Dodd-Frank News Center

Brainard speaks in Washington on assessing financial stability

This story appeared in Bank Digest.

Federal Reserve Board Governor Lael Brainard spoke at the Peterson Institute for International Economics in Washington, D.C., on Dec. 7, 2018. The subject of her prepared remarks was "Assessing Financial Stability over the Cycle."

In her prepared remarks, Brainard said that if anything has been learned from the financial crisis, "it is that we must be especially vigilant to safeguard the resilience of our financial system in good times when vulnerabilities may be building." She went on to describe the state of the economy, highlight areas where she saw financial imbalances building, and discuss the implications for policy.

According to Brainard, while the U.S. financial system is much more resilient than before the crisis, "the appetite for risk among financial market participants rose notably over 2017 and much of 2018, and corporate borrowing has reached new heights amid rapid growth and deteriorating underwriting standards in riskier segments, such as leveraged lending." She went on to say, "At a time when cyclical pressures have been building and bank profitability has been strong, it might be prudent to ask large banking organizations to fortify their capital buffers, which could subsequently be released if conditions warrant."

Perdue introduces bill to provide relief from costs of 'duplicative capital buffers'

This story appeared in Bank Digest.                                   

Senator David Perdue (R-Ga) has introduced a bill (S. 3682) intended to provide relief from financial regulatory burdens and extra costs that are passed down to small business owners, farmers, and consumers. According to Perdue's press release, after the 2008-2009 financial crisis, federal bank regulators increased the amount of capital held by banks for certain "risky" activities. This included the supplemental leverage ratio (SLR), which requires banks to hold a certain amount of capital.

But according to the release, the SLR did not account for the initial margin that customers pay, and as a result, duplicative capital buffers were built as banks had to hold additional capital aside. The cost of this trapped capital was ultimately passed on to the end users, such as farmers and business owners.

Senate confirms Kraninger nomination by one-vote margin

This story appeared in Bank Digest.                                   

The nomination of Kathy Kraninger to be director of the Consumer Financial Protection Bureau was confirmed by the Senate by a vote of 50 to 49 on Dec. 6, 2018. Kraninger will be the second Senate-confirmed CFPB director, following Richard Cordray. Mick Mulvaney has been serving as acting director since Cordray's resignation. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) congratulated Kraninger on her confirmation and said he was "confident that with her experience and knowledge of budget management, Kathy will excel as Director of the Bureau."

Committee Ranking Member Maxine Waters (D-Calif) said Mulvaney had taken "a series of actions to weaken the agency's ability to carry out its important mission" and called on Kraninger "to put consumers first by rolling back the anti-consumer actions taken by her predecessor and allowing the Consumer Bureau to resume its work of protecting hardworking Americans from unfair, deceptive or abusive practices."

CFPB issues 'Fair Lending Report'

This story appeared in Bank Digest.                                     

The Consumer Financial Protection Bureau has issued its "Fair Lending Report of the Bureau of Consumer Financial Protection," which "describes the Bureau's fair lending activities for 2017, consistent with its statutory mandate to ensure that consumers are protected from discrimination," according to an introductory message from CFPB Acting Director Mick Mulvaney.

The report, from the Bureau's Office of Fair Lending and Equal Opportunity, is intended to fulfill the Dodd-Frank Act's requirement that the Bureau file an annual report to Congress describing the administration of its functions under the Equal Credit Opportunity Act, summarizing public enforcement actions taken by other agencies with administrative enforcement responsibilities under ECOA, and providing an assessment of the extent to which compliance with ECOA has been achieved. The act also requires the Bureau, in consultation with the Department of Housing and Urban Development, to report annually on the utility of the Home Mortgage Disclosure Act's requirement that covered lenders itemize certain mortgage loan data.

According to a related Bureau blog post by Patrice Ficklin, the director of the Office of Fair Lending and Equal Opportunity, the report "highlights how in 2017 we continued to focus on promoting fair, equitable, and nondiscriminatory access to credit in mortgage lending, continued fair lending supervision of servicing and small business lending, and embarked on new efforts to encourage innovation in expanding credit access."

OCC issues 'Semiannual Risk Perspective'

This story appeared in Bank Digest.                                   

The Office of the Comptroller of the Currency has issued its "Semiannual Risk Perspective for Fall 2018," which covers risks facing national banks and federal savings associations based on data as of June 30, 2018. It focuses on issues that pose threats to financial institutions regulated by the OCC.

