June 17, 2021 

Fed: Economic Risks Remain Even As Vaccinations Reduce Effects Of Pandemic

Risks to the economic outlook remain even as progress on vaccinations will likely continue to reduce the effects of the coronavirus pandemic, the Federal Open Market Committee said, adding that the path of the economy will significantly depend on the course of the virus.

The committee said inflation has risen “largely reflecting transitory factors” and that it will keep the target range for the federal funds rate at zero to 0.25% until inflation has risen to 2% and is on track to moderately exceed that for some time.

In a press conference after the release of the FOMC statement, Fed Chairman Jerome Powell said that supply bottlenecks from a rebound in spending as the economy continues to reopen have been larger than expected. “Supply bottlenecks have limited how quickly production in some sectors can respond in the near term. These bottleneck effects have been larger than anticipated,” he said. “As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal.”

ABA Calls For SEC Climate Disclosure Safe Harbor, Flexibility For Community Banks

The American Bankers Association urged the Securities and Exchange Commission to provide a wide safe harbor for information and statements made in disclosures addressing climate risk. Responding the SEC’s request for input, the association noted that without such an explicit safe harbor, “even if the Commission requires further specific disclosures, such disclosure could be limited for the foreseeable future to boilerplate language.” Given the relatively nascent stage of climate risk management, a wide safe harbor is needed, ABA said.

Among several other recommendations, ABA also noted that a climate disclosure framework should be flexible enough to consider the differing needs of investors, as well as the different sizes of reporting entities. Citing an already-existing rule, ABA suggested a process through which firms could opt out of providing specific disclosure metrics if they can provide a “reasonable explanation for why they are unable to obtain the necessary information without undue burden or expense.” No matter what information, if any, the SEC requires, cost-effective approaches must be considered in the short term and these methods may be considered as permanent solutions for smaller entities, such as community and regional banks, the association said, adding that a long transition period will also be needed for any specific disclosure requirements.

ABA also recommended engagement with climate disclosure standard-setting bodies and close coordination with banking and other regulating agencies to ensure that inconsistent or contradictory requirements do not emerge that could “hinder or otherwise delay the effective dissemination of decision-useful information to investors.”

ABA Urges Additional Clarity On Model Risk Management For BSA/AML Compliance

The American Bankers Association filed comments urging the federal banking agencies and the Financial Crimes Enforcement Network to provide additional guidance on how the 2011 supervisory guidance on model risk management works in conjunction with Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control compliance. On April 9, the agencies issued a statement on how the guidance's principles should be applied to BSA/AML and OFAC compliance.

ABA said that while the guidance works well and should not be changed, the agencies should take steps to provide additional clarity, such as examples to distinguish between rules and models, when adjustments to models should be considered material, and when and how frequently model validation is necessary.

ABA also recommended that the agencies make it clear that BSA/AML and OFAC systems should not be preemptively presumed to be models subject to the guidance “when a bank can demonstrate that this risk is managed effectively by BSA/AML and OFAC compliance,” adding that “requiring model validation where it is not necessary diverts resources from combating money laundering, terrorist financing and illicit finance.”

FDIC Votes Not To Raise Assessments

The Federal Deposit Insurance Corporation board voted not to raise deposit insurance assessments on banks to recapitalize its insurance fund. Instead, the FDIC will continue monitoring the situation because FDIC staff expect the pandemic-related surge in deposits during 2020 that caused the Deposit Insurance Fund reserve ratio to fall below its statutory minimum of 1.35% even as the DIF reached a record level of $119 billion.

The FDIC is required under law to implement a plan to recapitalize the DIF within eight years when it falls below its minimum, which normally involves raising the assessments schedules. While the ratio declined from 1.38% in March 2020 to 1.3% last June, “the growth in insured deposits associated with the pandemic may recede as depositor behavior returns to normal and individuals and businesses redirect deposits toward consumption and higher-yielding investments,” the FDIC staff memo said.

The board decision recognized that the banking sector remains strong, FDIC Chairman Jelena McWilliams noted, “with robust levels of capital and liquidity, after serving as a source of strength throughout the pandemic last year.”

FDIC Proposes To Align Real Estate Lending Standards With CBLR

The Federal Deposit Insurance Corporation proposed changes to its guidelines for real estate lending policies to align standards with the community bank leverage ratio, which does not require electing institutions to calculate tier 2 capital or total capital.

