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

OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Integration of Regulations

SUMMARY: The Office of the Comptroller of the Currency (OCC) is adopting guidelines, issued as an appendix to its safety and soundness standards regulations, establishing minimum standards for the design and implementation of a risk governance framework (Framework) for large insured national banks, insured Federal savings associations, and insured Federal branches of foreign banks (banks) with average total consolidated assets of $50 billion or more and minimum standards for a board of directors in overseeing the Framework's design and implementation (final Guidelines). The standards contained in the final Guidelines will be enforceable by the terms of a Federal statute that authorizes the OCC to prescribe operational and managerial standards for national banks and Federal savings associations. In addition, as part of our ongoing efforts to integrate the regulations of the OCC and those of the Office of Thrift Supervision (OTS), the OCC is adopting final rules and guidelines that make its safety and soundness standards regulations and guidelines applicable to both national banks and Federal savings associations and that remove the comparable Federal savings association regulations and guidelines. The OCC is also adopting other technical changes to the safety and soundness standards regulations and guidelines.

EFFECTIVE DATE: The final rule is effective November 10, 2014. Compliance dates for the final Guidelines vary as specified.

FOR FURTHER INFORMATION CONTACT: Molly Scherf, Deputy Comptroller, Large Bank Supervision, (202) 649-6210, or Stuart Feldstein, Director, Andra Shuster, Senior Counsel, or Henry Barkhausen, Attorney, Legislative & Regulatory Activities Division, (202) 649-5490, for persons who are deaf or hard of hearing, TTY, (202) 649-5597, 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. 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 legislative developments highlight 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

As a result of 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. /3/ These heightened expectations reflected the OCC's supervisory experience during the financial crisis and addressed weaknesses the OCC observed in large institutions' governance and risk management practices during this time. Through its work with the Financial Stability Board and Basel Committee on Banking Supervision, the OCC found that many supervisors are establishing, or are considering establishing, similar expectations for the financial institutions they regulate. /4/

FOOTNOTE 3 Further background information on the heightened expectations program is included in the notice of proposed rulemaking entitled OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Integration of Regulations. 79 FR 4282, 4283 (Jan. 27, 2014). END FOOTNOTE

FOOTNOTE 4 See Financial Stability Board, Thematic Review on Risk Governance Peer Review Report (Feb. 12, 2013); Principles for An Effective Risk Appetite Framework (Nov. 18, 2013). See also Basel Committee on Banking Supervision, Principles for effective risk data aggregation and risk reporting (Jan. 2013). END FOOTNOTE

In January 2014, the OCC invited public comment on proposed rules and guidelines addressing the following two topics: (i) Guidelines establishing minimum standards for the design and implementation of a Framework for large insured national banks, insured Federal savings associations, and insured Federal branches and minimum standards for boards of directors overseeing the Framework of these institutions (proposed Guidelines); and (ii) the integration of 12 CFR parts 30 and 170 (proposed integration rules and integration guidelines). /5/

FOOTNOTE 5 79 FR 4282 (Jan. 27, 2014). END FOOTNOTE

After carefully considering the comments we received on the proposed Guidelines, the OCC is adopting these final Guidelines as a new Appendix D to part 30 of our regulations. As described more fully below, the final Guidelines supersede the OCC's previous heightened expectations program with respect to covered banks. /6/ The OCC, as the primary financial regulatory agency for national banks and Federal savings associations, believes that the final Guidelines further the goal of the Dodd-Frank Act to strengthen the financial system by focusing management and boards of directors on strengthening risk management practices and governance, thereby minimizing the probability and impact of future crises. In addition, the final Guidelines will provide greater certainty to covered banks about the OCC's risk management expectations and improve examiners' ability to assess compliance with the standards contained in Appendix D. The OCC is also adopting the proposed integration rules and integration guidelines substantially as proposed, with minor technical changes.

FOOTNOTE 6 The OCC has adopted a definition of the term "covered bank" to clarify the scope of the final Guidelines. This definition is discussed in the definitions section of this preamble. END FOOTNOTE

We have set forth below a summary of the comments we received, and a detailed description of the proposed Guidelines, significant comments, and the standards contained in the final Guidelines.

Notice of Proposed Rulemaking: Summary of General Comments

The OCC received 25 comment letters on the proposed Guidelines from financial institutions and trade associations, among others, and received no comment letters on the proposed integration rules and integration guidelines. The comments addressed all major sections of the proposed Guidelines. To improve understanding of the issues raised by commenters, the OCC met with a number of these commenters to discuss issues relating to the proposed Guidelines, and summaries of these meetings are available on a public Web site. /7/

FOOTNOTE 7 See http://www.regulations.gov/index.jsp#!docketDetail;D=OCC-2014-0001. END FOOTNOTE

Many commenters expressed support for the broader goals of the proposed Guidelines. At the same time, other commenters raised concerns with various provisions in the proposed Guidelines. For example, commenters argued that the proposed Guidelines were too prescriptive and requested the OCC to revise the final Guidelines to be more principles-based and to provide additional flexibility in applying the Guidelines to different types of banks.

Some commenters also interpreted the proposed Guidelines as prohibiting banks from utilizing their parent company's risk governance framework and resources. These commenters noted that this could result in conflicting standards, increased risk, and a duplication of systems and resources and urged the OCC to allow the bank to leverage existing holding company risk management processes.

Commenters also generally opposed categorizing certain organizational units as front line units. These commenters noted that organizational units such as legal, human resources, finance, and information technology do not create the types of risk that should be subject to these Guidelines and thus the OCC should not classify them as front line units. Finally, some commenters argued that the proposed Guidelines inappropriately assigned managerial responsibilities to the board of directors that would distract the board from its strategic and oversight role.

As discussed more fully below, the OCC has revised the final Guidelines in response to the issues and information provided by commenters, and has made technical changes to the final rule and guidelines integrating 12 CFR parts 30 and 170. These modifications to the final Guidelines and explanations that address comments are described in the section-by-section description of the final Guidelines.

Enforcement of the Guidelines

The OCC is adopting the final Guidelines pursuant to section 39 of the Federal Deposit Insurance Act (FDIA). /8/ Section 39 authorizes the OCC to prescribe safety and soundness standards in the form of a regulation or guidelines. For national banks, these standards currently include three sets of guidelines issued as appendices to part 30 of our regulations. Appendix A contains operational and managerial standards that relate to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, and compensation, fees and benefits. Appendix B contains standards on information security and Appendix C contains standards that address residential mortgage lending practices. The safety and soundness standards for Federal savings associations are found in Appendices A and B to 12 CFR part 170. Part 30, part 170, and Appendices A and B were issued on an interagency basis and are comparable. /9/

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

Final rules and guidelines.

CFR Part: "12 CFR Parts 30, 168, and 170"

RIN Number: "RIN 1557-AD78"

Citation: "79 FR 54518"

Document Number: "Docket ID OCC-2014-001"

Federal Register Page Number: "54518"

"Rules and Regulations"