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Reducing Regulatory Burden and Promoting Economic Opportunity

In 2017, the Office of the Comptroller of the Currency (OCC) continued to eliminate and streamline regulations that are redundant, inefficient, out-of-date, or unnecessary, and to simplify other regulations. In particular, the OCC focused on minimizing regulatory burdens for community and midsize banks and promoting economic opportunity.

Acting Comptroller Noreika spoke about responsible innovation and chartering fintech companies at the Exchequer Club

Acting Comptroller Noreika spoke about responsible innovation and chartering Financial Technology (fintech) companies at the Exchequer Club on July 19, 2017.

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The OCC’s efforts in 2017 were consistent with the financial regulatory policy of the administration, as articulated in the President’s executive order, “Core Principles for Regulating the United States Financial System,” which the U.S. Department of the Treasury developed more fully in a related report.


Acting Comptroller Noreika (center), along with OCC Assistant Deputy Comptroller Marilyn Bueno and Winter Park National Bank directors and leadership

The first traditional, full-service, de novo national bank in eight years opened its doors on August 1, 2017. Winter Park National Bank launched in central Florida after the OCC determined it had met all OCC requirements and completed all steps necessary to commence the business of banking. Pictured here are Acting Comptroller Noreika (center), along with OCC Assistant Deputy Comptroller Marilyn Bueno and Winter Park National Bank directors and leadership, following the signing of the bank’s national bank charter. The last traditional de novo national bank to open before Winter Park National Bank was First Horizon Bank in 2009. Photo credit: Little’s Portraits

Proposals to Congress

In testimony to Congress in June 2017, Acting Comptroller Noreika offered legislative proposals to promote economic opportunity, increase regulatory efficiency, rightsize regulation, and provide regulatory certainty. These proposals included

  • streamlining regulation of smaller, less complex bank holding companies so that when a depository institution constitutes the majority of its holding company’s assets, the federal regulator of the depository institution would have sole examination and enforcement authority for the holding company as well.
  • modernizing corporate governance procedures applicable to national banks, providing them flexibility to operate more efficiently and access the capital markets without having to employ a holding company and being subject to the associated regulatory burden.
  • providing flexibility for Federal Savings Associations (FSAs) to modernize and expand their business models without changing their governance structures.
  • eliminating a statutory barrier to entry for new community banks by allowing de novo banks to obtain deposit insurance automatically when chartered by the OCC.
  • simplifying capital requirements for smaller, less complex banks.
  • maintaining the contracted interest rate on a bank loan at origination upon assignment of the loan to a third party.
  • eliminating supervisory overlap by establishing a “regulatory traffic light,” providing a green light to the primary prudential supervisor, while other regulators defer action until a contingency in the law has occurred.

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Volcker Rule

During testimony, the Acting Comptroller also proposed that certain banks that do not engage in the type of activities that the Volcker rule was intended to address and that do not present systemic risks should be exempt from the Volcker rule or that Congress should better define the rule’s requirements.

The OCC is reviewing how to clarify and recalibrate the Volcker rule to eliminate burden on these banks. To date, the OCC has made improvements to its internal operations and the way the agency evaluates compliance with the Volcker rule. The OCC solicited public comments on revising the regulation as part of a larger interagency effort to review the Volcker rule and its implementation. At the time of publication, the OCC was reviewing the comments it received.

Additionally, the OCC, along with four other regulatory agencies, began coordinating their respective reviews of the treatment of certain foreign funds under the Volcker rule.

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Economic Growth and Regulatory Paperwork Reduction Act 


Heidi Thomas, an attorney in the OCC’s Legislative

Heidi Thomas, an attorney in the OCC’s Legislative and Regulatory Activities Division, signs a copy of the final report to Congress identifying outdated, unnecessary, or unduly burdensome regulations imposed on insured depository institutions. This report is required by EGRPRA.

