Read Between the Lines

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

Fed Clarifies Risk Roles of Board in New Guidance

The Federal Reserve issued new supervisory guidance for risk management at banks with less than $50 billion in assets. The guidance makes clear that the role of risk management rests firmly with the board of directors and senior management. It instructs examiners to assess the quality of board oversight by making sure the board has policies for risk tolerance, and that it periodically reviews risk exposure limits to make sure they are aligned with the bank’s strategies and market conditions.  Senior management must identify and review risks associated with new products or activities.  Even at smaller institutions, senior management is expected to modify policies and procedures to address risk when conditions change, and alert the board in a timely manner. 

Former Bank CEO Given Prison Time for Obstructing Examiners

A Minnesota federal judge sentenced a former bank CEO to 18 months in prison for lying to Fed examiners.  The case was investigated by the FDIC’s Office of Inspector General and the FBI.  Former Voyager Bank CEO and Chairman Timothy Owens pleaded guilty to giving bank examiners a misleading policy statement after they began questioning insider loans he had received. “The integrity of the examination process is central to ensuring the safety and soundness of the nation’s banking system,” said Fred W. Gibson, Jr., Acting FDIC Inspector General. “When a bank official misuses his position of trust to obstruct that process, he needs to be held accountable.”

FASB Publishes CECL Video and Explainers

FASB has published a video and several explainers about why and how it developed the new accounting standard for credit losses known as CECL.  One document explains that the board only issues new standards when the benefits justify the costs.  It says that CECL will result in more timely reporting of credit losses and greater transparency. “The FASB’s assessment of the costs and benefits of issuing this ASU is unavoidably more qualitative than quantitative because there is no identified method to objectively quantify all costs to implement the new guidance or to quantify the value of improved information in financial statements,” it notes.  (See more on CECL on page 2).

CFPB Issues Special Mortgage Servicing Report

Don’t expect the Consumer Financial Protection Bureau’s focus on mortgage servicers to end anytime soon. In a special report, the CFPB noted that the “magnitude and persistence of compliance challenges” persists in the areas of loss mitigation and servicing. “Outdated and deficient servicing technology continues to pose considerable risk to consumers in the wider servicing market. These shortcomings are compounded by lack of proper training, testing, and auditing of technology-driven processes, particularly to handle more individualized situations related to delinquencies and loss mitigation processes.”

Worth Reading: FSOC Annual Report

The Financial Stability Oversight Council, created as part of the Dodd-Frank Act, has released its annual report. The Council notes that it is concerned about risk management issues in “an environment of low interest rates and rising asset price volatility.” It also notes that financial regulators need “to be attentive to signs of erosion in lending standards.”

OCC Contemplates a FinTech Charter

The Office of the Comptroller of the Currency is continuing to lead the way on how banks can innovate with fintech.  At a forum on responsible innovation this month, the agency revealed it had created a working group to look into creating a charter for fintech companies that would operate as banks. “Innovation has always been an integral part of banking and the federal banking system,” Comptroller Thomas J. Curry said.  The law firm of Nelson Mullins has a good report on the forum. Community banks should consider partnerships with fintech companies, the law firm said.  It also suggested that banks develop a technology strategy since it is likely regulators will require one in the future.