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On October 17, 2019, the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and National Credit Union Administration released for public comment a proposed interagency policy statement on allowances for credit losses (“ACLs”).  The proposed policy statement reflects the Financial Accounting Standards Board’s adoption of the current expected credit losses (“CECL”) methodology.

Continue Reading Agencies Propose CECL Policy Statement

On July 9, 2019, the federal banking agencies released a final rule to simplify aspects of the regulatory capital rules for banking organizations that are not “advanced approaches” banking organizations, i.e., those with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure.  Initially proposed in September 2017 as part of the agencies’ ongoing efforts to meaningfully reduce regulatory burden on small and mid-sized banking organizations, the final rule is intended to simplify and clarify certain aspects of the capital rules, and in particular the capital treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests.  Importantly, the Board of Governors of the Federal Reserve System (“Board”) also used the rulemaking as an opportunity to streamline an important aspect of its regulatory framework by permitting bank holding companies, savings and loan holding companies, and state member banks of all sizes to redeem or repurchase their common stock without obtaining formal, prior regulatory approval under most circumstances.

Continue Reading Federal Reserve Rationalizes Stock Buyback Rules

On March 29, 2019, the Federal Deposit Insurance Corporation (the “FDIC”) proposed changes to its Part 370 rule that would significantly reduce the compliance burdens on large insured depository institutions subject to that rule. The Part 370 rule, entitled Recordkeeping for Timely Deposit Insurance Determination, imposes new requirements on certain large insured depository institutions to facilitate the prompt payment of insured deposits in the event of the institution’s failure. The Part 370 rule became effective on April 1, 2017, but has a compliance deadline of April 1, 2020.

Continue Reading FDIC to Rework Big Bank Recordkeeping Rule in Advance of Compliance Date

On April 2, 2019, the federal banking agencies proposed a rule that would require large banking organizations to deduct from their regulatory capital certain investments in total loss-absorbing capacity (“TLAC”) debt issued by global systemically important banking organizations (“G-SIBs”) rather than to risk-weight such investments as is currently done.  The rule is intended to reduce interconnectedness in the financial system by discouraging (but not prohibiting) banking organizations from investing in G-SIBs’ debt, and therefore has important implications for the marketability and liquidity of debt instruments that G-SIBs are required to issue under the Federal Reserve’s TLAC requirements.

In a chart accompanying this blog post, we have compared the key parameters of the interagency proposal to the deduction requirements included in the Federal Reserve’s 2015 TLAC proposal and the Basel Committee’s 2016 final standard.  Comments on the interagency proposal are due June 7, 2019.


Continue Reading Federal Banking Agencies Propose TLAC Deduction Standard

On March 29, 2019, the board of the FDIC approved a notice of proposed rulemaking that would revise the supplementary leverage ratio (“SLR”) to exclude certain deposits placed at central banks from custodial banks’ SLR denominators, implementing section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”).  The OCC and Federal Reserve are expected to adopt substantially identical proposals.

Continue Reading Agencies to Revise SLR to Exclude Custodial Deposits at Central Banks

On March 27, 2019, the White House released a memorandum on federal housing finance that instructed the Treasury Secretary to develop (i) a “Treasury Housing Reform Plan” that addresses the roles of the government-sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac – and (ii) a “HUD Reform Plan” for certain programs of the Department of Housing and Urban Development (“HUD”), the Federal Housing Administration (“FHA”), and Ginnie Mae.  Once completed, the Secretary is to submit the plans for approval by the Assistant to the President for Economic Policy.  Plans that follow the memorandum could, but not necessarily would, result in significant changes to the federal role in mortgage finance and affordable housing.

The memorandum sweeps broadly across the federal housing finance system and does not include the level of detail in the reforms that Senator Mike Crapo (R-ID), the Chairman of the Senate Banking Committee, outlined in February of this year (the “Crapo Proposals”).  The President’s memorandum and the Crapo Proposals generally are not inconsistent, although the plans ultimately resulting from the President’s memorandum could depart in various respects from the Crapo Proposals.

Although many of the goals in the President’s memorandum are general in nature and have been proposed before, including termination of the GSE conservatorships, the objectives identified in the memorandum warrant attention.  The Treasury Housing Reform Plan implementing the President’s memorandum is to address the following :

  • Preservation of the 30-year fixed-rate mortgage loan;
  • Equal access to the federal housing finance system for lenders of all sizes, charter types, and geographic locations;
  • Creation of a cash window for loan sales;
  • Authority for the Federal Housing Finance Agency to approve guarantors of conventional mortgage loans in the secondary market;
  • Possible changes to the GSEs’ policies on loan limits, program and product offerings, credit underwriting parameters, and the use of private capital to transfer credit risk;
  • Size and risk profiles for the GSEs’ retained mortgage and investment portfolios;
  • Greater definition or clarification of several activities of the GSEs, including their roles in multifamily mortgage finance and affordable housing, and of the mission of the Federal Home Loan Bank system and its role in supporting federal housing finance (the Crapo Proposals would require Fannie and Freddie to sell off their multifamily businesses, but the President’s memorandum does not include this specific requirement); and
  • Evaluation of the “QM Patch,” which exempts GSE-backed loans from certain requirements of the qualified mortgage definition under the rules of the Consumer Financial Protection Bureau.


Continue Reading GSE Reform: The President’s March 27 Memorandum

On March 6, 2019, the Federal Reserve issued a final rule to exempt from the qualitative component of the Comprehensive Capital Analysis and Review (“CCAR”) exercise large firms that have participated in CCAR for four consecutive years and have passed the final year’s qualitative component without objection.  The final rule serves to provide an immediate exemption for all domestic bank holding companies currently subject to CCAR, and to phase out the qualitative objection for U.S. intermediate holding companies of foreign banks (“IHCs”).

Continue Reading Federal Reserve Eliminates CCAR’s Qualitative Objection for Most Firms

The partial federal government shutdown could affect the timing of processing of certain new merger and acquisition applications by the Board of Governors of the Federal Reserve System (the “Board”).

Pursuant to special procedures outlined in a December 2018 notice, the Office of the Federal Register is not publishing documents during the partial government shutdown except where necessary to safeguard human life, protect property, or provide other emergency services consistent with the performance of functions and services exempted under the Antideficiency Act.  Exempt functions and services include activities related to the supervision of the stock markets and commodities and futures exchanges, but not other normal and routine activities of the federal banking regulators.


Continue Reading Government Shutdown Could Affect Federal Reserve Processing of M&A Applications

In a November 9, 2018 speech, Federal Reserve Vice Chairman for Supervision Randal K. Quarles outlined potential adjustments to the revisions to the capital planning regime that the Federal Reserve proposed in April 2018.  Governor Quarles also said he will ask the Federal Reserve to exempt banks with less than $250 billion in assets from the Comprehensive Capital Analysis and Review (“CCAR”) quantitative assessment and supervisory stress testing in 2019 in order to facilitate capital planning moving to a biennial exercise for such banks.

Governor Quarles emphasized that the adjustments “are not intended to alter materially the overall level of capital in the system or the stringency of the regime.”  However, the cumulative impact of the changes outlined in his speech would be to ease the implementation of the SCB and streamline CCAR and capital planning.


Continue Reading Capital Planning Framework to Continue its Evolution

Today, the Bureau of Consumer Financial Protection issued a public statement of its intent to issue proposed rules in January 2019 to reconsider its final rule regarding payday, vehicle title, and certain high-cost installment loans, commonly referred to as the “payday loan rule,” and to address the rule’s compliance date.  The Bureau is currently planning