United States: Nutter Bank Report - November 2015

1. DOB Revises Guidance on Branch and Main Office Notices and Applications

The Massachusetts Division of Banks has issued revised guidance on the procedures for a bank to establish, relocate or close a branch office or to redesignate a main office. The Division's revised Regulatory Bulletin 2.3-104, released on November 15, also includes a new section on establishing, closing or relocating a branch outside of Massachusetts. According to the new guidance, a bank must file an application with the Division to establish, close or relocate a branch located outside of Massachusetts following the same procedures required for an application for a branch located inside Massachusetts. Such applications may be made using the Uniform Bank Interstate Application available on the Division's website. According to the guidance, the Division also will accept an application that is submitted electronically through any program offered by a federal banking agency. The notice procedures available for eligible banks to establish a branch within Massachusetts are not available for a branch to be established outside of Massachusetts. The new guidance also includes procedures for an out-­of-­state bank to establish, relocate or close a branch within Massachusetts.

Nutter Notes: The procedures for filing notices and applications for branch offices within Massachusetts are generally unchanged from the previous version of the Division's Regulatory Bulletin 2.3-104. Banks that meet certain eligibility standards may submit a notice to the Division rather than a full application to establish a branch within Massachusetts. According to the Division's guidance, a bank is eligible to submit a notice if the bank received a "Satisfactory" or higher Community Reinvestment Act ("CRA") rating at its most recent CRA examination by the Division or federal banking agency, the bank is adequately capitalized as defined under the prompt corrective action provisions of the Federal Deposit Insurance Act and the FDIC's Capital Adequacy Regulations (12 C.F.R. § 325.103), and the bank has not been notified that it is in troubled condition by the Division or any federal regulator. Banks that do not meet the eligibility criteria for a notice must submit an application. In addition to the information required on the application form, a bank must indicate whether the deed or lease on the proposed branch will contain any exclusive lease provisions or restrictive covenants that would preclude the sale or lease of the proposed site or related space to a competing institution, and, if the application involves the relocation or redesignation of the bank's main office, the bank must state the reasons for the change.

2. FDIC Updates Frequently Asked Questions Guidance on Brokered Deposits

The FDIC has issued updated guidance providing answers to frequently asked questions on identifying, accepting and reporting brokered deposits (the "FAQs"). The updated FAQs, issued on November 13 with FDIC Financial Institution Letter no. FIL-51-2015, include new guidance on whether insurance agents, lawyers, or accountants that refer clients to a bank are considered to be deposit brokers and how the FDIC treats government funds disbursed to beneficiaries of government programs through debit cards or prepaid cards. According to the FAQs, when referring clients to a bank, insurance agents, lawyers and accountants may be considered deposit brokers because they are facilitating the placement of deposits and the deposits could be brokered deposits. However, the guidance says that the FDIC recognizes that many business professionals conduct business with a particular bank, and due to that banking allegiance, often refer their clients to that bank on an informal basis for deposit products. According to the updated FAQs, the deposits produced by those types of informal deposit referrals would generally not be considered brokered and the professionals would not be considered deposit brokers under those circumstances. On the other hand, deposits would be considered brokered deposits where there are "more formal, programmatic arrangements" between the bank and the business professional, such as where the professional has entered into a written agreement with the bank for the referral of depositors or the professional receives a fee from the bank. Examples given in the FAQs include programs where bank customers can earn bonuses in the form of cash, merchandise or a higher interest rate on a deposit for referring depositors.

Nutter Notes: The updated FAQs also clarify how the FDIC treats federal or state agency funds in cases where an agency uses debit cards or prepaid cards issued by a bank to deliver funds to the beneficiaries of government programs. According to the guidance, where the program is structured so that each beneficiary will own a separate deposit account (with the account being accessible by the beneficiary through the use of a debit card), or where multiple beneficiaries will own a commingled deposit account with "per beneficiary" or "pass-through" deposit insurance coverage, the agency may be "facilitating the placement of deposits" that will belong to the beneficiaries. In those cases, the guidance advises that the agency would be considered a deposit broker, and the funds considered brokered deposits, unless the agency is covered by one of the exceptions to the definition of deposit broker. The FAQs indicate that the "primary purpose exception" may be available in these circumstances. According to the FAQs, the FDIC would apply this exception if the agency is mandated by law to disburse the funds to the beneficiaries, the agency is the sole source of funding for the deposit accounts, and the deposits owned by the beneficiaries do not produce fees payable to the agency. The satisfaction of these criteria would indicate that the primary purpose of the agency in establishing the accounts is to discharge the government's legal obligations to the beneficiaries rather than to provide the beneficiaries with a deposit-placement service or to assist the bank in expanding its deposit base according to the FAQs. The application of the primary purpose exception means that the deposits would not be classified as brokered deposits.

