Read Between the Lines

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

Fed Releases Banking Application Details

As promised, the Federal Reserve has for the first time released statistics on banking applications.  A review of processing times for 2013 and the first half of 2014 by bank asset size reveals that M&A proposals submitted by community banks with between $1 billion and $10 billion in assets took on average 77 days, while those submitted by banks with assets below $1 billion took on average 51 days. The Fed received adverse public comments in about 12 percent of the M&A proposals from larger community bank. The Fed reported approving 61 M&A proposals from smaller community banks in the first half of the year, and 35 from larger community banks.

Survey Hints at Coming Wave of M&A

Consolidation is on the agenda next year for more than 20 percent of banks that participated in a survey from the Federal Reserve and the Conference of State Bank Supervisors. The survey and state-by-state town hall report, was released as part of the second community bank conference, which was held in September.  More than 60 percent of the respondents expected greater competition in the future, and while a majority have not received or made M&A offers, many community banks expect such offers next year.

Executive Compensation Still in the Works, OCC Reveals

Comptroller Thomas J. Curry told the Clearing House Association annual conference in November  that  he hoped the incentive-based compensation regulations, which were mandated under Dodd-Frank for banks with at least $1 billion in assets, would soon be a reality.   The rule, first proposed in 2011 and not yet finalized, would require reporting of incentive-based compensation deals that could lead to a material financial loss.  “Banks should never wait for regulators  when it comes to protecting their own safety and soundness or reputations,” he said.

Heightened Standards Explained

Curry also revealed why the OCC felt that larger banks needed regulations requiring heightened standards, which were published earlier this year.  He said “progress was too slow” when the banks weren’t required to institute the standards, so the agency wanted something that was “enforceable.”

Under the guidelines, the large banks must “make clear that quantitative limits on risk-taking should be based on sound stress testing processes and other methods, taking into account banks’ earnings, capital and liquidity positions.”

Fed Reminds Banks of Contingency Funding Plans

Worth reading: The Fed has issued an overview of what examiners expect when it comes to contingency funding plans in a liquidity crisis for community banks.  Boards must monitor and approve annually the bank’s liquidity risk management practices. The contingency funding plan should consider stress events with various time horizons.

OCC Updates Guidelines on Matters Requiring Attention

Deficient bank practices that emerge in exams are sent in writing to bank boards and management teams as “Matters Requiring Attention.”  The OCC updated its MRA guidelines,  noting that all such documents  are in a “Five Cs” format: concern, cause, consequence, corrective action, commitment. The OCC must verify that the bank has taken corrective action before it will close a concern. Banks that self-identify concerns are “an important consideration” when the OCC assesses the bank’s risk management system. The guidance reinforces the need for timely and effective communication with bank management and boards.

FDIC Videos Help with CFPB Mortgage Rules

The FDIC has produced the first in a series of three videos that will help banks comply with CFPB mortgage rules. The videos are part of the FDIC’s efforts to help bank officers understand complex regulations.  The hour-long video covers ability-to-repay and the qualified mortgage rule.