Highlights from the Latest Regulatory Agendas of the Federal Banking Regulators
Basel III, LTD for regionals, FDIC IDI plan rule, and more
Today the Office of Information and Regulatory Affairs released an updated version of the Unified Agenda of Regulatory and Deregulatory Actions, a compilation of regulatory agendas submitted semiannually by each of more than 60 federal regulatory agencies. Agencies generally are directed to include on their agendas those rulemakings for which the agency currently plans to issue an ANPR, NPR or final rule within the next 12 months. This post takes a quick look at what is new and notable on the regulatory agendas of the Federal Reserve Board, OCC or FDIC.
The Unified Agenda, although published today, is as of Spring 2023 and is based on data submitted no later than March 22. To repeat the same disclaimer from the previous blog on this topic in the context of the Fall 2022 regulatory agenda:
It is frequently the case that items listed on the agenda are not completed on the timelines provided by the agencies. It is also inherent in prudential regulation that sometimes unexpected issues arise which require regulatory action even if such action was not originally planned.
That is especially so this time around, of course, given the events of March and April 2023 in the U.S. and global banking system.
Basel III Endgame
As with last year’s agenda, the Federal Reserve Board does not list a specific Basel III endgame rulemaking, but both the OCC and FDIC do, now saying that action is expected by June 2023. That is consistent with the buzz that a rulemaking could be proposed as soon as this month, but it is also the case that this date has frequently been pushed back. (The Fall 2022 OCC/FDIC agendas said March 2023.)
One other likely outdated thing is the FDIC’s description of the new rules, unchanged from Fall 2022:
The FDIC, OCC, and FRB (Agencies) are inviting public comment on a notice of proposed rulemaking (proposal) that would substantially revise the risk-based requirements applicable to the largest and most complex U.S. banking organizations (those subject to the Category I and Category II prudential standards established by the Agencies), as well as banking organizations with significant trading activity.
The conventional wisdom is now that at least some — and perhaps something closer to all — of the new rules will apply to a broader group of firms. Capitol Account yesterday:
Where there have been some differences between the regulatory chiefs, the issues tended to be about making things tougher, not relaxing the standards. For example, Gruenberg has been especially aggressive pushing for the new proposals to apply to all banks with at least $100 billion assets – a lower threshold than many assumed Barr initially wanted.
Resolution Resource Requirements (LTD for Regionals)
Newly listed on both the Federal Reserve Board’s and FDIC’s agendas is an intention to issue a proposed rule on a long-term debt requirement for certain large banking organizations. This was always anticipated following the agencies’ ANPR last year, but this is the first time that a date has been put out there for a proposal: like the Basel III endgame NPR, the agencies have penciled in June 2023.
Unspecified Changes to the FDIC’s IDI Resolution Plan Rule
Also new on the FDIC’s agenda is a rulemaking relating to its resolution plan rule for insured depository institutions. This is a rule that applies in addition to the living will requirement under Section 165(d) of the Dodd-Frank Act, which requires large bank holding companies to submit resolution plans to both the Federal Reserve Board and FDIC.
Originally, the FDIC’s IDI plan rule applied to all banks with $50 billion or more in total assets, but in November 2018 then-FDIC Chairman McWilliams announced that the FDIC was working on changes to its rule and, until the new rule was completed, the IDI plan requirement would be paused and no IDIs would be required to file resolution plans.
The FDIC was able to release an ANPR, but further action to push forward a new IDI plan rule was delayed by the coronavirus pandemic and other events. Thus the FDIC in June 2021 announced that IDI plans would be un-paused, at least for banks with $100 billion or more in total assets.
A key thing about this $100 billion threshold is that, unlike certain thresholds that are set by statute and make it more difficult to apply regulations to firms with below $100 billion in total assets, the IDI plan’s threshold is not set by statute and thus the FDIC could, in theory, bring it back down to $50 billion (or some other number).
In its most recent regulatory agenda, the FDIC previews for the first time a proposed rule on IDI plans by June 2023. There is not a lot to go on, but I think you could read the title as suggesting that at least some sort of filing requirement will again apply to firms in the $50 billion - $100 billion range:
Title: Resolution Plans Required for Insured Depository Institutions (IDIs) With $100B or More in Total Assets; Informational Filings Required for IDIs With at Least $50B but less Than $100B in Total Assets
Abstract: FDIC is seeking comment on a proposal to revise its rule currently requiring the submission of resolution plans by insured depository institutions (IDIs) with $50 billion or more in total assets.
I am interested to see what the FDIC has developed, and hope it will be informed by the events of this spring in which two FDIC-supervised standalone IDIs failed. One of these IDIs had previously filed IDI plans, the other had not.
New Rules for Industrial Banks and their Parents
Another somewhat mysterious new entry on the FDIC’s agenda is an update to its rules regarding the parent companies of industrial banks, which unlike parent companies of most other banks are not subject to the Bank Holding Company Act.
The FDIC will request comment on a proposal to amend the existing FDIC regulation of the same name at part 354 to reflect supervisory experience. The proposed amendments would revise the scope of the regulation, clarify the role of written commitments, and set forth additional criteria that the FDIC would consider when reviewing filings.
These rules were only put in place as formal regulations in December 2020,1 so it will be interesting to hear about the FDIC’s supervisory experience in the two-and-a-half years between then and now that has led it to propose to revise the rules.2
In addition, the setting forth of “additional criteria that the FDIC would consider when reviewing filings” could provide clarity on the path to approval, if any, for ILC applications still pending.