EGRPRA requires the Federal Financial Institutions Examination Council (FFIEC), OCC, Federal Deposit Insurance Corporation (FDIC), and Board of Governors of the Federal Reserve System (FRB) to review their regulations at least once every 10 years to identify and eliminate outdated or unnecessary regulatory requirements imposed on insured depository institutions. EGRPRA also requires the FFIEC and the federal banking agencies to categorize and publish their regulations for public comment. The FFIEC must then submit a report to Congress that summarizes any significant issues raised by the comments, the relative merits of such issues, and an analysis of whether the agencies can address the regulatory burdens associated with such issues or whether legislative action is necessary.

On March 21, 2017, the banking agencies published their report to Congress. The top issues raised by commenters involved appraisals, call reports, capital rules, frequency of examinations, the Community Reinvestment Act (CRA), and Bank Secrecy Act/Anti-Money Laundering (BSA/AML).

In response to issues raised during the EGRPRA review, the banking agencies took five actions in FY 2017:

  • Modified community bank call reports.
  • Expanded 18-month examination cycle eligibility.
  • Proposed increasing the threshold of CRE appraisal requirements.
  • Issued guidance on ways to address appraiser shortages.
  • Proposed reducing regulatory burden in the capital rules on community banks.

Call report: The streamlined community bank call report reduced regulatory reporting requirements, taking effect March 31, 2017. It applies to banks with less than $1 billion in total assets and with only domestic offices. The new report reduced the length of the call report for eligible banks from 85 to 61 pages and removed 40 percent of the 2,400 data items.

Examination cycle: The OCC also worked with other agencies on a final rule that amended regulations governing eligibility for the 18-month, on-site examination cycle pursuant to the Fixing America’s Surface Transportation Act (FAST Act). The rule made qualifying 1- and 2-rated banks with less than $1 billion in total assets eligible for an 18-month examination cycle rather than a 12-month cycle.

Appraisal threshold: Responding to concerns about the time and cost associated with completing real estate transactions, the OCC, FRB, and FDIC issued a notice of proposed rulemaking to raise the threshold for CRE transactions requiring an appraisal to $400,000. The agencies believe this will significantly reduce the number of transactions that require an appraisal and will not pose a threat to the safety and soundness of financial institutions.

Appraiser shortages: Additionally, the OCC, with other federal banking agencies, issued an advisory on ways banks could address the shortage of state-certified and state-licensed appraisers, particularly in rural areas.

Capital rules: Lastly, the federal banking agencies jointly issued a proposed rule to reduce regulatory burden in the capital rules on community banks. The rulemaking simplifies the capital treatment for certain acquisition, development, and construction loans; mortgage servicing assets; certain deferred tax assets; investments in the capital instruments of unconsolidated financial institutions; and minority interest.

The agencies also continue to address EGRPRA comments related to call reports, flood insurance, and the Depository Institution Management Interlocks Act.

Separately, the OCC issued a final rule that amends OCC-only rules based on EGRPRA comments received early in the process, such as raising the asset threshold for mini-funds and providing for the electronic filing of securities documents. This rulemaking also removed certain financial disclosure requirements for national banks and certain unnecessary regulatory reporting, accounting, and management policy requirements for FSAs.

Ongoing OCC projects related to EGRPRA seek to

  • integrate national bank and FSA rules.
  • remove redundant and unnecessary supervisory information requests.
  • improve examination planning.
  • make the examination process more efficient by leveraging technology.

The OCC continues to review other comments received through the EGRPRA process specific to rules about financial subsidiaries, fiduciary activities, and FSA employment contracts.

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Arbitration Agreements

In July 2017, the OCC raised concerns about the CFPB's then-proposed rule on arbitration agreements, asking for a delay in its publication and an opportunity to review the rule as well as the data and method used to support and develop the rule. The rule prohibited the use of a pre-dispute arbitration agreement that could prevent a consumer from participating in certain class action lawsuits.

The CFPB’s final rule was published in the Federal Register on July 19, 2017. The OCC cautioned that the rule may have unintended consequences for banking customers in the form of decreased availability of products and services, increased related costs, fewer options to remedy consumer concerns, and delayed resolution of consumer issues. Public debate over the rule was informed by the work of OCC economists who identified previously undisclosed issues with the data and rationale used to support and develop the rule.

