(Oct. 29, 2021) A series of policy statements on crypto assets activities by banks is forthcoming from federal banking regulators, the chairman of the FDIC Board said this week, as the agencies coordinate policies on how banks can engage in the developing technology.
FDIC Board Chairman Jelena McWilliams said her agency has been engaged with the Federal Reserve and the OCC and that a series of policy statements on crypto assets will be issued “in the upcoming months,” she said, focusing mostly on stablecoins.
“In order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight,” McWilliams said. “That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.”
The FDIC Board chairman said her objective is to provide clear guidance to the public on how the agencies’ existing rules and policies apply to crypto assets, what types of activities are permissible for banks to engage in, and what supervisory expectations the agencies have for banks that do engage in such activities.
She used stablecoins as an example of a crypto asset that needs particular attention, especially in the wake of what she called “a dramatic increase” in the use of the assets, primarily to facilitate converting crypto assets into fiat currency.
She said if stablecoin issuers claim to have reserves available on demand to satisfy withdrawal requests, “regulators should have authority to ensure the funds are there, specifically if such issuers are large enough that a stablecoin ‘run’ could result in financial instability.”
“There are other potential risks we must be cognizant of, such as ensuring operational resilience and preventing money laundering,” she said. “Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner.”
LINK:
Remarks by FDIC Chairman Jelena McWilliams at Money 20/20
(Sept. 17, 2021) A new fund designed to help banks serve low-income and minority communities will count Microsoft and Truist Financial Corp. – the sixth largest U.S. bank – as its anchor investors, the FDIC announced this week.
The FDIC established the Mission-Driven Bank Fund (MDBF), it said, to channel private capital and other resources to minority depository institutions (MDIs) and community development financial institutions (CDFIs). “MDIs and CDFIs are banks, savings banks, and savings associations that provide critically needed capital and financial services to minority, lower income, and rural communities,” the FDIC said.
Investments in the fund, the FDIC has said, would assist MDIs and CDFIs to (among other things) raise capital necessary to serve communities; weather economic downturns; attract technical expertise; and acquire and use technology.
Also joining as a “founding investor” in the fund is Discovery, Inc., a U.S. multinational mass media factual television company, according to its own description. The three groups’ investment would total $120 million; more investments are expected, the FDIC said.
The “anchor investors” and founding investors were selected, the agency has said, through a competition to counsel the fund’s investing. Under the rules of the competition, the investors were required to have experience managing investment funds and with prior work with MDIs and CDFIs, as well as a “deep understanding of the communities they serve.”
The MDBF has been in development by FDIC since last November, when the agency announced it was looking for investors in the fund. The agency said then that it would play no role in fund management or individual investment decisions of the fund. However, it noted it would continue to “assess the alignment of the Fund’s on-going operations with its purpose of assisting Mission-Driven Banks.”
LINK:
FDIC Launches Mission-Driven Bank Fund
(July 23, 2021) New regulations on anti-redlining rules will be rescinded, and federal banking agencies vowed to work together to develop a new proposal, the agencies announced this week.
On Tuesday, the OCC announced that it would propose rescinding its Community Reinvestment Act (CRA) rule adopted in 2020. Acting Comptroller Michael J. Hsu said a review he started shortly after taking office in early May led to his decision to make the proposal. However, he indicated strengthening and modernizing the CRA rules – which implement 1970s legislation designed to thwart redlining in lending by banks – was necessary to ensure fairness during “persistent and rising inequality and changes in banking.”
The June 2020 rule was finalized by the OCC alone; neither the Federal Reserve Board nor the FDIC was party to that action, and the final OCC rule received a lackluster response from the banking industry. Meanwhile, the Fed issued its own advance notice of proposed rulemaking (ANPR) on modernizing CRA rules in September 2020, with a 120-day comment period. The notice was issued on a 5-0 vote by the Fed board.
This week, following OCC’s action, the OCC, Fed and FDIC issued a joint statement that they want to work together to jointly strengthen CRA rules. “Joint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods,” the agencies stated.
