Financial Regulatory Developments Focus - Sept 06, 2018 - Issue 35/2018

Author:Shearman & Sterling LLP
Profession:Shearman & Sterling LLP

Bank Prudential Regulation & Regulatory Capital

US Federal Reserve Board Issues Interim Final Rule Expanding the Applicability of the Small Bank Holding Company Policy Statement

On August 28, 2018, the U.S. Board of Governors of the Federal Reserve System issued an interim final rule increasing the asset threshold for the applicability of the Federal Reserve Board's Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (Regulation Y, Appendix C) from $1 billion to $3 billion in total consolidated assets. The interim final rule implements Section 207 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which mandated that the Federal Reserve Board increase the threshold. The policy statement permits the formation and expansion of small bank holding companies with debt levels that are higher than typically permitted for larger bank holding companies, given that smaller institutions often have limited access to equity financing. The current policy statement applies to bank holding companies with less than $1 billion in pro forma total consolidated assets that: are not engaged in significant non-banking activities either directly or through a non-bank subsidiary; do not conduct significant off-balance sheet activities either directly or through a non-bank subsidiary; and do not have a material amount of debt or equity securities outstanding that are registered with the U.S. Securities and Exchange Commission. The interim final rule also makes conforming changes to Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks) and Regulation Y (Bank Holding Companies and Change in Bank Control). The interim final rule will take effect upon its publication in the Federal Register, with comments due within 60 days of publication.

The full text of the interim final rule is available at:

US Office of the Comptroller of the Currency Publishes Advanced Notice of Proposed Rulemaking with Respect to Community Reinvestment Act Modernization

On August 28, 2018, the U.S. Office of the Comptroller of the Currency issued an advanced notice of proposed rulemaking with respect to the modernization of the Community Reinvestment Act. The notice highlights that a revised CRA framework will allow financial institutions to more effectively serve the needs of the communities in which they operate by focusing CRA activities to where they are needed most, providing greater clarity with respect to CRA-qualifying activities and evaluating CRA activities more consistently. With respect to the latter, the notice provides that a modernized CRA framework will allow for more timely evaluation of the CRA activities of financial institutions, result in greater transparency and consistent interpretation of the CRA and reduce the regulatory burden of financial institutions. The specific requests for comment are organized into two subcategoriesevaluation of the existing CRA framework and the modernized CRA framework. With respect to the existing CRA framework, the notice requests comments regarding whether the current framework is easy to understand, consistently applied and transparent; whether the current framework supports the goals of the CRA; and which aspects of the current framework are successful or should be retained. With respect to the modernized CRA framework, the notice requests comments regarding the revision of the current performance evaluation method, including whether revised CRA performance evaluations should be metric-based; re-defining of communities and assessment areas to reflect activities that occur outside of an institution's physical location and to account for institutions with no physical locations or those with activities that extend significantly beyond the institutions' physical locations; expanding and providing greater clarity with respect to the types and categories of activities that should receive CRA consideration; and facilitating...

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