Resolution of the debate occurred before this report’s publication when Congress passed H.J. Res. No. 111, which provided for congressional disapproval of the rule, on October 24, 2017. The President signed the legislation on November 1, 2017, in what Acting Comptroller Noreika called a victory for consumers and small and midsize banks.

 

Acting Comptroller Noreika (pictured fifth from the left) joined congressional and industry leaders at the White House for President Donald Trump’s signing of H.J. Res. No. 111 repealing the CFPB’s final rule regarding arbitration agreements. Photo credit: White House

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Supporting Banks During Natural Disasters

The OCC supported banks and encouraged them to work with borrowers in the immediate aftermath of major natural disasters this year. The OCC took these actions:

  • Recognized the serious impact of Hurricanes Harvey, Irma, and Maria on the customers and operations of many banks and provided regulatory assistance to affected banks.
  • Encouraged banks in affected areas to work constructively with borrowers to prudently adjust or alter terms on existing loans and monitor municipal securities and loans to stabilize investments.
  • Expedited requests from banks to operate from temporary banking facilities to provide more convenient availability of services to those affected.
  • Reminded banks that they may receive CRA consideration for community development loans, investments, or services that revitalize or stabilize federally designated disaster areas.
  • Mitigated bank difficulties meeting reporting and publishing requirements.
  • Authorized banks to close in areas affected by emergency conditions for as long as deemed necessary for bank operation or public safety.
  • Reminded banks of steps they may take to support customers affected by natural disasters such as waiving certain fees.
  • Reiterated the lessons learned after Hurricane Katrina in 2005.
  • Eased appraisal requirements for real estate-related financial transactions in affected areas.

 

People line up to withdraw money from an automated teller machine in the aftermath of Hurricane Maria in Catano, Puerto Rico, on September 22, 2017. Puerto Rico battled dangerous floods after the hurricane ravaged the island. Photo credit: Ricardo Arduengo/AFP/Getty Images

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Published Rules

In FY 2017, the OCC published these final rules:

  • A rule amending the OCC’s practice and procedure to adjust the maximum amount of each civil money penalty (CMP) for banks within its jurisdiction, pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.
  • A rule prohibiting banks from dealing or investing in “industrial or commercial metal.”
  • A rule implementing the basic legal framework for receiverships of uninsured national banks.
  • As part of the agency’s EGRPRA review, a rule to remove outdated or unnecessary provisions of certain rules to reduce regulatory burden on national banks and FSAs.
  • A rule clarifying the annual inflation adjustment formula for the small-loan exemption to account for years with consumer price deflation.
  • A rule implementing section 83001 of the FAST Act, which permits agencies to conduct a full-scope, on-site examination of qualifying insured depository institutions with less than $1 billion in total assets no less than once during each 18-month period.
  • A rule amending regulations governing disclosure of information pursuant to requests under the Freedom of Information Act (FOIA) to reflect changes made by the FOIA Improvement Act of 2016 and the OPEN FOIA Act of 2009.

In FY 2017, the OCC published these notices of proposed rulemaking:

  • A joint rule to reduce regulatory burden in the capital rules on community banking organizations by simplifying the risk-based capital framework.
  • A rule to shorten the standard settlement cycle from three days to two days for securities purchased or sold by banks consistent with the standard industry-wide settlement cycle for securities trades.
  • A rule to amend agencies’ CRA regulations’ definitions of “home mortgage loan” and “consumer loan” to conform to recent changes made by the CFPB to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).
  • A rule applicable to non-advanced approaches banks that would maintain the capital rule’s 2017 transition provisions for several regulatory capital deductions and certain other requirements that are subject to multiyear phase-in schedules in the regulatory capital rules.
  • A rule to increase the threshold for CRE transactions requiring an appraisal to $400,000.
  • A rule to implement the private flood insurance provisions of the Biggert–Waters Flood Insurance Reform Act.
  • An advance notice of proposed rulemaking inviting comment on a set of potential enhanced cybersecurity risk-management and resilience standards that would apply to large and interconnected entities under the three federal banking regulatory agencies’ supervision.

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