On October 31, the OCC proposed to amend its retail foreign exchange rule for transactions with collective investment funds and insurance company separate accounts by treating them as if they were not retail customers under the retail forex rule because they are prudentially regulated, have prudentially regulated sponsors, and do not cater to retail investors. OCC Release.
OCC
OCC Stress Testing Guidance and CRE Stress Test Tool
On October 18, the OCC provided guidance to national banks and federal savings associations with assets of $10 billion or less on using stress testing to assess risk in their loan portfolios. The guidance indicates that stress tests do not need to involve sophisticated analysis or third-party consultative support. The OCC is also making available a new portfolio level stress tool for income producing commercial real estate loans. OCC Release.
OCC Final Rule on Short-Term Investment Funds
On October 9, the OCC published a final rule that revises the requirements on U.S. banks and federal branches of foreign banks pursuant to 12 CFR 9.18(b)(4)(ii)(B), the short-term investment fund rule. Under the final rule, a short-term investment fund must: (i) operate with a primary objective to maintain a stable NAV of $1.00 per participating interest; (ii) have a dollar-weighted average portfolio maturity of 60 days; (iii) have a dollar-weighted average portfolio life maturity of 120 days; (iv) adopt portfolio and issuer qualitative standards and concentration restrictions and standards to address contingency funding needs; (v) adopt shadow pricing procedures and calculate the difference on at least a weekly basis; (vi) adopt procedures for stress testing the fund’s ability to maintain a stable NAV and report adverse stress testing results to the managing bank’s senior risk management; (vii) provide monthly disclosures to fund plan participants and the OCC; (viii) adopt procedures that require a bank that administers a fund to notify the OCC before or within one business day after the occurrence of one or more of six specific events; (ix) use mark-to-market value accounting instead of amortized cost accounting if the market value of the portfolio falls below a NAV of $0.995 per participating interest; and (x) adopt procedures to take certain actions if a bank suspends or limits withdrawals and initiates liquidation of the fund as a result of redemptions. The final rule will be effective on July 1, 2013. OCC Release.
FDIC, Fed, and OCC Rules for Large Bank Stress Tests
On October 9, the FDIC, Fed, and OCC published final rules, required by section 165(i) of the Dodd-Frank Act, for annual company-run stress testing by covered institutions with total consolidated assets greater than $10 billion. The final rule requires institutions with assets greater than $50 billion to begin annual stress testing this year. The rule delays implementation for covered institutions with total consolidated assets between $10 billion and $50 billion until October 2013. The FDIC also approved a final rule that refines the deposit insurance assessment system for insured depository institutions with more than $10 billion in assets. The final rule amends the definitions used to identify concentrations in higher-risk assets to better reflect the risk posed to institutions and the FDIC. FDIC Release. Fed Release. OCC Release.
Agencies Release Regulatory Capital Estimation Tool
On September 24, the Fed, FDIC, and OCC released a regulatory capital estimation tool to help community banking organizations and other interested parties evaluate recently published regulatory capital proposals. The tool will assist these organizations in estimating the potential effects on their capital ratios of the agencies’ Basel III Notice of Proposed Rulemaking and Standardized Approach Notice of Proposed Rulemaking. FDIC Release. Tool.
Agencies Reopen Comment Period on Swap Margin and Capital Proposed Rulemaking
On September 26, the Fed, Farm Credit Administration, FDIC, FHFA, and OCC reopened the comment period on a proposed rule to establish margin and capital requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants. The comment period has been extended to November 26 from July 11. Joint Release. Rule Extension.
OCC Guidance on 1- to 4-Family Residential Real Estate
On September 17, the OCC issued guidance to national banks and federal savings associations on risk management practices for investor-owned, one- to four-family residential real estate lending where the primary repayment source for the loan is rental income. The guidance includes: (i) credit risk management expectations; (ii) loan underwriting standards; (iii) loan identification and portfolio monitoring expectations; (iv) allowance for loan and lease losses considerations; (v) internal risk assessment and rating systems; and (vi) regulatory reporting, HOLA, and risk-based capital treatment. OCC Release.
Fed, FDIC and OCC Final Amendments to Market Risk Capital Rule
On August 30, the Fed, FDIC, and the OCC issued a final rule amending their respective market risk capital rules, which generally apply to banking organizations that engage in substantial trading activity. The final rule improves sensitivity to risks under the current regulatory measurement methodologies, including default and migration risks associated with illiquid products. The agencies anticipate that the final rule will significantly increase the risk-based capital allocated to market risk. The final rule will be effective on January 1, 2013. OCC Release. Final Rule.
Updated Stress Testing Timeline for Large Banks
On August 27, the FDIC, Fed and OCC announced they are considering delaying the implementation timeline until September 2013 for the annual capital-adequacy stress tests required by the Dodd-Frank Act for covered institutions with total consolidated assets between $10 billion and $50 billion. FDIC Release. Fed Release. OCC Release.
OCC Proposed Annual Stress Test Reporting Requirements for Large Covered Institutions
On August 16, pursuant to Section 165(i)(2) of the Dodd-Frank Act, the OCC issued a notice of a proposed information collection regarding annual stress test reporting for Covered Institutions with total consolidated assets of $50 billion or more. Comments on the notice must be submitted by October 15. OCC Release. FPRA Notice.