the Financial Services for the Underserved Act, introduced in
the House during the 114\th\ Congress by Congressman Ryan of Ohio,
would accomplish this objective.
Allowing federal credit unions with a community or single
common-bond charter the opportunity to add underserved areas would
open up access for many more unbanked and underbanked households to
credit union membership. This legislative change also could
eventually enable more credit unions to participate in the programs
offered through the congressionally established Community
Development Financial Institutions Fund, thus increasing the
availability of credit and savings options in distressed areas.
Congress also may want to consider other field-of-membership
statutory reforms. For example, Congress could allow federal credit
unions to serve underserved areas without also requiring those areas
to be local communities. Additionally, Congress could simplify the
``facilities'' test for determining if an area is underserved.\54\
Other possible legislative enhancements could include elimination of
the provision presently contained in the Federal Credit Union Act
that requires a multiple common bond credit union to be within
``reasonable proximity'' to the location of a group in order to
provide services to members of that group.\55\ Another legislative
enhancement that recognizes the way in which people share common
bonds today would be to provide for explicit authority for web-based
virtual communities as a basis for a credit union charter. NCUA
stands ready to work with Congress on these ideas, as well as other
options to provide consumers more access to affordable financial
services through credit unions.
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\54\ The Federal Credit Union Act presently requires an area to
be underserved by other depository institutions, based on data
collected by NCUA or federal banking agencies. NCUA has implemented
this provision by requiring a facilities test to determine the
relative availability of insured depository institutions within a
certain area. Congress could instead allow NCUA to use alternative
methods to evaluate whether an area is underserved to show that
although a financial institution may have a presence in a community,
it is not qualitatively meeting the needs of an economically
distressed population.
\55\ See 12 U.S.C. 1759(f)(1).
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VII. Conclusion
Going forward, NCUA will continue its efforts to provide
regulatory relief to credit unions through processes like the EGRPRA
review and other methods available to it. As the financial services
industry and credit union risk landscape evolves, it is important
that NCUA smartly adapt. The agency must commensurately and
continually improve its current processes to operate efficiently and
effectively.
As the government-backed insurer for the credit union system and
the regulator of federally chartered credit unions, the agency faces
a number of challenges similar to the ones credit unions wrestle
with, such as the need to:
improve our operations and processes to become more
responsive to credit union (member) requests, while keeping costs
down;
optimize our use of existing and new technology as a
tool, enabling us to do our jobs better; and
conduct future credit union exams in ways that minimize
any disruptive operational impacts on the credit unions we visit.
As discussed above, revising the data NCUA collects by the Call
Report and Profile is only the first concrete step in a much broader
and longer-term retooling of how NCUA approaches its role in the
credit union system. NCUA has an opportunity now to lay the
foundation for a transformation of how the agency conducts business
going forward, especially in terms of the Enterprise Solutions
Modernization initiative and the continuous quality improvement work
group the agency will be using for the examination process.
Such efforts should lead to improvements in NCUA's
effectiveness, efficiency gains for NCUA and credit unions, and a
better experience for credit unions in interacting with NCUA. As
NCUA works to implement reforms to the agency's processes and
procedures, we will continue efforts to provide regulatory relief to
credit unions, consistent with safety and soundness and the
requirements of the Federal Credit Union Act.
Ultimately, our goal remains to be a responsive agency that
strikes the correct balance between prudential safety-and-soundness
oversight and right-sized regulations that address problems
appropriately while enabling the credit unions we regulate to
provide important financial choices to meet the growing and evolving
financial needs of consumers, small businesses and communities as
vibrant components of the U. S. financial sector.
VIII. Appendices
1. Chart of Agency Regulations by Category
2. Notices Requesting Public EGRPRA Comment on Agency Rules
3. Regulatory Relief Initiative--Summary Chart
Appendix 1--Chart of Agency Regulations by Category
------------------------------------------------------------------------
Category Subject Regulation cite
------------------------------------------------------------------------
1. Applications and Reporting. Change in official or 12 CFR 701.14.
senior executive
officer in credit
unions that are newly
chartered or in
troubled condition.
Field of membership/ 12 CFR 701.1;
chartering. IRPS 03-1, as
amended.
Federal Credit Union 12 CFR 701.2;
Bylaws. Appendix A to
Part 701.
