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Regulatory & Legislative Update
Is it getting better yet?
Denyette DePierroSenior Counsel
American Bankers Association
Wednesday, September 18, 2013
When will I stop feeling like this?
Just when you think you’re safe…
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Dodd-Frank Act:
A Quick Review
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Legislative Landscape
Will Dodd Frank be repealed?
•Congress remains polarized
•Big picture economic issues loom •Debt Ceiling, Sequestration, Budget
• 5th Anniversary of the financial crisis
• Active oversight of bank regulation
•Bi-partisan agreement hard to find
Legislative Environment
Political – Public Environment Public Opinion of Bankers
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Regulatory Landscape
• Growing complexity
• Increasing influence of global entities-BCBS, FSB, IOSCO-PRA: threat to US banking abroad
• Domestic agencies proliferating, not consolidating-State banking departments, OCC, FDIC, FRB, CFPB, CFTC, SEC, MSRB, DOL, IRS, Treasury (FinCen, OFAC, FSOC, OFR)
Post-DFA Regulatory Landscape
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This is what complexity looks like…
Treasury DepartmentSecretary Jack Lew
Sarah Bloom Raskin Nominated Deputy
Secretary
Federal ReserveChairman Ben Bernanke- 2014
Governor Jerome Powell- 2014
Governor Sarah Bloom Raskin moving
to Treasury
Vice Chairman Janet Yellen –?
Governor Daniel Tarullo – 2022
Governor Jeremy Stein – 2018
1 Vacancy
CFPBDirector Richard Cordray
Deputy Director Steven
Antonakes
SEC Chairman Mary Jo White
Comm. Daniel Gallagher – 2016
Comm. Luis Aguilar – 2016
Comm. Michael Piwowar– 2018
Comm. Kara Stein - 2018
CFTC Chairman Gary Gensler
Comm. Mark Wetjen – 2016
Comm. Bart Chilton – 2014
Comm. Scott O’Malia – 2015
1 Vacancy
Federal Agency Leadership
FDICChairman Martin Gruenberg
Vice Chairman Thomas Hoenig
Director Jeremiah Norton
OCCComptroller Thomas Curry
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Dodd-Frank Act:
Supervision & Oversight
Consumer Financial Protection Bureau
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What about Consumer Protection?
• Consumer point of view
• Enforcement oNon-bank focus just beginningoMultiple departments with authority
• Data DrivenoConsumer ComplaintsoUse “Big Data”& Social MediaoCall Report
Who is the “Vulnerable” Consumer?
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What is their supervisory focus? Four Ds
“We’ve Started Rooting Out Harmful Practices in the Marketplace”
• Debt Traps = Overdrafts, Pay Day Lending
• Dead Ends = Debt Collection, Servicing
• Deception = UDAAP
• Discrimination = Indirect Auto Lending
CFPB: Tips to Consider
• Put yourself in the consumer’s shoes.
• Closely monitor third party partners.
• Pay close attention to fee-based products.
• Carefully review products and services used by vulnerable populations.
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The New UDAAP Standard
What is “abusive” behavior?
• CFPB has broad authority to curb practices it finds to be unfair, deceptive, and abusive.
• Authority may be very broadly applied.
• Examiners have broad discretion to determine what is an unfair, deceptive, or abusive act or practice.
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UDAAP – Increased Regulator Scrutiny
• Overdraft – opt in/opt out
• Increased regulator scrutiny of products and services provided by third parties
• Prepaid Cards
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UDAAP – Increased Regulator Scrutiny
Third Party Products and Services:
Examples:
#1: Credit Card Monitoring Service & Fees
#2: Third Party Sales and Customer Service
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UDAAP - Pre-Paid Cards & Fees
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Fair Lending – Monitoring & Assessment
Assessment Best Practice
Two Part Review:
1. Comparative file review comparing similarly
qualified applicants, and
2. Determine that any dissimilar treatment is not
related to a prohibited basis such as sex or race.
Fair Lending – Monitoring & Assessment
Internal Review of
Fair Lending Compliance:
1. All applicants received a comparable level of assistance
during the application process;
2. The credit decision for similarly qualified applicants was
the same;
3. The terms and conditions granted to similarly qualified;
4. Applicants were substantially the same by product type,
and
5. Determine whether any corrective or remedial action is
necessary.
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Fair Lending Toolbox – May 2012
http://www.aba.com/Members%20Only/FairLendingToolbox.htm?banner
WHAT’S NEXT?
Where are the flying monkeys?
Regulation
DFA:
• Swaps & Derivatives
• Mortgages
• SEC Supervision of Municipal Advisors
• Volcker Rule
• Reg O & Reg W
• Enhanced Prudential Supervision
• Core Deposits
Regulation
Not DFA:
• Basel III & Globalization of Bank Regulation
• Patent Trolls
• Leverage Lending Guidance
• Garnishments of Federal Benefits
• Social Media Guidance
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WHAT’S NEXT?
