United States: Nutter Bank Report, March 2016

The Nutter Bank Report is a monthly publication of the firm's Banking and Financial Services Group.

1. FDIC Issues Final Rule to Assess Large Banks a Deposit Insurance Surcharge
2. Regulators Clarify the Capital Treatment of Qualifying TruPS CDOs
3. New Guidance Clarifies When Banks May Use Property Evaluations Rather than Appraisals
4. FDIC Issues Guidance on Supervisory Expectations for Abandoned Foreclosures
5. Other Developments: Customer Identification Programs and UDAP Rules 

1. FDIC Issues Final Rule to Assess Large Banks a Deposit Insurance Surcharge

The FDIC has approved a final rule to increase the Deposit Insurance Fund ("DIF") to the minimum Deposit Reserve Ratio ("DRR") of 1.35% as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). The final rule approved on March 15 will impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The FDIC expects the DRR will likely reach 1.35% after about 2 years of payments of the surcharges. The Dodd-Frank Act increased the minimum DRR—the ratio of the amount in the DIF to insured deposits—from 1.15% to 1.35% and required that the DRR reach that level by September 30, 2020. The Dodd-Frank Act also made banks with $10 billion or more in total assets responsible for the increase from 1.15% to 1.35%. The final rule will become effective on July 1. If the DRR reaches 1.15% before that date, the surcharges will begin on July 1. If the DRR has not reached 1.15% by that date, surcharges will begin the first quarter after the DRR reaches 1.15%. The FDIC reported that the DRR at the end of 2015 was 1.11%. Click here for a copy of the FDIC's final rule.

     Nutter Notes: The FDIC currently operates under a Restoration Plan for the DIF, required by the Federal Deposit Insurance Act and originally adopted in 2008, while the DRR remains below 1.35%. According to the FDIC, the Restoration Plan is designed to ensure that the DRR will reach 1.35% by the September 30, 2020 deadline. In February 2011, the FDIC adopted a final rule that contained a schedule of deposit insurance assessment rates that apply to the regular assessments that all banks pay. When it adopted those rates in 2011, the FDIC said that assessment rates applicable to all banks only need to be high enough to reach 1.15% before the September 30, 2020 deadline because of the Dodd-Frank Act requirement that banks with $10 billion or more in assets are responsible for increasing the reserve ratio from 1.15% to 1.35%. The February 2011 final rule deferred the decision about how to assess banks with $10 billion or more in assets for the amount needed to reach 1.35%. In the February 2011 final rule, the FDIC also adopted a schedule of lower regular assessment rates that will go into effect for all banks' regular assessments once the DRR reaches 1.15%. As a result, regular assessment rates for all banks will decline once the DRR reaches 1.15%, which the FDIC said is expected to occur in the first half of 2016. The FDIC said that the assessments paid at the lower rates are intended to raise the DRR gradually to the long-term goal of 2%.

2. Regulators Clarify the Capital Treatment of Qualifying TruPS CDOs

The federal banking agencies along with the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission have updated their joint guidance, in the form of answers to frequently asked questions ("FAQs"), to clarify the capital treatment of certain Collateralized Debt Obligations backed by Trust Preferred Securities ("TruPS CDOs"). Section 619 of the Dodd-Frank Act, also known as the "Volcker Rule," permits a banking organization to retain its interest in certain qualifying TruPS CDOs. The FAQs released on March 4 clarify that the Volcker Rule does not require a banking organization to deduct from its Tier 1 capital an investment in a qualifying TruPS CDO retained pursuant to the Volcker Rule and its implementing regulations. According to those implementing regulations, a qualifying TruPS CDO is a TruPS CDO for which the issuer was established, and the CDO was issued, before May 19, 2010, the banking organization reasonably believes that the offering proceeds received by the issuer were invested primarily in Qualifying TruPS Collateral (as defined in the regulations), and the banking organization's interest in the issuer was acquired on or before December 10, 2013 (or was acquired in connection with a merger or acquisition of a banking organization that acquired the interest on or before December 10, 2013). Click here for a copy of the updated FAQs.

     Nutter Notes: The agencies have previously released a non-exclusive list of issuers that meet the requirements to be considered qualifying TruPS CDOs. According to the updated FAQs, a banking organization holding an interest in a TruPS CDO that is a covered fund under the Volcker Rule but is not a qualifying TruPS CDO would be subject to all of the applicable limits and restrictions on interests in such covered funds, including the requirement to deduct the investment from its Tier 1 capital for purposes of determining compliance with applicable regulatory capital requirements. The updated FAQs do not affect regulatory capital requirements contained in the federal banking agencies' general minimum capital requirements and overall capital adequacy standards. According to the updated FAQs, a bank or bank holding company may still be required to deduct investments in the capital of unconsolidated financial institutions, including issuers of qualifying TruPS CDOs, if the total of those investments exceed applicable thresholds.