Fees paid by federal 12 CFR 701.6.
credit unions.
Conversion of insured 12 CFR part
credit unions to 708a.
mutual savings banks.
Mergers of federally 12 CFR part
insured credit 708b.
unions; voluntary
termination or
conversion of insured
status.
Applications for 12 CFR 741.0;
insurance. 741.3; 741.4.
Financial, statistical 12 CFR 741.6.
and other reports.
Conversion to a state- 12 CFR 741.7.
chartered credit
union.
Purchase of assets and 12 CFR 741.8.
assumption of
liabilities.
2. Powers and Activities:
a. Lending, Leasing and Loans to members and 12 CFR 701.21.
Borrowing. lines of credit to
members.
Participation loans... 12 CFR 701.22.
Borrowed funds from 12 CFR 701.38.
natural persons.
Statutory lien........ 12 CFR 701.39.
Leasing............... 12 CFR part 714.
Member business loans. 12 CFR part 723.
Maximum borrowing..... 12 CFR 741.2.
b. Investment and Deposits Investment and deposit 12 CFR part 703.
activities.
Fixed assets.......... 12 CFR 701.36.
[[Page 15977]]
Credit union service 12 CFR part 712.
organizations (CUSOs).
Payment on shares by 12 CFR 701.32.
public units and
nonmembers.
Designation of low- 12 CFR 701.34.
income status;
receipt of secondary
capital accounts by
low-income designated
credit unions.
Share, share draft, 12 CFR 701.35.
and share certificate
accounts.
Treasury tax and loan 12 CFR 701.37.
depositories;
depositories and
financial agents of
the government.
Refund of interest.... 12 CFR 701.24.
Trustee or custodian, 12 CFR part 724.
tax-advantaged plans.
c. Miscellaneous Incidental powers..... 12 CFR part 721.
Activities.
Charitable 12 CFR 721.3(b).
contributions and
donations, including
charitable donation
accounts.
Credit union service 12 CFR 701.26.
contracts.
Purchase, sale, and 12 CFR 701.23.
pledge of eligible
obligations.
Services for 12 CFR 701.30.
nonmembers within the
field of membership.
Suretyship and 12 CFR 701.20.
guaranty.
Foreign branching..... 12 CFR 741.11.
3. Agency Programs............ Community Development 12 CFR part 705.
Revolving Loan
Program.
Central liquidity 12 CFR part 725.
facility.
Designation of low- 12 CFR 701.34.
income status;
receipt of secondary
capital accounts by
low-income designated
credit unions.
4. Capital.................... Prompt corrective 12 CFR part 702.
action.
Adequacy of reserves.. 12 CFR 741.3(a).
5. Consumer Protection........ Nondiscrimination 12 CFR 701.31.
requirement (Fair
Housing).
Truth in Savings (TIS) 12 CFR part 707.
Appraisals for higher 12 CFR 722.3(f).
priced mortgage loans.
Loans in areas having 12 CFR part 760.
special flood hazards.
Fair Credit Reporting-- 12 CFR part 717,
identity theft red Subpart J.
flags.
Fair Credit Reporting-- 12 CFR 717.83.
disposal of consumer
information.
Fair Credit Reporting-- 12 CFR 717.82.
duties regarding
address discrepancies.
Share insurance....... 12 CFR part 745.
Advertising........... 12 CFR part 740.
Disclosure of share 12 CFR 741.10.
insurance.
Notice of termination 12 CFR 741.5.
of excess insurance
coverage.
Uninsured membership 12 CFR 741.9.
shares.
Member inspection of 12 CFR 701.3.
credit union books,
records, and minutes.
6. Corporate Credit Unions.... Corporate credit 12 CFR part 704.
unions.
7. Directors, Officers, and Loans and lines of 12 CFR
Employees. credit to officials. 701.21(d).
Reimbursement, 12 CFR 701.33
insurance, and
indemnification of
officials and
employees.
Retirement benefits 12 CFR 701.19.
for employees.
Management officials 12 CFR part 711.
interlock.
Fidelity bond and 12 CFR part 713.
insurance coverage.
General authorities 12 CFR 701.4.
and duties of federal
credit union
directors.
Golden parachutes and 12 CFR part 750.
indemnification
payments.
8. Money Laundering........... Report of crimes or 12 CFR 748.1.
suspected crimes.
