The May 2023 WBA Compliance Journal is now available. In this edition, readers will find an article covering recently issued guidance by FDIC, CFPB, and OCC, each of which identify activities expected to be a focus of upcoming compliance examinations. Readers will also find an article highlighting an interagency statement and an interim final rule regarding the transition from US LIBOR. The publication also includes a summary of recently published agency rules and notices, other important compliance-related updates, and a WBA Education Calendar which lists upcoming training events.
As bankers in Wisconsin can attest, having the knowledge of, and experience managing, the risks their customers may face is a key component of effectively running a bank. For generations, bankers across the state have assisted their customers in managing various types of risk, including climate-related risks. However, as policymakers, investors, and customers grow concerned about the impacts of climate change, several regulators have signaled forthcoming regulatory action.
With new climate-related financial risk management policies expected from both the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), many are weary of how these regulations — which claim to only target the largest of banks in the U.S. — will inevitably impact the functions of all banks in our state.
As Jeff Gruetzmacher of Royal Bank so eloquently stated in his article published in the January/February issue of the Wisconsin Banker, “regulators have made their intentions clear: community banks will not get a pass on the new and expensive regulatory burdens.” As such, it is important to keep the WBA membership informed and demonstrate the impact regulations such as these have on banking operations and consumers throughout the state.
I would like to invite all of you to a complimentary, virtual Executive Briefing with Acting Comptroller of the Currency Michael Hsu on March 7 from 3–4 p.m. Central Time. This event is open to all WBA members regardless of which primary federal regulator your bank has. OCC Acting Director Hsu will speak for a few minutes; however, he strongly desires this to be an open conversation for most of the hour with bankers actively asking questions and sharing their thoughts on the subject of climate risk for banks.
This is a unique opportunity to engage with such a high-ranking regulatory official, and I encourage you and others from your bank to attend and actively participate. Wisconsin bankers, particularly ag lenders, already have extensive experience managing climate risk related to their banks’ loan portfolios, and it is important to share these real-life examples and experiences directly with regulators in this format. To register for this valuable opportunity, please click here. Please also share this invitation with others from your bank as more than one person from each institution is welcome to join.
June 1, 2021–May 31, 2022
This year, attorneys Heather MacKinnon, Scott Birrenkott, and President/CEO Rose Oswald Poels submitted 16 comment letters in response to requests for comment on rulemaking affecting the banking industry.
Through this process, the WBA Legal Team was able to advocate on behalf of all WBA members for the betterment of the banking industry. From digital assets to examinations and fees, comment letters are a great opportunity for members of the banking industry to inform agencies about the impact of rulemaking and provide examples.
As part of the rulemaking process within the Administrative Procedure Act (APA), all agencies are required to allow the public an opportunity to comment on proposed rules for a prescribed period (minimally 30 days). All WBA members are encouraged to share their comments with federal and state agencies as requested. Information regarding comment letters, or WBA-created letter templates — when available — are typically shared with the membership in the Wisconsin Banker Daily. Additional rulemaking developments at the federal level are compiled in the monthly WBA Compliance Journal.
Once the public has commented, each agency must determine how to proceed given the feedback received. This year, the WBA Legal Team addressed five federal agencies and further helped inform said agencies on the impact of their proposed rulemaking.
Six Comment Letters Filed with the FDIC
Over the past year, WBA filed six comment letters with Federal Deposit Insurance Corporation (FDIC). Two of WBA’s letters commented on FDIC’s actions regarding examinations. In the first, WBA commented on the FDIC’s proposed hybrid approach to bank examinations and in the second, WBA commented on the post-examination surveys related to FDIC Safety and Soundness and Consumer Compliance examinations. In each letter, WBA emphasized the importance of the FDIC establishing consistent coordination and communication with banks.
Three Comment Letters Filed with the CFPB
WBA wrote three letters this year to the Consumer Financial Protection Bureau (CFPB). Most recently, WBA responded to CFPB’s concerns regarding products which feature “junk fees,” assuring CFPB that the Wisconsin financial services marketplace is competitive, featuring a diverse range of high-quality, convenient, innovative, and competitively priced products and services. Additionally, WBA highlighted that, despite CFPB’s concerns, the market is highly regulated, and that further rulemaking is unnecessary as fees are already subject to disclosure requirements.
