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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.
 

Federal Reserve Board issues interim final rules clarifying how companies should incorporate Basel III reforms into capital and business projections

Release Date: September 24, 2013

For immediate release

The Federal Reserve Board on Tuesday issued two interim final rules that clarify how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests.

Rules to implement the Basel III capital reforms in the United States were finalized in July, and will be phased-in beginning in 2014 or 2015, depending on the size of the banking organization. The planning horizon for the next capital planning and stress testing cycle runs from the fourth quarter of 2013 through the fourth quarter of 2015. Thus, the next capital planning and stress testing cycle, which begins October 1, overlaps with the implementation of the Basel III capital reforms.

The Board’s first interim final rule applies to bank holding companies with $50 billion or more in total consolidated assets. The rule clarifies that in the next capital planning and stress testing cycle, these companies must incorporate the revised capital framework into their capital planning projections and into the stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act using the transition paths established in the Basel III final rule. This rule also clarifies that for the upcoming cycle, capital adequacy at large banking organizations would continue to be assessed against a minimum 5 percent tier 1 common ratio calculated in the same manner as under previous stress tests and capital plan submissions, ensuring consistency with those previous exercises.

The second interim final rule provides a one-year transition period for most banking organizations with between $10 billion and $50 billion in total consolidated assets. These companies this fall are conducting their first company-run stress test under the Board’s rules implementing the Dodd-Frank Act. These companies will be required to calculate their stress test projections using the Board’s current regulatory capital rules during the upcoming stress test to allow time to adjust their internal systems to the revised capital framework.

The interim final rules also clarify that companies will not be required to use the advanced approaches in the Basel III capital rules to calculate their projected risk-weighted assets in a given capital planning and stress testing cycle unless the companies have been notified by September 30 of that year, prior to the start of that capital planning and stress testing cycle.

The interim final rules are effective immediately. The Federal Reserve will accept comments on the interim final rules through November 25, 2013, and the rules could be revised later in response to comments. In addition, the Y-14 reporting instructions, which can be found at www.federalreserve.gov/apps/reportforms/default.aspx, are being updated to reflect these changes.

For media inquiries, call 202-452-2955

Federal Register notices:

Regulations Y and YY: Application of the Revised Capital Framework to the Capital Plan and Stress Test Rules 
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Comments on this proposal: Submit | View

Annual Company-Run Stress Tests at Banking Organizations With Total Consolidated Assets of More Than $10 Billion But Less Than $50 Billion; One-Year Transition Period to Revised Regulatory Capital Framework for 2013-2014 Stress Test Cycle
PDF | HTML
Comments on this proposal: Submit | View

Federal regulators issue guidance on reporting financial abuse of older adults

Board of Governors of the Federal Reserve SystemConsumer Financial Protection BureauFederal Deposit Insurance CorporationFederal Trade CommissionNational Credit Union AdministrationOffice of the Comptroller of the CurrencySecurities and Exchange Commi…

Agencies provide model template for submission of tailored resolution plans

Board of Governors of the Federal Reserve SystemFederal Deposit Insurance Corporation

For immediate release
September 3, 2013

Agencies Provide Model Template for Submission of Tailored Resolution Plans
The Federal Reserve Board and the Federal…

Agencies revise proposed risk retention rule

Board of Governors of the Federal Reserve SystemDepartment of Housing and Urban DevelopmentFederal Deposit Insurance CorporationFederal Housing Finance AgencyOffice of Comptroller of the CurrencySecurities and Exchange Commission

For immediate releas…