On November 19, the U.S. Department of Justice announced that JPMorgan Chase & Co. has agreed to pay $13 billion to settle a number of federal and state RMBS-related civil claims against JPMorgan and two institutions that JPMorgan acquired, Bear Stearns and Washington Mutual Inc. (WaMu). Under the terms of the settlement, $4 billion will be distributed in consumer-related relief for mortgage writedowns, anti-blight work and mortgage payment reductions. The agreement also includes a previously-announced $4 billion settlement with the Federal Housing Finance Agency. Additionally, JPMorgan will pay a $2 billion civil penalty to the Justice Department for claims brought under the Financial Institutions Reform, Recovery and Enforcement Act, $1.4 billion to the National Credit Union Administration, $515.4 million to the Federal Deposit Insurance Corp. and over $1 billion combined to the states of California, Illinois, Massachusetts, Delaware and New York. JPMorgan acknowledged in a statement of facts that its employees and employees of Bear Stearns and WaMu failed to disclose to securitization investors that certain loans did not comply with underwriting guidelines. The settlement does not resolve any potential criminal liability of JPMorgan or its employees. Settlement Agreement. Statement of Facts.
On November 21, the FDIC issued final supervisory guidance to FDIC-supervised financial institutions with respect to the risks imposed by certain deposit advance products. The FDIC encourages banks to: (i) continue to offer these products, consistent with safety and soundness and other supervisory considerations and (ii) develop new or innovative programs to effectively meet the need for small-dollar credit. FDIC Release. Final Guidance.
On November 12, FDIC released the economic scenarios that will be used by financial institutions with total assets of more than $10 billion for stress tests required under the Dodd-Frank Act. Press Release.
On October 30, the OCC and FDIC proposed substantively the same liquidity rule as the proposal approved by the Fed on October 24. That proposal developed by the three agencies applies to: (i) banking organizations with $250 billion consolidated assets; (ii) banking organizations with $10 billion in on-balance sheet foreign exposure; (iii) systemically important, non-bank financial institutions that do not have substantial insurance subsidiaries or substantial insurance operations; and (iv) bank and savings association subsidiaries thereof that have total consolidated assets of $10 billion (covered institutions). The proposed rule does not apply to community banks.
Covered institutions would be required to maintain a specified level of high-quality liquid assets such as central bank reserves, government and Government Sponsored Enterprise securities and corporate debt securities that can be converted easily into cash. Under the proposal, a covered institution would be required to hold such high-quality liquid assets on each business day in an amount equal to or greater than its projected cash outflows less its projected cash inflows over a 30-day period. The proposed rule is consistent with the Basel Committee’s LCR standard, but is more stringent in terms of the range of assets that will qualify and the assumed rate of outflows of certain types of funding. Release. Proposed Rule.
On October 9, the Fed, CFPB, FDIC, NCUA and OCC issued a release encouraging financial institutions to work with borrowers affected by the government shutdown to provide workout arrangements. Joint Release.
On September 27, Judge Louis L. Stanton of the Southern District of New York denied a motion by JPMorgan, Citigroup and several other banks to dismiss a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving $388 million in RMBS. Judge Stanton rejected the defendants’ arguments that the claims were barred by the statute of limitations, finding that publicly available information about troubles in the mortgage industry in 2007 did not put the plaintiff on notice of facts constituting an alleged violation of federal securities laws in connection with the specific transactions at issue. Judge Stanton also held that the FDIC’s allegations of misstatements in the offering documents were sufficiently detailed to survive the pleading stage. The court concluded that it was premature to rule on whether a defendant may be liable under Section 11 of the Securities Act of 1933 when it did not underwrite the particular tranche of a securitization that the plaintiff purchased. Opinion.