June 3, 2022

ABA: Updates Needed To FDIC Merger Guidelines

In a detailed comment letter to the Federal Deposit Insurance Corporation last Friday, the American Bankers Association called for updates to the agency’s 25-year-old guidelines regarding bank merger transactions, acknowledging the significant changes that the financial services industry has undergone since they were originally put in place.

As it contemplates changes to the guidelines, ABA urged the FDIC to consider adopting joint guidance with the Department of Justice’s Antitrust Division and the other banking agencies. (DOJ has also sought feedback on its merger guidelines, and ABA has submitted similar comments.) ABA also emphasized that competitive analysis should consider financial services provided to a market through channels other than branch networks and by nonbank firms. The association also advocated for an increase in the threshold of the Herfindahl-Hirschman Index below which the FDIC will generally not challenge proposed mergers or require divestitures of branches or other operations.

“Under current application of the banking guidelines, small institutions may be prevented from merging if the government assumes they are the only competitors in their geographic markets, as FDIC, the other bank regulatory agencies, and the [Antitrust] Division define those markets,” ABA said. “This outdated conception fails to reflect the competitive impact of online channels and other means of delivering financial services that do not depend on physical branch networks and are not captured by current competitive analyses. A more comprehensive analysis of these competitive factors will provide an accurate picture of products and services available to customers and promote a healthy market and economy.”

Finally, ABA said that any changes to the banking guidelines should offer adequate opportunity for public review and comment.

ABA Calls For ‘Flexible, Iterative’ Approach To FDIC Climate Risk Management

While expressing overall support for the Federal Deposit Insurance Corporation’s Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions, the American Bankers Association emphasized the need for a “flexible and iterative, principles-based approach” until the data and methodologies for understanding climate-related financial risk are more fully developed.

“Overall, we support the principles as a guide for larger institutions, which are currently working to better understand their climate-related risks and communicate the information and actions to regulators, investors and other stakeholders,” ABA wrote. The association noted that large banks are making “significant investments” in staffing, training, systems, modeling and data collection to better assess their climate-related risks.

‌The principles are intended to improve the identification and management of climate-related financial risks at banks with $100 billion or more in assets. ABA urged the FDIC not to expand the scope of the guidance to midsize and community banks until more robust data is available and the climate-related financial risks and opportunities are better understood. ABA believes any future guidance or regulations should remain open-ended, with regulators focused on ensuring that the largest banks are progressing in their capabilities and conducting internal climate-related risk analysis calibrated to the risks material to their individual business model.

“Over the near term, attaching regulatory consequences to climate-related risk exposures would be premature,” ABA said. “Additional regulation based on today’s capabilities could potentially result in a misallocation of resources.” ABA also asked that the FDIC work closely with the other U.S. banking and financial agencies and international standard-setting bodies to “close data gaps and apply a consistent set of definitions, assumptions and methodologies.” The FDIC’s principles are similar to a proposal issued by the OCC earlier this year, to which ABA sent a similar response.

ABA Supports FHA’s Proposed 40-Year Mortgage Modification

The American Bankers Association has expressed support for the Department of Housing and Urban Development’s proposed rule to amend the Federal Housing Administration’s current regulation to allow for mortgagees to provide a standalone 40-year loan modification.

“ABA strongly supports this proposal and believes that allowing servicers to further reduce FHA-insured borrowers’ monthly payments for loans by recasting the unpaid principal balance for up to 40 years will help improve these borrowers’ ability to maintain their home,” the association wrote. “A longer recast of amortization terms should provide a significant reduction in the borrowers’ monthly payment as the outstanding balance would be spread over a longer period. By significantly lowering the monthly payments for the borrower, more homeowners would have the ability to retain their homes after default following periods of hardship. This change should also help mitigate foreclosure for many FHA-insured borrowers.”

ABA noted that the proposed rule permits FHA to offer modifications comparable to those available to borrowers with mortgages backed by Fannie Mae, Freddie Mac and others if certain conditions are met.

ABA, CBA Support CFPB’s Nonbank Supervision, Oppose Disclosure Of CSI

The American Bankers Association and the Consumer Bankers Association expressed support for the Consumer Financial Protection Bureau’s recent announcement that it will increase nonbank supervision. The CFPB is authorized for two years to supervise nonbanks that present an immediate risk of harm to consumers.

At the same time, the associations expressed opposition to the CFPB’s procedural rule to establish a process for the agency to release publicly all or part of any decision or order subjecting a nonbank to the agency’s supervision.

“The public release of this information would set a harmful precedent by disclosing confidential supervisory information,” ABA and CBA said. “The release also will not provide helpful guidance to regulated entities because the decision or order will be based on inchoate risk assessments resting on incomplete and potentially inaccurate information, not verified illegal conduct based on a full record and analysis.”

The associations instead called for the CFPB to publish a list of nonbanks that are under its supervision and issue editions of Supervisory Highlights that describe the agency’s identification of illegal conduct by nonbanks. The associations also urged the CFPB expeditiously to initiate separate rulemakings to define data aggregators and nonbank consumer installment lenders as larger participants in their respective markets.

ABA, SIFMA Ask SEC To Delay Effective Date On Crypto-Asset Bulletin

Amid the growing ownership of digital assets like cryptocurrencies, the American Bankers Association and the Securities Industry and Financial Markets Association asked the Securities and Exchange Commission to provide key clarifications and delay the effective date of its staff accounting bulletin on safeguarding crypto assets.

SEC staff accounting bulletin 121 — issued in March and with an effective date for the quarter ending June 30, 2022 — requires that SEC registrants that have a safeguarding obligation for crypto assets (for example, a custodian) must record an obligation based on the fair value of the underlying crypto assets.

“[T]his guidance has raised a number of policy, scope and legal questions given its potential broad long-term impact on our member firms, which we are reviewing and addressing with the SEC, as well as other regulators and policy stakeholders,” ABA and SIFMA wrote, adding that “our member firms believe there are a number of questions regarding the scope and application of SAB 121 and, therefore, believe deferral of the effective date is necessary to ensure these matters are appropriately addressed.”‌

The associations also asked for clarification on the scope and application of SAB 121 and noted that the Financial Accounting Standards Board and the prudential bank regulators are engaged in their own projects related to digital assets. “The fact that these processes are ongoing, coupled with the lack of clarity regarding scope and application of SAB 121, impacts the ability of our members to meet their regulatory reporting requirements,” they said.

ABA To Host Call For Black Banker Network

The American Bankers Association will host the next bimonthly call for its cross-bank network for Black bankers and all bank professionals seeking to advance Black employment, networking and professional development in banking in the industry at 1 p.m. Friday, June 10. At this meeting, the leadership committee will present a draft of the mission and vision for the group and discuss goals and next steps.

At many larger firms, employee resource groups provide a space for groups of people who share a common identity to network and engage in professional development; ERGs also help with recruitment and retention of employees. However, because many Black bankers work in smaller organizations without access to other Black peers to share experiences, ask questions, to mentor and be mentored, ABA is exploring ways to support inclusion at an industry-wide level.