OCC Finalizes Rule on Permissible Interest on Transferred Loans
OCC issued a final rule to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer. The final rule goes into effect on August 03, 2020. Additionally, US Agencies (FDIC, FED, and OCC) issued the host state loan-to-deposit ratios that they will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The new ratios replace ratios from the prior year (released on May 28, 2019).
Final Rule on Permissible Interest on Loans—Federal law establishes that banks may charge interest on loans at the maximum rate permitted to any state-chartered or licensed lending institution in the state where the bank is located. In addition, banks are generally authorized to transfer loans and to enter into and assign loan contracts. Despite these clear authorities, recent developments have created legal uncertainty about the ongoing permissibility of the interest term after a bank transfers a loan. OCC is issuing this rule to clarify that a bank may transfer a loan without impacting the permissibility or enforceability of the interest term in the loan contract. The proposal on this rule was issued in November 2019 and OCC received over sixty comments on its proposal, including comments from industry trade associations, non-bank lenders, community groups, academics, state government representatives, and members of the public.
Host State Loan-to-Deposit Ratios—Due to the legislative intent against imposing regulatory burden, no additional data were collected from institutions to implement section 109. However, since insufficient lending data were available on a geographic basis to calculate the host state loan-to-deposit ratios directly, the agencies used a proxy to estimate the ratios. Accordingly, the agencies calculated the host state loan-to-deposit ratios using data obtained from the Call Reports and the Summary of Deposits Surveys as of June 30, 2019. Section 109 provides a process to test compliance with the statutory requirements. The first step in the process involves a loan-to-deposit ratio test that compares a bank's statewide loan-to-deposit ratio to the host state loan-to-deposit ratio for banks in a particular state. A second step is conducted if a bank's statewide loan-to-deposit ratio is less than one-half of the published ratio for that state or if data are not available at the bank to conduct the first step. The second step requires the appropriate agency to determine whether a bank is reasonably helping to meet credit needs of the communities served by its interstate branches. A bank that fails both steps is in violation of section 109 and is subject to sanctions by the appropriate agency.
Related Links
- OCC Bulletin on Rule on Permissible Interest on Loans
- Federal Register Notice (PDF)
- News Release on Host State Loan-to-Deposit Ratios
- Host State Loan-to-Deposit Ratios (PDF)
Effective Date: August 03, 2020
Keywords: Americas, US, Banking, Loan to Deposit Ratio, Call Reports, Interest on Loan, Credit Risk, US Agencies
Previous Article
FCA Guidance Confirms Support for Mortgage Customers Amid CrisisRelated Articles
OSFI Issues Results of Pilot on Climate Risk Scenario Analysis
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
ECB Issues Opinions on Green Bonds Standard and CRR Proposals
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
ESRB Explores Policy Response to Risks Arising from Digitalization
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
HKMA Consults on FIRO Code, Revises Policy on Foreign Exchange Risk
The Hong Kong Monetary Authority (HKMA) is consulting on the draft Financial Institutions (Resolution) Ordinance (Cap. 628), or FIRO, Code of Practice chapter on liquidity and funding in resolution, until March 14, 2022.
FI Publishes Multiple Regulatory and Reporting Updates
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