3. FASB Approves Final Mark to Market Accounting Standard for Equity Investments

The Financial Accounting Standards Board ("FASB") has recently approved a final accounting standard for mark to market accounting for financial instruments and has announced that its proposed standard for impairment of loans and debt securities will become effective starting in 2019 for public companies and in 2020 for all others. At its November 12 board meeting, FASB gave final approval to an accounting standard that requires banks and other businesses to treat all equity investments as trading securities, with changes in fair value recorded through earnings, beginning in 2018. However, the final accounting standard for the classification and measurement of financial instruments does not require mark to market accounting for loans or debt securities. FASB had been debating whether to require mark to market accounting for all financial assets and liabilities. Banking organizations that are public companies (i.e., registered with the Securities and Exchange Commission) will no longer be required to disclose the fair value of all assets and liabilities in footnotes to financial statements when the new standard becomes effective in 2018. Banking organizations that are public companies will be required to disclose the value of their loans at the "exit price"—the fair value of financial assets and liabilities measured at amortized cost, except for receivables and payables due within one year and demand deposit liabilities—beginning in 2018.

Nutter Notes:Also on November 12, FASB agreed that its proposed accounting standard for impairment of loans and debt securities will become effective in 2019 for banking organizations and other businesses that are public companies, and in 2020 for all other companies. Under current accounting standards, a credit loss is recognized when it is probable or actually has been incurred. According to FASB, the proposed revisions to the accounting standard for impairment of loans and debt securities would use more forward-looking information to "provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit" held by banks and other reporting entities. The proposed accounting standard, according to FASB, would replace the current impairment model with a model that recognizes expected credit risks and by requiring consideration of a broader range of "reasonable and supportable" information about credit loss estimates. The proposed standard also would replace a number of existing impairment models. FASB is expected to finalize the current expected credit loss accounting standard early next year.

4. FDIC Revises Guidance on Risk Management for Loan Participations

The FDIC has issued an advisory to banks on purchased loans and loan participations emphasizing the importance of underwriting and administering purchased credits as if they were originated by the purchasing institution. The FDIC Advisory on Effective Risk Management Practices for Purchased Loans and Purchased Loan Participations, issued on November 6 with FDIC Financial Institution Letter no. FIL 49-2015, updates information contained in the FDIC's Advisory on Effective Credit Risk Management Practices for Purchased Loan Participations originally released in 2012. The updated guidance advises that banks should not rely on lead or originating institutions or non-bank third parties to perform risk management functions when purchasing loans and loan participations or when making loans to industries or loan types unfamiliar to the bank. The updated guidance also advises banks that arrangements with third-party service providers to facilitate the purchase of loans and loan participations should be managed by an effective third-party risk management process. In particular, the updated guidance warns banks against reliance on proprietary underwriting models that limit the ability of the purchasing bank to assess underwriting quality, credit quality and adequacy of loan pricing. The updated guidance recommends that a bank's loan policy should outline procedures for purchased loans and loan participations, define loan types that are acceptable for purchase, establish concentration limits, require independent credit and collateral analyses, and require an assessment of the bank's rights, obligations and limitations.

Nutter Notes: The FDIC's updated guidance on purchased loans and loan participations generally recommends that a bank should understand the loan type, the obligor's market and industry, and the credit models relied on to make credit decisions. The guidance also recommends that, before purchasing a loan or participation or entering into a third-party arrangement to purchase or participate in loans, a bank should ensure that loan policies address such purchases, understand the terms and limitations of agreements, perform appropriate due diligence, and obtain necessary board or committee approvals. According to the guidance, a bank should assess its ability to transfer, sell or assign the purchased loan or loan participation, including an assessment of whether contractual terms or market conditions limit the ability to dispose of the purchased credit and an assessment of the liquidity and marketability of the interest. The guidance recommends that any such limitations on the ability to dispose of a purchased credit should be considered in the bank's liquidity management function and when managing credit concentration limits. The guidance also reminds banks to ensure compliance with BSA/AML requirements when purchasing loans and loan participations, and to consider purchased credit portfolios for the bank's BSA/AML risk assessment.

5. Other Developments: Condo Loans and Cyber Threats

  • FHA to Temporarily Ease Restrictions on Certain Condo Loans

The Federal Housing Administration ("FHA") issued a mortgagee letter on November 13 announcing that the FHA will ease restrictions for one year on FHA-backed condo loans while the FHA considers longer-term rules. The FHA's Mortgagee Letter 2015-27 expands the definition of owner-occupied units to include second homes that are not investor-owned and increases the number of condominium projects that are eligible for FHA insurance.

Nutter Notes: The changes under the mortgagee letter are applicable to all FHA Title II programs including the Home Equity Conversion Mortgage insurance program. The mortgagee letter became effective on the date it was issued for all condominium project approvals, recertification applications, annexations or reconsideration submissions submitted for review. 

  • FFIEC Warns of Cyber Attacks Involving Extortion

The Federal Financial Institutions Examination Council ("FFIEC") issued a statement on November 3 warning banks of the increasing frequency and severity of cyber attacks to extort payment in return for the release of sensitive information. The statement describes steps financial institutions should take to respond to these attacks and highlights resources institutions can use to mitigate the risks posed by such attacks.

Nutter Notes: The FFIEC recommends that banks conduct ongoing cybersecurity risk assessments and monitoring of controls and information systems to counter the threat. In addition, financial institutions should have effective business continuity plans to respond to this type of cyber attack to ensure resiliency of operations.

Originally published November 30, 2015

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions