The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act, extended the comment period for rule on large bank resolvability, published results of 2021 resolution plans of several domestic and foreign banks, announced the 2023 asset-size thresholds under the Community Reinvestment Act (CRA) regulations, updated reporting forms and instructions for systemic risk report (FR Y-15) and capital assessments and stress testing report (FR Y-14A), updated the reporting instructions and supplemental instructions for FR Y-9C, updated the supplemental instructions for Call Reports (FFIEC 051, FFIEC 041, and the FFIEC 031), and approved certain bank acquisition requests. Additionally, the Office of the Comptroller of the Currency (OCC) published reports on key risks facing the federal banking system and performance of first-lien mortgages in the third quarter of 2022, while the Acting Comptroller of the Currency, Michael J. Hsu, discussed progress on regulatory priorities for guarding against complacency by banks, reducing inequality in banking, adapting to digitalization, and managing climate-related financial risks.
Below are the key highlights of these recent updates:
- Final Rule on LIBOR Act. FED adopted the final rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on Secured Overnight Financing Rate (SOFR), which is slated to replace LIBOR in certain financial contracts after June 30, 2023. The final rule identifies the replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the LIBOR Act. Consistent with the LIBOR Act, the final rule ensures that LIBOR contracts adopting a benchmark rate selected by FED will not be interrupted or terminated following the LIBOR replacement. The final rule will be effective 30 days after its publication in the Federal Register.
- Extension of Rule on Large Bank Resolvability. FED and the Federal Deposit Insurance Corporation (FDIC) extended, until January 23, 2023, the comment period on an advance notice of proposed rulemaking to enhance ability of regulators to resolve large banks in an orderly way, should they fail. The agencies seek comments on several potential new requirements and resources that could be used for an orderly resolution of large banking organizations, including a long-term debt requirement.
- Results of Resolution Plans. FED and FDIC announced results of their joint review of the resolution plans for 71 domestic and foreign banking organizations. The results show that the agencies identified two deficiencies in the 2021 plan submission of Credit Suisse AG, which pertain to resolution planning cash flow forecasting capabilities and governance for the U.S. operations. The firm has been asked to resubmit a revised resolution plan for its U.S. operations, by May 31, 2023, to address governance issues and, by July 2024, to remediate the cash flow forecasting weaknesses. The agencies also identified a shortcoming in 2021 plan submission of BNP Paribas that relates to the continuity in resolution of the bank securities repurchase agreement activity for the U.S. operations. In addition, FDIC released the public sections of resolution plans of 21 large insured depository institutions due by December 1, 2022.
- Update on asset-size thresholds. FED and FDIC as well as announced the 2023 updated asset-size thresholds used to define "small bank" and "intermediate small bank" under the CRA regulations. The agencies made adjustments to asset-size thresholds based on the average change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and changed the definitions of small and intermediate small banks. A small bank has been defined as an institution with assets of less than USD 1.503 billion while an intermediate small bank has been defined as a small institution with assets of at least USD 376 million and less than USD 1.503 billion as of December 31 of either of the prior two calendar years; these asset-size thresholds will come into effect from January 01, 2023.
- Bank acquisition requests. FED approved the application of Farmers National Banc Corp, Ohio to acquire Emclaire Financial Corp and thus indirectly acquire The Farmers National Bank of Emlenton, both from Pennsylvania. Additionally, FED approved the application by Brookline Bancorp Inc from Boston, Massachusetts, to merge with PCSB Financial Corporation and thus indirectly acquire PCSB Bank, both of Yorktown Heights, New York. Finally, FED also approved the application by United Community Banks, Inc in South Carolina to merge with Progress Financial Corporation and thus indirectly acquire Progress Bank and Trust, both from Huntsville, Alabama.
- Semiannual Risk Perspective Report. The OCC-published report covers risks facing national banks, federal savings associations, and federal branches and agencies based on data as of June 30, 2022. The report highlights that operational and compliance risks remain elevated, as cyber threats continue to evolve and banks continue to operate in an increasingly complex environment that includes significant regulatory changes. The report found that quantity of credit risk in commercial and retail loan portfolios remains moderate. Loan portfolio performance has been resilient, but signs of potential weakening in some segments warrant careful monitoring. The report also discusses issues related to the climate-related financial risks and the emerging risks related to crypto-assets.
- Mortgage Metrics Report. The report presents performance data for the third quarter of 2022 for loans that the reporting banks own or service for others as a fee-based business. The results show that overall mortgage performance this quarter improved from the third quarter of 2021. As of September 30, 2022, the reporting banks serviced approximately 12 million first-lien residential mortgage loans with USD 2.7 trillion in unpaid principal balances. Servicers initiated 9,835 new foreclosures in the third quarter of 2022, a decrease from the prior quarter, but a higher volume than a year earlier. The new foreclosure volume in the third quarter of 2022 is lower than pre-COVID-19 pandemic foreclosure volumes.
- Final Rule on LIBOR Act
- Extension of Rule on Large Bank Resolvability
- Results of Resolution Plan Review
- FDIC Issues 21 Resolution Plans
- Thresholds Under CRA Regulation
- OCC Asset Thresholds
- FR Y-14A Updates
- FR Y-15 Updates
- FR Y-9C Updates
- Letter on Call Reports
- Approval to Farmers National Banc Corp
- Approval to Brookline Bancorp Inc
- Approval to United Community Banks Inc
- Semiannual Risk Perspective Report (PDF)
- Mortgage Metrics Report (PDF)
- OCC Regulatory Priorities
Keywords: Americas, US, Banking, Libor, Benchmark Reforms, Reporting, Lending, Resolution Plans, Basel, Stress Testing, Fr Y 14A, Fr Y 9, Fr Y 15, Systemic Risk Report, FED, FDIC, OCC
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The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.