Category: Banking & Consumer Reg Policy

Federal Reserve Board announces it has not objected to a re-submitted capital plan from Ally Financial Inc.

Release Date: November 15, 2013
For immediate release
The Federal Reserve on Friday announced that it has not objected to a re-submitted capital plan from Ally Financial Inc. Earlier this year, the Federal Reserve objected to Ally’s 2013 capital plan …

Agencies release final revisions to interagency questions and answers regarding community reinvestment

Federal Deposit Insurance Corporation
Board of Governors of the Federal Reserve System
Office of the Comptroller of the Currency
 

Agencies Release Final Revisions to Interagency Questions and Answers Regarding Community Reinvestment

The federal bank regulatory agencies with responsibility for Community Reinvestment Act (CRA) rulemaking today published final revisions to “Interagency Questions and Answers Regarding Community Reinvestment.” The Questions and Answers document provides additional guidance to financial institutions and the public on the agencies’ CRA regulations.

The revisions focus primarily on community development. Community development activities are considered as part of the CRA performance tests for large institutions, intermediate small institutions, and wholesale and limited purpose institutions. Small institutions may use community development activity to receive consideration toward an outstanding CRA rating. Among other things, the amendments:

• Clarify how the agencies consider community development activities that benefit a broader statewide or regional area that includes an institution’s assessment area.
• Provide guidance related to CRA consideration of, and documentation associated with, investments in nationwide funds.
• Clarify the consideration of certain community development services, such as service on a community development organization’s Board of Directors.
• Address the treatment of loans or investments to organizations that, in turn, invest those funds and use only a portion of the income from their investment to support a community development purpose.
• Clarify that community development lending performance is always a factor considered in a large institution’s lending test rating.

The final revisions are being issued by the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency. The attached notice will be published shortly in the Federal Register. The agencies also are revising the relevant interagency CRA examination procedures, which will be released soon.

For more information on the CRA, including these Questions and Answers and the agencies’ CRA regulations, visit the Federal Financial Institutions Examination Council website at: http://www.ffiec.gov/cra.

Attachment (PDF)

Board Votes

Federal Reserve Board issues final policy statement for developing scenarios for future capital planning and stress testing exercises

Release Date: November 7, 2013
For immediate release
The Federal Reserve Board on Thursday issued a final policy statement describing the processes it will use to develop scenarios for future capital planning and stress testing exercises.
The policy s…

Federal Reserve Board releases supervisory scenarios and instructions for 2014 capital planning and stress testing

Release Date: November 1, 2013

For immediate release

The Federal Reserve Board on Friday issued the supervisory scenarios that will be used in the 2014 capital planning and stress testing program, as well as instructions to firms with timelines for submissions.  The program includes the Comprehensive Capital Analysis and Review (CCAR) of 30 bank holding companies with $50 billion or more of total consolidated assets. 

The aim of the annual reviews is to ensure that large financial institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that they have sufficient capital to continue operations throughout times of economic and financial stress.  Capital is important to banking organizations, the financial system, and the economy broadly because it acts as a cushion to absorb losses and helps to ensure that losses are borne by shareholders, not taxpayers.

“The capital planning and stress testing program has been an integral component of the Federal Reserve’s broader supervisory and regulatory efforts to make the financial system stronger and safer since the financial crisis,” Gov. Daniel K. Tarullo said. 

Financial institutions submitting capital plans will be evaluated to ensure they have sufficient capital to continue to lend to households and businesses even under stressful conditions.  In addition, they must incorporate the transition requirements from the recently finalized Basel III capital standards into their stress tests and capital plans.

CCAR includes an evaluation of institutions’ plans to make capital distributions, such as dividend payments or stock repurchases.  The Federal Reserve will approve capital distributions only for institutions whose capital plans it approves and who demonstrate sufficient financial strength even after making the planned capital distributions to continue operating as financial intermediaries under stressful economic and financial conditions.

Eighteen bank holding companies will be participating in the CCAR for the fourth consecutive year in 2014.  An additional 12 financial institutions will be participating in CCAR for the first time during this stress testing cycle. 

The capital planning and stress testing program led by the Federal Reserve since the financial crisis has contributed to a significant increase in capital at the largest banking organizations in the United States.  The 18 bank holding companies have increased their aggregate tier 1 common capital to $836 billion in the second quarter of 2013, the period of most recent data, from $392 billion in the first quarter of 2009.  The tier 1 common ratio for these firms, which compares high-quality capital to risk-weighted assets, has more than doubled to a weighted average of 11.1 percent from 5.3 percent.

All 30 of the companies in the CCAR in 2014 must submit their capital plans on or before January 6, 2014.

As in previous years, the Federal Reserve in March will release summary results, including supervisory projections of capital ratios, losses, and revenues under stress scenarios. For the first time in 2014, the Federal Reserve will publish the results of stress tests conducted under the supervisory adverse scenario.  As in prior years, results of stress tests under the severely adverse scenario will also be released.

The Federal Reserve will require institutions to use the supervisory scenarios in both the stress tests conducted as part of the CCAR and in the stress tests that are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Some companies that are not part of CCAR, including state member bank subsidiaries of CCAR participants and some companies with between $10 billion and $50 billion in assets, also will use the supervisory scenarios for Dodd-Frank Act stress tests.

The baseline, adverse, and severely adverse scenarios include 28 variables, including economic activity, unemployment, exchange rates, prices, incomes, and interest rates.  To accompany the scenarios, the Federal Reserve is publishing a narrative that describes the general conditions surrounding the scenarios, changes to the scenarios from previous years, and a general description of other variables that firms may use in their stress tests. 

As in prior years, six bank holding companies with large trading operations will be required to factor in a global market shock as part of their scenarios.  The Federal Reserve will publish the components of the global market shock soon.  In addition, for the first time in 2014, eight bank holding companies with substantial trading or custodial operations will be required to incorporate a counterparty default scenario.
 

2014 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule (PDF)

Comprehensive Capital Analysis and Review 2014: Summary Instructions and Guidance (PDF)

Related Information

For media inquiries, call 202-452-2955.

Federal regulators provide guidance on Qualified Mortgage fair lending risks

Board of Governors of the Federal Reserve SystemConsumer Financial Protection BureauFederal Deposit Insurance CorporationNational Credit Union AdministrationOffice of the Comptroller of the Currency

For immediate release
October 22, 2013

Federal Reg…

Regulators release amended consent orders for EverBank

Board of Governors of the Federal Reserve SystemOffice of the Comptroller of the Currency

For immediate release
October 16, 2013

Regulators Release Amended Consent Orders for EverBank
WASHINGTON–The Office of the Comptroller of the Currency (OCC) a…

Agencies request comment on proposed flood insurance rule

Board of Governors of the Federal Reserve System
Farm Credit Administration
Federal Deposit Insurance Corporation
National Credit Union Administration
Office of Comptroller of the Currency

Agencies Request Comment on Proposed Flood Insurance Rule

Five federal regulatory agencies are issuing a joint notice of proposed rulemaking to amend regulations pertaining to loans secured by property located in special flood hazard areas. The proposed rule would implement certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters) with respect to private flood insurance, the escrow of flood insurance payments, and the forced-placement of flood insurance. Separate from the agencies’ joint proposal, Biggert-Waters also mandated other changes to the National Flood Insurance Program.

The proposed rule would require that regulated lending institutions accept private flood insurance as defined in Biggert-Waters to satisfy the mandatory purchase requirements and solicits comment on whether the agencies should adopt additional regulations on the acceptance of flood insurance policies issued by private insurers. In addition, the proposal would require regulated lending institutions to escrow payments and fees for flood insurance for any new or outstanding loans secured by residential improved real estate or a mobile home, not including business, agricultural and commercial loans, unless the institutions qualify for the statutory exception. 

The proposal includes new and revised sample notice forms and clauses concerning the availability of private flood insurance coverage and the escrow requirement. Finally, the proposal would clarify that regulated lending institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date on which the borrower’s coverage lapsed or became insufficient and would stipulate the circumstances under which a lender must terminate force-placed flood insurance coverage and refund payments to a borrower.

The agencies’ proposal would implement only the provisions of Biggert-Waters relating to the mandatory purchase of flood insurance over which the agencies have jurisdiction. Accordingly, regulated lending institutions should review Biggert-Waters for further information about revisions to the flood insurance statutes that will not be implemented through this rulemaking. 

The proposed rule is being issued by the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency.

The public will have until December 10, 2013, to review and comment on most of the proposal. However, comments related to the proposed Paperwork Reduction Act analysis will be due 60 days after the rule is published in the Federal Register.

Proposed Rule (PDF)
 

Credit risk in the Shared National Credit portfolio unchanged

Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of Comptroller of the Currency

Credit Risk in the Shared National Credit Portfolio Unchanged

The credit quality of large loan commitments owned by U.S. banking organizations, foreign banking organizations (FBOs), and nonbanks was relatively unchanged in 2013 from the prior year, federal banking agencies said Thursday. 

The volume of criticized assets remained elevated at $302 billion, or 10 percent of total commitments, which was approximately twice the percentage of pre-crisis levels. The stagnation in credit quality follows three consecutive years of improvements. A criticized asset is rated special mention, substandard, doubtful, or loss as defined by the agencies’ uniform loan classification standards. The Shared National Credits (SNC) annual review was completed by the Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency. 

Leveraged loans–transactions characterized by a borrower with a degree of financial leverage that significantly exceeds industry norms–totaled $545 billion of the 2013 SNC portfolio and accounted for $227 billion, or 75 percent, of criticized SNC assets. Material weaknesses in the underwriting of leveraged loans were observed, and 42 percent of leveraged loans were criticized by the agencies. 

The federal banking agencies issued updated leveraged lending supervisory guidance on March 21, 2013. After declining during the financial crisis, the volume of leveraged lending has since increased and underwriting standards have deteriorated. The agencies expect supervised firms to properly evaluate and monitor credit risks in their leveraged loan commitments and ensure borrowers have sustainable capital structures.

