Weekly RoundUp
November 15, 2017

Financial Services Weekly News

A Rare Example of Common Sense From Washington. On November 13, Senate Banking Committee Chairman Mike Crapo (R-Idaho) and four Democratic members of the committee announced an agreement on legislative proposals to provide regulatory relief for banks and credit unions designed to “improve our nation’s financial regulatory framework and promote economic growth.” The legislative text reflecting the agreement is in the process of being finalized and will be released upon completion. However, if the proposals within the agreement become law, they would, among other things:  

  • raise the threshold for applying enhanced prudential standards from $50 billion to $250 billion of total consolidated assets, potentially eliminating the need for institutions with total consolidated assets of less than $250 billion to comply with certain annual stress testing requirements and higher capital and liquidity standards;
  • exempt funds of a custodial bank that are deposited with a central bank from the calculation of the supplementary leverage ratio, thereby making it easier for such banks to pass CCAR stress tests; 
  • exempt from the Volcker Rule banks and bank holding companies with (1) less than $10 billion in total consolidated assets and (2) total trading assets and trading liabilities that are not more than five percent of total consolidated assets;
  • triple the threshold for well managed and well capitalized banks to qualify for an 18-month examination cycle from $1 billion to $3 billion in total consolidated assets;
  • exempt institutions with less than $10 billion in total consolidated assets from the Basel III capital and liquidity requirements if they comply with a newly established community bank leverage ratio of between 8% and 10%;
  • increase the total consolidated asset threshold of the Board of Governors of the Federal Reserve System’s (FRB) Small Bank Holding Company Policy Statement from $1 billion to $3 billion, greatly expanding the number of bank holding companies not subject to Basel III capital rules and granting such institutions more flexibility to incur debt to make acquisitions;
  • deem certain mortgage loans that are originated and retained in portfolio by an insured depository institution or an insured credit union with less than $10 billion in total consolidated assets to be qualified mortgages under TILA;
  • exempt certain mortgage loans with a balance of less than $400,000 from FIRREA’s appraisal requirements if the originator is unable to find a state certified or state licensed appraiser to perform an appraisal after a good faith effort to do so;
  • exempt small depository institutions that have originated less than 500 closed-end mortgage loans or less than 500 open-end lines of credit in each of the two preceding calendar years from certain disclosure requirements under the Home Mortgage Disclosure Act;
  • permit depository institutions with less than $5 billion in total consolidated assets to file more streamlined call reports; 
  • permit federal savings associations with less than $15 billion in total consolidated assets to elect to operate with the same powers and duties as national banks without being required to convert their charters;
  • permit mutual holding companies to waive the receipt of dividends from their subsidiaries if its members have voted to do so in the prior 24, rather than the prior 12 months; anddirect the Federal Deposit Insurance Corporation (FDIC), the FRB, and the Office of the Comptroller of the Currency (OCC) to classify qualifying investment-grade, liquid and readily marketable municipal securities as level 2B liquid assets under the agencies’ Liquidity Coverage Ratio final rule.

No class of banks got everything it wanted from the agreement. Institutions with $250 billion or more in total consolidated assets did not get an indicator test, rather than an asset size test, for the applicability of enhanced prudential standards. The $10 billion asset threshold for banks to be subject to the Durbin Amendment or Consumer Financial Protection Bureau (CFPB) oversight was not increased. The CFPB was not restructured and its powers were not curtailed. Nevertheless, the agreement is a rare example of bipartisan agreement on common sense financial regulatory relief. With nine Democratic senators having already announced their support for the agreement and House Financial Services Committee Chairman Jeb Hensarling having previously signaled that the House would pass whatever financial regulatory relief bill emerges from the Senate, the agreement has a good chance of becoming law sometime next year.

Please note: The Roundup will be on hiatus next week due to the Thanksgiving holiday. We will resume publication on November 29.



Regulatory Developments

CFPB Director Cordray to Resign

CFPB Director Richard Cordray announced his plans to resign today in an email to CFPB employees, writing that he expects “to step down from my position here before the end of the month.” Rumored to be a Democratic candidate for governor in his home state of Ohio next year, Director Cordray did not elaborate on his future plans. After waiting 10 long months, President Trump will now have the opportunity to nominate a new CFPB director.

