Category Archives:Corporate Governance

Associations Supporting Regulatory Relief

On September 8, four trade associations representing 14,000 financial institutions – the American Bankers Association, the Credit Union National Association, the Independent Community Bankers of America, and the National Association of Federal Credit Unions – submitted a letter to Senate Banking Committee Chairman Richard Shelby and Ranking Member Sherrod Brown urging them to enact bipartisan legislation that would provide “regulatory relief to community financial institutions.” The letter describes the measures that community banks have been forced to make to address the “growing volume and complexity of regulations,” including cutting back on their loan officers ranks in favor of additional compliance staff and adjusting or eliminating financial products and services offered to consumers. The letter urges the Senate to pass the Financial Regulatory Improvement Act of 2015, S. 1484, which was approved by the Senate Banking Committee in May. This legislation, the letter claims, will “addresses statutory and regulatory obstacles that thwart the ability of community banks and credit unions to fully serve the diverse financial services needs of consumers.”


OCC Host Workshop in Dallas

The Office of the Comptroller of the Currency will host two workshops in Dallas at the Wyndham Dallas Suites – Park Central on October 20-21,  2015 for directors of national community banks and federal savings associations. The workshop is limited to the first 35 registrants and cost $99 to attend.

The Compliance Risk workshop on October 20 combines lectures, discussion, and exercises on the critical elements of an effective compliance risk management program. The workshop also focuses on major compliance risks and critical regulations. Topics of discussion include the Bank Secrecy Act, Anti-Money Laundering and Qualified Mortgage Regulations. The instructors will also touch on the new Truth-in-Lending (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) Integrated Disclosures Rule, also known as TRID.

Revised and updated for 2015, the Credit Risk workshop on October 21 focuses on credit risk within the loan portfolio, such as identifying trends and recognizing problems. The workshop also covers the roles of the board and management, how to stay informed of changes in credit risk, and how to effect change.

 The workshops are taught by experienced OCC staff and are two of the 35 offered nationwide to enhance and expand the skills of national community bank and federal savings association directors. For information, including a complete list of available workshops, or to register for a workshop, visit or call (240) 485-1700.

Community Bank Sensible Regulation Act

Senator Susan M Collins [R-ME] on July 21, 2015 introduced S. 1799, The Community Bank Sensible Regulation Act. The legislation would allow for banking regulators to have more discretion in reducing community bank burden. Last week, Senator Collins successfully was able to add the legislation to the financial services appropriations bill before it was approved by the Senate Appropriations Committee. It was included along with legislation from Senate Banking Committee Chairman Richard Shelby (R-Ala.) containing various provisions from ICBA’s Plan for Prosperity. Should the legislation be enacted community and regional banks under $10 billion in assets would greatly benefit and become exempt from regulations like the Volker Rule.

Remarks from EGRPRA Meeting in Boston

On May 4, OCC Comptroller Thomas J. Curry delivered remarks at the third outreach meeting held under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) in Boston. In his remarks the Comptroller acknowledged that smaller banks and thrifts don’t have the same kind of resources that large institutions can bring to bear on regulatory compliance, and noted that if they could eliminate unnecessary rules and streamline others, it would make it easier for these smaller institutions to serve the economic needs of their communities. With this in mind, it is expected that a fourth outreach meeting will be announced later this year focused solely on rural banks, which face their own unique challenges.

Curry noted that the agency continuing to work with Congress and the FFIEC to remove the outdated and onerous regulatory requirements currently imposed on these institutions: “If it is clear that a regulation is unduly burdensome, and if we have the authority to make changes to eliminate that burden, we will act.” Currently, the agency has presented lawmakers with three specific proposals to remove regulatory burden on smaller banks: (i) raise the asset threshold from $500 million to $750 million so that a greater number of community banks qualify for the 18-month examination cycle; (ii) provide a community bank exemption from the Volcker Rule; and (iii) provide greater flexibility to federal savings associations to change and expand their business strategies without changing their governance structure. Curry further stated, “I think these legislative proposals are meaningful steps which could help a great number of smaller institutions. But we shouldn’t stop there. We should be looking at every approach that might help community banks thrive in the modern financial world.”

In addition Curry noted the success of collaborative ventures between banks.”There are opportunities to save money by collaborating on accounting, clerical support, data processing, employee benefit planning, health insurance – and the list goes on.”

