‘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).

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