On May 3, 2016, the Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency proposed a rule, the net stable funding ratio (the “NSFR”), to strengthen banks by requiring them to maintain a minimum level of stable funding relative to the liquidity of their assets, derivatives and commitments over a one-year period. The most stringent of the NSFR’s requirements would apply to, among others, banking organizations with $250 billion or more in total consolidated assets. The NSFR would become effective January 1, 2018. Release. Proposed Rule.
Office of the Comptroller of the Currency
OCC Releases its Risk Appetite Statement
On April 12, the Office of the Comptroller of the Currency (“OCC”) released its Risk Appetite Statement, which sets boundaries of acceptable levels of risk in key areas of agency operations. The OCC stated that: “By clearly articulating the acceptable level of risks within our operations, agency management and employees have clearer signposts by which to guide their decisions, and external stakeholders can better understand OCC actions in the context of the risks facing the agency.”
These new guidelines were issued as the OCC has signaled a willingness to work with banks as they develop tools for working with financial technology products. On March 31, the OCC published its perspective on “responsible innovation in the federal banking system” at the same time as it solicited feedback on what more it could do to support innovation. In publishing its Whitepaper on Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective, Comptroller of the Currency Thomas J. Curry stated that: “Innovation holds much promise. . . . Innovation is not free from risk, but when managed appropriately, risk should not impede progress.”
Installment Lending: Revised Comptroller’s Handbook Booklet and Rescissions
On February 12, the Office of the Comptroller of the Currency (“OCC”) released the “Installment Lending” portion of the Comptroller’s Handbook. OCC regulators utilize this document in connection with regulation of national banks and federal savings associations and the risks associated with installment loans. Release.
CFTC Approves Final Rule on Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants
On December 16, 2015, the U.S. Commodity Futures Trading Commission approved a new regulation for uncleared swaps not regulated by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration or the Federal Housing Finance Agency. The new rule requires parties to collect margin in order to address concerns of entities taking on excessive risk. Press release.
Final Rule Issued to Establish Minimum Margin Requirements for Non-Cleared Swaps and Non-Cleared Security-Based Swaps
On December 3, 2015, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the Federal Housing Finance Agency (collectively, “Agencies”) issued a final rule establishing capital requirements, as well as minimum requirements for the exchange of initial and variation margin, for covered swap entities with respect to non-cleared swaps and non-cleared security-based swaps. The purpose of the requirements is to offset the greater risk to such entities, and thus, the amount of margin required will vary based on relative risk. The final rule implements sections 731 and 764 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 and will take effect on April 1, 2016 – however, the minimum margin requirements will not phase-in until September 1, 2016. All swap counterparties must comply with the variation margin requirements by March 1, 2017, while swap counterparties with more than $3 trillion in outstanding swap activity must comply with both the initial and variation margin requirements by September 1, 2016. Press Release. Final Rule.
The Office of the Comptroller Provides Updated Guidance for Risk Assessment System
On December 3, 2015, the Office of the Comptroller of the Currency (“OCC”) provided updated guidance for its risk assessment system (“RAS”). The guidance (i) clarifies the relationship between RAS and the Uniform Financial Institutions Rating System (“CAMELS”), (ii) revises the definition of banking risk, (iii) expands the “quality of risk management” assessment, and (iv) expands strategic and reputation risk assessments. These updates affect the following booklets of the Comptroller’s Handbook: “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies Supervision,” and “Large Bank Supervision.” Press Release.
OCC Publishes Update to the Bank Accounting Advisory Series
On September 29, the Office of the Comptroller of the Currency released an update to the Bank Accounting Advisory Series (the “BAAS”). The goal of the BAAS is to promote consistent application of accounting standards among national banks and federal savings associations. The update to the BAAS includes answers to frequently asked questions regarding troubled debt restructuring, other real estate owned and pushdown accounting. Press Release. BAAS Update.
FDIC, Federal Reserve and Office of Comptroller of the Currency Issue Host State Loan-to-Deposit Ratios
On June 29, the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System and Office of the Comptroller of the Currency issued the host state loan-to-deposit ratios that they will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Joint Release.
FDIC, Federal Reserve and Office of Comptroller of the Currency Reiterate Annual Public Disclosure Requirements for Medium-Sized Financial Companies Under Dodd-Frank Company-Run Stress Tests
On June 2, the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System and Office of the Comptroller of the Currency reiterated the disclosure requirements for annual stress tests conducted by financial institutions with total consolidated assets between $10 billion and $50 billion pursuant to the Dodd-Frank Act. The medium-sized firms are required to disclose certain information, including: a description of the types of risks included in the stress test; a summary description of the methodologies used in the stress test; estimates of losses, revenue, and net income; post-stress capital ratios; and an explanation of the most significant causes for the changes in regulatory capital ratios. Joint Release.
New FAQ’s Regarding the Scope and Implementation of the Volcker Rule Issued by the U.S. Banking, Securities and Commodities Regulatory Agencies
On February 27, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission issued a new set of frequently asked questions and responses regarding the scope and implementation of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the “Volcker Rule.” Among the issues addressed are:
- Loan Securitization Servicing Assets: Are the “rights or other assets” described in § 44.10(c)(8)(i)(B) of the Volcker Rule (“servicing assets”) limited to “permitted securities,” or can other assets be servicing assets for purposes of the loan securitization exclusion?
- Mortgage-Backed Securities of Government-Sponsored Enterprise: How are certain mortgage-backed securities issuers sponsored by government-sponsored enterprises treated under the final rule’s covered funds provisions?
- Covered Fund Exemption; Marketing Restriction on Foreign Banking Organization: The Volcker Rule provides an exemption for certain covered fund activities conducted by foreign banking entities (known as the “SOTUS Covered Fund Exemption”) provided that, among other conditions, “no ownership interest in such hedge fund or private equity fund is offered for sale or sold to a resident of the United States” (the “marketing restriction”). Does the marketing restriction apply only to the activities of a foreign banking entity that is seeking to rely on the SOTUS covered fund exemption or does it apply more generally to the activities of any person offering for sale or selling ownership interests in the covered fund?
- Conformance Period: How do the requirements of the Volcker Rule apply to a banking entity during the conformance period? For instance, must a banking entity deduct its investment in a covered fund from its tier 1 capital prior to the end of the conformance period?
- Foreign Public Fund Seeding Vehicles: The Volcker Rule excludes from the definition of covered fund a registered investment company and business development company, including an entity that is formed and operated pursuant to a written plan to become one of these entities. Would an entity that is formed and operated pursuant to a written plan to become a foreign public fund receive the same treatment?
Link to the website of the Office of the Comptroller of the Currency that sets forth the FAQ’s.