From the federal financial institution regulators
OCC issues spring 2024 semiannual risk report
On June 18, 2024, the Office of the Comptroller of the Currency (OCC) published its semiannual risk perspective, summarizing key risks and issues faced by the federal banking system. While noting that the system remains sound and that the economy outperformed 2023 forecasts, the report highlights the potential of consumer headwinds as well as the importance of prudent interest rate risk management.
The report highlights key risk themes:
- Increasing credit risk, especially pertaining to the office sector and certain multifamily property components of the commercial real estate sector, and a potential slowdown in consumption growth
- Market risk, due to pressure on funding costs and net interest margins, although the report observed potential indicators that such pressures might be reaching a peak
- Elevated operational risk, due to factors such as cyberthreats, digitization including novel products and services, third-party risk, ongoing risk of check and wire transfer fraud, and increased payment fraud
Regulators adopt final rule on automated valuation models
On June 20, 2024, the OCC, Board of Governors of the Federal Reserve System (Fed), Federal Deposit Insurance Corp. (FDIC), National Credit Union Administration (NCUA), Consumer Financial Protection Bureau (CFPB), and Federal Housing Finance Agency (FHFA) adopted a final rule on algorithmic models that are used to value residential real estate held as mortgage collateral, known as automated valuation models (AVMs). The rule, as mandated by Section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, imposes new quality control standards and requirements to address the risk of bias that could be incorporated into, and amplified by, these algorithmic models. Under the final rule, mortgage originators and secondary market issuers must adopt policies, practices, procedures, and control systems over the use of AVMs in credit decisions and covered securitization determinations.
These requirements must meet statutory quality control standards “designed to ensure a high level of confidence in the estimates produced by AVMs; protect against the manipulation of data; seek to avoid conflicts of interest; require random sample testing and reviews; and comply with applicable nondiscrimination laws.”
The final rule becomes effective one year after publication in the Federal Register.
FDIC approves final rule on resolution planning requirements for large banks
On June 20, 2024, the FDIC issued a final rule bolstering resolution planning requirements for certain banks. The key provisions target covered insured depository institutions (CIDIs) with at least $100 billion in average total assets (group A CIDIs) and those with $50 billion to $100 billion in average total assets (group B CIDIs).
Under the final rule, a group A CIDI must submit full resolution plans that identify a strategy for its orderly and efficient resolution in the event of the bank’s failure. The final rule designates the “bridge bank approach” as the default identified strategy and does not permit the identified strategy to be a closing weekend sale. A group B CIDI must provide a less detailed informational filing. All covered institutions must be able to demonstrate certain capabilities, including the ability to provide key information to potential bidders in the event of a resolution.
The majority of CIDIs will be required to submit every three years (with limited supplemental interim filings). CIDIs that are affiliates of U.S. global systemically important banking organizations will file full resolution submissions every two years.
The final rule is effective Oct. 1, 2024, with group A’s first full resolution plan under the new rule due at least 270 days after this effective date. Group B reports are due no sooner than Oct. 1, 2025.
OCC proposes new recovery plan requirements for banks over $100 billion in assets
On July 3, 2024, the OCC issued proposed amendments to existing recovery planning guidelines for large banks. The amendments would expand these guidelines to apply to insured national banks, federal savings associations, and federal banks with an average of total consolidated assets of $100 billion or more. The amendments also would require such institutions to calculate average total consolidated assets based on the “total assets” line of their call report rather than the “average total consolidated assets” line.
The proposal includes a new testing standard that would require covered banks to stress test their recovery plans, including individual elements, using a risk-based methodology. Furthermore, it clarifies that covered banks must consider both financial and nonfinancial risk, including operational and strategic risk, in their recovery plans.
Comments are due Aug. 2, 2024.
CFPB extends compliance dates for Section 1071 small-business data collection rules
On June 25, 2024, the CFPB issued an interim final rule, following the Supreme Court’s recent ruling in CFPB v. Community Financial Services Association of America. The interim final rule extends the compliance timeline for the CFPB’s small-business lending rule by 290 days to compensate for the length of the temporary stay imposed by a federal court in Texas prior to the Supreme Court ruling. The new compliance dates are as follows:
- Highest volume lenders have a new compliance date of July 18, 2025, and a first filing deadline of June 1, 2026.
- Moderate volume lenders have a new compliance date of Jan. 16, 2026, and a first filing deadline of June 1, 2027.
- Smallest volume lenders have a new compliance date of Oct. 18, 2026, and first filing deadline of June 1, 2027.
CFPB proposes rule to revise mortgage servicing provisions
On July 10, 2024, the CFPB issued proposed amendments that would enact significant changes to the regulatory framework governing mortgage servicing, intended to streamline requirements, improve communication between borrowers and mortgage servicers, and incentivize mortgage servicers to offer prompt and meaningful options for assistance to distressed borrowers.
The amendments would replace much of the existing loss mitigation framework with a framework based on foreclosure procedural safeguards. These safeguards would require mortgage servicers to immediately offer possibilities for assistance and would prohibit foreclosure proceedings unless all possibilities are exhausted or the borrower has ceased communications with the servicer. The amendments also would limit the fees a servicer may charge while in the process of assisting the borrower. Additional provisions would enhance communications provided in notices to borrowers, including requirements to provide communications in languages other than English.
Comments are due Sept. 9, 2024.
BCBS releases disclosure framework for cryptocurrency exposures
On July 17, 2024, the Basel Committee on Banking Supervision (BCBS) published a final disclosure framework covering banks’ exposure to cryptocurrencies, including standardized tables and templates to help improve availability of information and market discipline regarding these exposures. The BCBS also published amendments to the crypto asset prudential standard, including clarifications to the criteria for stablecoins to receive preferential “Group 1b” designation.
Both the framework and updated standard have an implementation date of Jan. 1, 2026.