The OCC said that according to the report, credit quality remains strong, but the OCC is monitoring the origination quality of new loans, the potential for increased lender complacency within credit risk identification and management, and the potential embedded risks from successive years of eased underwriting.

In addition, the agency said, operational and compliance risks are elevated, and rising interest rates and increased competition for deposits may result in changes in funding mix or costs. The report also highlights the emerging risk posed by the growth in nonfinancial corporate debt and includes a credit underwriting assessment supplement.

FDIC's Reserve Ratio exceeds minimum, large bank surcharges to end

This story appeared in Bank Digest.                                   

The Deposit Insurance Fund Reserve Ratio has reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the Sept. 30, 2020, deadline required under the Dodd-Frank Act. As a result, surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) will cease and small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15 percent and 1.35 percent, to be applied when the reserve ratio is at or above 1.38 percent.

The Federal Deposit Insurance Corporation said the last quarterly surcharge will be reflected in large banks' December 2018 assessment invoices, which cover the assessment period from July 1 through September 30.

The agency's guidance included links to four documents: (1) Final Rule on Assessments (large bank pricing) (2) Final Rule on Assessments (surcharges); (3) Final Rule on Assessments (small bank pricing); and (4) Third Quarter 2018 "Quarterly Banking Profile".

FDIC-supervised institutions notified of proposed simplified measure of capital adequacy

This story appeared in Bank Digest.                                   

The Federal Deposit Insurance Corporation has notified institutions it supervises that the federal banking agencies have jointly issued a notice of proposed rulemaking that would provide for an optional, simplified measure of capital adequacy for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. 

Specifically, according to the FDIC's guidance, the community bank leverage ratio would allow qualifying community banking organizations the option of calculating a simple on-balance sheet leverage ratio to measure capital adequacy. Banks using the CBLR would complete a simpler reporting schedule, which the agencies intend to propose at a later date, the FDIC said. Comments on the proposal must be received within 60 days of its publication in the Federal Register.

 

FDIC seeks comments on capital and liquidity thresholds

This story appeared in Bank Digest.

At its Nov. 20, 2018, open meeting, the Federal Deposit Insurance Corporation's Board of Directors approved a notice of proposed rulemaking that would establish a revised framework for large U.S. banking organizations and their subsidiary depository institutions--banking organizations--for determining application of the regulatory capital rule, the liquidity coverage ratio rule, and the proposed net stable funding ratio rule based on a banking organization's risk profile. Comments on the proposed rulemaking are due by Jan. 22, 2019.

The Federal Reserve Board has previously approved the proposed rulemaking, and the Office of the Comptroller of the Currency will probably approve the proposed rulemaking as well.

The proposed rulemaking would more closely align the regulatory requirements that apply to large banking organizations with their risk profiles and would place banking organizations with total assets of more than $100 billion into one of four categories.

FDIC to propose simplified capital measurement for qualifying community banks

This story appeared in Bank Digest.

The Federal Deposit Insurance Corporation's Board of Directors has voted to propose a simpler method that qualifying community banks can use to measure their capital adequacy. The community bank leverage ratio framework will allow qualifying banks to satisfy generally applicable capital requirements, prompt corrective action well-capitalized ratio requirements, and all other applicable capital and leverage requirements with a single measurement.

The proposed regulation amendments are required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and the Federal Reserve Board and Office of the Comptroller of the Currency are also expected to approve the notice of proposed rulemaking. Comments on the proposal must be received within 60 days of its publication in the Federal Register.

Santander settles claims over loan extension program

This story appeared in Bank Digest.

The Consumer Financial Protection Bureau has settled an administrative action with Santander Consumer USA Inc., a consumer financial services company based in Dallas, Texas, regarding the company's alleged violations of the Consumer Financial Protection Act of 2010. The CFPB found that Santander did not properly describe the benefits and limitations of its S-GUARD GAP product, which it offered as an add-on to its auto loan products, and also found that Santander failed to properly disclose the impact on consumers of obtaining a loan extension.

Under the terms of a consent order, Santander must, among other provisions, provide approximately $9.29 million in restitution to certain consumers who purchased the add-on product, clearly and prominently disclose the terms of its loan extensions and the add-on product, and pay a $2.5 million civil money penalty.