3. New Guidance Clarifies When Banks May Use Property Evaluations Rather than Appraisals

The federal banking agencies have issued new guidance to clarify supervisory expectations for the use by banks of property evaluations rather than appraisals in estimating the market value of real property securing real estate-related loan transactions. According to the Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions released on March 4, three types of loan transactions do not require an appraisal, but do require a property evaluation under the agencies' appraisal regulations: loans in which the transaction value (generally, the loan amount) is $250,000 or less; certain renewals, refinances or other transactions involving existing extensions of credit; and commercial real estate loans with a transaction value of $1,000,000 or less in which the sale of, or rental income derived from, real estate is not the primary source of repayment for the loan. Generally, the agencies' appraisal regulations require banks to obtain an appraisal completed by a competent and qualified state-licensed or state-certified appraiser that complies with the Uniform Standards of Professional Appraisal Practice for any real estate-related financial transaction, unless an exception applies. However, the new guidance advises that there may be instances in which it would be prudent or necessary for a bank to obtain an appraisal even if the agencies' appraisal regulations do not require it. Click here for a copy of the advisory.

     Nutter Notes: The advisory describes the agencies' existing guidance set forth in the Interagency Appraisal and Evaluation Guidelines for the use of an evaluation rather than an appraisal to estimate market value for real estate securing certain loan transactions. Unlike an appraisal, an evaluation does not have to be developed by a state-licensed or state-certified appraiser. The advisory suggests that bankers and third-party real estate professionals that have access to local market information may be qualified to prepare evaluations for a bank in some smaller communities. The advisory also provides examples of when it may be appropriate to use an alternative valuation approach and other information to develop an evaluation in areas with few or no recent comparable sales in reasonably close proximity to the property securing the loan transaction. The advisory recommends that every property evaluation should contain sufficient information and analysis to support the estimated market value and the bank's decision to extend credit, regardless of the method used to reach the estimated market value of the property.

4. FDIC Issues Guidance on Supervisory Expectations for Abandoned Foreclosures

The FDIC has released new guidance clarifying supervisory expectations in connection with decisions to discontinue foreclosure proceedings after initiating a foreclosure. The guidance entitled Discontinuation of Foreclosure Proceedings, published with FDIC Financial Institution Letter no. FIL-14-2016 on March 2, advises banks that examiners expect them to have appropriate policies and procedures in place that address certain issues in connection with decisions to abandon a foreclosure, including obtaining and assessing current information about the property's market value and criteria for determining when a bank's lien should be released. The guidance also advises that examiners expect such policies and procedures to address notifying local authorities (such as tax authorities, courts, or code enforcement departments) of a decision to abandon a foreclosure, and notifying the borrower of the discontinuance of a foreclosure action. According to the guidance, notices to the borrower should indicate that the mortgage holder is no longer pursuing foreclosure, whether the lien has been released and that the borrower has the right to occupy the property until a sale or other title transfer action occurs. Notices to the borrower should also state, according to the guidance, that the borrower remains financially obligated for the outstanding loan balance, real estate and other applicable taxes, homeowner association dues, and insurance premiums, and that the borrower is responsible for maintaining the property in accordance with all state and local laws, codes, and ordinances. Click here for a copy of Financial Institution Letter no. FIL-14-2016.

     Nutter Notes: According to the foreclosure abandonment guidance, banks should expect examiners to review banks' policies and practices related to foreclosure proceedings, including determinations to discontinue a foreclosure action. The guidance advises that, during safety and soundness examinations, examiners will review banks' analyses supporting any decisions to initiate, pursue or discontinue foreclosure actions, decisions to release liens, and management reports on these activities. The guidance advises that, during consumer protection examinations, examiners will review the actions taken by banks to contact the borrower and whether notices to the borrower and local authorities regarding their decision to discontinue a foreclosure proceeding include the information described above and comply with applicable state or local government notification requirements. Consumer protection examiners also will review whether banks' consumer inquiry and complaint processes adequately address concerns raised regarding abandoned foreclosures, according to the guidance.

5. Other Developments: Customer Identification Programs and UDAP Rules 

  • Interagency Guidance on CIP Requirements for Holders of Prepaid Payment Cards

The federal banking agencies on March 21 released joint guidance clarifying the applicability of the Customer Identification Program ("CIP") rule to prepaid cards issued by banks. According to the guidance, a bank's CIP should apply to the holders of certain prepaid cards issued by the bank as well as holders of such prepaid cards purchased under arrangements with third parties that sell, distribute, promote, or market prepaid cards on behalf of the bank.

     Nutter Notes: According to the guidance, a bank should determine whether the issuance of a prepaid card to a purchaser results in the creation of an "account" (as defined in the CIP rule) and, if it does, the bank should determine the identity of the bank's "customer" (also defined in the CIP rule). A bank's CIP requirements should be applied to that customer. Click here for a copy of the Interagency Guidance to Issuing Banks on Applying Customer Identification Program Requirements to Holders of Prepaid Cards. 

  • Massachusetts Division of Banks Proposes Amendments to UDAP Rules

The Massachusetts Division of Banks on March 16 published proposed amendments to its Unfair and Deceptive Practices in Consumer Transactions rule (209 CMR 40.00) that would provide that compliance with specific provisions of certain CFPB regulations constitutes compliance with the Division's rule.

     Nutter Notes: The proposed amendments also incorporate future changes to federal regulations while preserving certain differences under Massachusetts law that the Division deems to be more advantageous to consumers, including the definition of high cost home loan or high cost mortgage and the method of calculating points and fees. Click here for a copy of the proposed amendments. 

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