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Regulatory & Legislative Update

Is it getting better yet?

Denyette DePierroSenior Counsel

American Bankers Association

Wednesday, September 18, 2013

When will I stop feeling like this?

Just when you think you’re safe…

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Dodd-Frank Act:

A Quick Review

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Legislative Landscape

Will Dodd Frank be repealed?

•Congress remains polarized

•Big picture economic issues loom •Debt Ceiling, Sequestration, Budget

• 5th Anniversary of the financial crisis

• Active oversight of bank regulation

•Bi-partisan agreement hard to find

Legislative Environment

Political – Public Environment Public Opinion of Bankers

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Regulatory Landscape

• Growing complexity

• Increasing influence of global entities-BCBS, FSB, IOSCO-PRA: threat to US banking abroad

• Domestic agencies proliferating, not consolidating-State banking departments, OCC, FDIC, FRB, CFPB, CFTC, SEC, MSRB, DOL, IRS, Treasury (FinCen, OFAC, FSOC, OFR)

Post-DFA Regulatory Landscape

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This is what complexity looks like…

Treasury DepartmentSecretary Jack Lew

Sarah Bloom Raskin Nominated Deputy

Secretary

Federal ReserveChairman Ben Bernanke- 2014

Governor Jerome Powell- 2014

Governor Sarah Bloom Raskin moving

to Treasury

Vice Chairman Janet Yellen –?

Governor Daniel Tarullo – 2022

Governor Jeremy Stein – 2018

1 Vacancy

CFPBDirector Richard Cordray

Deputy Director Steven

Antonakes

SEC Chairman Mary Jo White

Comm. Daniel Gallagher – 2016

Comm. Luis Aguilar – 2016

Comm. Michael Piwowar– 2018

Comm. Kara Stein - 2018

CFTC Chairman Gary Gensler

Comm. Mark Wetjen – 2016

Comm. Bart Chilton – 2014

Comm. Scott O’Malia – 2015

1 Vacancy

Federal Agency Leadership

FDICChairman Martin Gruenberg

Vice Chairman Thomas Hoenig

Director Jeremiah Norton

OCCComptroller Thomas Curry

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Dodd-Frank Act:

Supervision & Oversight

Consumer Financial Protection Bureau

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What about Consumer Protection?

• Consumer point of view

• Enforcement oNon-bank focus just beginningoMultiple departments with authority

• Data DrivenoConsumer ComplaintsoUse “Big Data”& Social MediaoCall Report

Who is the “Vulnerable” Consumer?

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What is their supervisory focus? Four Ds

“We’ve Started Rooting Out Harmful Practices in the Marketplace”

• Debt Traps = Overdrafts, Pay Day Lending

• Dead Ends = Debt Collection, Servicing

• Deception = UDAAP

• Discrimination = Indirect Auto Lending

CFPB: Tips to Consider

• Put yourself in the consumer’s shoes.

• Closely monitor third party partners.

• Pay close attention to fee-based products.

• Carefully review products and services used by vulnerable populations.

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The New UDAAP Standard

What is “abusive” behavior?

• CFPB has broad authority to curb practices it finds to be unfair, deceptive, and abusive.

• Authority may be very broadly applied.

• Examiners have broad discretion to determine what is an unfair, deceptive, or abusive act or practice.

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UDAAP – Increased Regulator Scrutiny

• Overdraft – opt in/opt out

• Increased regulator scrutiny of products and services provided by third parties

• Prepaid Cards

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UDAAP – Increased Regulator Scrutiny

Third Party Products and Services:

Examples:

#1: Credit Card Monitoring Service & Fees

#2: Third Party Sales and Customer Service

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UDAAP - Pre-Paid Cards & Fees

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Fair Lending – Monitoring & Assessment

Assessment Best Practice

Two Part Review:

1. Comparative file review comparing similarly

qualified applicants, and

2. Determine that any dissimilar treatment is not

related to a prohibited basis such as sex or race.

Fair Lending – Monitoring & Assessment

Internal Review of

Fair Lending Compliance:

1. All applicants received a comparable level of assistance

during the application process;

2. The credit decision for similarly qualified applicants was

the same;

3. The terms and conditions granted to similarly qualified;

4. Applicants were substantially the same by product type,

and

5. Determine whether any corrective or remedial action is

necessary.

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Fair Lending Toolbox – May 2012

http://www.aba.com/Members%20Only/FairLendingToolbox.htm?banner

WHAT’S NEXT?

Where are the flying monkeys?

Regulation

DFA:

• Swaps & Derivatives

• Mortgages

• SEC Supervision of Municipal Advisors

• Volcker Rule

• Reg O & Reg W

• Enhanced Prudential Supervision

• Core Deposits

Regulation

Not DFA:

• Basel III & Globalization of Bank Regulation

• Patent Trolls

• Leverage Lending Guidance

• Garnishments of Federal Benefits

• Social Media Guidance

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WHAT’S NEXT?

