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Economic Growth, Regulatory Relief, and Consumer Protection

Community Developments Investments

The OCC released a video in 2018 highlighting the important role that banks can play in helping rural communities develop high-speed broadband systems and reviewing how banks may receive CRA consideration for these activities. Specifically, the video discusses how banks and community leaders developed a cooperatively owned fiber optic network serving 10 towns and 17 townships across four counties in Minnesota.

Modernizing the Approach to the Community Reinvestment Act

Banks supervised by the Office of the Comptroller of the Currency (OCC) contributed more than $14 billion in community development investments under their public welfare investment authority this year. Community development lending by OCC-supervised banks and other federally insured depository institutions continued its trend of steady growth since 2011.

The OCC released an advance notice of proposed rulemaking (ANPR) in August 2018 soliciting comments from stakeholders on how to transform or modernize the CRA regulatory framework. Published in the Federal Register1 in September 2018, the ANPR seeks feedback with a specific focus on encouraging increased lending and services to people and in areas that need it most, including in low- and moderate-income areas; clarifying and expanding the types of activities eligible for CRA consideration; revisiting how assessment areas are delineated and used; establishing metric-based thresholds for CRA ratings; making bank CRA performance more transparent; and improving the timeliness of regulatory decisions related to CRA.

Feedback gathered by the Treasury Department published this year pointed to opportunities to modernize CRA regulations. The opportunities were included in the Treasury Department’s recommendations to the federal banking agencies in April 2018.

While such modernization efforts progressed, the OCC clarified its supervisory policies and processes about how examiners evaluate and communicate bank performance under the CRA. Additionally, the OCC clarified its policy for determining the adverse effect of evidence of discriminatory or other illegal credit practices on the CRA rating of a bank.

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Expanding Consumer Options With Short-Term, Small-Dollar Lending

In June, the OCC issued a bulletin to encourage banks to meet their customers’ short-term, small-dollar credit needs. The bulletin

  • provided core lending principles banks should consider when offering such products.
  • highlighted the opportunity banks have to provide short-term installment loans to consumers who may be outside of a bank’s typical underwriting standards for credit scores and repayment ratios.
  • provided references to existing OCC guidance regarding the risk management of new, modified, or expanded products and services; third-party risk management; fair access and fair treatment of consumers; and lending to subprime borrowers.

As many consumers meet their short-term needs through payday loans, deposit advance products, and other very short-term products that are covered by the Bureau of Consumer Financial Protection’s (BCFP) payday lending rule, the OCC worked with the BCFP and other stakeholders when developing guidance for OCC-supervised banks to responsibly engage in consumer lending, including those products covered by the BCFP rule.

In testimony before Congress in June 2018, Comptroller Otting noted that the OCC is working with Congress to encourage the banking sector to offer additional short-term, small-dollar lending products to meet consumer needs.

To support short-term, small-dollar credit needs of small businesses, the OCC launched an initiative in 2018 called “Access to Capital.” This initiative facilitates partnerships with community and stakeholder groups that support minority entrepreneurs and small businesses, with a goal to expand access to capital for small businesses and promote economic growth in low- and moderate-income communities. The initiative also encourages collaboration among financial institutions of different sizes to provide creative solutions that offer greater access to credit for small businesses.

OCC representatives at the OCC’s Small Business Lending Listening Roundtable in Los Angeles

OCC representatives Glenda Cross (front, center), Andrew Moss (standing, eighth from left), Beth Castro (standing, second from right), and David Black (standing, sixth from right) meet with small business practitioners to discuss microenterprise and small-dollar lending opportunities at the OCC’s Small Business Lending Listening Roundtable in Los Angeles. Organizations represented include the Business Resource Group, the California Association for Micro Enterprise Opportunity, and the Asian Pacific Islander Small Business Program.

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Enhancing Compliance With Bank Secrecy Act and Anti-Money Laundering Laws

Examinations for compliance with BSA/AML and Office of Foreign Assets Control (OFAC) requirements are OCC supervisory priorities. The BSA rules and OFAC-administered sanctions programs help prevent exploitation of the financial system by criminals and terrorists.

In 2018, the OCC worked with the Treasury Department, Financial Crimes Enforcement Network (FinCEN), Congress, and other regulators to identify ways to make BSA/AML compliance more efficient and give law enforcement and national security professionals the information they need. The OCC formulated recommendations for improvements to BSA/AML that could be addressed through regulations or legislative relief. Suggested improvements include

  • allowing regulators to schedule and scope BSA/AML examinations on a risk basis and identifying ways to conduct associated examinations in a more efficient manner.
  • working with law enforcement to provide feedback to banks so that they understand how report filings are used and can provide the most useful information.
  • exploring the use of technologies to reduce reporting burden and provide more effective access and information to law enforcement and national security personnel.

In testimony to Congress in June 2018, Comptroller Otting advocated for legislation to change reporting thresholds and provide additional authority for industry participants to share information about certain unlawful activities in addition to possible terrorist or money laundering activities.

