In this newsletter, we provide a snapshot of the principal US, European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
Bank Prudential Regulation & Regulatory Capital
US Board of Governors of the Federal Reserve System Finalizes Rule Adjusting Maximum Civil Money Penalties
On January 18, 2017, the US Board of Governors of the Federal Reserve System finalized a rule increasing the maximum civil money penalty limits for 2017, as required by law. A civil money penalty is a fine imposed by a federal agency to penalize misconduct. In November 2015, a law was passed that requires all federal agencies to adjust their maximum civil money penalty limits annually for inflation, rather than every four years as previously required. The maximum civil money penalty limits depend on several factors, including the severity and type of violation. Additionally, the law dictates the annual adjustment formula for federal agencies.
The new penalty amounts apply as of January 15, 2017. The final rule is available at: https://www.federalreserve.gov/newsevents/press/bcreg/bcreg20170118a1.pdf.
US Office of the Comptroller of the Currency Releases Semiannual Risk Report
On January 5, 2017, the US Office of the Comptroller of the Currency released its Semiannual Risk Perspective for Fall 2016, which highlights key risks facing national banks and federal savings associations. The report highlighted that strategic risk remains high as banks make changes to their business models and adopt innovative products. The OCC also noted that banks continue to ease underwriting practices to boost loan volume and to respond to competition from bank and nonbank lenders in commercial, commercial real estate and auto lending, according to the report. The credit risk associated with such practices is increasing due to increased risk layering, rising loan policy exceptions and weaker covenant protection. The report cited operational risk as another key risk, particularly cybersecurity threats, increased reliance on third-party relationships and the need for sound governance over sales practices. The report is based on data received from national banks and federal saving associations through June 30, 2016.
The report is available at: https://occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-fall-2016.pdf.
US Federal Banking Agencies Release Annual Community Reinvestment Act Asset-Size Threshold Adjustments for Small and Intermediate Small Institutions
On December 29, 2016, the US Federal Reserve Board, the OCC and the Federal Deposit Insurance Corporation announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank and intermediate small savings association under the Community Reinvestment Act (CRA) regulations. The annual adjustments are required by the CRA rules. Financial institutions are evaluated under different CRA examination procedures based upon their asset-size classification. Those meeting the small and intermediate small institution asset-size thresholds are not subject to the reporting requirements applicable to large banks and savings associations unless they choose to be evaluated as a large institution. As a result of the adjustments, the definitions of small and intermediate small institutions for CRA examinations will change as follows:
- "Small bank" or "small savings association" means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion.
- "Intermediate small bank" or "intermediate small savings association" means a small institution with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.
These asset-size threshold adjustments are effective upon publication in the Federal Register. The joint final rule is available at: https://www.fdic.gov/news/news/press/2016/pr16111a.pdf.
US Federal Reserve Board Releases Global Indicator Amounts for G-SIB Surcharge Calculation
On December 28, 2016, the US Federal Reserve published the aggregate global indicator amounts for the purposes of calculating the "Method 1" G-SIB Surcharge for 2016. The Federal Reserve Board's G-SIB surcharge rule establishes a methodology to identify global systemically important bank holding companies in the United States based on certain indicators that are correlated with systemic importance. Under the G-SIB surcharge rule, a firm must calculate its G-SIB score using a specific formula ("Method 1"). The aggregate global indicator amounts used in the score calculation under Method 1 are based on data collected by the Basel Committee on Banking Supervision. The indicators provided by the Basel Committee were converted to US dollars using a euro- dollar exchange rate of 1.0887, which was the daily euro to US dollar spot rate on December 31, 2015. The global indicator amounts for 2016 have decreased from the 2015 values, except for the "[u]nderwritten transactions in debt and equity markets" indicator under Substitutability, for which there was a slight increase.
The Federal Register notice is available at: https://www.gpo.gov/fdsys/pkg/FR-2016-12-28/pdf/2016-31371.pdf.
US Office of the Comptroller of the Currency Finalizes Rule Prohibiting Banks from Dealing and Investing in Metals
On December 28, 2016, the OCC issued a final rule, 12 C.F.R. § 7.1022, that prohibits national banks and federal savings associations (FSAs) from dealing or investing in industrial or commercial metals. The final rule covers metal, including alloy, in a physical form primarily suited to industrial or commercial uses, such as copper cathodes and aluminum T-bars. The final rule supersedes a prior OCC determination permitting national banks to trade copper. The rule, however, still recognizes that national banks and FSAs may hold industrial or commercial metal under authorities that are distinct from dealing and investing. For example, national banks and FSAs may acquire industrial or commercial metal through foreclosures on loans and then sell the metal to mitigate loan losses. The rule carries out an OCC recommendation included in its report to Congress and the Financial Stability Oversight Council under section 620 of the Dodd-Frank Act. Section 620 required the federal banking agencies to conduct a study of the activities and investments that banking entities may engage in under state and federal law and to consider the associated risks and how banking entities mitigate those risks. The effective date of the final rule is April 1, 2017. Banks with existing holdings of industrial and commercial metal acquired through dealing or investing activities must divest of such metal as soon as reasonably practical, but no later than one year after the effective date of the final rule, subject to four one-year extensions available from the OCC in particular cases.
The final rule is available at: https://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-161a.pdf.
The US Federal Deposit Insurance Corporation Releases a New Handbook for De Novo Institutions Applying for Deposit Insurance
On December 22, 2016, the FDIC released a handbook, developed to facilitate the process of establishing new banks, by offering guidance for navigating the phases of establishing an insured institution. The handbook, titled "Applying for Deposit Insurance— A Handbook for Organizers of De Novo Institutions," is part of recent efforts by the FDIC to increase transparency and clarity regarding the deposit insurance application process. The standards in the Handbook relax certain requirements that had been imposed as a result of the financial crisis. Comments on the handbook are due February 20, 2017.
The handbook is available at: https://www.fdic.gov/regulations/applications/handbook.pdf.
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