Regulatory review RR2015-02

Regulatory review RR2015-02

Table of Contents FINAL RULE Integration of National Bank and Federal Savings Association Regulations: Licensing Rules 1 PROPOSED RULE Liquidity Coverage Ratio: Treatment of U.S. Municipal Securities as High-Quality Liquid Assets 3 NOTICES Partial Extension of Comment Deadline on CARD Act Request for Information - CFPB 5 Request for Information Regarding Student Loan Servicing - CFPB 5 Enhancements to Federal Reserve Bank Same-Day ACH Services, Request for Comments 6

Final Rule Integration of National Bank and Federal Savings Association Regulations: Licensing Rules Applies to: Of interest to all national banks and federal savings associations. Summary/Details: The OCC is adopting a final rule to integrate its rules relating to policies and procedures for corporate activities and transactions involving national banks and Federal savings associations, to revise some of these rules in order to eliminate unnecessary requirements consistent with safety and soundness to promote fairness in supervision and to make other technical and conforming changes. This final rule is effective July 1, 2015. Twelve CFR part 5 sets forth the OCC's rules, policies and procedures for national bank corporate activities and transactions. This final rule revises part 5 to make it applicable to both national banks and Federal savings associations and, to the extent appropriate, deletes the corresponding provisions found in parts 100 through 199. Specifically, the final rule consolidates most licensing provisions for Federal savings associations into the existing national bank rules in part 5. These combined rules are as follows: Rules of general applicability (subpart A) Organizing a national bank or Federal savings association ( 5.20) Conversion from a national bank or Federal savings association to a state bank or state savings association ( 5.25) Fiduciary powers of national banks or Federal savings associations ( 5.26) Business combinations involving a national bank or Federal savings association ( 5.33) Bank service company investments of a national bank or Federal savings association ( 5.35) Investment in national bank or Federal savings association premises ( 5.37) Change in location of a main office of a national bank or home office of a Federal savings association ( 5.40) Corporate title of a national bank or Federal savings association ( 5.42) Voluntary liquidation of a national bank or Federal savings association ( 5.48) Change in control of a national bank or Federal savings association; reporting of stock loans ( 5.50) Changes in directors and senior executive officers of a national bank or Federal savings association ( 5.51) Change of address of a national bank or Federal savings association ( 5.52) Substantial asset change by a national bank or Federal savings association ( 5.53) RR2015-02 1

FINAL rule In other cases, this final rule retains separate rules for national banks and Federal savings association in part 5 because the rules do not apply to both charters, are better organized as separate rules, or their differences and complexity make integration difficult. The new Federal savings association rules are as follows: Federal mutual savings association charters and bylaws ( 5.21) Federal stock savings association charters and bylaws ( 5.22) Conversion to become a Federal savings association ( 5.23) Establishment, acquisition, and relocation of a branch and establishment of an agency office of a Federal savings association ( 5.31) Operating subsidiaries of a Federal savings association ( 5.38) Increases in permanent capital of a Federal stock savings association ( 5.45) Capital distributions by a Federal savings association ( 5.55) Inclusion of subordinated debt securities and mandatorily redeemable preferred stock as supplementary (Tier 2) capital ( 5.56) Pass-through investments by a Federal savings association ( 5.58) Service corporations of Federal savings associations ( 5.59) The remaining rules in part 5 continue to be applicable only to national banks, with the exception of subpart E. (Subpart E applies only to Federal branches and agencies.) The national bank -only rules are as follows: Conversion to become a national bank ( 5.24) Establishment, acquisition, and relocation of a branch of a national bank ( 5.30) Expedited procedures for certain reorganizations of a national bank ( 5.32) Operating subsidiaries of a national bank ( 5.34) Other equity investments by a national bank ( 5.36) Financial subsidiaries of a national bank ( 5.39) Changes in permanent capital of a national bank ( 5.46) Subordinated debt issued by a national bank ( 5.47) Payment of dividends by national banks (Subpart E) In addition, the final rule makes substantive changes to the OCC's licensing rules to eliminate unnecessary requirements and to further the safe and sound operation of the institutions the OCC supervises. Furthermore, the final rule makes conforming and technical changes. Beginning on page 28411 of Volume 80 of the Federal Register, the rulemaking announcement includes a redesignation table that indicates changes in the numbering of the rules as a result of this final rule. For further information, please refer to the Federal Register, Vol. 80, No. 95, page 28346. RR2015-02 2