For Community Banks

00000000Leverage Lending Guidance

Patent Trolls

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http://www.aba.com/Tools/Function/Legal/Pages/patentlitigation.aspx

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ABA Resources - Patent Trolls 00000000Leverage Lending Guidance

Leverage LendingFRB FDIC OCC Joint Guidance

Effective: May 2013

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Leverage Lending Guidance

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Leverage Lending – Participations Purchased

Participation Policy:• Obtaining and independently analyzing full credit

information both before the participation is purchased and on a timely basis thereafter;

• Obtaining from the lead lender copies of all executed and proposed loan documents, legal opinions, title insurance policies, Uniform Commercial Code (UCC) searches, and other relevant documents;

• Carefully monitoring the borrower’s performance throughout the life of the loan; and,

• Establishing appropriate risk management guidelines as described in the guidance.

Garnishment RuleUS Treasury FMS

Effective – June 2013

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Garnishment of Federal Benefits

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00000000Social Media Guidance

Social MediaFFIEC Guidance

Expected 4Q 2013 or 1Q 2014

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Bank use of Social Media

Mortgages:ABR & QRM

Mortgage Rules

RULE STATUS EFFECTIVE DATE

Ability to Repay and

Qualified Mortgages

Final Rule January 10, 2014

Ability-to-Repay/QM Rule

Exemptions

Final Rule January 10, 2014

Expansion of Loans

Subject to and

Disclosures Required by

HOEPA

Final Rule January 10, 2014

Appraisal Requirement

for Higher –Risk

Mortgages

Final Rule January 18, 2014

Escrow Requirements for

Higher-Priced Mortgages

Final Rule June 1, 2013

Appraisal Disclosures

under ECOA

Final Rule January 18, 2013

Loan Originator

Compensation

Final Rule January 10, 2014

Mortgages Servicing

Standards

Final Rule January 10, 2014

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Delay Needed

• Implementation Extension Needed!

• Volume

• Velocity

• Clarification and amendments still happening

• Vendor changes take time

Mortgage Considerations

• Stay current on all changes/clarifications

• Determine your mortgage strategy – Yes, No, Wait?

• Decide on the products and services offered

• Careful attention to loss mitigation rules

• What will the GSEs/Investors do?

Determining Your Mortgage Strategy

http://www.aba.com/Tools/Function/Mortgage/MemDocs/ ATR_QM_Guide_FINAL.pdf

ABA Resources- ATR/QM Rules

Insert screen shot of mortgage page

http://www.aba.com/Issues/QM/Pages/default.aspx

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Basel III

Basel, G20, and the FSB

1. Capital

2. Liquidity – expected in October 2013

3. Securitization

4. Risk Management

5. Operations

What does bank supervision and coordination on a global level mean for US banks?

Basel III Liquidity: What do we need to know?

Likely to impact largest banks only…

…But what about your Correspondent Banks?

• Financial Institution Deposits• Operational Deposits

Basel III Capital

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Basel III Capital: What can we do now?

• Familiarize yourself with the rules early

• Review capital instruments to ensure eligibility

• Do a dry run

• Develop a strategy as necessary

• Know the transition periods

• Educate your Board of Directors

Basel III Final Capital Rule

Required Capital Ratio(s) (Increased) = Capital Narrowed)Risk Weighted Assets (Increased)

Basel III Final Capital Rule

• Greater emphasis on common equity (CET1 Ratio)

• New capital conservation buffer with restrictions

• Generally, compliance begins on January 1, 2015, with transition periods

Basel III Capital - Key Issues

• Unrealized Gains and Losses (AOCI)

o One time opt-out for most banks o Election must be made on 1Q March 2015 Call

Report/FRY-9

• Residential Mortgage Risk Weights

o Final rule retains current risk weightso 120 day safe harbor for secondary market loans

retained

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Basel III - Key Issues

• Trust Preferred Securities

• Maintains Dodd Frank treatment

• Mortgage Servicing Assets

• Deducts MSAs from capital at certain thresholds

• MSAs included in capital receive 250% risk-weight

Basel III - Key Issues

High Volatility Commercial Real Estate

• 150% risk weight

• Covers all commercial acquisition, construction and development loans unless certain requirements are met (LTV, timing of borrower cash, contract terms)

• Does not include agricultural loans

Dodd-Frank Act:

ABA Resources

ABA Resources

• Capital

http://www.aba.com/Issues/Pages/Basel_III.aspx

– Issue Analysis

– Summaries

• CFPB Bureau Watch

http://www.aba.com/Compliance/Pages/CFPB.aspx

– Structure and Powers

– Regulations, Exams and Supervisory Guidance

– Studies, Reports and Database Initiatives

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ABA Resources

• Experts on Call: 1-800-BANKERS

• Dodd Frank and Community Banks

Download at www.aba.com

• ABA Reg Reform Center:

http://www.aba.com/RegReform/default.htm.

• Dodd-Frank Tracker

http://regreformtracker.aba.com/

• ABA Works and Toolboxes

http://www.aba.com/About+ABA/abatoolboxes.htm

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ABA Resources

Tips for Writing Effective Comment Letters:

http://www.aba.com/Compliance/Comply_EffectiveCL.htm

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ABA Resources

Tips for Writing Effective Comment Letters:

http://www.aba.com/Compliance/Comply_EffectiveCL.htm

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Banks and the Economy

http://banksandtheeconomy.blogspot.com/

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Questions?

Denyette DePierro

(202) 663-5333

ddepierr@aba.com

QUESTIONS?