Regulatory Capital Rule's FAQs Released

Financial Institutions are accountable for complex risk-based regulatory capital rules. Some may use internal risk management models approved by the relevant regulator while others must use standardized rules set out in the regulations. On April 6th, The Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (the agencies), issued FAQs for clarification for regulated institutions about the agencies’ regulatory capital rule. The FAQ topics included, but are not limited to:

  • The definition of capital,
  • High-volatility commercial real estate (HVCRE) exposures,
  • Real estate and off-balance-sheet exposures,
  • Equity exposures to investment funds,
  • Qualifying central counterparty, and
  • Credit valuation adjustment.

Reserve Banks are asked to distribute the FAQs to the state member banks, bank holding companies, and relevant savings and loan holding companies in their districts and to appropriate supervision staff.  As the agencies anticipate issuing additional FAQs in response to questions from institutions, the Federal Reserve will periodically update the FAQ document.

Reporting for Legal Entity Identifiers

On March 16, the Federal Reserve Board (FRB) issued a proposal seeking public comment within 60 days that would require all banking organizations with existing Legal Entity Identifiers (LEIs) to report their respective LEIs on regulatory reporting forms beginning June 30, 2015.  Specifically the report ask for comments on: (a.) Whether the proposed collection of information is necessary for the proper performance of the Federal Reserve’s functions; including whether the information has practical utility; (b.) The accuracy of the Federal Reserve’s estimate of the burden of the proposed information collection, including the validity of the methodology and assumptions used; (c.) Ways to enhance the quality, utility, and clarity of the information to be collected; (d.) Ways to minimize the burden of information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and (e.) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.

Several years ago, the Financial Stability Board began implementing a global identifier system that would uniquely identify parties to financial transactions, and in January 2013, the LEI Regulatory Oversight Committee was established to oversee the Global Legal Entity Identifier System. As the usage of LEI becomes more prominent, it should enable examiners, economists, and financial analysts to perform improved analyses, particularly during stressed market conditions, and would assist the regulatory community and the financial services industry at large. In addition, it is expected that the use of the LEI among the regulators will expand to facilitate better information sharing and coordination regarding financial policy, rulemaking, examinations, reporting requirements, and enforcement actions.

Technical Assistance to Meet Regulatory Requirements

Today, the FDIC released it’s third video developed to assist bank employees in meeting regulatory requirements. These videos address compliance with certain mortgage rules issued by the Consumer Financial Protection Bureau (CFPB). The first video, released on November 19, 2014, covered the Ability to Repay and Qualified Mortgage Rule. The second video, released on January 27, 2015, covered the Loan Officer Compensation Rule. The third video, released today, covers the Mortgage Servicing Rules. The three technical assistance videos are intended for compliance officers and staff responsible for ensuring the bank’s mortgage lending and servicing operations comply with CFPB rules.

The FDIC’s technical assistance videos and additional information can be accessed atL

OCC Highlights Key Risks Facing Banking System

The Office of the Comptroller of Currency has released their semiannual report highlighting key risk areas affecting the federal banking system. The report presents data in five main areas: the operating environment; bank condition; key risk issues; the range of practice in interest rate risk modeling; and regulatory actions. It focuses on issues that pose threats to the safety and soundness of those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners, and the public, reflecting data as of June 30, 2014. 

Specifically regarding community and midsize banks, the report identifies key risks facing community and midsize banks including:

  • High strategic risk as banks adapt their business models to respond to sluggish economic growth, low interest rates, and intense competitive pressures.
  • Properly planning for management succession and retention of key staff.
  • Erosion of underwriting standards in various loan products.
  • Expansion into loan products that require specialized risk management processes and skills, such as participations in syndicated leveraged loans.
  • Increasing exposure to IRR at banks with concentrations in long-term assets (including mortgagebacked securities [MBS] and loans) and uncertainties about the behavior of NMDs once interest rates increase.
  • Appropriate oversight of third parties vendors.
  • Increasing volume and sophistication of cyberthreats.
  • Increasing BSA/AML risk because of higher-risk services and customer relationships
  • Ensuring effective compliance management systems and staffing

The outlook for community and midsize banks includes

  • Moderate to strong loan growth, stabilizing NIM, and stronger capital ratios.
  • Suppressed mortgage-banking revenue and lower gain-on-sale margins
  • A continued search for higher-yielding assets and profitable strategic business niches.
  • Expansion into new products and services


Agencies Seek Comment to Reduce Burdensome Regulations

On June 4, the Fed, FDIC and OCC (“The Agencies”) published the first of several requests for comments to identify “outdated, unnecessary or unduly burdensome regulations imposed on insured depository institutions.”