According to the FDIC, the proposed rule would allow “a consistent approach for calculating the ratio of loans in excess of the supervisory loan-to-value limits at all FDIC-supervised institutions, using a methodology that approximates the historical methodology the FDIC has followed for calculating this measurement without requiring institutions to calculate tier 2 capital.” The agency said the new rule also would avoid any regulatory burden that could arise if an FDIC-supervised bank decides to switch between different capital frameworks.

In addition, the proposal would ensure that the FDIC’s regulation regarding supervisory LTV limits is consistent with how examiners calculate credit concentrations, as directed by a statement issued last year that examiners will use tier 1 capital plus the appropriate allowance for credit losses as the denominator when calculating credit concentrations. 

Comments are due 30 days after the comment is published in the Federal Register.

OCC’s Hsu: Addressing Appraisal Bias Requires ‘Collective Effort’

Acting Comptroller of the Currency Michael Hsu told attendees at a Consumer Financial Protection Bureau roundtable that banks are being held accountable when they rely on housing appraisals that are discriminatory. “While appraisers and the appraisal process are not often seen as parts of the banking system, there are clear intersections,” Hsu noted, which was part of a broader push from President Biden’s administration for fairness in appraisals.

“Banking regulations require appraisals on certain transactions, and banks rely on third-party appraisals in their underwriting and overall risk management practices. Regulators, including the OCC, expect banks to ensure their vendors treat customers fairly and do not discriminate, and we are seeing banks held accountable for discrimination in appraisals they use.”

However, Hsu made clear that banks’ oversight of appraisers alone is “not sufficient to solve the problem of bias in appraisals.” Rather, addressing discrimination in the housing appraisal process requires a collective effort by all stakeholders, including third-party appraisal providers, he said, noting that the federal banking agencies are working together to address the problem.

CFPB To Restart Military Lending Act Supervision

In a reversal of existing policy, the Consumer Financial Protection Bureau issued an interpretive rule stating it has statutory authority to conduct Military Lending Act supervision activities and signaled that it will resume MLA examinations. The interpretive rule takes effect upon publication in the Federal Register.

The CFPB had previously discontinued MLA-related examination activities on the grounds that Congress had not expressly granted the authority to conduct such examinations.  

Agencies Update Regulatory Agendas

Federal agencies announced updates to their rulemaking agendas. Items on the agendas and their associated timelines were submitted to the White House’s Office of Management and Budget in late April. The Consumer Financial Protection Bureau's agenda does not necessarily reflect the priorities of Rohit Chopra, whose nomination to serve as CFPB director is pending in the Senate.

The CFPB’s agenda stated that the agency is “prioritizing” issuance of a final rule, projected for July, to amend mortgage servicing early intervention and loss mitigation-related provisions in Regulation X “to provide relief for consumers facing hardship due to COVID-19 and the related economic crisis.” The bureau said it also intends to issue a proposed rule in September to implement Section 1071 of the Dodd-Frank Act (regarding small business lending data collection) and to finalize a rule in January 2022 to facilitate compliance by creditors with Regulation Z as they transition away from Libor. In addition, the bureau will this month to finalize an extension, until January 29, 2022, of the effective date of its debt collection rules on third-party debt and disclosures.

The Securities and Exchange Commission projected it will issue a proposed rule in October to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities. The Federal Reserve and the Financial Crimes Enforcement Network said they will issue a final rule in September that would apply information collection requirements to domestic and cross-border transactions involving cryptocurrencies. FinCEN also anticipates issuing a final rule in November to impose Bank Secrecy Act recordkeeping and identity verification requirements to transactions involving convertible virtual currency or digital assets with legal tender status.

The Federal Reserve included its work on Community Reinvestment Act modernization in its list of long-term actions and did provide a date for additional action.

HUD To Propose Reinstating 2013 ‘Disparate Impact’ Rule

The Department of Housing and Urban Development will propose to reinstate the 2013 discriminatory effects rule, according to its regulatory agenda released Friday, June 11.

In October, a nationwide preliminary injunction was issued by a federal district judge in Massachusetts delayed the effective date of HUD’s disparate impact rule and stopped HUD from implementing or enforcing the rule. HUD said that in view of the preliminary injunction and on further consideration, it will propose to reinstate the 2013 rule.

Top Policymakers Emphasize Need For ‘Robust’ Alternate Reference Rates

Acting Comptroller of the Currency Michael Hsu said that it is “imperative that banks continue careful planning” for the transition away from Libor to an alternate reference rate, such as the Secured Overnight Financing Rate, the Alternate Reference Rates Committee’s preferred Libor alternative.

