Make Your Voice Heard

With Congress on holiday and legislation on financial regulation stalled to address the debt ceiling, taxation and the more pressing need to appropriate funding to Texas and Louisiana for the Hurricane Harvey recovery efforts, the federal financial regulators, to the extent possible, are beginning to take matters into their hands.

The Federal Reserve and the three federal banking agencies, jointly, have issued proposed guidance for comment. If you are interested in commenting on either or both, please contact us.

Expectations for Boards of Directors

On August 3, the Board of Governors of the Federal Reserve System issued proposed guidance regarding supervisory expectations for boards of directors for those institutions it supervises.

In its proposal, the Federal Reserve notes that stated expectations for boards of directors has become excessive and can detract for the board’s actual responsibilities, which are to: (1) set clear, aligned, and consistent direction regarding the firm’s strategy and risk tolerance, (2) actively manage information flow and board discussions, (3) hold senior management accountable, (4) support the independence and stature of independent risk management and internal audit, and (5) maintain a capable board composition and governance structure. The proposed guidance would be applicable to SIFIs and non-bank SIFIs.

In addition to issuing new guidance on the supervisory expectations for boards of directors, the Federal Reserve is working through its existing guidance and removing, replacing, or revising current guidance that conflicts with either the proposed guidance (for larger institutions) or SR letter 16-11, “Supervisory Guidance for Assessing Risk Management at Supervised Institutions with Total Consolidated Assets Less than $50 Billion” (for smaller institutions).

Finally, the Federal Reserve will issue guidance that supersedes SR letter 13-13, “Supervisory Considerations for the Communication of Supervisory Findings.”SR letter 13-13 indicates that all Matter Requiring Immediate Attention (MRIAs) and Matters Requiring Attention (MRAs) should be presented to the board of directors. The revised guidance would clarify that it is the role of senior management to review and address any MRIAs and MRAs and that the board should only become involved when it needs to address corporate governance issues or if senior management fails to take the remedial action required by the MRIA or MRA.

Comments will be accepted until October 10, 2017.

OCC/FRB/FDIC: Capital Requirements

On August 22, the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation (the federal banking agencies) proposed a new rule that would extend the current transitional capital treatment for non-advances approaches depository institutions. The federal banking agencies are in the process of drafting a proposal to simplify capital requirements, more generally, and this proposed rule allows both the regulators and the institutions more time to address capital requirements. The proposed rule would prevent the implementation of the fully phased in requirements for several key items ((i) mortgage servicing assets; (ii) certain deferred tax assets; (iii) investments in the capital instruments of unconsolidated financial institutions; and (iv) minority interests) for non-advanced approaches institutions (those with less than $250 billion in total consolidated assets and less than $10 billion in total consolidated foreign financial exposure).

The proposed rule would have no effect on the capital requirements for advanced approaches institutions, including those obligations effective January 1, 2018.

Comments will be accepted until September 25, 2017.

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