Read Between the Lines

Each month Bank Insights reviews news from regulators and others to give perspective on regulatory challenges.

Strong Banks Hit with Matters Requiring Board Attention

Examiners handed out MRBAs to about 48 percent of banks with satisfactory CAMELS ratings from 2010 to 2013, and 85 percent of those banks were rated a 1 or 2, the FDIC reveals in its latest issue of Supervisory Insights. Loan issues (such as problem assets, ALLL and concentrations) accounted for 69 percent of the warnings, while lax board or management policies, (including audits, policies and inadequate strategic planning) made up 45 percent. Interest rate risk, which was cited in 17 percent of the MRBAs in 2010, skyrocketed to 30 percent in 2013. The good news: About 80 percent of the time the bank was able to address the deficiencies in its first response to the FDIC.

Regulators Reject Big Banks’ Living Wills

The Federal Reserve board of governors and the FDIC board roundly rejected the latest round of so-called living wills from the nation’s largest banks, deeming them not credible. FDIC Vice Chairman Thomas Hoenig said in a statement that the material presented by the banks provided no clear path to resolution that wouldn’t require public support. He said the banks “are generally larger, more complicated, and more interconnected than they were prior to the crisis of 2008,” and pointed out their balance sheets had only been “marginally” strengthened. The ICBA applauded Hoenig’s remarks, pointing out that community banks would suffer if the too-big-to-fail banks require government intervention.

Read Volcker Rule, Just in Case

The OCC has developed “interim exam procedures” to help examiners enforce the Volcker Rule by July 21, 2015. Community banks that don’t engage in trading or investment covered by the rule don’t need to worry about it — but the only way to know that is to read the rule to find out if your bank is indeed exempt. The law firm of Nelson Mullins advises every national bank to “review its status under the rule, even if it believes it does not engage in Volcker-covered activities.” The law firm expects Fed and FDIC examiners to use similar standards.

HMDA Rule Changes Top 570 Pages

The CFPB’s 573-page proposed rule changing the Home Mortgage Disclosure Act expands data reporting requirements, adding new categories on property value, loan terms, points, fees and creditor information. The rule would also require banks to provide more information about underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the total discount points charged for the loan. Small banks with a low loan volume—fewer than 25 mortgages a year—would not have to report HMDA data.

Should Call Reports Be Simplified?

Here’s a new one: The ICBA wants bank regulators to institute a “short-form” Call Report for well-capitalized community banks for two quarters a year. The advocacy group says that 72 percent of recent respondents to a survey said they would support such a move.

Fed Says Some Municipal Lending is Risky

Community banks need to have “effective risk management programs in place” to cover municipal lending, the Federal Reserve warns in the latest issue of Community Banking Connections. The article, written by examiners at the Federal Reserve Bank of Philadelphia, says the view that municipal lending is a low-risk lending activity “may be debatable.” Community banks have reported an increase in municipal loans of nearly 25 percent over the past two years, and community banks with assets between $1 billion and $10 billion reported an increase of 157 percent since 2007, the article notes.