LINKS:
Interagency statement on Community Reinvestment Act joint agency action
OCC Statement on Rescinding its 2020 Community Reinvestment Act Rule
(June 18, 2021) 2020 mortgage lending transactions at 4,475 U.S. financial institutions reported under HMDA are now available, the FFIEC said Thursday. Covered institutions include credit unions, banks, savings associations and mortgage companies … The reserve ratio for the insurance fund of bank deposits dropped to 1.25% in the first quarter, the FDIC Board was told this week. However, the board decided to stay the course on its “fund restoration plan” to bring the Deposit Insurance Fund (DIF) back up to a ratio of 1.35% over the next eight years. Along that line: the board decided not to make any changes to bank assessment rates (at least for now).
LINKS:
FFIEC Announces Availability of 2020 Data on Mortgage Lending
FDIC restoration plan semiannual update
(June 4, 2021) Frequently asked questions (FAQs) about mortgage servicing were updated this week by the CFPB, concerning escrow account compliance under Regulations X and Z (RESPA and TILA, respectively). The new questions added 11 pages to the agency’s mortgage servicing queries list, covering an array of issues related to escrow accounts (including: a basic definition) … Written communication providing specific direction on use of alternative data at financial institutions – including credit unions — is required from regulators, the GAO indicated in reports it issued this week. Additionally, the GAO wrote, regulators should be collaborating on the specifics in that written communication. The GAO detailed an outstanding 2018 recommendation that has not yet been addressed by the Fed and the FDIC, asserting that “continued attention to this issue could improve (the agencies’) ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.” The GAO did note that federal financial regulators (including NCUA) in late 2019 issued an interagency statement highlighting potential benefits and risks of using alternative data and encouraged financial firms to use it. However, GAO noted, that statement does not provide firms or banks with specific direction on the appropriate use of that data, including issues to consider when selecting types of alternative data to use.
LINKS:
Mortgage Servicing FAQs, last updated June 2, 2021.
Priority Open Recommendations: Federal Deposit Insurance Corporation
Priority Open Recommendations: Federal Reserve
(May 28, 2021) The reserves-to-deposits-insured ratio of the FDIC’s Deposit Insurance Fund (DIF) slipped four points in the first quarter, to 1.25%, the lowest point in nearly four years. The minimum required level of the DIF is 1.35%; in September of last year, the FDIC published a restoration plan for the fund that provided for continued monitoring, but no change in assessment rates. The designated reserve ratio (DRR) for the fund is 2%, which the agency defines as the “the minimum level needed to withstand future crises of the magnitude of past crises.” The FDIC attributed the first quarter 2021 DIF reserve ratio drop to strong deposit growth (even though the fund’s reserves grew by $1.5 billion, to a total of $119.4 billion) … Also this week, the FDIC announced that bank net interest margins (a key profitability indicator) dropped to record lows in the first quarter – driven mostly by larger institutions … The first NASCUS 101 for 2021 will be June 24 – a change from the date published in last week’s NASCUS Report (June 10); mark your calendars accordingly! … Have a terrific (and safe) Memorial Day Holiday! (NASCUS’ offices will be closed that day)
LINKS:
FDIC-Insured Institutions Reported Net Income of $76.8 Billion In First Quarter 2021
NASCUS 101 (via the NASCUS Member Portal)
(Dec. 18, 2020) A new proposal that would require financial institutions to provide “prompt notification” to their federal regulators upon occurrence of a security incident may be coming to an NCUA Board meeting in the not-so-distant future.
This week, federal banking regulators released a joint proposal (with a 90-day comment period) requiring banks to provide the notification no later than 36 hours after the banking organization believes in good faith that an incident occurred. The notification requirement, the proposal states, is intended to serve as an early alert to a banking organization’s primary federal regulator “and is not intended to provide an assessment of the incident.”
NCUA was not included in the joint release. However, given the scope of the proposal (and the recent highly publicized SolarWinds hack) it’s possible the credit union regulator may soon issue its own version for entities under its supervision.
However, the bank regulators’ proposal does something NCUA cannot now do: require a bank service provider to notify at least two individuals at affected banking organization customers immediately after the bank service provider experiences a computer-security incident that it believes in good faith could disrupt, degrade, or impair services provided for four or more hours.
Also this week, the FDIC for the first time included consideration of competition presented by credit unions when less-than-well-capitalized banks are facing interest rate restrictions by the regulator. Under the new rule adopted by the agency’s board, interest rates offered by credit unions in a market area could be cited by a bank as a way of mitigating the level of restrictions.