United States: Bank Regulatory News and Trends

Last Updated: September 11 2019
Article by Jeffrey L. Hare, Christopher N. Steelman, Adam Dubin and Bethany Krystek

This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

  • Banks report another record quarter as profits hit $62.6 billion: FDIC. The nation’s 5,303 FDIC-insured commercial banks and savings institutions earned net income of $62.6 billion during the second quarter of 2019, an increase of 4.1 percent over the same period in 2018, setting a new record high. The Q2 results are included in the FDIC's latest Quarterly Banking Profile, released September 5. Net interest income grew 3.7 percent from a year earlier to $139 billion, according to the FDIC. Total loan and lease balances rose by $152.2 billion (1.5 percent) over Q1 2019, led by consumer loans, including credit cards, and residential mortgage loans, FDIC reported. The agency noted that over the past year total loan and lease balances rose by 4.5 percent, a slight increase from the 4.1 percent annual growth rate reported last quarter, with commercial and industrial loans registering the largest dollar increase from a year earlier (up $142.7 billion, or 6.9 percent). FDIC said that community bas reported quarterly net income of 6.9 billion dollars in the second quarter, an increase of 8.1 percent from a year ago. The number of institutions on the “Problem Bank List” declined to 56, from 59, the fewest problem banks since Q1 2007, but the total assets of problem banks increased from $46.7 billion to $48.5 billion. FDIC found “modest” improvements in asset quality indicators, though net charge-offs increased by $1.1 billion (9.3 percent) from a year ago, and the average net charge-off rate rose to 0.50 percent. The overall number of banks on the list changed as 60 institutions were absorbed through mergers, five new banks opened and one failed. “With the recent lowering of short-term rates and inversion of the yield curve in the second quarter, new challenges for banks in lending and funding may emerge,” FDIC Chair Jelena McWilliams said in releasing the Q2 performance results. “The competition to attract and maintain loan customers and deposits is strong, and therefore, banks need to maintain rigorous underwriting standards and prudent risk management.”
  • Fed’s Quarles outlines plan to further simplify stress capital buffer. As the Fed considers revisions to its annual stress testing of major banks, the Fed’s Vice Chairman for Supervision announced that the plan will provide for further simplification of the bank capital rule known as the stress capital buffer, in response to stakeholder concerns. In prepared remarks delivered at the Program on International Financial Systems Conference in Frankfurt, Germany, Quarles called for removal of two specific SCB requirements: a stress leverage buffer, which he described as “a blunt instrument that treats all assets the same and therefore is not risk-sensitive”; and a requirement that banks pre-pay for a year’s worth of planned dividends, which he called a “needless redundancy.” Both were originally included in the Fed’s April 2018 rule proposal. Quarles instead offered two “co-equal options” to “simplify our capital requirements while limiting pro-cyclicality.” The first option would set the countercyclical capital buffer at a higher baseline level during normal times, while the second would raise the minimum level of the SCB from the fixed 2.5 percent of risk-weighted assets. Quarles said he saw “real merit” in the UK framework, where the CCyB is set at 1 percent in standard risk conditions, with the flexibility to vary the buffer based on changing risks to the banking system over time. As for raising the floor, Quarles said that approach offers the advantages of “greater simplicity, transparency, and predictability.” Quarles said he hoped to have “an SCB framework in place for the 2020 stress tests.”
  • State regulators’ suit against OCC fintech charter dismissed, again. A DC federal judge has – for the second time – dismissed a lawsuit filed by the Conference of State Bank Supervisors challenging the OCC’s plan to grant special purpose national charters to fintech firms. In a September 3 ruling, US District Judge Dabney Friedrich said she was dismissing the CSBS suit because the state regulators’ organization “continues to lack standing and its claims remain unripe,” noting that OCC has yet to receive an application from any fintech companies, let alone issue any charters. The same judge had dismissed an earlier CSBS filing on similar grounds in April 2018, prior to OCC’s decision to start accepting applications for the charter. “Not much has happened since CSBS I that affects the jurisdiction analysis,” Judge Friedrich wrote. John Ryan, CSBS President & CEO, said in a September 4 statement that the “decision did not rule on the merits of the case, and our position that receiving deposits is an indispensable part of the business of banking is unchanged.” Ryan also expressed support for the New York Department of Financial Services’ case against the OCC, “which is proceeding over the same objections the OCC raised in the CSBS suit.” That separate but parallel suit received the go-ahead from a federal judge in the Southern District of New York who in May overruled OCC’s motion to dismiss, citing indications “that OCC has the clear expectation of issuing SPNB charters,” including reports of discussions between the agency and interested fintech firms.
  • NCUA agrees to “phased approach” on field of membership rule. The NCUA will take a “phased approach” to implementing its field of membership (FOM) regulation following a DC Court of Appeals decision last month to largely uphold the rule. NCUA Chairman Rodney E. Hood said in a September 4 statement that the agency was acting in response to the August 20 decision in American Bankers Association v. National Credit Union Administration, but that the circuit court’s ruling “remains subject to requests for further review.” The 2016 NCUA rule that had been challenged by ABA was intended to further expand the potential for credit unions to serve a wider population of customers. Hood said NCUA will permit federal credit unions to submit applications seeking expanded rural districts serving geographic regions that encompass up to one million people, while preparing further guidance on the 2.5-million-person limit on charters serving combined statistical areas, and considering a “limited proposal” regarding the definition of local community that includes portions of Core-Based Statistical Areas that do not include the urban core. The Credit Union National Association trade group had called the court ruling “a resounding victory for credit unions” and welcomed Hood’s announcement in a September 4 statement. While disagreeing with much of the ruling, the ABA said in an August 20 statement that it was “pleased that the DC Circuit recognized the potential redlining risks that are created when credit unions try to exclude the urban core from their communities.”
  • FDIC, OCC announce CRA exam schedules for Q4 2019/Q1 2020. The FDIC on August 30 issued the list of institutions scheduled for Community Reinvestment Act examinations during the fourth quarter of 2019 and the first quarter of 2020. Three days earlier, on August 27, the OCC released its schedule of CRA evaluations to be conducted in the same time period. Federal bank and thrift regulators are required to publish their quarterly examination schedule at least 30 days before the beginning of each quarter under CRA regulations. And on September 5, FDIC issued its list of state nonmember banks recently evaluated for CRA compliance, covering evaluation ratings it assigned to institutions in June 2019. The 1977 law is intended to encourage banks and thrifts to help meet the credit needs of underserved communities. Both agencies encourage public comment on the institutions being examined or evaluated, and that comments be directed to the institutions themselves or the appropriate FDIC or OCC office.

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