The Risk Management Flash - Vol 2 Issue 2

A summary of risk management developments for regional and community financial institutions

Topics Covered in this Issue
  • FFIEC Policy Statement on Examination Reports
  • Fed Oversight on CECL Implementation
  • Fed Update
  • FDIC Outlines Plans for Deposit Insurance Calculations Under Community Bank Leverage Ratio
  • FDIC’s Supervisory Insights
  • CFPB Sandbox Proposal
  • Volcker Rule Simplification Update
  • FSOC Annual Report
  • SEC Examination Priorities For 2019
  • Stress Testing Regulatory Update
  • Agencies Issue Final Rule Extending Exam Cycle for More Banks
  • OCC Revises Guidance on Recovery Planning
  • OCC Updated Comptroller Handbook
  • CFPB Supervisory Highlights
  • Bank Director Acquire or Be Acquired (AOBA) Conference Update
  • Model Risk Management Guiding Principles for Community Bank Organizations
FFIEC Policy Statement on Examination Reports

As part of its ongoing exam modernization initiative, the Federal Financial Institutions Examination Council (FFIEC) issued a policy statement aimed at promoting clarity and consistency for examination reports. The policy statement, which was developed as part of the Examination Modernization Project aimed at reducing unnecessary regulatory burden for community banks, includes principles that “set forth minimum expectations of what should be included in all reports of examination.” The FFIEC strives to focus on tailoring examinations based on the risk profiles of individual institutions, complexity and business model of the bank, as well as analyzing existing information to identify areas of higher and lower risk. Among other topics, the principles establish that all reports of examination (ROEs) should present conclusions and issues in order of importance; document the condition and risk profile of the institution; discuss the adequacy of the institution’s risk management practices; and document issues of supervisory concern or warranting prompt corrective action. See the FFIEC press release: bit.ly/FFIEC-PressRelease1; and their policy statement: bit.ly/FFIEC-PolicyStatement.

Fed Oversight on CECL Implementation

As banks prepare to implement the Financial Accounting Standards Board’s (FASB) current expected credit loss (CECL) standard, the Federal Reserve System (the Fed) will be watching carefully to see how the standard will affect banks and the economy and confirm that it is not disruptive to lending. The Fed is allowing banks to phase-in the new standard over a three-year period. The ABA previously has raised concerns that the Fed’s three-year phase-in does not go far enough to make certain the CECL will function as intended. Their concern is that there could still be significant adverse effects on regulatory capital as the standard is implemented, particularly in the event of an economic downturn. The association has advocated for a quantitative impact study that would examine the effect of CECL throughout a credit cycle, including the standard’s effect on credit availability and procyclicality.

Fed Update

The implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) regulatory law remains a high priority for the Fed. They are in the process of reviewing comments on several related proposals, including those to provide relief from the Volcker Rule to community banks, establish a community bank leverage ratio and better tailor enhanced prudential standards. Additionally, the Fed is working to revise guidance for midsize banks that would clarify recent changes to stress testing requirements for those institutions. The Fed is also looking for clarity for both banks and regulators on the cannabis issue, given the discrepancies between federal and state laws on marijuana legalization. Read the testimony from the Fed’s Chairman Jerome Powell: bit.ly/Fed-Testimony.

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