Bank Secrecy Act...... 12 CFR 748.2.
9. Rules of Procedure......... Liquidation 12 CFR parts 709
(involuntary and and 710.
voluntary).
Uniform rules of 12 CFR part 747,
practice and subpart A.
procedure.
Local rules of 12 CFR part 747,
practice and subparts B
procedure. through J.
Inflation adjustment 12 CFR part 747,
of civil money subpart K.
penalties.
Issuance, review and 12 CFR part 747,
enforcement of orders subparts L and
imposing prompt M.
corrective action.
10. Safety and Soundness...... Lending............... 12 CFR 701.21.
Investments........... 12 CFR part 703.
Supervisory committee 12 CFR part 715.
audit.
Security programs..... 12 CFR 748.0.
Guidelines for 12 CFR part 748,
safeguarding member Appendices A
information and and B.
responding to
unauthorized access
to member information.
Records preservation 12 CFR part 749.
program and record
retention appendix.
Appraisals............ 12 CFR part 722.
Examination........... 12 CFR 741.1.
Liquidity and 12 CFR 741.12.
contingency funding
plans.
Regulations codified 12 CFR part 741,
elsewhere in NCUA's subpart B.
regulations as
applying to federal
credit unions that
also apply to
federally insured
state-chartered
credit unions.
------------------------------------------------------------------------
Appendix 2: Notices Requesting Public EGRPRA Comment on Agency Rules
(four)
NATIONAL CREDIT UNION ADMINISTRATION
(1) 79 FR 32191 (June 4, 2014) \1\
\1\ See, https://www.gpo.gov/fdsys/pkg/FR-2014-06-04/pdf/2014-12739.pdf.
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Notice of regulatory review; request for comments.
(2) 79 FR 75763 (December 19, 2014) \2\
\2\ See, https://www.gpo.gov/fdsys/pkg/FR-2014-12-19/pdf/2014-29629.pdf.
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Notice of regulatory review; request for comments.
(3) 80 FR 36252 (June 24, 2015) \3\
\3\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-06-24/pdf/2015-15472.pdf.
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Notice of regulatory review; request for comments.
(4) 80 FR 79953 (December 23, 2015) \4\
\4\ See, https://www.gpo.gov/fdsys/pkg/FR-2015-12-23/pdf/2015-32167.pdf.
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Notice of regulatory review; request for comments.
[[Page 15978]]
Appendix 3--Regulatory Relief Initiative
[Results 2011-2016]
------------------------------------------------------------------------
Improved rules Benefits
------------------------------------------------------------------------
Expanded Regulatory Relief Expanded NCUA's regulatory
Eligibility for Small and exemptions for credit unions with assets
Non-Complex Credit Unions. of less than $100 million (up from $10
million in 2012).
Eased compliance requirements
for small credit unions to access
emergency liquidity.
More than doubled the number of
small credit unions eligible for
regulatory relief in future NCUA
rulemakings (4,500 out of 6,000 credit
unions).
Exempted non-complex credit
unions (75 percent of all credit unions)
from risk-based capital requirements.
Eliminated Fixed Assets Cap.. Eliminated federal credit
unions' 5 percent cap on fixed assets.
Removed the need to apply for
regulatory waivers.
Empowering federal credit unions
to make their own business decisions on
purchases of land, buildings, office
equipment and technology.
Pre-Approved Associational Pre-approved 12 categories of
Common Bonds. associations that federal credit unions
may automatically add to their fields of
membership.
Expanding Fields of Proposed a modernized field of
Membership. membership rule to:
[cir] Designate each Congressional
District as a well-defined local
community.
[cir] Serve Combined Statistical Areas
with populations up to 2.5 million.
[cir] Raise potential membership to 1
million for federal credit unions in
rural areas.
[cir] Extend membership eligibility to
honorary discharged veterans,
contractors and businesses in
industrial parks.
[cir] Recognize full-service websites
and electronic applications as
service facilities for select
employee groups.
[cir] Modernize the definition of
``underserved area''.
Modernized Member Business Finalized a principles-based
Lending. rule on member business lending to:
[cir] Remove non-statutory limits on
member business loans.
[cir] Empower each credit union to
write their own business loan policy
and set their own limits under the
law.
[cir] Eliminate the requirement for
all business owners to pledge
personal guarantees.