For Community Banks
00000000Leverage Lending Guidance
Patent Trolls
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http://www.aba.com/Tools/Function/Legal/Pages/patentlitigation.aspx
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ABA Resources - Patent Trolls 00000000Leverage Lending Guidance
Leverage LendingFRB FDIC OCC Joint Guidance
Effective: May 2013
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Leverage Lending Guidance
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Leverage Lending – Participations Purchased
Participation Policy:• Obtaining and independently analyzing full credit
information both before the participation is purchased and on a timely basis thereafter;
• Obtaining from the lead lender copies of all executed and proposed loan documents, legal opinions, title insurance policies, Uniform Commercial Code (UCC) searches, and other relevant documents;
• Carefully monitoring the borrower’s performance throughout the life of the loan; and,
• Establishing appropriate risk management guidelines as described in the guidance.
Garnishment RuleUS Treasury FMS
Effective – June 2013
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Garnishment of Federal Benefits
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00000000Social Media Guidance
Social MediaFFIEC Guidance
Expected 4Q 2013 or 1Q 2014
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Bank use of Social Media
Mortgages:ABR & QRM
Mortgage Rules
RULE STATUS EFFECTIVE DATE
Ability to Repay and
Qualified Mortgages
Final Rule January 10, 2014
Ability-to-Repay/QM Rule
Exemptions
Final Rule January 10, 2014
Expansion of Loans
Subject to and
Disclosures Required by
HOEPA
Final Rule January 10, 2014
Appraisal Requirement
for Higher –Risk
Mortgages
Final Rule January 18, 2014
Escrow Requirements for
Higher-Priced Mortgages
Final Rule June 1, 2013
Appraisal Disclosures
under ECOA
Final Rule January 18, 2013
Loan Originator
Compensation
Final Rule January 10, 2014
Mortgages Servicing
Standards
Final Rule January 10, 2014
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Delay Needed
• Implementation Extension Needed!
• Volume
• Velocity
• Clarification and amendments still happening
• Vendor changes take time
Mortgage Considerations
• Stay current on all changes/clarifications
• Determine your mortgage strategy – Yes, No, Wait?
• Decide on the products and services offered
• Careful attention to loss mitigation rules
• What will the GSEs/Investors do?
Determining Your Mortgage Strategy
http://www.aba.com/Tools/Function/Mortgage/MemDocs/ ATR_QM_Guide_FINAL.pdf
ABA Resources- ATR/QM Rules
Insert screen shot of mortgage page
http://www.aba.com/Issues/QM/Pages/default.aspx
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Basel III
Basel, G20, and the FSB
1. Capital
2. Liquidity – expected in October 2013
3. Securitization
4. Risk Management
5. Operations
What does bank supervision and coordination on a global level mean for US banks?
Basel III Liquidity: What do we need to know?
Likely to impact largest banks only…
…But what about your Correspondent Banks?
• Financial Institution Deposits• Operational Deposits
Basel III Capital
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Basel III Capital: What can we do now?
• Familiarize yourself with the rules early
• Review capital instruments to ensure eligibility
• Do a dry run
• Develop a strategy as necessary
• Know the transition periods
• Educate your Board of Directors
Basel III Final Capital Rule
Required Capital Ratio(s) (Increased) = Capital Narrowed)Risk Weighted Assets (Increased)
Basel III Final Capital Rule
• Greater emphasis on common equity (CET1 Ratio)
• New capital conservation buffer with restrictions
• Generally, compliance begins on January 1, 2015, with transition periods
Basel III Capital - Key Issues
• Unrealized Gains and Losses (AOCI)
o One time opt-out for most banks o Election must be made on 1Q March 2015 Call
Report/FRY-9
• Residential Mortgage Risk Weights
o Final rule retains current risk weightso 120 day safe harbor for secondary market loans
retained
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Basel III - Key Issues
• Trust Preferred Securities
• Maintains Dodd Frank treatment
• Mortgage Servicing Assets
• Deducts MSAs from capital at certain thresholds
• MSAs included in capital receive 250% risk-weight
Basel III - Key Issues
High Volatility Commercial Real Estate
• 150% risk weight
• Covers all commercial acquisition, construction and development loans unless certain requirements are met (LTV, timing of borrower cash, contract terms)
• Does not include agricultural loans
Dodd-Frank Act:
ABA Resources
ABA Resources
• Capital
http://www.aba.com/Issues/Pages/Basel_III.aspx
– Issue Analysis
– Summaries
• CFPB Bureau Watch
http://www.aba.com/Compliance/Pages/CFPB.aspx
– Structure and Powers
– Regulations, Exams and Supervisory Guidance
– Studies, Reports and Database Initiatives
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ABA Resources
• Experts on Call: 1-800-BANKERS
• Dodd Frank and Community Banks
Download at www.aba.com
• ABA Reg Reform Center:
http://www.aba.com/RegReform/default.htm.
• Dodd-Frank Tracker
http://regreformtracker.aba.com/
• ABA Works and Toolboxes
http://www.aba.com/About+ABA/abatoolboxes.htm
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ABA Resources
Tips for Writing Effective Comment Letters:
http://www.aba.com/Compliance/Comply_EffectiveCL.htm
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ABA Resources
Tips for Writing Effective Comment Letters:
http://www.aba.com/Compliance/Comply_EffectiveCL.htm
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Banks and the Economy
http://banksandtheeconomy.blogspot.com/