From the federal financial institution regulators
OCC and FDIC finalize rules for bank merger applications
On Sept. 17, 2024, the board of the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) approved a final Statement of Policy (SOP) and a final rule, respectively, on the evaluation of bank merger transactions.
The FDIC’s final SOP outlines the agency’s evaluation criteria and expectations, noting that the agency may consider “account concentrations beyond deposits, including small business or residential loan originations” in assessing a merger’s competitive effects. It also clarifies that a proposed merged institution should result in lessened financial risk, and a greater ability to meet the community’s needs. The SOP states that public hearings must be held for mergers that would result in an institution with more than $50 billion in total assets, and mergers that would result in an institution with $100 billion or more in total assets will be subject to additional scrutiny.
The OCC’s final rule amending its procedures for reviewing applications under the Bank Merger Act eliminates the agency’s expedited review process and the use of the streamlined business combination application. In an accompanying policy statement, the OCC provides additional information on the principles for reviewing proposed bank merger applications. The policy statement outlines factors that may lead to quicker or more delayed approval timelines for proposed mergers, and the OCC’s decision process for extending the public comment period or holding a public meeting.
FDIC proposes rule for custodial account recordkeeping
On Sept. 17, 2024, the FDIC issued a proposed rule that would bolster recordkeeping requirements for bank deposits received from certain third-party entities, implementing more stringent requirements for third-party arrangements and offering greater protections for depositors.
In the proposal, the FDIC noted recent events, including the Synapse Financial Technologies bankruptcy, which caused uncertainty about the beneficial ownership of funds deposited by the fintech and related difficulties in determining whether the accounts were FDIC-insured.
The proposed rule would require insured banks that hold certain custodial accounts containing nonbank deposits to perform daily account reconciliations by individual owner and comply with other recordkeeping requirements. It would also provide a bank’s primary federal supervisor with oversight and enforcement authority.
Comments are due Dec. 2, 2024.
OCC updates supervisory operating plan
On Oct. 1, 2024, the OCC published its annual bank supervision operating plan for FY25, guiding its supervisory strategy and resource allocation, and outlining areas of focus for the coming fiscal year. The updated supervision plan describes the OCC’s “risk-based supervision approach focused on evaluating risk, identifying material and emerging concerns, and requiring banks to take timely corrective action before deficiencies compromise their safety and soundness.” It states that this approach will require examiners to assess the effects of internal and external factors on a bank’s risk profile.
The supervisory plan also outlines the agency’s areas of focus for FY25 examinations divided into financial (credit, allowance for credit losses, asset and liability management, capital, and climate-related risks for large institutions); operational (cybersecurity, enterprise change management, operations, third-party, and payments), and compliance (BSA/AML, CRA, and fair lending).
OCC issues bulletin on commercial lending refinance risk
On Oct. 3, 2024, the OCC issued a bulletin discussing the effects of refinance risk and providing updated guidance on sound refinance risk management practices. In times of rising interest rates, nonamortizing loans (for example, interest-only loans, commercial real estate loans, leveraged loans, and revolving working capital lines) are most affected by refinance risk, in particular with a high number of loans maturing in underperforming markets. High volumes of refinanced loans can place significant stress on a bank’s financial position, liquidity, and earnings, and banks might incur additional costs to resolve problem loans.
The bulletin discusses risk management practices and risk rating considerations addressing refinance risk at both the individual transaction level and the portfolio level. At the transaction level, banks should consider refinance risk when structuring loans at origination, risk-rating loans, and continuously monitoring loans through maturity. Banks should also assess, monitor, and control refinance risk at the portfolio level, setting appropriate underwriting exception limits, concentration limits, and other controls.
Fed issues RFI on discount window operations
On Sept. 5, 2024, the Federal Reserve (Fed) issued a request for information (RFI) soliciting public feedback on discount window operational practices, including “the collection of legal documentation; the process for pledging and withdrawing collateral; the process for requesting, receiving, and repaying discount window loans; the extension of intraday credit; and Reserve Bank communication practices related to the discount window and intraday credit.”
The Fed noted that the agency is not requesting comments on policy changes, such as “eligibility criteria and terms for discount window advances and intraday credit,” but rather seeks to identify ways to enhance operational efficiencies.
Comments are due Dec. 9, 2024.
FHFA issues guidance for FHLBanks when providing liquidity
On Sep. 30, 2024, the Federal Housing Finance Agency (FHFA) issued a proposal to allow Federal Home Loan Banks (FHLBanks) greater ability to manage and respond to member liquidity needs. The proposal would exempt investments with a maturity of one day or less where the principal is repaid to the bank daily from the “general limit” on extensions of unsecured credit to a single counterparty. This change would align treatment of these investments – including interest-bearing deposit accounts and other authorized overnight investments – with that of overnight federal funds, which are limited only by the less restrictive “overall limit.”
Comments are due Dec. 2, 2024.