In May 2018, FinCEN’s Customer Due Diligence and Beneficial Ownership for Financial Institutions rule became effective. The OCC, in conjunction with other agencies, issued guidance and examination procedures for the rule. The guidance and procedures reflect the ongoing commitment of the federal and state banking agencies to examine financial institutions for compliance with the BSA in accordance with uniform standards and principles.

Other activities related to BSA/AML in 2018 include

  • conducting examinations of banks’ BSA/AML and OFAC compliance programs and providing guidance to banks in this challenging area to ensure that banks report required transactions and comply with U.S. laws.
  • issuing an interagency statement to address instances in which banks may decide to enter into collaborative arrangements to share resources to manage BSA/AML obligations more efficiently and effectively.
  • participating as an active member of the U.S. delegation to the Financial Action Task Force on Money Laundering, the intergovernmental body that sets international AML standards for safeguarding the international financial system.
  • serving on the AML/Combating the Financing of Terrorism Expert Group (AMLEG) of the Basel Committee on Banking Supervision, to collaborate with other bank supervisors from around the globe and promote consistent supervisory expectations.
  • contributing as a member of the Oversight Committee of the Financial Stability Board’s Correspondent Banking Coordination Group (CBCG) as the group implements its four-point action plan to assess and address the decline in correspondent banking globally.
  • participating in the work streams implementing the CBCG’s action plan focused on data collection and analysis, clarifying supervisory expectations, and building domestic capacity.
  • issuing an interagency order exempting commercial insurance premium finance loans from the Customer Identification Program requirements of the BSA.
  • conducting international outreach through a Foreign Technical Assistance Program with schools for foreign banking supervisors covering problem bank supervision, AML/terrorist financing, balance-sheet and liquidity risk management, and bank information technology.

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Simplifying the Volker Rule and Capital Requirements

In October 2017, federal bank regulators proposed a rule to reduce regulatory burden by simplifying complex aspects of the agencies’ existing regulatory capital rule. The proposal would simplify certain aspects of the existing capital rule. The federal banking agencies received a number of comments on various aspects of the proposal and have been working together to consider changes to the proposal.

In April 2018, the OCC and the Federal Reserve Board proposed a rule to tailor leverage ratio requirements to the business activities and risk profiles of the largest domestic firms. The proposal would tie the standard to the risk-based capital surcharge of the firm, which is based on the firm’s individual characteristics.

This summer, five federal financial regulatory agencies including the OCC announced a proposal to simplify and tailor compliance requirements relating to the Volcker rule. By statute, the Volcker rule generally restricts banking entities from engaging in prohibited proprietary trading and from owning or controlling hedge funds or private equity funds. The proposed changes intend to streamline the rule by eliminating or modifying requirements that are not necessary to effectively implement the statute, while maintaining the core principles of the Volcker rule.

The Economic Growth Act exempted small banks from the Volcker rule. Under the new law, a bank that does not have and is not controlled by a company that has (1) more than $10 billion in total assets and (2) trading assets and trading liabilities that are more than 5 percent of the bank’s assets is now exempt from the Volcker rule.

Comptroller Otting discussed issues affecting credit access for small and minority-owned businesses during a roundtable meeting in April 2018 about small business access to capital.

Comptroller Otting (right) discussed issues affecting credit access for small and minority-owned businesses during a roundtable meeting in April 2018 about small business access to capital. The Comptroller identified successful and feasible practices that can facilitate bank lending to this market segment. Pictured to the Comptroller’s left is Bryan Hubbard, Deputy Comptroller for Public Affairs.

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Encouraging Responsible Innovation

The OCC defines responsible innovation as the use of new or improved financial products, services, and processes to meet the evolving needs of consumers, businesses, and communities in a manner that is consistent with sound risk management and is aligned with the bank’s overall business strategy.

Chartering Special Purpose National Banks
In July 2018, the OCC issued a policy statement clarifying the agency’s intent to consider charter applications from financial technology (fintech) companies that are engaged in the business of banking but that do not take deposits. The policy is based on the OCC’s broad authority under the National Bank Act to charter as national banks entities engaged in the business of banking.2

The agency also issued a Comptroller’s Licensing Manual supplement related to such applications. The licensing supplement explains how the OCC would evaluate applications for a special purpose national bank charter from fintech companies. The guidance applies specifically to fintech companies that are engaged in one or more of the core banking activities of lending money or paying checks, but not taking deposits, and that are therefore not insured by the Federal Deposit Insurance Corporation (FDIC).

Depending on its activities, a fintech company may instead choose to apply under the OCC’s authority to charter national banks for full-service or other types of special operations, such as trust banks, banker’s banks, or credit card banks.

