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The OCC has requested comment on a proposal to revise its recovery planning guidelines for certain large insured national banks, federal savings associations, and federal branches (banks).

The proposed rulemaking is part of the OCC’s effort to ensure that large banks are adequately prepared and have developed a plan to respond to the financial effects of severe stress, particularly in light of the contagion effects and systemic risks they may pose.

The proposal would:

• Expand recovery planning guidelines to apply to banks with at least $100 billion in assets
• Incorporate a testing standard for recovery plans
• Clarify the role of non-financial risk (including operational and strategic risk) in recovery planning

Comments from the public will be accepted for 30 days following publication of the proposed in the Federal Register.
Publication and comment period update: Published 7/3/2024 at 89 FR 55114. The comment period will close 8/2/2024.

The FDIC has issued FIL-36-2024 with steps intended to provide regulatory relief to financial institutions and facilitate recovery in areas of Florida — Leon County — affected by severe storms, straight-line winds, and tornadoes on May 10, 2024.

The Federal Housing Finance Agency has announced its conditional approval for Freddie Mac to engage in a limited pilot to purchase certain single-family closed-end second mortgages. This conditional approval follows FHFA’s first publication of a proposed new product by either Freddie Mac or Fannie Mae (the Enterprises) for public comment under the new process mandated by the Prior Approval for Enterprise Products regulation, which became effective in April 2023.

The conditional approval of a pilot for Freddie Mac purchases of second mortgages includes several limitations on the product, including:

• A maximum volume of $2.5 billion in purchases;
• A maximum duration of 18 months;
• A maximum loan amount of $78,277, corresponding to certain subordinate-lien loan thresholds in the Consumer Financial Protection Bureau’s definition of Qualified Mortgage;
• A minimum seasoning period of 24 months for the first mortgage; and
• Eligibility only for principal/primary residences.

Upon the pilot’s conclusion, FHFA will analyze the data on Freddie Mac’s purchases of second mortgages to determine whether the objectives of the pilot were met. FHFA has determined that any increase to the volume or extension of the duration of the pilot, or a conversion of the pilot to a programmatic activity, would be treated as a new product that is subject to public notice and comment and FHFA approval. Any subsequent approval would be informed by the preliminary results of the pilot.

The FDIC has issued FIL-35-2024 with steps intended to provide regulatory relief to financial institutions and facilitate recovery in areas of Oklahoma — Blaine, Caddo, Custer, Delaware, Jackson, Mayes, Muskogee, and Rogers Counties — affected by severe storms, straight-line winds, tornadoes, and flooding from May 19, 2024, to May 28, 2024.

The FDIC and Federal Reserve Board have jointly announced that, following their joint review of the July 2023 resolution plan submissions of the eight largest and most complex banks, they identified a weakness in the plans from Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase. The agencies did not identify any weaknesses in the plans from the other banks.

The agencies jointly identified a weakness in the 2023 plan submitted by Citigroup, but reached different conclusions on its severity. The FDIC determined that the Citigroup plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code and considers the weakness to be a "deficiency." A deficiency is a weakness that could undermine the feasibility of the plan. The Board concluded that the weakness is only a shortcoming. Under the resolution planning rule of the agencies, when one agency finds a shortcoming in a resolution plan and the other agency finds a deficiency, the plan is deemed to have a shortcoming. As a result, Citigroup's 2023 plan is considered to have a shortcoming. The agencies also previously identified a shortcoming in Citigroup's 2021 plan related to data quality and data management, and that shortcoming remains outstanding.

The agencies provided feedback letters to each of the eight banks that identify areas for continued development of banks' resolution strategies and capabilities. For the four banks with an identified shortcoming, the letters describe the specific weaknesses resulting in the shortcoming and the remedial actions required by the agencies. The shortcomings are to be addressed in the next resolution plans due by July 1, 2025. The feedback letters also specify that each bank, in its 2025 resolution plan submission, should address the topics of contingency planning and obtaining foreign government actions necessary to execute the resolution strategy.

2023 Resolution Plan Feedback Letters:

• Bank of America Corporation
• Bank of New York Mellon Corporation
• Citigroup Inc.
• The Goldman Sachs Group
• JPMorgan Chase & Co.
• Morgan Stanley
• State Street Corporation
• Wells Fargo & Company

The FDIC Board yesterday announced it has approved a final rule to strengthen resolution planning for insured depository institutions (IDIs) with at least $50 billion in total assets. After careful consideration of comments received, the FDIC issued a final rule that incorporates several changes from the agency’s proposed rule published in September of 2023.

Under the rule announced yesterday, the FDIC will require large banks with total assets of at least $100 billion to submit comprehensive resolution plans that meet enhanced standards to support the FDIC’s ability to undertake an efficient and effective resolution under the Federal Deposit Insurance Act should such an institution fail.

The rule will require IDIs with total assets of at least $50 billion but less than $100 billion to submit more limited “informational filings” to assist in their potential resolution. The agency will not require these institutions to develop a resolution strategy and related valuation information as part of their submissions. These institutions are also exempt from submitting certain strategy-related content requirements regarding the institution’s franchise components.

The new rule strengthens the existing IDI resolution planning framework under 12 CFR § 360.10 by requiring a full resolution submission from most covered IDIs every three years with limited supplements filed in the off years. Covered IDIs affiliated with U.S. global systemically important banking organizations must file a full resolution submission every two years.

The final rule will take effect on October 1, 2024, and the first submissions are expected next year.

• Fact sheet
• FIL-34-2024
• Statement by Acting Comptroller of the Currency Michael J. Hsu
• Statement by CFPB Director Rohit Chopra
• Publication update: Published at 89 FR 56620 in the 7/9/2024 Federal Register

The OCC yesterday announced its approval of a final rule to implement quality control standards for automated valuation models used by mortgage originators and secondary market issuers in valuing residential real estate collateral securing mortgage loans.

The rule was reportedly also approved yesterday by the Board of the FDIC. It is to be jointly issued by the OCC, Federal Reserve Board, FDIC, NCUA, CFPB, and the Federal Housing Finance Agency following approval by each of the agencies. It will be effective at the start of the first calendar quarter following the date that is 12 months after the rule is published in the Federal Register

The FDIC has updated its Consumer Compliance Examination Manual. The June 2024 updates were made to sections II-14.1 (Violations Codes), IV-1.1 (Truth in Lending Act), and XI-1.1 (Community Reinvestment Act).

The Federal Housing Finance Agency has released its latest report on the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac.

The sale of NPLs reduces the number of deeply delinquent loans in the Enterprises’ portfolios and transfers credit risk to the private sector. FHFA and the Enterprises impose requirements on NPL buyers designed to achieve more favorable outcomes for borrowers than foreclosure.

This report shows that the Enterprises sold 168,364 NPLs with a total unpaid principal balance (UPB) of $30.9 billion from program inception in 2014 through December 31, 2023. The loans included in the NPL sales had an average delinquency of 2.8 years and an average current mark-to-market loan-to-value (LTV) ratio of 83 percent (not including capitalized arrearages).

The OCC has reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2024.

The OCC reported that the overall condition of the federal banking system remains sound. However, the maturing economic cycle may cause consumer headwinds. It is important for banks to continue identifying material risks and their interconnected impacts. Continuous risk management improvement remains appropriate as this allows banks to guard against complacency.

The OCC highlighted credit, market, operational, and compliance risks as the key risk themes in the report.