Monthly Archives:' February 2014

Federal Reserve Enhancing Transparency in Applications Process

On  February 24, the Federal Reserve Board announced in SR 14-2 that it will start publishing a semi-annual report to provide certain information on bank applications and notices filed with the Federal Reserve to enhance transparency. The guidance applies to all financial institutions supervised by the Federal Reserve, including those with $10 billion or less in consolidated assets. The purpose of SR 14-2 is to provide a better understanding of the Federal Reserve’s approach to applications and notices that may not satisfy statutory requirements for approval of the proposal or otherwise raise supervisory or regulatory concerns.

The Board stated that the report will include statistics on the length of time taken to process various applications and notices and the overall volume of approvals, denials, and withdrawals. The report also will provide the primary reasons for withdrawals. The first report will be released in the second half of 2014 and will include filings acted on from January-June 2014. The letter also describes common issues identified by the Federal Reserve that have led to recent withdrawal of applications, including:

  • Less-than-satisfactory supervisory rating(s) for safety and soundness;
  • Less-than-satisfactory supervisory rating(s) for consumer compliance, or CRA;
  • Inadequate compliance with the Bank Secrecy Act ;
  • Concerns regarding the financial condition (capital, source of strength & acquisition debt);
  • Management of the proposed organization;
  • Adverse Comments; and
  • Competitive and Financial Stability Factors.

Speaking at Texas Bankers's Association Conference

Kennedy Sutherland attorneys, Mr. Patrick J. Kennedy, Jr. & Mr. Dub Sutherland, will present at the Texas Banker’s Association’s 94th Annual Agriculture & Rural Affairs Conference. The Conference will take place on April 9th and 10th at the Hilton College Station Hotel & Conference Center and will address legal, legislative and market issue impacting agriculture business in Texas and the United States. Mr. Kennedy & Mr. Sutherland will join other distinguished speakers at the conference and will present on “Rural Development Finance – Tax Credits and other Tools” on Friday, April 10th from 11:15 am to 12:15 pm. To learn more about the conference visit: 94th Annual Agriculture & Rural Affairs Conference.

New Markets Tax Credit Seminar

Join Kennedy Sutherland as we attend the New Market Tax Credit Educational Tour Seminar. Nationwide, more than $34 billion of New Markets Tax Credit capital has been invested into thousands of businesses and real estate developments since 2002. These unique tax credits have helped developers and business owners gain access to a low-cost source of capital to solve a portion of their capital needs while creating significant community and economic impact in distressed areas. Texas NMTC Seminar Invitation

ABA Urges Action on Basel III for Subchapter S Corporations

ABA urged federal regulators to remedy a provision in the Basel III capital standards that disadvantages the 2,000 community banks organized as Subchapter S corporations.

Basel III’s capital conservation buffer prevents banks from making distributions to shareholders when capital falls below a threshold, but because federal tax liability passes through a Sub S bank to individual shareholders, Sub S shareholders might face tax liability even when they had not received a distribution. C corporation banks subject to the capital buffer pay any taxes due directly out of the bank’s income. ABA said: “The rule will force identical S-Corp and C-Corp banks to accumulate capital at different rates, and likely will result in a powerful disincentive to invest in community banks that have elected Subchapter S status. This will be critically harmful to the growth and perhaps even viability of S-Corp community banks, and an invalidation of the purpose of Congress in creating the S-Corp category to stimulate investment in small businesses.”

ABA urged the regulators to allow Sub S banks to make distributions equal to the taxes due on the bank’s undistributed income, thus eliminating the disadvantage. It also posted a sample letter to help Sub S bankers write to the agencies themselves seeking action.

Read the letter.
Take action now.

Home Mortgage Disclosure Act Reporting Requirements

CFPB is questioning whether to increase the data collected under the Home Mortgage Disclosure Act to better monitor trends and abuses in the market. This would possibly requiring lenders to explain why they rejected a loan and whether they thought it was a so-called “qualifying mortgage.” In addition, financial institutions would have disclose an applicant’s debt-to-income ration, the interest rate, the total origination charges, and the total discount points of the loan.

CFPB is looking to get feedback from the industry and other interested parties about the expansion of the HMDA data reporting requirements later this year. Under HMDA, lenders are required to record the number of loans approved and rejected, a loan’s purpose (such as a refinancing), the sex, race and ethnicity of applicants and the interest rate spread, among other items. But the Dodd-Frank Act required the bureau to begin adding new data collection points, including total points and fees, the term of the loan, the length of any teaser interest rates and the borrower’s age and credit score. CFPB would goi beyond that, potentially asking lenders whether they considered a loan for QM status and to further explain if they rejected a loan. CFPB officials said they are also mindful of the data collection burden this would impose on lenders. The agency said it is considering ways to ease the compliance burden by aligning HMDA data collection with the Uniform Loan Delivery Dataset that lenders use to deliver loans to Fannie Mae and Freddie Mac.

‘Heightened Expectations’ for Banks

The OCC recently released proposed amendments to its Part 30 regulations, which reflect the agency’s “heightened expectations” for large banks. The “Interim Final Rule,” contains risk-management standards for institutions with more than $50 billion in assets. It also places greater responsibility on board members, particularly independent directors, to ensure that the rules are followed and to require that banks have independent audit and risk-management officers who can go straight to the board with concerns. In the Interim Final Rule OCC has explicitly reserved authority to apply the guidelines to an institution with less than $50 billion in assets if the OCC determines that it is highly complex or otherwise presents a heightened risk.

The guidelines give OCC more flexibility in determining whether to require the institution to submit a formal remediation plan. The standards are authorized by Section 39 of the Federal Deposit Insurance Act, which authorizes the appropriate federal banking agency to prescribe safety and soundness standards in the form of either regulations or guidelines. The standards are enforceable under existing provisions in the Part 30 regulations.

The Interim Final Rule’s guidelines apply to any national bank, federal savings association, or insured federal branch of a foreign bank, so long as it has average total consolidated assets of $50 billion or more measured on the basis of average total consolidated assets for the previous four calendar quarters. Unlike other regulatory regimes predicated on asset size, once that threshold is crossed, there is no turning back—even if the institution has four quarters with less than $50 billion in total consolidated assets.

The guidance calls for more governance framework for enterprise-wide risk management and identifies discrete roles to be played by such components as front line units, independent risk management, and internal audit. The bank can share its parent’s Framework if there is 95% overlap; otherwise, it must have its own Framework. The bank should also have a comprehensive, written risk appetite statement that serves as the basis for the Framework. This statement should include both qualitative components and quantitative limits. A much more proactive role is expected for the directors.

OCC is requesting comment on the Interim Final Rule and on its proposal to make Part 30 and all of its appendices applicable to federal savings associations and to remove as superfluous Part 170, which contains comparable regulations that apply to federal savings associations. The deadline for comments is 60 days from the date of publication in the Federal Register (printed on January 27, 2014).