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THE FEDERAL DEPOSIT INSURANCE Corporation highlighted the agency’s resources to help small businesses get the most from their banking relationships.
Small businesses employ roughly half of all Americans and account for more than 60% of net new jobs, according to the U.S. Small Business Administration (SBA). Their ability to generate new jobs depends, in large part, on access to credit and other banking services.
The FDIC noted that it provides MoneySmart for Small Business (MSSB), a practical introduction to topics related to starting and managing a business, as a free educational tool. Developed jointly by the FDIC and the SBA, the instructor-led curriculum consists of 13 modules.
The FDIC also highlighted relevant articles published by the agency that offer strategies to help entrepreneurs and other small business owners and managers avoid fraud or scams and find solid financial options.
Pratt’s Bank Law & Regulatory Report, Volume 50, No. 6
THE FEDERAL RESERVE, OFFICE OF THE COMPTROLLER of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) have proposed a net stable funding ratio, or NSFR. The rule is intended to strengthen the resilience of large banking organizations by requiring them to maintain a minimum level of stable funding relative to the liquidity of their assets, derivatives, and commitments, over a one-year period.
The proposal is designed to reduce the likelihood that disruptions to a banking organization’s sources of funding will compromise its liquidity position. The proposal would require institutions subject to the rule to maintain sufficient levels of stable funding, thereby reducing liquidity risk in the banking system.
The NSFR proposal would complement the liquidity coverage ratio rule, which requires large banking organizations to hold a minimum amount of high-quality liquid assets that can be easily and quickly converted into cash to meet net cash outflows over a 30-day stress period.
The proposed rule would be tailored to the risk of the banking organizations. The most stringent requirements would apply to the largest firms—those with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure, as well as those banking organizations’ subsidiary depository institutions that have assets of $10 billion or more.
Holding companies with less than $250 billion but more than $50 billion in total consolidated assets and less than $10 billion in on-balance sheet foreign exposure would be subject to a less stringent, modified NSFR requirement. The rule would not apply to holding companies with less than $50 billion in total consolidated assets and would not apply to community banks. Holding companies subject to the proposal would be required to publicly disclose information about their NSFR levels each quarter. Comments were due by August 5.
FEDERAL FINANCIAL REGULATORS ISSUED GUIDANCE intended to ensure that financial institutions are aware of the supervisory expectations regarding deposit-reconciliation practices that may be detrimental to customers.
According to the guidance, which was issued by the Consumer Financial Protection Bureau (CFPB), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency, this kind of discrepancy arises in a variety of situations, including inaccuracies on the deposit slip, encoding errors, or poor image capture.
The agencies said they have observed that financial institutions use a variety of approaches to handle credit discrepancies and that in some instances financial institutions do not research or correct all variances between the dollar value of items deposited to the customer’s account and the dollar amount that is credited to that account.
The guidance also points out that various laws and regulations may be relevant to deposit reconciliation practices. These include the Expedited Funds Availability Act (EFAA), which, as implemented by Regulation CC, requires that financial institutions make funds deposited in a transaction account available for withdrawal within prescribed time limits.
Financial institution’s deposit-reconciliation practices are also subject to Section 5 of the Federal Trade Commission Act, which prohibits a financial institution from engaging in unfair or deceptive acts or practices.
The guidance calls on financial institutions to “implement effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure compliance with applicable laws and regulations, and fair treatment of customers.”
“Consumers should not be denied timely access to the full amount of their deposits,” said CFPB Director Richard Cordray. “Today’s guidance should make it clear that we expect financial institutions to take steps to handle and resolve deposit discrepancies and avoid consumer harm.”
THE BALL’S BACK IN FINANCIAL institutions’ court now that financial regulators have asked for public comment on re-proposed joint rules that would implement the incentive compensation requirements mandated by Section 956 of the Dodd-Frank Act. The latest draft is being issued by the Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Securities and Exchange Commission (SEC), and the Federal Housing Finance Agency.
