OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal…

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FOR FURTHER INFORMATION CONTACT: For questions concerning the Guidelines, contact Molly Scherf, National Bank Examiner, Large Bank Supervision, (202) 649-7298, or Stuart Feldstein, Director or Andra Shuster, Senior Counsel, Legislative & Regulatory Activities Division, (202) 649-5490, or Martin Chavez, Attorney, Securities and Corporate Practices Division, (202) 649-5510, 400 7th Street SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION: The recent financial crisis demonstrated the destabilizing effect that large, interconnected financial companies can have on the national economy, capital markets, and the overall financial stability of the banking system. Many governments and central banks across the world, including the U.S. government, responded to the crisis by providing unprecedented levels of support to companies in the financial sector to mitigate the impact of the crisis and to sustain the global financial system.

The financial crisis and the accompanying legislative response underscore the importance of strong bank supervision and regulation of the financial system. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) /1/ to address, in part, weaknesses in the framework for the supervision and regulation of large U.S. financial companies. /2/ These changes underscore the view that large, complex institutions can have a significant impact on capital markets and the economy and, therefore, need to be supervised and regulated more rigorously.

FOOTNOTE 1 Public Law 111-203, 124 Stat. 1376 (2010). END FOOTNOTE

FOOTNOTE 2 See, e.g., 12 U.S.C. 5365 (requiring enhanced prudential standards for certain bank holding companies and nonbank financial companies). END FOOTNOTE

Following the financial crisis, the OCC developed a set of "heightened expectations" to enhance our supervision and strengthen the governance and risk management practices of large national banks. The first expectation, often referred to as preserving the sanctity of the charter, maintains that one of the primary fiduciary duties of an institution's board of directors is to ensure that the institution operates in a safe and sound manner. Since large banks are often one of several legal entities under a complex parent company, each bank's board must ensure that the bank does not function simply as a booking entity for its parent and that parent company decisions do not jeopardize the safety and soundness of the bank. This often requires separate and focused governance and risk management practices.

The second expectation generally requires large institutions to have a well-defined personnel management program that ensures appropriate staffing levels, provides for orderly succession, and provides for compensation tools to appropriately motivate and retain talent that does not encourage imprudent risk taking.

The third expectation pertains to risk appetite (or tolerance) and involves institutions defining and communicating an acceptable risk appetite across the organization, including measures that address the amount of capital, earnings, or liquidity that may be at risk on a firm-wide basis, the amount of risk that may be taken in each line of business, and the amount of risk that may be taken in each key risk category monitored by the institution.

The OCC also expects institutions to have reliable oversight programs under the fourth expectation, including the development and maintenance of strong audit and risk management functions. This expectation involves institutions comparing the performance of their audit and risk management functions to the OCC's standards and leading industry practices and taking appropriate action to address material gaps.

The fifth expectation focuses on the board of directors' willingness to provide a credible challenge to bank management's decision-making and thus requests independent directors to acquire a thorough understanding of an institution's risk profile and to use this information to ask probing questions of management and to ensure that senior management prudently addresses risks.

--This is a summary of a Federal Register article originally published on the page number listed below--

Proposed rules and guidelines.

CFR Part: "12 CFR Parts 30 and 170"

RIN Number: "RIN 1557-AD78"

Citation: "79 FR 4282"

Document Number: "Docket ID OCC-2014-0001"

Federal Register Page Number: "4282"

"Proposed Rules"