PROPOSED RULE Liquidity Coverage Ratio: Treatment of U.S. Municipal Securities as High-Quality Liquid Assets Applies to: Of interest to financial institutions supervised by the Federal Reserve. Summary/Details: The Federal Reserve Board has invited comment on a proposed rule that would amend the Board's liquidity coverage ratio requirement (LCR) to include certain U.S. municipal securities as high-quality liquid assets (HQLA). This proposed rule includes as level 2B liquid assets under the LCR general obligation securities of a public sector entity that meet the same criteria as corporate debt securities that are included as level 2B liquid assets, subject to limits that are intended to address the unique structure of the U.S. municipal securities market. This proposed rule would apply to all Board-regulated institutions that are subject to the LCR, which include: (1) Bank holding companies, certain savings and loan holding companies, and state member banks that, in each case, have $250 billion or more in total consolidated assets or $10 billion or more in onbalance sheet foreign exposure; (2) state member banks with $10 billion or more in total consolidated assets that are consolidated subsidiaries of bank holding companies described in (1); and (3) nonbank financial companies designated by the Financial Stability Oversight Council for Board supervision to which the Board has applied the LCR by rule or order. In 2014, the Board adopted a final rule that implemented a quantitative liquidity requirement (LCR) consistent with the liquidity coverage ratio standard established by the Basel Committee on Banking Supervision. The LCR requires a company subject to the rule to maintain an amount of highquality liquid assets (HQLA) (the numerator of the ratio) that is no less than 100 percent of its total net cash outflows over a prospective 30 calendar-day period of significant stress (the denominator of the ratio). Community banking organizations are not subject to the LCR. Under the LCR, only a limited number of asset classes that have historically been used as a source of liquidity in the United States during periods of significant stress and have a demonstrable record of liquidity are included as HQLA. The LCR divides HQLA into three categories of assets: level 1, level 2A, and level 2B liquid assets. The Board now proposes to allow Board-regulated institutions to include as level 2B liquid assets under the LCR U.S. general obligation municipal securities that exhibit characteristics that are comparable to other asset classes included as level 2B liquid assets. As a threshold matter, to qualify as HQLA under the proposal, U.S. general obligation municipal securities must be liquid and readily marketable and meet other criteria consistent with the criteria for corporate debt securities that are included as level 2B liquid assets. A. Criteria for Inclusion as Level 2B Liquid Assets 1. U.S. General Obligation Municipal Securities 2. Not an Obligation of a Financial Sector Entity or Its Consolidated Subsidiaries RR2015-02 3

PROPOSED RULE 3. Investment Grade U.S. General Obligation Municipal Securities 4. Proven Record as a Reliable Source of Liquidity B. Limitations on a Company s Inclusion of U.S. General Obligation Municipal Securities as Eligible HQLA 1. Limitation on the Inclusion of U. S. General Obligation Municipal Securities With the Same CUSWIP Number as Eligible HQLA 2. Limitation on the Inclusion of the U.S. General Obligation Municipal Securities of a Single Issuer as Eligible HQLA 3. Limitation on the Amount of U.S. General Obligation Municipal Securities That Can Be Included in the HQLA Amount Comments must be received by July 24, 2015. For further information, please refer to the Federal Register, Vol. 80, No. 102, page 30383. RR2015-02 4

NOTICes Partial Extension of Comment Deadline on CARD Act Request for Information - CFPB Applies to: Of interest to all financial institutions. Summary/Details: Section 502(a) of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) requires the CFPB to conduct a review of the consumer credit card market, within the limits of its existing resources available for reporting purposes. In connection with conducting that review, the Consumer Financial Protection Bureau published a Request for Information in the Federal Register on March 19, 2015, soliciting from the public comment on a number of aspects of the consumer credit card market. To allow interested persons additional time to consider and submit their responses, the Bureau has determined that an extension of the comment period on four of the specific areas of interest noted in the original Request for Information - online disclosures, grace periods, add-on products, and debt collection - until June 17, 2015, is appropriate. For further information, please refer to the Federal Register, Vol. 80, No. 92, page 27294. Request for Information Regarding Student Loan Servicing - CFPB Applies to: Of interest to all financial institutions. Summary/Details: The CFPB is seeking comments from the public related to the market for student loan servicing. The submissions to this request for information will serve to assist market participants and policymakers on potential options to improve borrower service, reduce defaults, develop best practices, assess consumer protections, and spur innovation. The CFPB estimates that there are over 40 million borrowers with student loans who collectively owe over $1.2 trillion. Student debt is the largest category of unsecured debt owed by American consumers. More than 40 million Americans with student loan debt depend on student loan servicers as their primary point of contact for their student loans. A servicer is often different than the lender or loan holder, and borrowers almost always lack control or choice over which company services their loan. The Bureau estimates that there are nearly 8 million student loan borrowers in default, representing over $110 billion in balances. In addition, the Department of Education estimates that another 3 million Direct Loan borrowers are at least 30 days past due on one or more student loans, comprising over $58 billion in balances. As the number of borrowers with defaulted or delinquent student loans has grown, it has prompted questions about what steps servicers should take to achieve greater success in minimizing defaults and curing delinquencies. In July 2011, the Bureau launched an examination program to supervise education lending and services at the largest depository institutions. In December 2013, the Bureau finalized a rule expanding its supervisory authority to include large nonbank participants in the student loan servicing market - the companies that perform more than 70% of all nonbank student loan servicing activity, including those student loan services contracted by the Department of Education to service the feder- RR2015-02 5

