By Andrew A. Turner, J.D.
The Federal Deposit Insurance Corporation closed the year by issuing a variety of rulemaking adoptions and proposals, some in concert with other regulators. Highlights are listed below.
Brokered deposits. The FDIC took two actions related to brokered deposits. It amended its regulations on brokered deposits and interest rate caps to except a capped amount of reciprocal deposits from being treated as brokered deposits for certain banks. The agency also, through an Advance Notice of Proposed Rulemaking, asked for information to be used in a broader review of brokered deposit and interest rate cap rules.
Current expected credit losses implementation. The Office of the Comptroller of the Currency, Federal Reserve Board, and FDIC have revised regulatory capital rules to address changes to credit loss accounting under a new accounting standard, including banking organizations’ implementation of the current expected credit losses methodology (CECL). Banking organizations have been given the option to phase in over a three-year period the day-one adverse effects of CECL on the banking organization’s regulatory capital ratios.
The final rule also revises the agencies' stress testing rules and regulatory disclosure requirements to reflect CECL. Conforming changes were made to other regulations that reference credit loss allowances. The final rule is effective on April 1, 2019, but a banking organization may choose to adopt the final rule starting as early as first quarter 2019.
Volcker Rule restriction easing. The federal banking, securities, and commodities regulatory agencies are proposing changes to their Volcker Rule regulations that will exclude small banks with limited trading activities and permit some investment advisors to share a name with a hedge or private equity fund they advise.
Stress test requirements. The FDIC and OCC are proposing to amend their stress test regulations to: increase the asset threshold to $250 billion, up from the current $10 billion; reduce the requirement for annual tests; and reduce the necessary scenarios to two, down from the current three.
Deposit insurance assessment system. The FDIC issued a proposal that would amend its deposit insurance assessment regulations to apply the community bank leverage ratio (CBLR) framework to the deposit insurance assessment system. The primary objective is to incorporate the alternative measure of capital adequacy established under the CBLR framework into the current risk-based deposit insurance assessment system in a manner that: (1) maximizes regulatory relief for small institutions that use the CBLR framework; and (2) minimizes increases in deposit insurance assessments that may arise without a change in risk.
To assist banks in understanding the impact, the FDIC plans to provide on its website a spreadsheet calculator that estimates deposit insurance assessment amounts under the proposal.
Management interlocks. The federal banking regulatory agencies are proposing to change their management interlock rules to ease the burden on community banks. Currently, an individual who has a management position or is a director at an institution with more than $2.5 billion in assets cannot hold a comparable position at an unaffiliated institution with more than $1.5 billion in assets. The proposal would increase both thresholds to $10 billion.
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