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Rules and Regulations

Sunday, July 1, 2012

Community Banks Not Required or Expected To Conduct Same Stress Testing as Larger Banks

Community banks, savings associations, and bank and savings and loan holding companies with $10 billion or less in total assets are not required or expected to conduct the same stress testing as larger banks, as clarified by the Fed, FDIC and OCC this spring. Specifically, they won’t need to conduct enterprise-wide stress tests required of larger organizations under the capital plan rule, the proposed rules implementing Dodd-Frank Act stress testing requirements, or as described in the stress testing guidance for organizations with more than $10 billion in total consolidated assets.

Fed Proposals Aim To Help Ensure Banks Maintain Strong Capital Positions

Bankers and other interested parties can comment on three Fed proposed rules intended to help ensure banks maintain strong capital positions, enabling them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns.

Taken together, the proposals would establish an integrated regulatory capital framework that addresses shortcomings in regulatory capital requirements that became apparent during the recent financial crisis. The proposed rule would implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and changes required by the Dodd-Frank Act.

The rulemaking was divided into three proposed rules to minimize burden on smaller and mid-sized banking organizations and to allow firms to focus on the aspects of the proposed revisions that are most relevant to them. Comments are due by Sept. 7.

Proposal Would Amend Truth in Lending Ability-To-Pay Requirement

A proposed rule by the Consumer Financial Protection Bureau (CFPB) would expand the scope of the ability-to-repay requirement in Regulation Z to:

  • cover certain consumer credit transactions secured by a dwelling;
  • establish standards for complying with the ability-to-repay requirement, including by making a “qualified mortgage”;
  • impose limits on prepayment penalties; and
  • require creditors to retain evidence of compliance with the rule for three years after a loan is consummated.

The CFPB assumed rulemaking authority for Regulation Z under the Dodd-Frank Act.

Final Rule Explains Application of Regulation J to Remittance Transfers

Rules applicable to Fedwire funds transfers continue to apply even if a funds transfer also meets the definition of remittance transfer under the new definition in Section 919 of the Dodd-Frank Act. Interbank rights and obligations with respect to Fedwire funds transfers that meet the new definition of remittance transfer are governed by Regulation J, while Regulation E, which implements the Electronic Funds Transfer Act, will govern disclosures and other rights with respect to the consumer senders of remittance transfers.

CFPB Seeks Input on Impact of Consumer Financial Products and Services on Seniors

As part of the Dodd-Frank Act’s provisions related to the financial literacy of seniors, the Consumer Financial Protection Bureau (CFPB) is seeking information from bankers and other interested parties on consumer financial products and services, financial literacy efforts, and deceptive practices impacting the lives of older Americans and their families. The CFPB requests comments by Aug. 20.

The Fed’s Dodd-Frank Initiative Implementation to Date

Between August 2010 and June 2012, the Federal Reserve System completed dozens of initiatives related to compliance with provisions of the Dodd-Frank Act, which turns 2 on July 21. In addition to those mentioned above, the Fed’s spring milestones include:

Market Risk Capital Rule

This final rule, developed jointly with other federal agencies, implements changes to the market risk capital rule, which requires banking organizations with significant trading activities to adjust their capital requirements to better account for the market risks of these activities. The final rule includes alternative standards of creditworthiness for determining specific risk capital requirements for certain debt and securitization positions.

Securities Holding Company Registration Procedures

This final rule outlines the procedures for securities holding companies (SHCs) to elect to be supervised by the Federal Reserve. An SHC is a nonbank company that owns at least one registered broker or dealer.

Volcker Rule Conformance Period

The Fed and other agencies clarified that an entity covered by the Volcker Rule has until July 21, 2014—two years following the statutory effective date of Section 619 of the Dodd-Frank Act—to fully conform its activities and investments. The Fed adopted the Volcker Rule in February.