Differing Priorities? On June 14, Comptroller of the Currency Joseph M. Otting testified before the Senate Committee on Banking, Housing, and Urban Affairs, addressing his priorities for the Office of the Comptroller of the Currency (OCC) and the federal banking system. The Comptroller’s parallel written testimony also provides an overview of the condition of the federal banking system and a summary of the credit, interest rate, operational, and compliance risks it faces. The Comptroller’s priorities include:

• Modernizing the Community Reinvestment Act (CRA) to increase lending, investment, and financial education where it is needed most;
• Encouraging banks to meet short-term small-dollar credit needs;
• Enhancing the efficacy and efficiency of compliance with the Bank Secrecy Act and anti-money laundering requirements;
• Simplifying regulatory capital requirements;
• Reducing the burden of the Volcker Rule; and
• Ensuring the OCC operates effectively and efficiently.

The Comptroller also indicated that the OCC plans to supervise institutions consistent with the intent of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act and will not enforce requirements on banks that the bill intends to eliminate.

About a week later, on June 19, in her first public remarks since assuming her new role, Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams outlined the key items of her agenda, including: 

• Giving a “fresh eye” to FDIC regulations as part of the effort of federal banking regulators to revisit rules promulgated in response to the Dodd-Frank Act, stating that she has asked FDIC staff to “take a look at the existing rules and to make me a list of all the guidelines that we have issued for comment and not for comment, as well as the rulemakings,” and further remarking, “To the extent that guidances were never open for public comment, those will probably rise to the top of my list”;
• Seeking to ensure that prudential regulators apply CAMELS ratings consistently, noting that she wonders “whether the three agencies apply the Camels rating uniformly. And to the extent that they don’t, why not and what does it mean?”;
• Accelerating decisions on deposit insurance applications, including for industrial loan company (ILC) charters;
• Addressing industry concerns regarding banking to marijuana-related businesses, stating that “It’s not our job as an agency to set our federal policy” on marijuana, “but it is our job to help our regulated entities learn how to comply in a way that makes sense.”

While Ms. McWilliams seems to share the Comptroller’s regulatory relief goals, it is noteworthy that her agenda differs from the Comptroller’s stated priorities in several respects. In particular, Ms. McWilliams did not immediately endorse the Comptroller’s goals of modernizing the CRA and reforming Bank Secrecy Act and anti-money laundering compliance, and went well beyond the Comptroller’s objectives by implicitly supporting the ILC charter and banking with marijuana businesses. It remains to be seen whether these differences are substantive, or merely the product of the Chairman being on the job for only a few weeks and the Comptroller’s objectives being more specific in nature.

Regulatory Developments

Fed Approves Final Rule Setting Single Counterparty Credit Limit

On June 14, the Board of Governors of the Federal Reserve System (Federal Reserve) approved a final rule designed to reduce the risk of contagion to the financial system by limiting the amount of credit exposure large banking organizations can have with respect both to each other and to other counterparties. The rule, which implements part of the Dodd-Frank Act, covers loans, derivatives, securities lending transactions and certain other transactions. Under the rule, a global systemically important bank holding company (GSIB), any bank holding company with $250 billion or more in total consolidated assets, or any U.S. intermediate holding company with $50 billion or more in consolidated U.S. assets is limited to a net credit exposure of no more than 15 percent of its tier 1 capital to another systemically important financial firm, and to a net credit exposure of no more than 25 percent of tier 1 capital to any other counterparty. A foreign bank’s combined U.S. operations, outside of its U.S. intermediate holding company, will be considered in compliance if a comparable rule is in effect in the foreign bank’s home country. The Federal Reserve indicated in the rule’s release that it will consider whether a credit exposure limit should apply to holding companies between $100 billion and $250 billion in assets, though no such limits were imposed in this rule. The rule takes effect January 1, 2020, for GSIBs and July 1, 2020, for all other firms.

OCC Outlines How Examiners Assess CRA Performance

On June 15, the OCC issued a bulletin clarifying how examiners evaluate and communicate bank performance under the CRA. The bulletin is applicable to all national banks, federal savings associations, and federal branches and agencies subject to evaluation under the CRA. The bulletin includes clarifications to both supervisory policies and procedures. The policy clarifications address:

• implementation of full-scope and limited-scope reviews;
• consideration of activities that promote economic development;
• use of demographic, aggregate, and market share data;
• evaluation of the borrower distribution of loans outside bank assessment areas;
• evaluation of frequency and timing;
• the CRA performance evaluation period; and
• evaluation of home mortgage loans.

In addition, the process clarifications address:

• the type of information considered and presented in the written performance evaluation and the process for sharing CRA evaluation data and ratings;
• factors considered when evaluating bank performance under the small- and large-bank lending tests;
• branch distribution when concluding on the availability and effectiveness of bank systems for delivering retail banking services;
• internal and external performance context factors when concluding on performance; and
• consideration of CRA plans imposed as conditions of approval of corporate applications in the evaluation process.

These clarifications are effective immediately. The OCC has also rescinded its previous guidance from December 29, 2000 (“Large Bank CRA Examiner Guidance”). The rescission is effective June 1, 2018.

President Trump Nominates Kathy Kraninger to Lead the CFPB

On June 18, President Trump announced his intent to nominate Kathy Kraninger as Director of the Consumer Financial Protection Bureau (CFPB), replacing Acting Director Mick Mulvaney. Ms. Kraninger currently serves as the Associate Director for General Government at the Office of Management and Budget. She previously served as Deputy Assistant Secretary for Policy at the Department of Homeland Security and as a congressional staff member for both the House Committee on Appropriations and the Senate Committee on Appropriations. Mr. Mulvaney will continue to serve as Acting Director until Ms. Kraninger is confirmed by the Senate.

Client Alert: SEC Director Clears Path for Secondary Sales of Security Tokens as Non-Securities, Declares Bitcoin and Ether Non-Securities

The Securities and Exchange Commission (SEC) finally provided some good news, and guidance, regarding permissible token sales. On June 14, William Hinman, Director of the SEC Division of Corporation Finance, speaking at the Yahoo Finance All Markets Summit: Crypto, shared remarks that filled in some gaps surrounding the security status of tokens that have been issued in initial coin offerings (ICOs) and other token sales. Specifically, he told the audience that, in some circumstances, digital assets originally sold as securities may later be sold as non-securities, and that Bitcoin and Ether are not securities. For more information, read the client alert issued by Goodwin’s Digital Currency and Blockchain Technology practice.

CFPB Report Hints at Possible Debt Collection Focus

The CFPB has released an analysis of consumer debt collection complaints highlighting several issues that often arise in those complaints. In light of Acting Director Mulvaney’s comment in his January 2018 staff memo that debt collection complaints made up the majority of complaints received by the CFPB, the report potentially hints at future areas of focus for the CFPB. After providing complaint statistics by product and by state, the CFPB’s recent report turns its focus to debt collection complaints. View the LenderLaw Watch blog post.