Federal banking agencies have responded to the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) by providing insight into their plans for implementation.
An interagency statement describes interim positions affecting company-run stress testing, resolution plans, the Volcker rule, high volatility commercial real estate exposures, examination cycles, municipal obligations as high-quality liquid assets, and other provisions.
The Federal Reserve Board announced that it will no longer subject primarily smaller, less complex banking organizations to certain regulations, including those relating to stress testing and liquidity. The Fed also provided guidance and Consumer Compliance Examination Procedures on the restoration of the Protecting Tenants at Foreclosure Act.
In addition, the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Fed, and Office of the Comptroller of the Currency issued statements regarding the implementation of amendments to the Home Mortgage Disclosure Act.
Banking regulators list interim positions. The federal banking agencies released a statement detailing rules and reporting requirements that are immediately affected by the enactment of EGRRCPA. The interagency statement describes interim positions the regulatory agencies will take on the following changes before incorporating them into their regulations:
- Stress testing. The agencies are extending the deadlines for all regulatory requirements related to company-run stress testing for depository institutions with average total consolidated assets of less than $100 billion until Nov. 25, 2019.
- Resolution plans. Consistent with EGRRCPA, the Fed and FDIC will not enforce the final rules establishing resolution planning requirements in a manner inconsistent with the amendments made by the law to section 165 of the Dodd-Frank Act.
- Volcker Rule. The agencies will not enforce the regulation implementing section 13 of the Bank Holding Company Act, relating to covered funds under the Volcker Rule, in a manner that is inconsistent with the amendments made by EGRRCPA.
- High volatility commercial real estate exposures. EGRRCPA provides that the federal banking agencies may only require a depository institution to assign a heightened risk weight to an HVCRE exposure if such exposure is an "HVCRE ADC Loan." The agencies will not take action to require a bank holding company, savings and loan holding company, or intermediate holding company of a foreign bank to estimate and report HVCRE on Schedule HC-R, Part II of the FR Y-9C consistent with the existing regulatory requirements and reporting form instructions, provided that the holding company reports HVCRE in a manner consistent with its subsidiary depository institution(s) and EGRRCPA.
- Examination cycles. The agencies intend to engage in rulemaking to implement EGRRCPA’s increases in the total asset threshold for well-capitalized insured depository institutions to be eligible for an 18-month examination cycle.
Fed announces regulatory response. The Fed’s statement provides guidance on the implementation of other changes made by the legislation, including those relating to assessments and high volatility commercial real estate exposures.
EGRRCPA raised the threshold for Dodd-Frank Act enhanced prudential standards from $50 billion to $100 billion dollars in total consolidated assets for bank holding companies. The change created inconsistencies between Fed regulations and the new law and until EGRRCPA's changes are incorporated into the regulations, the Fed will not take actions to enforce the regulations against firms with less than $100 billion in total consolidated assets.
The Fed set forth the positions it would take until the regulations are modified:
- Assessments. The Fed collects assessments from bank holding companies and savings and loan holding companies with $50 billion or more in total consolidated assets to cover the cost of their supervision. Beginning with the year 2018, assessments will not be collected from bank holding companies and savings and loan holding companies with total consolidated assets of less than $100 billion.
- High volatility commercial real estate (HVCRE). EGRRCPA provides that the federal banking agencies may only require a depository institution to assign a heightened risk weight to an HVCRE exposure if such exposure is an "HVCRE ADC Loan." The Fed will not take action to require a bank holding company, savings and loan holding company, or intermediate holding company of a foreign bank to estimate and report HVCRE on Schedule HC-R, Part II of the FR Y-9C consistent with the existing regulatory requirements and reporting form instructions, provided that the holding company reports HVCRE in a manner consistent with its subsidiary depository institution(s) and EGRRCPA.
- Enhanced prudential standards. Dodd-Frank required the Fed to establish stricter prudential standards for bank holding companies with total consolidated assets of $50 billion or more. EGRRCPA increased the $50 billion asset threshold in two stages, initially to $100 million and in 18 months, to $250 million. Consistent with EGRRCPA, the Fed will not take action to require bank holding companies with less than $100 billion in total consolidated assets to comply with certain existing regulatory requirements, including the enhanced prudential standards in Regulation YY, the liquidity coverage ratio requirements in Regulation WW, and the capital planning requirements in the Regulation Y. The Fed is also extending the date for financial companies with total consolidated assets between $10 billion and $100 billion to comply with the company-run stress testing requirements until Nov. 25, 2019 (at which time the statutory exemption will be in effect).
The Fed will not take action to require bank holding companies, state member banks, and savings and loan holding companies with less than $100 billion in total consolidated assets to comply with certain reporting, disclosure, and recordkeeping requirements associated with regulations affected by EGRRCPA. However, the Fed will continue to review the capital planning and risk management practices of these institutions through the regular supervisory process.
Agencies issue statements on HMDA amendments. HMDA, which is implemented by Regulation C, requires certain financial institutions to collect, report, and disclose information about their mortgage lending activity. The Economic Growth, Regulatory Relief, and Consumer Protection Act provides partial exemptions for some insured depository institutions and insured credit unions from certain HMDA requirements.
The agencies’ statements explain which institutions are entitled to these exemptions, provide information on the formatting and submission of Loan/Application Registers, and describe HMDA compliance expectations for data collected in 2018 and reported in 2019. The CFPB expects later this summer to provide further guidance on the applicability of the Act to HMDA data collected in 2018.
Fed updates institutions on reinstated tenant foreclosure protection law. The Fed has updated its supervised institutions on the reinstatement of the Protecting Tenants at Foreclosure Act (PTFA) of 2009, which became effective June 23, 2018. Section 304 of the Economic Growth, Regulatory Relief, and Consumer Protection Act reinstated the PTFA. The Fed’s Consumer Affairs letter (CA 18-4), which was sent to all Federal Reserve Banks, is to be distributed to all supervised institutions, consumer compliance examiners, and supervisory staff.
Prior to the passage of the PTFA, renters living in property that went into foreclosure were often required to move with as little as a few days’ notice. The law ensured that most tenants can stay in their home for the remainder of their lease or for at least 90 days post-foreclosure. However, Congress did not extend the PTFA, and it expired on Dec. 31, 2014.
The PTFA establishes a minimum time period that a tenant can remain in a foreclosed property before eviction. Under the law, bona fide tenants must be provided with 90 days’ notice prior to eviction. Additionally, bona fide tenants with leases must be allowed to occupy property until the end of the lease term, except the lease can be terminated on 90 days’ notice if the unit is sold to a purchaser who will occupy the property. The law does not affect any state or local law that provides longer time periods or other additional protections for tenants.
The Fed letter states that the law is self-executing, meaning that no federal agency has authority to issue regulations implementing the law or to interpret the law. According to the Fed's compliance procedures for the newly restored Act, examiners must assess an institution’s awareness of its responsibilities, as well as its compliance management policies and procedures under the Protecting Tenants at Foreclosure Act.
Consumer compliance examiners will "employ risk-focused consumer compliance supervision principles to determine if they should include a review of compliance with the Protecting Tenants at Foreclosure Act in an examination." If compliance with PTFA is included in the examination scope, examiners will use the examination procedures to evaluate an institution’s awareness of the law, its compliance efforts, and its responsiveness to addressing implementation deficiencies.
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