New (?) Filing Requirements for FDIC-Supervised Banks Seeking to Engage in Certain New Activities
The FDIC also says that it is targeting September 2023 for a rule requiring FDIC consent when an FDIC-supervised institution intends to engage in certain activities.
The FDIC is seeking comment on proposed amendments to its regulations to establish filing requirements for FDIC-supervised institutions that seek to engage in certain covered activities, including permissible crypto-related activities and plans to leverage technological innovations to augment and transform the delivery channels through which they provide banking services.
The FDIC has since April 2022 required that FDIC-supervised institutions provide it with notice of “any activities involving or related to crypto assets.” So, with respect to crypto at least, it is not clear how much of this will be new.3
The second part of this proposed rule, evidently unrelated to crypto, seems like it could be awfully broad — do chatbots count?
Incentive Compensation Rules
As with the Fall 2022 regulatory agenda (and several agendas before that), incentive compensation rules under Section 956 of the Dodd-Frank are listed as long-term actions of the Board, FDIC, and OCC, all with a date of TBD.
I expect this is mostly a function of when the agendas were put together, as there is now a concerted push to get something done sooner.
Indeed, the SEC, which along with the banking regulators, the NCUA and the FHFA is required to issue the rules, says that it expects an incentive comp rule to be proposed by April 2024. This is notable both for its timing and the fact that the SEC’s agenda indicates the next step will be a re-proposed rule, rather than moving straight to a final rule on the basis of the 2016 re-proposal.4 But see the caveats littered through this post about not necessarily taking any of this literally, and certainly not regarding it as binding.
Source of Strength
We discussed the source of strength requirement on this blog a few weeks ago in the context of the SVB Financial Group bankruptcy. That post closed by saying:
[T]hough the Dodd-Frank Act required the banking agencies to adopt source of strength regulations by a date “not later than one year” after the law’s enactment, more than a decade later there still has not been a proposal, much less a final rule. This is listed as a long-term action on the Federal Reserve Board’s most recently published regulatory agenda, as it has been on several prior regulatory agendas.
For whatever it’s worth, the Federal Reserve Board now has put the source of strength rule on its active agenda, listing a date of December 2023 for further action (but maybe this is not such a big development: this is the same date the Board listed when the rule was on the long-term agenda). The OCC and FDIC continue to list a source of strength rule as long-term action, with a TBD date.
The CFPB and Consumer Payments
I will leave the analysis of the CFPB’s full agenda to others, but one new agenda item jumped out at me.
Under section 1024 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the CFPB is authorized to supervise certain nonbank covered persons for compliance with federal consumer financial laws and for other purposes. Under section 1024(a)(1)(B) of the Dodd-Frank Act, for certain markets, the supervision program generally will apply only to "larger participant[s]" of these markets as defined by rule. The CFPB has defined larger participants in several markets and is considering issuing additional regulations to define further the scope of the CFPB's nonbank supervision program. In particular, the CFPB is considering rules to define larger participants in markets for consumer payments.
Evan Weinberger at Bloomberg Law writes about what this could mean:
The Consumer Financial Protection Bureau is eyeing direct oversight over the largest companies in the payments industry, including potentially Apple Inc. and Alphabet Inc.’s Google Pay service.
The CFPB said it’s working on a “larger participant rule” for nonbank companies in the consumer payments market, according to its latest regulatory agenda released Tuesday. Such a rule would allow the CFPB’s examiners to regularly review a big payment company’s books and records to confirm they’re in compliance with existing federal laws and regulations.
The agenda lists July 2023 as the target date for a proposal.
Thanks for reading! Thoughts on anything new or notable I missed in the updated agendas, or any other criticisms or feedback you have to share, are always welcome at bankregblog@gmail.com.
The FDIC generally characterized the formal rules as a codification of existing practices.
I am guessing this is not the only thing that is going to change, but it’s worth recalling that when voting against the final rule in December 2020, Chair Gruenberg raised two objections to changes made to the final rule compared to the proposed rule (which he had supported):
The parent company of an industrial bank is not subject to consolidated supervision by the Federal Reserve Board and may engage in commercial activities, privileges not enjoyed by the parent companies of other banks. In order to mitigate the risks to the bank, the NPR would have limited the parent company’s representation on the bank’s board to 25 percent of directors, and required prior approval on an ongoing basis by the FDIC of board members and senior executive officers. This Final Rule significantly weakens the protections provided by the NPR.
For that reason, I will vote against the Final Rule.
I am also not sure whether to read anything in to the reference to “permissible” crypto activities. The FDIC FIL mentioned in the text above punted on anything having to do with permissibility:
This FIL does not address the permissibility of any specific crypto-related activity that an FDIC-supervised institution may engage in under Section 24 or Section 28 of the Federal Deposit Insurance Act (FDI Act) or under Part 362 of the FDIC’s Rules and Regulations. . . . The inclusion of an activity within this listing [of what the FDIC defines as crypto-related activities] should not be interpreted to mean that the activity is permissible for FDIC-supervised institutions.
It is not clear if that will again be the approach taken here or whether the FDIC will instead set out additional markers on what it does and does not believe is permissible.
A week or so ago Politico flagged this letter from a group of administrative law professors laying out what they see as the agencies’ options:
[W]e outline the three paths available to the agencies: (1) finalizing the agencies’ 2016 NPRM without reopening the comment period;(2) reopening the comment opportunity for a supplementary period—30-to-60 days would not be unusual—and then finalizing the 2016 NPRM; and (3) issuing a new NPRM. We also identify factors for the agencies to consider in choosing between these paths.