May 20, 2021

OCC To ‘Reconsider’ CRA Revamp; Pauses Compliance For Certain Provisions

The Office of the Comptroller of the Currency said it will formally “reconsider” the agency’s June 2020 final rule revising the agency’s Community Reinvestment Act rules and that banks subject to the rule may pause efforts to comply with it. “While this reconsideration is ongoing, the OCC will not object to the suspension of the development of systems for, or other implementation of, provisions with a compliance date of Jan. 1, 2023, or Jan. 1, 2024, under the 2020 CRA rule,” the agency said. 

The American Bankers Association welcomed the news. 

“By reconsidering its CRA Rule, the OCC provides an opportunity for the regulatory agencies to pursue a joint rulemaking in this area,” said ABA President and CEO Rob Nichols. “We still believe there is a compelling need to modernize CRA rules so they reflect the modern banking system and meet the needs of communities. Today's action by the OCC can help us get there.”

However, covered banks must continue to comply with provisions of the CRA modernization rule that had an Oct. 1, 2020, compliance date, the agency said. These provisions were explained and interpreted in a 2020 OCC bulletin.

The OCC also added that it does not plan to finalize a December 2020 proposed rule on how the agency will evaluate CRA compliance under the new rule and that it will discontinue the CRA data collection published that month.

OCC's Hsu Says Fintech Firms Should Be Chartered In ‘Safe and Sound Way’

Testifying before the House Financial Services Committee this week, Acting Comptroller of the Currency Michael Hsu said that the Office of the Comptroller of the Currency needs to determine how to charter fintech firms in a “safe and sound way, where we can adapt to the innovation.”

“Some are concerned that providing charters to fintechs will convey the benefits of banking without its responsibilities,” Hsu said. “Others are concerned that refusing to charter fintechs will encourage growth of another shadow banking system outside the reach of regulators. I share both of these concerns. We must find a way to consider how fintechs and payment platforms fit into the banking system, and we must do it in coordination with the FDIC, Federal Reserve, and the states.”

The OCC has been focusing on encouraging innovation through initiatives like updating the framework for chartering national banks and trust companies, Hsu said, but added that his “broader concern is that these initiatives were not done in full coordination with all stakeholders. Nor do they appear to have been part of a broader strategy related to the regulatory perimeter.”

Meanwhile, Rep. French Hill, R-Ark.m pressed FDIC Chairman Jelena McWilliams on the issue of credit union acquisitions of community banks, which have resumed after an M&A lull during the pandemic. “We always have a lot of questions when there’s an acquisition of a community bank, especially when that community bank is located in a rural area,” McWilliams responded. “My concerns have not changed.”

OCC’s Hsu Warns Against ‘Complacency’ As Recovery Revs Up

With projected economic growth expected to create a positive environment for bank performance in the remainder of 2021 and 2022, according to the Office of the Comptroller of the Currency’s newly released Semiannual Risk Perspective, newly appointed Acting Comptroller Michael Hsu said “it’s critical that bankers and their regulators guard against complacency.”

“Banks do deserve credit for having weathered the pandemic fairly well, in terms of capital and liquidity levels, continuing to work with borrowers and lending [and]maintaining operations while everyone was working from home,” Hsu said, adding that “there is a risk of a bit of overconfidence from that … as we enter a growth phase.”

Key risk themes highlighted by the OCC included credit, interest rate, operational and compliance risk. In particular, the decline in interest rates and the Federal Reserve’s long-term low-rate policy put downward pressure on net interest margins, pushing banks to respond through reducing costs and extending durations. Should yields rise, “credit quality trajectory is critical to supporting earnings that could be realized from the steepening curve,” the report said.

While “credit risk never really materialized the way we thought it would last spring and through the fall,” according to a senior OCC official during a press briefing, the OCC noted that commercial credit risk remains elevated, especially in commercial real estate. Operational risks remain elevated, with ransomware attacks increasing in every sector, and the OCC noted that third-party risk management continues to be an area of “heightened supervisory focus.”

ABA: Flood Insurance Q&As Should Not Serve As Basis For Supervisory Action

The American Bankers Association and 10 other trade groups commented on the banking agencies’ proposed flood insurance guidance and stressed that question and answers are supervisory guidance and should not serve as the basis for supervisory action.

“A clear statement noting this important distinction would assist regulated institutions in understanding supervisory expectations with regards to the final interagency Q&As,” the groups wrote. The groups welcomed the additional guidance but noted that the regulators should use clear, consistent language in drafting flood guidance and avoid creating compliance requirements not explicit in the flood statutes or regulations.

“Often, rules that seem straightforward can become complicated when applied in the operational context of real estate finance,” the groups said. “For example, rules that work in single-family residential lending situations are often less clear in the world of multi-family or commercial transactions.”

ABA, Trade Groups Urge Support For CDFI Funding Increase

The American Bankers Association and five other trade groups urged House and Senate appropriations leaders to support $1 billion in funding for the Community Development Financial Institutions Fund in fiscal year 2022, with $100 million allocated for the Bank Enterprise Award Program.

The groups noted that an increase in funding is warranted “and it is justified by the significant demand, over subscription of the program, and dire need of the nation as we recover from the COVID-19 health and economic crisis.” They added that the proposed $330 million in budget proposals released by the Biden administration is only “a modest increase which does not begin to meet the needs of the underserved communities it supports.”

“The $1 billion request represents a modest 0.47% of total CDFI industry assets. This capital, however, is critically important at this time,” the letter said. “The monies will leverage up to 12 times the $1 billion in private capital (or $12 billion) that will be channeled to local businesses, nonprofits, and others to help vulnerable communities recover from the devastating effects of the recession and begin rebuilding.”