NOTICes The Bureau has observed similarities between the servicing problems encountered by student loan borrowers and those experienced by borrowers with other financial products. The Bureau is interested in responses in a number of general areas, as well as to specific questions. Part One solicits feedback on questions related to general practices in the student loan servicing industry, including industry practices for borrowers in distress. Part Two seeks comments on the applicability of consumer protections from other consumer financial product markets, including the markets for servicing credit cards and mortgages. Part Three solicits feedback on the availability of data about student loan performance and borrower characteristics during repayment. Comments must be received on or before July 13, 2015. For further information, please refer to the Federal Register, Vol. 80, No. 98, page 29302. Enhancements to Federal Reserve Bank Same-Day ACH Services, Request for Comments Applies to: All financial institutions. Summary/Details: The Board has requested comment on possible enhancements to its current same-day ACH service. The enhancements would require receiving depository financial institutions (RDFIs) to participate in the service and originating depository financial institutions (ODFIs) to pay a fee to RDFIs for each same-day ACH forward transaction. The ACH network serves as a ubiquitous, nationwide mechanism for processing batch-based credit and debit transfers electronically. The time it takes to settle transactions, however, has not changed materially since next-day settlement was introduced nearly four decades ago. NACHA, whose membership consists of insured financial institutions and regional payment associations, establishes network-wide ACH rules through its Operating Rules & Guidelines. As an ACH operator, the Reserve Banks, through Operating Circular 4, incorporate NACHA's Operating Rules & Guidelines as rules that govern clearing and settlement of commercial ACH items by the Reserve Banks, except for those provisions specifically excluded in the Operating Circular. The Reserve Banks began offering an optional FedACH SameDay Service (FedACH SameDay Service) to Reserve Bank ACH customers in 2010. As a part of the service, the Reserve Banks charge ODFIs a per-item surcharge on the normal ACH processing fee and provide RDFIs a discount on the normal ACH processing fee for receipt of forward items. There is no fee paid by ODFIs to RDFIs. On May 19, 2015, NACHA announced that its voting members approved amendments to NA- CHA's Operating Rules & Guidelines (amended operating rules) to allow ODFIs to send sameday ACH transactions to accounts held at any RDFI. The amended operating rules require all RR2015-02 6

NOTICES RDFIs to participate in the same-day service, and ODFIs to pay a fee to RDFIs for each sameday ACH forward transaction (interbank fee). The Board believes that the introduction of a FedACH same-day service with mandatory participation by RDFIs and an interbank fee would not adversely affect the Reserve Banks' ability to recover the cost of providing the ACH service over the long run. The Board also believes that a same-day ACH service offers clear public benefits. The Board believes that the service may have a significant longer-run effect on the nation's payment system through increased efficiency and integrity of the ACH network. Under NACHA's amended operating rules RDFIs cannot refuse same-day ACH transactions and must make funds available from same-day ACH credits to their depositors by 5:00 p.m. The Board recognizes that both ODFIs and RDFIs will need to make investments in systems and operations to facilitate same-day ACH transactions. ODFIs have the choice of offering a same-day ACH service to originating customers and may be able to offset their investment through additional service offerings and higher fees for same-day processing. RDFIs, in contrast, would not be able to refuse receipt of same-day ACH transactions under a mandatory participation requirement and may incur same-day settlement costs that they are unable to fully offset through incremental revenue. NACHA designed the interbank fee to allow RDFIs to offset costs associated with the up-front investments and ongoing operating costs necessary for accepting, posting, and making funds available from same-day transactions. The initial interbank fee under NACHA's amended operating rules is 5.2 cents per forward transaction. Comments must be received no later than July 2, 2015. For further information, please refer to the Federal Register, Vol. 80, No. 101, page 30246. AUTHORS Janison Dillon, Associate Counsel and Director, NC Center for Financial Literacy Nathan Batts, Senior Vice President and Counsel, NCBA Dawn Thompson, Associate Counsel, NCBA Disclaimer The Regulatory Review is intended to provide a concise summary rather than complete analysis of the regulations covered. Reference should be made to the regulation itself for a determination of its application to your particular circumstances. RR2015-02 7