Four Comment Letters Filed with the FRB
This year, WBA also filed four comment letters with Board of Governors of the Federal Reserve System (FRB). In one of the letters, WBA addressed FRB’s request for comment regarding the evaluation of account and services requests. WBA acknowledged FRB’s attempt to create consistency, but ultimately expressed concern with allowing access to the payment system by entities with little or no regulatory oversight, lack of protection, and minimal capital and liquidity requirements, among others. WBA proposed that FRB establish standards or requirements for users, maintain ongoing review of those involved, as well as coordinate an FRB-led evaluation committee.
One Comment Letter Filed with the HUD
In late May, WBA expressed support of the Department of Housing and Urban Development’s (HUD) proposal to extend a term for loan modifications. The modification would allow mortgagees to modify Federal Housing Administration (FHA) insured mortgage loans by recasting the total unpaid amount due for a new term limit of 480 months — an increase from a term limit of 360 months; allow FHA-loan borrowers similar flexibility and benefits as is available for Fannie-/Freddie-loan borrowers; and creates yet another tool for Wisconsin’s financial institutions to use in their continued work to help find solutions for struggling borrowers to retain their homes.
One Comment Letter Filed with the OCC
In a letter filed with the Office of the Comptroller of the Currency (OCC), WBA was able to comment on a final rule to adopt a new Community Reinvestment Act (CRA) framework. This regulation facilitated the issuance of joint CRA to an interagency basis which would allow for greater coordination on all CRA ruling between the OCC, FRB, and FDIC for the benefit of banks serving low- and moderate-income communities.
One Interagency Comment Letter Filed
Some rulemakings are issued on an interagency basis. This year, WBA commented on the FRB, FDIC, and OCC’s proposed interagency guidance on third-party relationships related to risk management. In the letter, WBA commented that this effort would promote consistency in their guidance as well as clearly articulate risk-based principles. In addition, WBA identified several ways Wisconsin banks will be impacted by the new guidance during final implementation.
Industry comment is a critical aspect to the rulemaking process. It is an opportunity for the industry’s voice to be heard, and it is important that the agencies hear from banks about how rulemaking affects you. WBA welcomes feedback on comment letters because it is key that we, and the agencies, hear directly from members.
For more information on the rulemaking process, comments, and upcoming rules, contact the WBA Legal Department at firstname.lastname@example.org. For a full list of the comment letters filed during the 2021–22 fiscal year, visit www.wisbank.com/advocacy/comment-letter-library.
*This article has been updated from previous published editions
President Biden’s top pick for comptroller of the currency, Saule Omarova, withdrew her nomination to lead the Office of the Comptroller of the Currency on Tuesday, December 7, in a letter to the White House. After facing stiff opposition from the banking industry and members of Congress, President Biden has accepted her request and expects to make an announcement at a later date, according to reports.
The Wisconsin Bankers Association had previously signed onto the Independent Community Bankers of America (ICBA)’s letter opposing Omarova’s nomination citing her academic papers and public statements that propose transferring private retail banking functions to the Federal Reserve and fully replacing private bank deposits to “end banking as we know it.”
The federal banking agencies (FRB, FDIC, and OCC) have issued their final rule to require banks to notify their primary federal regulatory of any “computer-security incident” that rises to the level of a “notification incident”, as soon as possible and no later than 36 hours after the bank determines that a notification incident has occurred.
The rule defines a “computer-security incident” as an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits.
“Notification incident” is defined as a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, a banking organization’s:
(i) Ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business;
(ii) Business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or
(iii) Operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.
The final rule is effective April 1, 2022 and has a compliance data of May 1, 2022. The full final rule may be viewed here.
By Rose Oswald Poels
Last week for the first time in two years, I was back in Washington D.C. with a small group of nine bankers from Wisconsin for meetings with banking regulators and a few members of Congress. Joining WBA was a delegation of six bankers and two staff from the Illinois Bankers Association. While our meetings with regulators were still virtual, all meetings were productive affording the smaller group of bankers ample time to ask questions and hear directly from senior officials about a wide variety of issues.