As the Fed noted, since the agencies issued their first proposed rule under Section 956 in 2011, “incentive-based compensation practices have evolved in the financial services industry and the Agencies have gained additional supervisory experience.” In light of these developments, the revised proposal includes new, more specific, and more stringent requirements, especially for the largest institutions.
Comptroller of the Currency Thomas Curry issued a statement saying the rule “will play an important role in helping safeguard financial institutions against practices that threaten safety and soundness, or could lead to material financial loss for the institution.”
The new proposed rule applies different requirements to three levels of institutions based on asset size: entities with total consolidated assets equal to or greater than $250 billion (Level 1); those with assets between $50 and $250 billion (Level 2); and those with assets between $1 and $50 billion (Level 3). Limits on incentive-based compensation arrangements would be tailored based on these levels, with more stringent requirements applying to the largest organizations.
The proposed rule would prohibit all covered institutions (Levels 1, 2, and 3) from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk by providing covered persons with excessive compensation, fees, or benefits or that could lead to material financial loss to the covered institution.
Compensation, fees, and benefits would be considered excessive when amounts paid are unreasonable or disproportionate to the value of the services performed by a covered person, taking into consideration all relevant factors, including:
For covered institutions with at least $50 billion in assets, a significant risk-taker would generally be an individual who is not a senior executive officer but was among the top 5% (for organizations with more than $250 billion in consolidated assets) or top 2% (for organizations with between $50 and $250 billion in consolidated assets) of most highly compensated covered persons in the entire consolidated organization or had authority to commit or expose 0.5% or more of the capital of a covered institution.
For Level 1 and 2 institutions, the proposed rule would require that incentive-based compensation arrangements for senior executive officers and significant risk takers include deferral, risk of downward adjustment and forfeiture, and clawback.
A Level 1 covered institution ($250 billion or more in assets) would be required to defer for at least four years from the end of the performance period at least 60% of a senior executive officer’s qualifying incentive-based compensation and 50% of a significant risk-taker’s qualifying incentivebased compensation.
A covered institution with $50 billion or more in assets would be required to consider forfeiture or downward adjustment of incentive-based compensation if certain adverse outcomes occur, including:
The proposed rule would require covered institutions with $50 billion or more in assets to include clawback provisions that, at a minimum, allow the covered institution to potentially recover incentive-based compensation from a current or former senior executive officer or significant risk-taker for seven years following the date on which such compensation vests, if the covered institution determines that the senior executive officer or significant risk-taker engaged in specified types of significant misconduct.
For covered institutions with $50 billion or more in assets, incentive-based compensation awards could not exceed target amounts by more than 125% for any senior executive officer or more than 150% for any significant risk-taker.
The compliance date for the new rule would be the beginning of the first calendar quarter that begins at least 540 days (effectively 18 months) after a final rule is published in the Federal Register.
THE U.S. DEPARTMENT OF THE TREASURY ANNOUNCED a customer due diligence (CDD) final rule. The CDD final rule adds a new requirement that financial institutions—including banks, brokers or dealers in securities and mutual funds, futures commission merchants, and introducing brokers in commodities— collect and verify the personal information of the real people (also known as beneficial owners) who own, control, and profit from companies when those companies open accounts. The final rule also amends existing Bank Secrecy Act (BSA) regulations to clarify and strengthen obligations of these entities.
Treasury also said it is sending beneficial ownership legislation to Congress. “The Administration is committed to working with Congress to pass meaningful legislation that would require companies to know and report adequate and accurate beneficial ownership information at the time of a company’s creation, so that the information can be made available to law enforcement,” Treasury said.
“The Treasury Department has long focused on countering money laundering and corruption, cracking down on tax evasion, and hindering those looking to circumvent our sanctions. Building on years of important work with stakeholders, the actions we are finalizing today mark a significant step forward to increase transparency and to prevent abusive conduct within the financial system,” said Treasury Secretary Jacob J. Lew.
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