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires the federal banking regulators to review regulations issued by the agencies at least every 10 years. It also requires the regulators to break down the regulations by category, present each category for comment and identify areas of regulations that are outdated, unnecessary or unduly burdensome.

The first notice seeks comment on regulations from three categories: Applications and Reporting; Powers and Activities, and International Operations. The public will have until September 2, 2014, to review and comment on this first set of categories.

The agencies plan to schedule roundtable discussions with bankers and interested parties and will publish details about these sessions on the EGRPRA website as they are finalized.

Federal Register Notice (PDF)

Virtual Currencies Under Texas Money Services Act

On April 3, 2014, The Texas Department of Banking issued a supervisory memorandum interpreting how virtual currencies, including cryptocurrencies, will be regulated under the Texas Money Services Act. Virtual currencies have increased rapidly in recent years and, particularly with the advent of cryptocurrencies like Bitcoin, have raised novel questions in relation to money transmission and currency exchange. Due to this advent and rapid growth, the policy expresses the Department’s interpretation of the Texas Money Services Act, the application of its interpretation to various activities involving virtual currencies, and the regulatory treatment of virtual currencies under existing statutory definitions.

After discussing types of virtual currencies, the Department of Banking determines that for purposes of currency exchange under the Texas Finance Code, cryptocurrencies are not considered currencies under statute as they are not “coin and paper money issued by the government of a country.” Therefore absent a legislative change to the statute, no currency exchange license is required in Texas to conduct any type of transaction exchanging virtual with sovereign currencies.

In regards to money transmission, the Department of Banking declines to offer generalized guidance on centralized virtual currency under the Texas Money Service Act because such schemes require individual analysis. As to whether transactions in cryptocurrency should be considered money transmission, the Department of Banking indicates that the determination turns on the single question of whether they are “money or monetary value.” The Texas Finance Code defines the terms for “money” and “monetary value” to mean “currency or a claim that can be converted into currency through a financial institution, electronic payments network, or other formal or informal payment system.” As noted in the currency exchange analysis, cryptocurrencies are not issued by a government as legal tender and thus are not “currency”. The Department of Banking reasons that because owners of cryptocurrency do not have a guaranteed right to convert their cryptocurrency into sovereign currency, cryptocurrencies are also not a “claim” within the meaning of the statute. Cryptocurrency is therefore not considered “money or monetary value” under the Money Service Act.

Because cryptocurrency is not money under the Money Services Act, receiving it in exchange for a promise to make it available at a later time or different location is not money transmission. Consequently, absent the involvement of sovereign currency in a transaction, no money transmission can occur. However, when a cryptocurrency transaction does include sovereign currency, it may be money transmission depending on how the sovereign currency is handled. To provide further guidance, the regulatory treatment of some common types of transactions involving cryptocurrency can be determined as follows. 

  • Exchange of cryptocurrency for sovereign currency between two parties is not money transmission. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency in exchange for a promise tomake it available at a later time or different location.
  • Exchange of one cryptocurrency for another cryptocurrency is not money transmission (regardless of how many parties are involved).
  • Transfer of cryptocurrency by itself is not money transmission.
  • Exchange of cryptocurrency for sovereign currency through a third party exchanger is generally money transmission.
  • Exchange of cryptocurrency for sovereign currency through an automated machine is usually but not always money transmission.

Lastly, the Department of Banking highlights three considerations that cryptocurrency businesses that conduct money transmission must comply with for licenses in Texas: (1) because a money transmitter conducting virtual currency transactions conducts business through the Internet, the minimum net worth requirement is $500,000 (and possibly up to $1,000,000), (2) a license holder may not include virtual currency assets in calculations for its permissible investments, and (3) applicants must provide a third party security audit of their computer systems in order to ensure the virtual currency is safeguarded for consumers.

Read more of Supervisory Memorandum – 1037.