We began the first day in the afternoon with briefings from the FDIC and OCC. FDIC Board Director Martin Gruenberg led the conversation highlighting the fact that while the FDIC anticipated stress in the banking system heading into the pandemic that did not materialize and notably, there have not been any bank failures in 2021. Areas of focus for the FDIC remain on commercial real estate, tailoring climate change risk concerns based on the impact to different markets and/or the size of the institution, and on the impact of non-bank companies to the financial system. OCC Acting Director Michael Hsu led the discussion with bankers emphasizing his support for community banks, his understanding of the need to tailor regulation to the size and complexity of each institution, and robust discussions around both FinTechs and climate change.
The next day featured conversations with FinCEN and CFPB. Naturally, the discussion with FinCEN was largely around the status of their development of a beneficial ownership registry which remains in process. Until one is finally launched, banks will still have to follow the current beneficial ownership rules. A representative from FinCEN’s Financial Intelligence Division indicated that they have seen an increase in all types of crime notably COVID-19 fraud, work at home scams, cyberthreats of all types (e.g. ransomware and account takeovers), and illicit use of cryptocurrency. The primary focus of our conversation and questions with the CFPB was around the upcoming Section 1071, small business data collection proposal. The bankers took turns stressing the hardships of the current proposal and asking for an extension of the comment period deadline so that the industry had adequate time to respond to the many issues raised in the over 900-page document. CFPB staff indicated that they have been in meetings with the core providers on this proposal already to help prep them ahead of time so that data collection would be easier once the proposal is finalized.
These meetings are impactful largely due to the proactive engagement of the bankers in the room. I encourage you to take advantage of these opportunities as they arise and be involved because each regulator we met with unequivocally stated they want to hear directly from bankers about the impact proposals have on their operations. While WBA certainly represents the industry’s concerns, bankers truly make the best advocates in sharing specific examples about the impact on the operations of individual banks.
On Tuesday, WBA hosted a virtual meeting with bankers and OCC to discuss concerns of the industry and to gather insight of OCC’s perspective as Wisconsin’s banking industry continues moving forward through pandemic recovery. Discussion included: CTR filings for bank cash orders handled by Thillens, continued efforts of CECL implementation, monitoring CRE and the impact of vacancies as office space needs change, thinking through liquidity contingencies, LIBOR, cybersecurity and importance of good business resumption plans, importance of strong underwriting practices, awareness of loan downpayments amounts, and careful review of evaluations due to the current hot real estate market. Bankers shared concerns over exams losing the focus of being risk-based.
Those attending the meeting included National Bank of Commerce President and CEO Steven Burgess, National Exchange Bank & Trust President and CEO James Chatterton, OCC Assistant Deputy Comptroller Mike Larabee, OCC Associate Deputy Comptroller Ben Lemanski, and OCC Central District Deputy Comptroller Brian James. WBA staff present included Rose Oswald Poels, Daryll Lund, Scott Birrenkott, and Heather MacKinnon.
When asked of their current expectations regarding struggling borrowers, OCC stated they are using the same approach as was taken during the pandemic; banks should continue to work with struggling borrowers, document position taken, and to feel free to have further conversations with the exam team and OCC district office regarding the treatment or classification of a particular borrower. OCC also shared that discussions continue at a high level on the topics of fair lending, climate changes, bank collaborations with fintechs, and OCC’s efforts to work collaboratively on CRA.
WBA continues to engage in small group virtual meetings with each of the banking regulators over the course of the next few months. Normally, we host these meetings in person in Madison in addition to visiting the industry’s regulators in Washington each fall. If you are interested in participating in a small group virtual conversation with your bank’s regulator, please contact WBA’s VP-Legal Heather MacKinnon at email@example.com. In addition to sharing which regulator is your bank’s primary federal regulator, please also provide Heather with any specific topic or issue you’d like to make sure is raised during these conversations.
By, Alex Paniagua