Read Between the Lines

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

OCC Examiners to Focus on Credit Risk, Strategic Planning

Top priorities for OCC community bank examiners for the next 12 months include assessing the quality of credit risk management, particularly concentration risk management, loan growth strategies, ALLL methodologies and stress testing, the OCC revealed in its Spring Semiannual Risk Perspective.  Expect examiners to also focus on strategic planning and whether your bank has adequate capital and succession planning. If M&A is part of your strategic plan, expect examiners “to assess the merger and acquisition processes and procedures.” Also on the priority list is cybersecurity risk, BSA/AML compliance policies, and interest rate risk management. The agency said it is concerned about exposure to interest rate risk “from instability in the cost structure of the deposit base, especially at banks with concentrations in longer-term assets, including mortgage-backed securities and loans.” 

OCC Handbook Includes Stress Testing, Capital Planning Guidance

Stress testing is “an essential element of the capital planning process,” the OCC reminds bank directors in its updated corporate governance handbook. “Banks can use stress testing to establish and support a reasonable risk appetite and limits, set concentration limits, adjust strategies, and appropriately plan for and maintain adequate capital levels,” the handbook states. The guide also details the importance of enterprise risk management and why banks need a risk governance framework to manage risks.

FDIC Also Highlights Corporate Governance

Effective corporate governance programs translate into more profitable and resilient community banks, the FDIC tells boards of directors in its newest video. The video discusses strategic planning, risk appetite frameworks and the importance of hiring and retaining qualified executives.

Growing Credit Risk in Oil and Gas Exposures

The FDIC is reminding banks that they need to maintain sound and conservative underwriting standards and credit practices if they have oil and gas exposures. Since many oil and gas borrowers often have volatility, the FDIC said it expects banks to try to mitigate losses where possible. It suggests that banks that do lending for exploration and production use experienced staff that know how to put together appropriate structuring. The first quarter Shared National Credit review, which was released in July, also cited “growing credit risk in the oil and gas portfolio.”

FDIC Looks at Appeals Process

The FDIC is accepting comments from banks about a proposal that would expand its appeals process to include compliance with existing formal enforcement actions. The FDIC says that the amendment would “enhance” a bank’s ability to obtain an independent review of supervisory determinations.  The FDIC also released a statement on guidelines it follows in the development and review of supervisory guidance.

FDIC Encourages De Novos

FDIC Chairman Martin J. Gruenberg told a House subcommittee that he expects renewed interest in de novo charters. The agency encourages investors to participate in pre-filing meetings with FDIC staff. “The FDIC remains supportive of the formation of new financial institutions and welcomes applications for deposit insurance,” he said.

CFPB Updates Mortgage Protection Rules

Mortgage servicers will once again need to review their procedures for protecting struggling borrowers.  The Consumer Financial Protection Bureau has updated its rules to make sure that foreclosure protections apply to borrowers, even in bankruptcy and after a borrower has died. The new rules also allow borrowers who have become current on their loans to gain protection again if they have future trouble. The rules, which are designed to avoid wrongful foreclosures, clarify when a borrower becomes delinquent. They require servicers to notify borrowers when loss mitigation applications are complete.