[cir] Remove unnecessary barriers on
business loan participations, which
help credit unions diversify risks.
Eased Troubled Debt Facilitated credit union loan
Restructuring. modifications.
Ended manual reporting of
modified loans.
Prevented unnecessary
foreclosures.
Kept more credit union members
in their homes throughout the housing
crisis.
Authorized ``Plain Vanilla'' Permits qualified federal credit
Derivatives. unions to use ``plain vanilla''
derivatives to reduce interest rate
risks.
Protects the credit union system
from interest rate risks at large credit
unions by providing an additional
interest rate risk mitigation tool.
Allows approved federal credit
unions to maintain appropriate levels of
mortgage loans in portfolios.
Approved Treasury Inflation- Offers federal credit unions an
Protected Securities. additional investment backed by the full
faith and credit of the United States
with zero credit risk.
Established Charitable Empowers federal credit unions
Donation Accounts. to safely pool investments designed to
primarily benefit national, state, or
local charities.
Eliminating Full Occupancy Proposed eliminating a
Requirement. requirement that federal credit unions
must plan for and eventually reach full
occupancy of acquired premises.
------------------------------------------------------------------------
Streamlined processes Benefits
------------------------------------------------------------------------
``Opt-In'' Low-Income Credit Implemented an ``opt-in''
Union Designation. notification process whereby eligible
credit unions can simply reply ``Yes''
to receive their low-income designation.
Doubled the number of low-income
designations in three years, reaching
2,300 credit unions serving 30 million
members.
Enhanced Attractiveness of Provided policy flexibility for
Secondary Capital. Low-Income Credit Unions to redeem
secondary capital when investors
request.
Expedited Examinations for Created an expedited exam
Smallest Credit Unions. process for well-managed credit unions
with CAMEL ratings of 1, 2 or 3 and
assets up to $50 million.
Focused expedited exams on
issues most likely to pose risks to the
smallest credit unions.
Referring Member Complaints.. Referring member complaints
directly to federal credit unions.
Providing supervisory committees
with 60 days to resolve each complaint
before NCUA intervenes.
[[Page 15979]]
Appendix 3--Regulatory Relief Initiative--Continued
[Results 2011-2016]
------------------------------------------------------------------------
Streamlined processes Benefits
------------------------------------------------------------------------
Approving Fields of Provided a 5-page template for
Membership. community charter applications rather
than requiring hundreds of pages of
community documentation.
Upgraded NCUA's technology
platform to allow credit unions applying
to expand their fields of membership to
track the status of their applications
on-line throughout the approval process.
Certifying Credit Unions as Signed agreement with US
Community Development Treasury to double the number of credit
Financial Institutions. unions certified as Community
Development Financial Institutions by
January 2017.
Automating existing NCUA data to
pre-qualify low-income credit unions as
certified CDFIs eligible for multi-
million-dollar grants from Treasury's
CDFI Fund.
Cutting Reporting Burdens.... Beginning with the September 30,
2016 Call Report, credit unions will
only be required to submit aggregate
loan and investment information about
credit union service organizations.
------------------------------------------------------------------------
Clarified Legal Opinions Benefits
------------------------------------------------------------------------
Authorized Network Credit Creates a cooperative structure
Union Model. where small credit unions can merge
without losing their identity or member
services flexibility.
Extended Loan Maturities..... Permits loan maturities up to 40
years after loan modifications.
Significantly reduces monthly
payments for borrowers in need.
Permitted Indirect Loan Allows credit unions to sell
Participations. portions of indirect loans to raise
liquidity.
Provides buyers another option
to diversify loan portfolios.
Expanded Vehicle Fleets...... Expanded ``fleets'' from two to
five vehicles for member business loans.
Increases access to credit for
small businesses and startups.
Modernized Service Facilities Includes full-service video
tellers in the definition of federal
credit union ``service facilities''.
Empowers federal credit unions
to expand services in underserved areas.
Changing Charters in Mergers. Permits credit unions to change
charters to facilitate voluntary
mergers.
Enhances credit union services
for members of merging credit unions.
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Federal Financial Institutions Examination Council.
Judith E. Dupre,
FFIEC Executive Secretary.
[FR Doc. 2017-06131 Filed 3-29-17; 8:45 am]
BILLING CODE 4810-33-P; 6714-01-P; 6210-01-P; 7535-01-P