Dodd-Frank News Center

McWilliams speaks in Chicago on simplifying capital rules for community banks

This story appeared in Bank Digest.  

Federal Deposit Insurance Corporation Chairman Jelena McWilliams spoke at the Federal Reserve Bank of Chicago Thirteenth Annual Community Bankers Symposium, entitled "Back to Basics," on Nov. 16, 2018. In her prepared remarks, McWilliams stressed the importance of community banks and said it was necessary to ensure that the regulatory regime for such banks is appropriately tailored. McWilliams said one area where she believed the rules for community banks are too complicated is regulatory capital.

McWilliams said she believed that "robust capital requirements do not need to be complex, particularly as they relate to community banks. The Basel III standards, which may be appropriate for internationally active banks, are unduly complex and unnecessary for community banks."

McWilliams said the first step in the process of simplifying the capital requirements for community banks is enacting the Community Bank Leverage Ratio, which will soon be voted on by the FDIC Board. She said that, "Under the proposed rule, a qualifying bank with less than $10 billion in assets will not have to comply with the existing risk-based capital requirements if the bank meets a simple ratio of tangible equity to total assets."

Quarles says stress capital buffer will likely take effect by 2020 despite concerns

This story appeared in Bank Digest.                                     

Federal Reserve Board Vice Chairman for Supervision Randal K. Quarles spoke at the Brookings Institution in Washington, D.C., on Nov. 9, 2018. The subject of his prepared remarks was "A New Chapter in Stress Testing." 

In his prepared remarks, Quarles discussed the Fed's proposal to integrate the stress test with the stress capital buffer (SCB), which would add a standardized formula for calculating a bank's minimum capital buffer requirements under the Dodd-Frank Act. Quarles said the Fed had received "extensive and thoughtful" comments regarding the proposal that have identified several areas of concern, including how the SCB's "volatility" is in contrast to the Fed's efforts to reduce capital distributions in order to build a buffer over time. 

According to Quarles, "While I don't believe these issues will prevent us from ultimately implementing the SCB, they have flagged certain elements of the regime that could benefit from further refinement. Accordingly, I expect we will adopt a final rule in the near future that will settle the basic framework of the SCB, but re-propose certain elements." He said he expected that the first SCB would not go into effect before 2020.

 

OIG issues audit of CFPB's information security program

This story appeared in Bank Digest.                                   

The Office of Inspector General for the Consumer Financial Protection Bureau and the Federal Reserve Board has issued an audit of the Bureau's information security program, as required by the Federal Information Security Modernization Act of 2014. The OIG evaluated the program's maturity level (from a possible low of 1 to a possible high of 5) across several areas and concluded that the program is operating at level 3 (consistently implemented), with the Bureau performing several activities indicative of a higher maturity level. 

According to the report, the CFPB also has opportunities to mature its program in FISMA domains across all five Cybersecurity Framework security functions--identify, protect, detect, respond, and recover--to ensure that its program is effective. The OIG made four recommendations to strengthen the Bureau's information security program in the areas of configuration management, identity and access management, and data protection and privacy.

Fed finalizes new supervisory rating system for large financial institutions

This story appeared in Bank Digest.                                   

The Federal Reserve Board has finalized a new supervisory rating system for large financial institutions that the agency said is aligned with the core areas most important to supporting a large firm's safety and soundness and U.S. financial stability. According to the Fed's press release, the new rating system will apply to all domestic bank holding companies and non-insurance, non-commercial savings and loan holding companies with $100 billion or more in total consolidated assets, which is a change from the $50 billion threshold originally proposed. Such institutions with less than $100 billion in total consolidated assets will be covered by the Fed's existing rating system, the release said. 

The new rating system will also apply to U.S. intermediate holding companies of foreign banking organizations with $50 billion or more in total consolidated assets, as proposed. According to the final rule, which is effective Feb. 1, 2019, the Fed will assign initial ratings under the new rating system in 2019 for bank holding companies and U.S. intermediate holding companies subject to the Large Institution Supervision Coordinating Committee framework and in 2020 for all other large financial institutions. 

In a separate notice, the Fed said it would apply its existing supervisory rating system for bank holding companies to savings and loan holding companies that are depository in nature and have $100 billion or more in total consolidated assets, but only until the Fed applies the new rating system for large financial institutions to them.

Brown and Luetkemeyer differ on Fed proposals to revise prudential standards framework

This story appeared in Bank Digest.                                     

Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) and Rep. Blaine Luetkemeyer (R-Mo) have issued contrasting statements regarding recent proposals by the Federal Reserve Board to establish a revised framework for applying prudential standards to large U.S. banking organizations based on risk, consistent with Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. 

One proposal would tailor the application of prudential standards to U.S. bank holding companies and apply enhanced standards to certain large savings and loan holding companies. A second proposal--which would be issued jointly with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation--would tailor the application of the agencies' capital and liquidity rules. 

According to Brown, "This Administration and Congress continue to fail hardworking Americans by weakening protections that guard taxpayers from big bank risk." But Luetkemeyer said, "It is refreshing to see regulators finally propose a more reasonable and responsible supervisory framework."

Fed proposals would align prudential standards with risk profiles

This story appeared in Bank Digest.                                   

The Federal Reserve Board has published two proposals to establish a revised framework for applying prudential standards to large U.S. banking organizations based on risk, consistent with Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Comments on both proposals, which were announced at the Fed's Oct. 30, 2018, open meeting, must be received by Jan. 22, 2019. 

The first notice--Prudential standards for large bank holding companies and savings and loan holding companies--is a Fed-only proposal that would tailor the application of prudential standards to U.S. bank holding companies and apply enhanced standards to certain large savings and loan holding companies. The second notice--Proposed changes to applicability thresholds for regulatory capital and liquidity requirements--which would be issued jointly with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, is a proposal to tailor the application of the agencies' capital and liquidity rules. 

The proposals seek to more closely align the regulatory requirements that apply to large banking organizations with their risk profiles. The proposed framework would not apply to the U.S. operations of foreign banking organizations.

Agencies propose alternative method for calculating derivative exposures

This story appeared in Bank Digest.                                     

The Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency have issued a proposed update to their standards for how firms measure counterparty credit risk posed by derivative contracts under the agencies' regulatory capital rules. According to the joint press release, the proposed changes are designed to better reflect the current derivatives market and incorporate risks observed during the 2007-2008 financial crisis. Comments on the proposed rule must be submitted 60 days after publication in the Federal Register. 

The proposal would provide the "standardized approach for measuring counterparty credit risk," also known as "SA-CCR," as an alternative approach to the agencies' current exposure methodology for calculating derivative exposure under regulatory capital rules. The agencies believe that SA-CCR better reflects the current derivatives market and would provide important improvements to risk sensitivity, resulting in more appropriate capital requirements for derivative contracts exposure. Banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure would be required to use SA-CCR to calculate both standardized total risk-weighted assets and the supplementary leverage ratio.

Fed proposes repealing S.A.F.E. Act provisions

This story appeared in Bank Digest.     

The Federal Reserve Board is proposing to amend Regulation H (Membership of State Banking Institutions in the Federal Reserve System) and Regulation K (International Banking Operations) to repeal provisions that incorporate the Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act). According to a press release, the proposal reflects the transferal of the Fed's rulemaking authority for the S.A.F.E. Act to the Consumer Financial Protection Bureau by the Dodd-Frank Act. Comments on the proposed rule must be received by Nov. 26, 2018.

Agencies propose modifying capital rules for high volatility commercial real estate exposures

This story appeared in Bank Digest.                                     

The Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency are requesting comment on a proposal to modify their capital rules for high volatility commercial real estate exposures, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The proposal would revise the definition of "high volatility commercial real estate (HVCRE) exposure" to conform to the statutory definition of "high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan," in accordance with the EGRRCPA. 

The proposal would also establish principles for interpretation of certain terms in the revised definition, and the agencies request comment on whether any other terms in the revised definition would also require interpretation. Comments on the proposed rule must be received within 60 days of its publicatin in the Federal Register.

Regulators clarify guidance isn't law; violations won't bring enforcement actions

This story appeared in Bank Digest.   

Supervisory guidance "does not have the force and effect of law," according to an interagency statement by the bank, thrift, and credit union regulatory agencies. Enforcement actions are not taken for violations of supervisory guidance, the agencies said. The statement was issued by the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and National Credit Union Administration. 

According to the statement, supervisory guidance is intended to outline regulators' supervisory expectations and priorities and describe appropriate practices. Specific practices that are consistent with legal or regulatory requirements might be discussed, but only as examples. 

Representative Blaine Luetkemeyer (R-Mo) applauded the interagency statement, saying that regulators had for too long "inappropriately used guidance as if it had the full force of a formal rulemaking."