Fed Extends Rule Allowing Directors, Shareholders To Apply For PPP Loans

The Federal Reserve said it would extend a temporary exemption from Regulation O to allow bank directors and shareholders to receive Paycheck Protection Program loans from their related banks. Reg O generally limits lending activity to bank directors, shareholders, officers and businesses owned by these persons.

The exception, which applies only to PPP loans, will be extended through June 30, 2021. The Fed also noted that the rule change “will continue to apply if the PPP is extended, with the change ultimately sunsetting on March 31, 2022.”

The Fed added that any PPP loans extended to bank directors and shareholders must conform to SBA’s guidance, which states that the eligible business must follow the same process as any similarly situated customer or account holder and must not receive favoritism from the bank.

ABA, Trade Groups Release Report On Improving Financial Inclusion

The American Bankers Association, along with five financial services trade groups, released a white paper outlining obstacles and solutions for improving financial inclusion for the unbanked population and for reducing the use of high-cost nonbank financial products and services.

The unbanked population currently represents 6% of U.S. households, according to the Federal Deposit Insurance Corporation. The trade groups’ report identifies reasons for individuals being unbanked and highlights existing actions from banks, credit unions, nonprofits and policymakers that have shown promise in addressing the challenge of bringing the under-served more fully into the banking system.

“This report details not just how many households are unbanked, but why,” said ABA Chief Policy Officer Naomi Camper. “It underscores why ABA continues to urge every bank in the country to offer Bank On-certified accounts, which are helping to bring more people into the banking system. With a Bank On-certified account, consumers can feel confident that banks want their business and can provide them with a low-cost, insured account that offers all the economic opportunities that come with being banked.”
Instead of establishing a large, duplicative and potentially expensive banking infrastructure to create bank accounts through the Federal Reserve or the U.S. Postal Service, there are more effective and less costly ways to address the issue, the report found.

Fed Survey: Even Amid Pandemic, Unbanked Share Dips

The share of unbanked American adults dipped to 5% in 2020, according to the Federal Reserve’s annual report on the Economic Well-Being of U.S. Households. The figure was down from 8% in 2015 and 6% in 2019. Based on a survey fielded in late 2020, the report showed the share of adults considered “fully banked ”— that is, who had a bank account and also did not use a number of nonbank financial alternatives — rose to 81% in 2020. The figures come after a campaign by the American Bankers Association to promote the opening of bank accounts to securely receive economic impact payments and the growth of Bank On-certified accounts designed to meet the needs of the unbanked.

The survey also saw savings practices hold steady in the aggregate. Of those surveyed, 64% (up 14 points from 2013) said they could cover a $400 emergency expense in cash, a benchmark often cited by policymakers. The figure reached as high as 70% in surveys fielded in July 2020, when many had received EIPs, enhanced unemployment or other relief funds. The survey found that 26% of nonretired respondents reported having no retirement savings or pension, the same as in 2019 but marking progress from previous years.

Although the headline figure showed that three quarters of U.S. households surveyed last fall said they are “doing OK” or “living comfortably” — identical to figures from 2018 and 2019 and up 13 percentage points from 2013 — it masked a divergence for those laid off during the coronavirus crisis. The share of those not laid off who were at least doing OK rose, but it fell two points among those who were laid off but since found new work and 14 points for those laid off who were still not working. Overall, the share of Americans reporting that they were worse off financially from a year before shot up 10 points to 24% in 2020.

OCC Highlights Libor, Climate Change As Risk Priorities

The transition away from Libor remains a priority area for supervision. An official with the Office of the Comptroller of the Currency said, “OCC banks are making very strong progress on Libor cessation and replacement” and added that “we want banks to select a replacement rate or rates that fit their business, their customer base and their risk profile, provided that replacement rate is IOSCO-compliant” and approved through an appropriate internal process.
The Semiannual Risk Perspective raised the issue of climate change for the first time, an OCC official said. 

“Banks may face risk relative to climate change through physical conditions or transitions in the economy,” the report noted. “Accordingly, in common with other supervisors, the OCC is developing its knowledge of the risks in this area by engaging with relevant stakeholders.” 

Acting Comptroller Michael Hsu told the media that has asked OCC staff to explore joining the Fed as a member the Network for Greening the Financial System, a global group of bank supervisors and central banks focused on climate risk management.

CFPB Issues Updated TRID FAQs

The Consumer Financial Protection Bureau published an updated fact sheet for lenders addressing housing assistance loans under the TILA-RESPA integrated disclosure rule. The CFPB added several new questions to its TRID FAQs regarding housing assistance loans, and how the Building Up Independent Lives and Dreams Act affects the TRID rule requirements for certain housing assistance loans. 

Morning Consult: Banks Most Trusted Among Financial Providers

Banks and credit unions are the most trusted financial institution, according to a new survey released by Morning Consult, with 61% of consumers saying they “naturally trust banks.” By comparison, 51% tend to trust insurers, 48% tend to trust payment companies and 36% tend to trust investment and wealth management providers. The figure for all companies among those surveyed was 43%.

More than seven in 10 said they trust depository institutions a lot or some of the time, the highest among financial services providers. The survey found that consumers ranked security and protection of their personal data the highest in importance for financial services to ensure their trust; nearly 90% said data privacy and security are important in their decisions to choose financial services providers.

The survey of 4,400 U.S. adults also found that despite the economic fallout from the pandemic, 14% of U.S. adults said their trust of financial services companies had grown in the past year.

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