Refinancing risk continued to ease in 2013 with only 15 percent of SNCs maturing over the next two years, compared with 23 percent for the same time frame in the previous review. Borrowers continued to refinance and extend loan maturities during the past year.

Other highlights:

• Total SNC commitments increased by $219 billion to $3.01 trillion, an 8 percent gain from the 2012 review. Total SNC loans outstanding increased $199 billion to $1.36 trillion, an increase of 10 percent.
• Criticized assets represented 10 percent of the SNC portfolio, compared with 11 percent in 2012.
• Classified assets, which are rated as substandard, doubtful, and loss, represented 6 percent of the SNC portfolio, compared with 7 percent in 2012.
• Credits rated special mention, which exhibit potential weakness and could result in further deterioration if uncorrected, increased from $99 billion to $115 billion, representing approximately 4 percent of the portfolio, a slight increase from 2012.
• Adjusted for losses, nonaccrual loans declined from $82 billion to $61 billion, a 26 percent reduction.
• The distribution of credits across entities, (U.S. banking organizations, FBOs, and nonbanks) remained relatively unchanged. U.S. banking organizations owned 44 percent of total SNC loan commitments, FBOs owned 36 percent, and nonbanks owned 20 percent. 
• Nonbanks continued to own a larger share of classified (67 percent) and nonaccrual (72 percent) assets than their total share of the SNC portfolio. Institutions insured by the FDIC owned 12 percent of classified assets and 7 percent of nonaccrual loans.

The SNC program was established in 1977 to provide an efficient and consistent review and analysis of SNCs. A SNC is any loan or formal loan commitment, and asset such as real estate, stocks, notes, bonds, and debentures taken as debts previously contracted, extended to borrowers by a federally supervised institution, its subsidiaries, and affiliates that aggregates $20 million or more and is shared by three or more unaffiliated supervised institutions. Many of these loan commitments are also shared with FBOs and nonbanks, including securitization pools, hedge funds, insurance companies, and pension funds.

In conducting the 2013 SNC Review, the agencies reviewed $800 billion of the $3.01 trillion credit commitments in the portfolio. The sample was weighted toward noninvestment grade and criticized credits. The results of the review are based on analyses prepared in the second quarter of 2013 using credit-related data provided by federally supervised institutions as of December 31, 2012, and March 31, 2013. 

Attachments

Regulators encourage institutions to work with borrowers affected by government shutdown

Board of Governors of the Federal Reserve System
Consumer Financial Protection Bureau
Federal Deposit Insurance Corporation
National Credit Union Administration
Office of the Comptroller of the Currency

For immediate release

October 9, 2013

Regulators Encourage Institutions to Work with Borrowers Affected by Government Shutdown

Five federal regulatory agencies encourage financial institutions to work with customers affected by the federal government shutdown.

Prudent workout arrangements that are consistent with safe-and-sound lending practices are generally in the long-term best interest of the financial institution, the borrower, and the economy.

Affected borrowers may face a temporary hardship in making payments on debts such as mortgages, student loans, car loans, credit cards, and other debt.  The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations.  The agencies realize that the effects of the federal government shutdown on individuals should be transitory, and prudent efforts to modify terms on existing loans should not be subject to examiner criticism.  

Those affected by the government shutdown are encouraged to contact their lenders immediately should financial strain occur.

Media Contacts:
Federal Reserve Board	Barbara Hagenbaugh	(202) 452-2955
CFPB	Samuel Gilford	(202) 435-7673
FDIC	Andrew Gray	(202) 898-7192
NCUA	John Fairbanks	(703) 518-6336
OCC	Bryan Hubbard	(202) 649-6747

Last update: October 9, 2013

Agencies release public sections of the second submission of resolution plans for 11 institutions

Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation

Agencies Release Public Sections of the Second Submission of Resolution Plans for 11 Institutions

The Federal Deposit Insurance Corporation (FDIC) and the Board of Governors of the Federal Reserve System (Board) on Thursday released the public sections of the recently filed annual resolution plans for 11 firms. Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council submit resolution plans to the FDIC and Board.

Firms that filed their initial resolution plans in 2012–generally those with U.S. nonbank assets greater than $250 billion–were required to submit revised resolution plans by October 1, 2013. Those firms include Bank of America Corporation, Bank of New York Mellon Corporation, Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and UBS AG. In April of this year, the agencies issued guidance to these 11 filers regarding information that should be included in the 2013 plans concerning certain obstacles to resolvability under bankruptcy. Those obstacles included funding and liquidity, global cooperation, counterparty actions, multiple competing insolvencies, and operations and interconnectedness.

A second group of firms, generally those with between $100 and $250 billion in total U.S. nonbank assets, submitted their initial resolution plans on July 1, 2013. A third group, generally those subject to the rule with less than $100 billion in total U.S. nonbank assets, must submit their initial resolution plans by December 31, 2013.

By regulation, resolution plans must be divided into a public section and a confidential section. The public sections of the plans are available on the FDIC and Board websites.