Agencies Announce Dollar Thresholds in Regulations Z and M for Exempt Consumer Credit and Lease Transactions

On November 8, the FRB and the CFPB jointly announced the new dollar thresholds that will determine exemption from Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) for consumer credit and lease transactions in 2018. The Dodd-Frank Act amended the Truth in Lending Act (TILA) and the Consumer Leasing Act (CLA) to require an annual adjustment to these thresholds based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers. For 2018, consumer credit and lease transactions of $55,800 or less will be subject to TILA and CLA. However, private education loans and loans secured by real property are subject to TILA regardless of amount.

OCC Updates Comptroller’s Licensing Manual

The OCC recently released three revised booklets for the Comptroller’s Licensing Manual. The OCC revised the Subordinated Debt, Background Investigations and Business Combinations booklets. The revised Subordinated Debt booklet was updated to reflect the following:

  • New requirements for issuing subordinated debt and including it as tier 2 capital for a national bank or FSA; and
  • New policies and procedures that a bank should follow to issue subordinated debt and the approval process for including it as tier 2 capital.

The newly revised Subordinated Debt booklet also includes informational resources and sample notes that banks may find useful during the subordinated debt process. The OCC revised the Background Investigations booklet to include the following updates:

  • New requirements to notify the OCC when a national bank or federal savings association, or a federal branch or agency of a foreign bank, changes its directors or senior executive officers; and
  • Outlines of the documents required by the OCC to review the background of proposed bank directors and executive officers.

The revised Business Combinations booklet:

  • Provides an overview of policies and decision criteria that the OCC considers when reviewing applications from banks seeking to execute a merger, consolidation, certain purchase and assumption transactions, and reorganizations under 12 USC 215a-2;
  • Describes the application process, including the prefiling process, filing and review of the application, the decision, and the post-consummation phase of the combination;
  • Provides guidance on application requirements and explains under which circumstances a streamlined business combination is granted; and
  • Lists references and links to informational resources and sample forms and documents that applicants may find useful during the filing process.

Client Alert: SEC Staff Issues No-Action Relief to Facilitate Implementation of MiFID II Research Provisions

On October 26, the staff (the Staff) of the U.S. Securities and Exchange Commission (SEC) issued three related no-action letters providing market participants with greater clarity as to how certain aspects of their business activities can comply with potentially competing systems of regulations. Specifically, the relief seeks to address potential conflicts between the requirements of the U.S. federal securities laws and the requirements of the European Union’s (EU) Markets in Financial Instruments Directive II (MiFID II), which have an implementation date of January 3, 2018. For more information, read the client alert issued by Goodwin’s Investment Management practice.

SEC Chairman Warns Many ICOs Look Like Securities

During a speech on November 8 at the 49th Annual Institute on Securities Regulation, SEC Chairman Jay Clayton discussed initial coin offerings, stating that he had “yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security,” seeming to indicate increased SEC scrutiny on many ICOs as similar to more traditional stock offerings. View the Digital Currency + Blockchain Perspectives blog post.

Goodwin News

2017 Banking Symposium – November 30

Join Goodwin on November 30 for the 6th Annual Banking Symposium, a forum for CEOs and senior management to discuss emerging issues in the financial industry. This year’s symposium, Innovation: The Great Equalizer, will feature entrepreneurs and disrupters, and highlight opportunities for innovation across the industry. Our keynote speaker, Brian Forde, is a Senior Lecturer for Bitcoin and Blockchain, MIT Sloan School of Management, and previously served as Senior Advisor for Mobile and Data Innovation for the White House.

Blockchain, Bitcoin, Cryptocurrency and ICOs – December 6

Hosted by the MIT Club of Northern California, the event will address important topics in the digital currency industry including: What is a cryptocurrency and why does it have value? What is an ICO and how have tech entrepreneurs raised billions of dollars in non-dilutive financing? Can existing startups add cryptocurrency to their business model? In this installment of our “View From The Top” series, you’ll hear answers to these questions and more from some of the key leaders in this fast-growing field. Grant Fondo, Chair of Goodwin’s Digital Currency + Blockchain Technology practice, will be a featured speaker.

This week’s Roundup contributors: William McCurdy.