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Top Story:  OCC Proposes Guidelines for Heightened Expectations


By Fleming Saunders
Public Affairs Operations

On January 16, 2014, the OCC announced a proposal to issue formal guidelines regarding its heightened expectations for large national banks and federal savings associations. The new standards would be enforceable under 12 CFR 30 of agency regulations.

Following the financial crisis, the OCC developed a set of “heightened expectations” to strengthen the governance and risk management practices of large national banks and federal savings associations—and to enhance the agency’s supervision of those institutions.

“These standards build on lessons learned from the financial crisis,” says Comptroller Thomas J. Curry. “They will contribute to a safer financial system for all of us by providing clear and enforceable standards for the risk management and governance of our largest institutions. They provide additional supervisory tools to examiners of large national banks and federal savings associations, and they will measurably enhance our supervision of these institutions.”

The proposed standards would apply to any insured national bank, insured federal savings association, or insured federal branch of a foreign bank with average total consolidated assets of $50 billion or more. An institution with less than $50 billion in assets would also be covered if the OCC determines that it is highly complex or otherwise presents a heightened risk.

The standards apply to the design and implementation of an institution’s risk governance framework—and to the oversight of that framework by the board of directors. The guidelines include provisions regarding

  • the roles and responsibilities of organizational units fundamental to the design and implementation of the risk governance framework. Those units—the “three lines of defense”—are front line units, independent risk management, and internal audit.
  • a comprehensive written statement that articulates the bank’s risk appetite, which serves as a basis for the risk governance framework.
  • board of directors’ oversight of a bank’s compliance with safe and sound banking practices. The board should ensure that the bank establishes and implements an effective risk governance framework that complies with the guidelines.
  • active board oversight of a bank’s risk-taking activities. This includes establishing accountability for management’s adherence to the risk governance framework. The board should question, challenge, and, when necessary, oppose, management proposals that could lead to excessive risk taking or pose a threat to safety and soundness.
  • composition of the board of directors. A board of directors should have at least two independent members who are not part of the bank’s or the parent company’s management.

If a national bank or savings association fails to meet a prescribed standard, the OCC may require the institution to submit a plan specifying the steps it will take to comply with the standard. The OCC may issue an order enforceable under section 8 of the Federal Deposit Insurance Act if the institution, after being notified that it is in violation of a safety and soundness standard, fails to submit an acceptable compliance plan or fails materially to comply with an OCC-approved plan.

The proposed rule was published in the Federal Register on January 27, 2014, and has a 60-day period for public comment.

Last Updated: 08/23/2016