Alert March 04, 2014

FRB Issues Supervisory Letter Concerning its Application Process and the Most Frequently Cited Reasons for Application and Notification Denials

The FRB released a supervisory letter (the “Letter”) regarding the FRB’s applications process intended to provide financial institutions and the general public with a better understanding of the FRB’s approach to processing applications and notices and why certain filings may not satisfy statutory requirements for approval or otherwise raise supervisory or regulatory concerns.  The Letter states that the FRB will start publishing a semi-annual report that provides pertinent information on applications and notices filed with the FRB including statistics on the length of time taken to process various applications and notices and the overall volume of approvals, denials, and withdrawals.  The report will also provide the primary reasons for withdrawals, will first be released in the second half of 2014, and will include filings acted on from January through June 2014.

The Letter notes that significant issues that have led FRB staff to recommend denial to the FRB have most often related to the safety and soundness of the financial institution or consolidated organization, or to a failure to meet another statutory requirement for approval. Specifically, the Letter calls out: applications from organizations with issues that have resulted or will result in a less-than-satisfactory rating for safety and soundness, Community Reinvestment Act or consumer compliance, and/or the issuance of a formal enforcement action; applications and notices for proposals that raise concerns with respect to asset quality, liquidity, or capital, or that otherwise would significantly weaken the financial condition of a financial institution; applications of financial institutions in which the backgrounds of the institution’s principals, particularly directors and managers, raise questions regarding their integrity, financial responsibility, or competence, or otherwise raise doubt about their ability to fulfill the responsibilities of their respective roles within the organization; and applications raising concerns about the organization’s compliance with the Bank Secrecy Act, the appropriateness of the organization’s business plan, and the need for an exemption from Section 23A of the Federal Reserve Act and Regulation W.

The Letter further notes that applicants and notificants are generally expected to resolve any outstanding substantive supervisory issues prior to filing an application or notice with the FRB and that applicants and notificants with proposals that present unique or novel issues are encouraged to use the FRB’s pre-filing process (described in SR letter 12-12/ CA letter 12-11, “Implementation of a New Process for Requesting Guidance from the Federal Reserve Regarding Bank and Nonbank Acquisitions and Other Proposals”) to receive feedback on potential issues on a filing prior to submitting a formal filing.