Weekly RoundUp January 15, 2020

Financial Services Weekly News: Fed Shares Perspective on CRA Modernization

Editor's Note

In This Issue. In a speech to the Urban Institute in Washington, DC, Federal Reserve Governor Lael Brainard outlined the viewpoint of the Board of Governors of the Federal Reserve System (Federal Reserve Board) on strengthening the Community Reinvestment Act (CRA), which contrasted significantly from the proposal recently issued by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC). In addition, the OCC issued a proposed rule that would implement changes recommended in the March 2017 Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) report. Also, Institutional Shareholder Services has published its annual updates to its proxy voting guidelines, which will be effective for annual meetings held on or after February 1, 2020. These and other developments are discussed in more detail below.

Please note: The Roundup will be on hiatus next week. We will resume publication on January 29.

Editor's Note

Regulatory Developments

Brainard Provides Fed’s Perspective on CRA Modernization

In a speech to the Urban Institute in Washington, DC, Federal Reserve Governor Lael Brainard outlined the Federal Reserve Board’s preferred approach to modernizing CRA, which differs significantly from the approach taken by the OCC and the FDIC in their notice of proposed rulemaking, as covered in the December 18 edition of the Roundup. According to Governor Brainard, the Federal Reserve Board recommends two tests for evaluating CRA performance. The first is a retail lending test, applicable to all banks, that would use loan counts to measure how well a bank is serving low- and moderate-income borrowers, small businesses and farms in its assessment area and how well that bank is serving low- and moderate-income neighborhoods in its assessment area.  The second is a community development test, applicable to larger banks, that would compare the combined measure of a bank’s community development financing relative to deposits in its local assessment area to a national average, set differently for local and urban areas, and a local average in the bank’s assessment area. Each test would include qualitative standards that would allow regulators to tailor the requirements of such a test to local conditions and the different sizes and business models of banks, and that would automatically adjust to changes in the business cycle. The two test approach differs from the one taken by the OCC and FDIC, which would combine several aspects of CRA evaluation into a single, final score based in part on dollar value. Based on Governor Brainard’s speech, it is clear that the Federal Reserve Board does not intend to join the notice of proposed rulemaking issued by the OCC and FDIC absent significant changes to that proposal.

OCC Proposes New Rules Implementing EGRPRA

On January 8, the OCC issued a proposed rule that would implement changes recommended in the March 2017 EGRPRA report. These changes include:

  • Repealing the OCC’s employment contract rule for federal savings associations;
  • Amending the OCC’s fiduciary rules to expand the list of acceptable collateral for self-deposited trust funds to include additional types of instruments;
  • Amending the recordkeeping requirements for fiduciary accounts to include state law retention minimums;
  • Amending the OCC’s mutual-to-stock conversion regulations to reduce burdens and increase flexibility;
  • Removing requirements for OCC-supervised banks to provide the agency with audited statements in connection with securities offerings that satisfy the requirements of the Securities and Exchange Commission’s Regulation A; and
  • Updating cross references to repealed and integrated rules, remove unnecessary definitions, and make technical changes.

Comments are due by March 9.

Goodwin Alert: ISS Policy Updates for 2020 Proxy Season

Institutional Shareholder Services (ISS) has published its annual updates to its proxy voting guidelines, which will be effective for annual meetings held on or after February 1, 2020. The ISS updates include matters related to (1) board diversity, attendance, and chair independence; (2) “problematic” governance and capital structures of newly public companies; and (3) evergreen provisions in equity and other incentive plans, “inappropriate” share repurchase plans, and reports on pay gaps that do not include race or ethnicity with gender. Companies should also note that 2020 will be the first year in which existing ISS policies on excessive non-employee director pay may result in negative voting recommendations. To learn more, read the client alert issued by Goodwin’s Public Companies practice.

Replacing Traditional Capitalization Tables with Blockchain-Based Ledgers

Delaware amended the Delaware General Corporation Law (DGCL) and the Delaware Limited Liability Company Act (DLLCA) in 2017 and 2018, respectively, to permit corporations and limited liability companies to represent capital stock, record equity transactions, and communicate with equity holders via blockchain-based distributed ledgers. (S. 69, 149th Gen. Assembly, Del. 2017; S. 183, 149th Gen. Assembly, Del. 2018.)  The DGCL and DLLCA refer to these blockchain-based distributed ledgers as “Electronic Networks.”  Rather than treating an Electronic Network as a novel equity regime, Delaware law views an Electronic Network as a traditional uncertificated ownership record—akin to when a company foregoes stock certificates and instead represents equity in a paper ledger or schedule to an operating agreement. Read the Digital Currency + Blockchain Perspectives blog post.

Goodwin News

2020 ABA Consumer Financial Services Committee Meeting – January 16-19

The 2020 Consumer Financial Services Committee Meeting of the ABA Business Law Section will consist of nearly 250 practice-area professionals. Goodwin is a sponsor. For more information, click here.

Acquire or Be Acquired – January 26-28

The 2020 Acquire or Be Acquired Conference helps bank CEOs, executives and board members plan for what’s ahead. Now entering its 26th year, this annual event features an expansive agenda with your bank’s entire senior team in mind. From strategic discussions around successful mergers, organic growth and building your bank’s value to in-depth examinations of digital strategies and innovations, this conference was created for ALL banks - no matter their size - looking to grow. Goodwin Partner, Kimberly Holzel,  will speak on a FinTech panel, "Making the Right Investments in Technology." For more information, click here.