Read Between the Lines

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

Timing of Exam Reports Tied to CAMELS Scores

The OCC mailed exam reports to more than 90 percent of 1 or 2-rated community bank boards within 90 days of the exam start date, while those that were rated 3, 4 or 5 usually get their findings within 120 days, Senior Deputy Comptroller Toney Bland testified before the Senate Banking Committee earlier this month.

While community banks are healthier than they were during the crisis, economic recovery and job creation is still a problem, Bland said. He noted that many community bankers can’t find profitable lending and investment opportunities “without taking on undue credit or interest rate risks.” Strategic risk is also a concern for bankers looking to generate earnings in a low interest rate environment.

Regulators to Congress: One-Size Approach to Supervision Doesn’t Work

Regulators told the Senate Banking Committee this month that community banks deserve a break from too much regulation. Comptroller Thomas Curry reiterated that a “one-size-fits-all approach to bank supervision is not appropriate” for community banks. Curry testified that the OCC tailored its supervisory programs to the risks and complexity of a bank’s activities. He also pointed out that the OCC has been working to avoid “unnecessary regulatory and compliance burden on small banks.”

Maryann Hunter, Deputy Director of the Federal Reserve’s Division of Banking Supervision and Regulation, delivered the identical message to the committee. Hunter said the Fed uses a “risk-focused approach” to community bank supervision. Banks engaging in non-traditional or higher risk activities will get greater scrutiny, while examiners will have a “lower level of review” for banks with low risk activities. She said that the Fed began a process last year that actually reduced exam testing at community banks that performed well during the crisis and is increasing its use of off-site monitoring.

Fed Governor Daniel Tarullo told the committee that “regulatory compliance can impose a disproportionate burden on smaller financial institutions.” He said the Federal Reserve supports excluding community banks from certain “statutory provisions” that are “less relevant to community bank practice,” such as the Volcker rule and incentive compensation requirements.

“Even where a practice at a smaller bank might raise concerns, the supervisory process remains available to address what would likely be unusual circumstances,” he noted.

Doreen Eberley, the FDIC’s Director of the Division of Risk Management Supervision, was less vocal about exempting community banks from existing regulation. “ We believe the evidence strongly supports the idea that the best way to preserve the long term health and vibrancy of community banks, and their ability to serve their local communities, is to ensure their core strength is preserved: strong capital, strong risk management and fair and appropriate dealings with their customers. We also believe our own supervision plays an important role in obtaining corrective action to address problems where this is needed, and that this also promotes the long term health of community banks,” she said.

CFPB Needs Data Controls

Community banks have been grumbling about how much data the Consumer Financial Protection Bureau has been collecting, and what it intends to do with it all. The Government Accountability Office now says that the CFPB needs to beef up its written procedures and standards regarding the collection and use of consumer financial data. The GAO made 11 recommendations to enhance the CFPB’s privacy and information security processes.

Mortgage Lending Decreases, 2013 Data Shows

The Federal Financial Institutions Examination Council released HMDA data for 2013, showing that loan originations declined by 11 percent from 2012, refinancings dropped by 23 percent, and home purchase lending increased by about 13 percent. The data came from 7,190 institutions, down from 8,900 lenders in 2006.