Fintech companies that receive national bank charters will be subject to the same high standards of safety and soundness and fairness that all federally chartered banks must meet. As it does for all banks under its supervision, the OCC would tailor these standards based on the bank’s size, complexity, and risk profile, consistent with applicable law. In addition, fintech companies that apply for, qualify for, and receive national bank charters will be supervised like similarly situated national banks, including with respect to capital, liquidity, and risk management. The OCC expects any entity seeking a special purpose national bank charter to demonstrate a commitment to financial inclusion, the nature of which depends on the proposed bank’s business model and the types of products, services, or activities it intends to provide. In addition, a fintech company approved for a national bank charter will be required to develop a contingency plan to address significant financial stress that could threaten the viability of the bank.

Office of Innovation
The OCC’s Office of Innovation is a clearinghouse for innovation-related matters and the OCC’s central point of contact for staff, banks, nonbank companies, and other industry stakeholders on these matters; collaborates with OCC business lines and other regulators; and facilitates innovation-related activities. After a year of operation, the office has made progress implementing the OCC’s framework for responsible innovation. In 2018, the office

  • enhanced outreach efforts by expanding office hours, instituting listening sessions, and participating in numerous external conferences.
  • fostered expertise and shared insights on emerging trends in the industry with OCC staff. Efforts included publishing awareness materials, presenting to examination staff, and collaborating on training content.
  • served as an agency resource for field office and district outreach events, as well as meeting with banks.
  • enhanced global and domestic interagency collaboration efforts.

The OCC hosted office hours in Chicago, Denver, New York, and San Francisco this year. There, agency officials to discussed new products or services, partnering with a bank or fintech company, and other matters related to financial innovation and emerging trends with interested stakeholders. The OCC also hosted its inaugural listening session to invite discussion of emerging issues, trends, and current events concerning responsible innovation. At each event, OCC staff engaged in discussion, provided feedback, and responded to questions.

OCC staff visited a business incubator designed to support digital startups in Chicago.

While in Chicago for a listening session, OCC staff visited a business incubator designed to support digital startups. OCC staff members pictured (from left to right) are Central District Deputy Comptroller Blake Paulson, Attorney Hannah Wendling, Director for Banking Relations Ralph DeLeon, Innovation Officer Marcey Hoelting, Deputy Comptroller for Midsize Bank Supervision Bill Haas, National Bank Examiner Debra Brown, Assistant Deputy Comptroller Matt White, and Chief Innovation Officer Beth Knickerbocker.

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Implementing the Economic Growth Act

This year, the OCC joined the Federal Reserve Board and the FDIC to clarify the agencies’ intention to regulate and supervise financial institutions consistent with the recently passed Economic Growth Act. These clarifications were published in the following documents:

  • A joint statement with the other federal banking regulators detailing the rules and associated reporting requirements that were immediately affected by the Economic Growth Act’s enactment.
  • An OCC bulletin about the status of implementation for provisions regarding partial exemptions for some insured depository institutions from certain Home Mortgage Disclosure Act (HMDA) requirements.

Additionally, at the time of this report’s publication, progress toward writing the Economic Growth Act’s implementing regulations was under way. That progress included publishing

  • an interim final rule, jointly with the other federal banking regulators, to make qualifying 1- and 2-rated banks with less than $3 billion in total assets eligible for an 18-month examination cycle.
  • an interim final rule, jointly with the other federal banking regulators, to amend the OCC’s liquidity coverage ratio rule to treat certain municipal obligations as high-quality liquid assets.
  • a proposed rule to allow certain federal savings associations (FSAs) to elect national bank powers and operate as covered savings associations. The proposed rule aims to provide certain FSAs with additional flexibility to adapt to new economic conditions and business environments without having to change their charters.
  • a proposed rule, jointly with the other federal banking regulators, to modify the agencies’ capital rules for high-volatility commercial real estate exposures.

Comptroller Otting testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs about this progress. Other actions he noted as under way at the time of this testimony addressed

  • the community bank leverage ratio,
  • the short-form call report for community banks,
  • periodic stress testing,
  • the supplementary leverage ratio,
  • additional capital framework changes, and
  • recovery planning.

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Other Legislative Priorities

In addition to the legislative activity already mentioned, the OCC continues to support

  • implementing measures that would continue to reduce regulatory burden on OCC-supervised banks, particularly community and midsize banks, while maintaining core requirements of safety and soundness.
  • tailoring existing regulations to right-size their application to the national banking sector.
  • providing additional flexibility to the banking regulators to expand use of risk-based supervision. This flexibility allows regulators to focus attention and resources on banks engaged in activities presenting a higher risk to an institution and the banking system, and streamline the supervision of banks that conduct less risky activities.
  • clarifying that the long-standing “valid when made” doctrine remains in effect to ensure that the interest rate term of a loan that is valid when it is made remains valid even if the loan is subsequently sold, assigned, or transferred.
  • streamlining the process for obtaining deposit insurance, which would facilitate the chartering of more de novo banks and provide additional economic growth opportunities to communities.

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1 83 Fed. Reg. 45053.
2 See 12 USC 21, 26, and 27.