From the federal financial institution regulators
FDIC revises guidance for multiple fees charged for re-presented transactions
The Federal Deposit Insurance Corp. (FDIC) on June 16, 2023, released updated guidance to provide clarification about conducting a lookback review for multiple nonsufficient funds (NSF) fees being charged for transactions presented multiple times against insufficient funds in a customer’s account. This update reflects the FDIC’s current supervisory approach to not request an institution to conduct a lookback review absent a likelihood of substantial consumer harm. The updated guidance does not elaborate on what the FDIC would consider to be “substantial consumer harm.”
The original guidance, issued in August 2022, outlines a range of risk-mitigating activities that institutions could pursue related to multiple NSF fees and clarifies the agency’s supervisory approach for corrective action when a violation of law is identified.
Agencies address forthcoming proposals related to revised regulatory capital rules
Several banking agency officials have spoken in recent weeks about proposals that the agencies are expected to release this year that will update regulatory capital requirements for banks with more than $100 billion in assets.
FDIC Chair Martin Gruenberg delivered a speech at the Peterson Institute on June 22, 2023, outlining steps that the agencies plan to take to finalize the Basel III capital standards in the U.S. Gruenberg said that in the near term the agencies would be issuing a notice of proposed rulemaking to seek public comment on changes to the U.S. capital framework to consider how best to incorporate the final Basel III framework. Gruenberg noted the recent failures of several large banks and suggested that the updated standards, which would apply to banks with more than $100 billion in assets, would include a provision to require large banks to recognize unrealized losses on available-for-sale securities in capital calculations.
Federal Reserve (Fed) Vice Chair for Supervision Michael Barr provided further comments regarding revised capital standards in a separate speech to the Bipartisan Policy Center on July 10. Barr reiterated the agencies’ plans to apply the revised capital framework to banks with more than $100 billion in assets. Barr described one proposal to implement the final Basel III provisions in the U.S., which includes adjusting the way a bank measures market risk concerning trading activities and, for operational losses, replacing an internal modeled operational risk requirement with a standardized measure.
Barr also provided details on a separate, related proposal expected to be issued that would introduce a long-term debt (LTD) requirement for all banks with more than $100 billion in assets. Barr asserted that the LTD would improve the ability of the bank to be resolved upon failure because LTD can be converted to equity and used to absorb losses.
Fed Governor Michelle Bowman gave a speech on June 25 at a Salzburg Global Seminar recognizing regulatory efforts to implement the Basel III standards in the U.S. but cautioning that new capital requirements could unnecessarily hinder bank lending and diminish competition. Bowman suggested that the agencies evaluate the underlying concern about the effectiveness of supervision and examination programs in light of recent failures instead of increasing capital requirements.
Bowman said she plans to approach the expected capital proposals with an open mind. She noted, “When policymakers raise capital requirements, the tendency can be to singularly focus on the perceived benefits – higher capital implies greater resiliency of the banking system. But there's a tradeoff. Resiliency, in terms of higher capital, comes at a cost – namely, decreased credit availability and increased cost of credit in normal times.”
OCC publishes cybersecurity supervision work program
The Office of the Comptroller of the Currency (OCC) on June 26, 2023, released the Cybersecurity Supervision Work Program for use by examiners. The program contains high-level examination objectives and procedures that are aligned with existing supervisory guidance and with the National Institute of Standards and Technology’s cybersecurity framework.
As banks adopt standardized tools and frameworks to assess cybersecurity preparedness for cyberattacks, the OCC recognized the need to update its approach to assessing banks’ cybersecurity programs. The OCC encourages but does not require banks to use standardized approaches to assess and improve cybersecurity preparedness, and the work program does not establish new regulatory expectations. Banks may choose from a variety of tools and frameworks, including the work program, to assess cybersecurity preparedness.
Agencies finalize updated guidance on CRE loan accommodations
The Fed, OCC, FDIC, and National Credit Union Administration on June 29, 2023, issued a final policy statement regarding commercial real estate (CRE) loan accommodations and workouts. It updates and supersedes previous guidance on CRE loan workouts issued in 2009. The updates reinforce and build on existing supervisory guidance calling for financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress.
The statement is substantially similar to the proposal issued in 2022 and includes minor changes in response to comments received. It includes a section on short-term loan accommodations that was not included in the 2009 guidance. Additionally, the statement addresses recent accounting changes for estimating loan losses and provides examples of how to classify and account for loans affected by workout activity.
In the updated guidance, regulators reaffirmed that financial institutions that implement prudent CRE loan accommodations and workout arrangements following a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts, even if these arrangements result in modified loans that warrant an adverse classification. Additionally, modified loans to borrowers who have the ability to repay their debts according to reasonable terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the outstanding loan balance.
The statement applies to financial institutions of all asset sizes supervised by the agencies.
CFPB delivers annual fair lending report to Congress
On June 29, 2023, the Consumer Financial Protection Bureau (CFPB) released its 2022 fair lending report to Congress, spelling out the bureau’s activities in fair lending enforcement and supervision, guidance and rulemaking, interagency coordination, and outreach and education for calendar year 2022. Much of the CFPB’s efforts were directed toward unlawful discrimination in the home appraisal industry and redlining.
The CFPB also noted that it has increased staffing resources as new algorithmic technologies such as artificial intelligence (AI) are increasingly used throughout the life cycle of financial services products. The report discusses the CFPB’s risk-based prioritization process that resulted in initiatives concerning small-business lending, policies and procedures on exclusions in underwriting, and the use of AI. The bureau will continue to work with other agencies and prioritize areas such as combating bias in home appraisals, redlining, and the use of advanced technologies in financial services.
The CFPB reaffirmed that through enforcement and examination activity, interpretive rules and advisory opinions, circulars, and other tools it will continue to make clear that fair lending must be a top priority for all financial institutions.
