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Impact of Proposed “Regulatory Off-Ramp” for Community Banks

February 15, 2017

Authors

Robert Klingler

Impact of Proposed “Regulatory Off-Ramp” for Community Banks

February 15, 2017

by: Robert Klingler

A key component of the proposed roadmap for Republican efforts to provide regulatory relief is based on reduced regulatory burdens in exchange for holding higher capital levels.  Specifically, Title I of the proposed Financial Choice Act, as modified by Representative Hensarling’s “Choice Act 2.0 Changes” memo of February 7, 2017, proposes to provide significant regulatory relief for institutions that maintain an average leverage ratio of at least 10 percent.

The principal concepts of this “regulatory off-ramp” have, so far, remained relatively constant since first published by the House Financial Services Committee in June of 2016; any institution that elects to maintain elevated capital ratios (set at a 10% leverage ratio) would enjoy exemptions from the need to comply with certain other bank regulatory requirements.

Choice 2.0

In February 2017, Jeb Hensarling, Chairman

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OCC Releases Stress Testing Guidance for Community Banks

October 22, 2012

Authors

Jonathan Hightower

OCC Releases Stress Testing Guidance for Community Banks

October 22, 2012

by: Jonathan Hightower

On October 18, 2012, the OCC released stress testing guidance  for national banks and federal savings associations with $10 billion or less in total assets.  While the regulatory authorities clarified in May of this year that the Supervisory Guidance on Stress Testing for Banking Organizations with More than $10 Billion in Total Consolidated Assets would not apply to community banks, the OCC has now confirmed that the stress testing requirements in Dodd-Frank have “trickled down” to community banks, at least to those regulated by the OCC. The guidance states that appropriate stress testing should be performed at least annually.

Fortunately for community bankers, the stress testing guidance is greatly scaled back from the rules applicable to larger institutions, and the requirements are flexible in many respects. The guidance specifically states that the OCC does not specifically endorse any particular stress testing model and that

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Regulators’ “No Stress” Message to Smaller Banks Only Tells Part of the Story

May 14, 2012

Authors

Jonathan Hightower

Regulators’ “No Stress” Message to Smaller Banks Only Tells Part of the Story

May 14, 2012

by: Jonathan Hightower

On May 14, 2012, the Federal Reserve, FDIC and the OCC released a joint statement confirming that that banking organizations with total consolidated assets of $10 billion and under will not be required to conduct formal stress tests.  Management of many smaller banking organizations had been concerned that the stress testing required of larger banks would “trickle down” in an informal sense to smaller banks.  With this regulatory statement, that concern is alleviated, at least in the official sense.

We continue to believe that the heightened (or perhaps renewed) emphasis on risk management by the regulators will affect banks of all sizes.  It is likely that regulators, directors, and shareholders of all banks will want to confirm that management has identified the key risk factors affecting the institution and that the board has established the institution’s tolerance for accepting those risks and implemented any appropriate mitigants.

We recommend that

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Financial Services Update

November 22, 2010

Authors

Matt Jessee

Financial Services Update

November 22, 2010

by: Matt Jessee

Debate Over Extension of Bush Tax Cuts Continues

On Thursday, House Majority Leader Steny Hoyer (D-MD) and House Speaker Nancy Pelosi (D-CA) told House Democrats at a closed door meeting that the House would vote before the end of the year on extending the Bush tax cuts for only those individuals making less than $250,000. However, even if such a measure were to pass in the House, it is unclear whether the Senate will agree to such a vote. There is still the possibility the bill may not pass the House if Republicans are able to successfully pass a procedural response, known as a “motion to recommit,” that could force a House vote on a full extension of the Bush tax cuts.  According to sources, Pelosi told President Barack Obama that House Democrats remain firmly committed to allowing Bush-era tax cuts to expire for earners making more than $250,000, which

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TARP Capital Redemption Standards

June 2, 2009

Authors

Robert Klingler

TARP Capital Redemption Standards

June 2, 2009

by: Robert Klingler

On June 1, 2009, the Federal Reserve announced the standards that the Federal Reserve would apply in determining whether the nineteen largest bank holding companies (the “Stress Test” participants) would be permitted to redeem their outstanding TARP Capital Purchase Program securities.

Under the TARP Capital Purchase Program, an institution may seek to redeem the TARP investment at any time, subject to the approval of the institution’s primary federal regulator.  While institutions were initially limited in their ability to redeem the TARP investment during its first three years, Congress removed that limitation under the American Recovery and Reinvestment Act of 2009.  As of June 1, 2009, 20 institutions had redeemed their TARP Capital Purchase Program investment.  The Federal Reserve announced that the first approvals for redemptions by the nineteen largest bank holding companies would be announced during the week of June 8, 2009.

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Stress Test Results and Loss Projections

May 7, 2009

Authors

Robert Klingler

Stress Test Results and Loss Projections

May 7, 2009

by: Robert Klingler

On May 7, 2009, the Federal Reserve released its Overview of Results of the Supervisory Capital Assessment Program (or Stress Test).  The headlines regarding the Stress Test Results are likely to emphasize that ten of the 19 participating institutions are required to collectively raise $74.6 billion in new common equity, as follows:

  • American Express – $0
  • Bank of America – $33.9 billion
  • BB&T – $0
  • Bank of New York Mellon – $0
  • Capital One – $0
  • Citigroup – $5.5 billion
  • Fifth Third – $1.1 billion
  • GMAC – $11.5 billion (of which $9.1 billion must be new Tier 1 Capital)
  • Goldman Sachs – $0
  • JP Morgan – $0
  • Key Corp – $1.8 billion
  • MetLife – $0 billion
  • Morgan Stanley – $1.8 billion
  • PNC Financial – $0.6 billion
  • Regions – $2.5 billion (of which $400 million must be new Tier 1 Capital)
  • State Street – $0
  • SunTrust – $2.2 billion
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Stress Test Statement

May 6, 2009

Authors

Robert Klingler

Stress Test Statement

May 6, 2009

by: Robert Klingler

In advance of releasing the “Stress Test” results (scheduled for 5:00pm on Thursday, May 7, 2009), the Treasury and the federal banking regulators released a joint statement about the Supervisory Capital Assistance Program on May 6, 2009.  The joint statement also includes information about the process that will be used for institutions desiring to redeem their TARP Capital Purchase Program Preferred stock.

A few key points about the Stress Test:

  • The government intends to announce, for each of the 19 institutions individually and in the aggregate, estimates of: losses and loss rates across select categories of loans; resources available to absorb those losses; and the resulting necessary additions to the capital buffers.
  • Any of the 19 needing to raise capital will be given until June 8, 2009 to develop a detailed capital plan, and until November 9, 2009 to implement that plan.
  • As part of the capital plan,
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The Stress Test Facts

April 24, 2009

Authors

Robert Klingler

The Stress Test Facts

April 24, 2009

by: Robert Klingler

On April 24, 2009, the Federal Reserve published a white paper describing the process and methodologies employed by the federal banking supervisory agencies in their forward-looking capital assessment of large U.S. bank holding companies.  The white paper is thin on new details, but does provide a base for understanding the stress tests being undertaken of 19 bank holding companies with total assets in excess of $100 billion.

Purpose and Effect of the Stress Tests

The stress tests are designed as the first part of the Capital Assistance Program to demonstrate which institutions the government believes will need to raise additional capital.  If a stress test demonstrates that an institution requires additional capital, the institution will be required to enter an agreement to issue convertible preferred securities to the U.S. Treasury in an amount sufficient to meet the capital shortfall under the TARP Capital Assistance Program.  Each such institution will

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