Speaking at a Financial Stability Oversight Council meeting Friday, June 11, Hsu said his agency expects “every bank, regardless of size, to demonstrate that its replacement rate selections are appropriate for the bank’s products, funding needs and operational capacities. In particular, we want to emphasize the importance of banks considering the strength of the fallback provisions they employ.”

At that same meeting, Federal Reserve Vice Chairman for Supervision Randal Quarles emphasized that “Libor is over,” and expressed his support for SOFR, cautioning that “the ARRC does not support more than minimal use of other rates in capital markets or for derivatives, and market participants should not expect such rates to be widely available.”

Securities and Exchange Commission Chairman Gary Gensler also endorsed SOFR as a “robust” and “preferable” alternate rate and also raised concerns about the Bloomberg Short-Term Bank Yield Index, or BSBY, which has been floated by some banks as a potential Libor replacement. Gensler said that that rate shares several of Libor’s flaws, including being susceptible to manipulation.

ABA Foundation Releases Free Financial Caregiving Guide

The American Bankers Association Foundation has released a free guide to help financial caregivers plan for cognitive decline in seniors as part of its Safe Banking for Seniors program. The new guide includes information on how to start taking on financial responsibility, making legal preparations, recognizing the stages of cognitive decline and a caregiver's responsibilities during each stage of potential decline.

Resources also are available to help banks share the guide with the community, including a one-page visual roadmap highlighting symptoms to note, considerations for caregivers and ways to connect with bankers. The guide can be accessed by registering for the Safe Banking for Seniors program.

IRS Unveils Online Tool For Nonfilers To Facilitate Monthly Child Tax Credit

The Internal Revenue Service has created a new online tool for families that are normally not required to file an income tax return to register for the expanded child tax credit payments, which were authorized by the American Rescue Plan and which will begin to be distributed July 15. The sign-up tool is intended for individuals who did not file an income tax return for 2019 or 2020.

Users of the tool also can choose to enter direct deposit bank information so the IRS can deposit the payments directly into their checking or savings account. Eligible individuals who filed a 2019 or 2020 tax return or used the IRS non-filers tool last year to register for Economic Impact Payments do not need to take any action to receive their advance child tax credit payments beginning in July, the IRS said.

FDIC Announces Tech Competition To Reach Unbanked

The Federal Deposit Insurance Corporation announced a competition for companies to explore new technologies for banks that will meet the needs of unbanked individuals. The “tech sprint” asks participants to identify better tools to help banks get unbanked households into the banking system and keep them banked. The FDIC is inviting banks, nonprofit organizations, academic institutions and private sector companies to participate.

Organizations will have two weeks to submit applications requesting participation. After a review of submissions, the FDIC will invite a select number of teams to participate. Selected teams will have three weeks to work on their proposed solution and then the FDIC will host a demo day, inviting teams to make short presentations to a panel of experts who will evaluate their submission.

According to the FDIC, approximately 7.1 million U.S. households remain completely unbanked. The American Bankers Association has urged its member banks to actively promote financial inclusion, including through offering Bank On certified accounts. There are 92 financial institutions with more than 32,500 branches nationwide offering Bank On certified accounts, which offer features including low costs, online bill pay capabilities, no overdraft fees and certain transaction capabilities. Questions about the tech sprint can be sent to Innovation@FDIC.gov.

OSHA Updates Guidance For Non-Healthcare Industries

The Occupational Safety and Health Administration updated its guidance on mitigating and preventing the spread of COVID-19 in the workplace. The guidance, which tracks pronouncements of the Centers for Disease Control and Prevention, is not a standard or regulation and creates no new legal obligations.

The guidance states that “most employers no longer need to take steps to protect their fully vaccinated workers who are not otherwise at-risk from COVID-19 exposure.” The guidance adds that, where all employees are fully vaccinated and workers are not at-risk or immunocompromised, employers no longer need to take steps to protect their workers from COVID-19 exposure.

OSHA’s guidance suggests that unvaccinated customers, visitors or guests wear face coverings, especially in public-facing workplaces such as retail establishments.

ABA To Host Free Webinar On Expanding Black Homeownership

The American Bankers Association will host a free webinar at 2:30 p.m. Tuesday, June 29, about banks’ role in expanding Black homeownership. Participants will learn strategies to serve this segment of the market and explore relevant lending data. Speakers include leading experts from the National Association of Real Estate Brokers, Urban Institute, National Fair Housing Alliance and the Department of Housing and Urban Development.