SDBA eNews

November 21, 2019

Otting, McWilliams Discuss Next Steps on CRA Modernization Effort

Comptroller of the Currency Joseph Otting is moving forward with issuing a long-awaited notice of proposed rulemaking that would modernize how the agency evaluates banks’ Community Reinvestment Act performance, he said yesterday. Otting said he expects to issue the NPR by the end of 2019 with a 60-day comment period and hopes to have the final rule issued by April or May of 2020.

Speaking at a Clearing House/Bank Policy Institute conference in New York, Otting added that he was “very optimistic” the NPR would be issued jointly with the FDIC, although he confirmed to reporters on the sidelines that the Federal Reserve would not join the NPR. Speaking with reporters separately, FDIC Chairman Jelena McWilliams said that she is “more inclined to join him than not join him,” adding that she will decide within the next week.

Asked whether the Fed might jointly issue a final rule, Otting was uncertain. “Between the OCC and the FDIC, we cover 85% of the CRA,” Otting added. “If nothing else, it’ll be a good chance for the industry to see what it’s like to operate under a new rule.” However, McWilliams emphasized the importance of having a final CRA rule issued on an interagency basis. “You always want to have three regulators going together,” she said. “You don’t want to create policies where the regulators are not going together and you don’t have the same rules for all of our banks.”

Otting previewed a few elements expected to be in the NPR, including a one-to-two-year phase-in period to help banks get used to the planned metric. “We’ll let banks end their current exams under the current format unless they want to change,” he said. He added that the NPR would increase the upper limit for a CRA-qualifying small business loan from $1 million to $2 million.

As he has done previously, Otting discussed broad outlines of what the agency will propose, including a clear list of qualifying activities, broadening of assessment areas and a metric for CRA compliance. He added that the OCC would like to publicize CRA data so that communities have better visibility into the $480 billion in loans and investments each year that benefit low-to-moderate-income individuals.

McWilliams: Regulators Need to Support Bank Innovation Efforts

Regulators need to understand the pressures that banks face to innovate and support those efforts, Jelena McWilliams said yesterday. “As banks face pressure from nonbanks, credit unions, technology companies and from overseas as well, I just think that we as regulators need to be cognizant of the winds they are facing on their journey.”

She emphasized that the FDIC is “encourag[ing] the adoption of technology and think[ing] creatively about reaching customers,” adding that “we need to take a look at bank regulatory burdens.” She also described the FDIC’s work to modernize its own supervisory activities. Regarding the examiner of the future, she said “I think it’s going to be a data scientist. It’s going to be someone who understands algorithms.”

Speaking with reporters on the sidelines of the Clearing House/Bank Policy Institute’s annual conference, McWilliams added that the FDIC is well into its process of hiring a chief innovation officer and that the agency is looking for someone with deep tech experience to fill the role.

FDIC Finalizes Counterparty Credit Risk Proposal for Derivatives 

The FDIC, OCC and the Federal Reserve on Tuesday finalized a new approach for calculating the exposure of derivative contracts under the regulatory capital rule. The standardized approach for counterparty credit risk, or SA-CCR, would serve as an alternative to the current exposure methodology for calculating advanced approaches total risk-weighted assets under the capital rule.

Banks subject to the advanced approaches will be required to use SA-CCR to calculate their standardized total risk-weighted assets; banks not subject to the advanced approaches could elect to use either of the two methodologies. The final rule will also incorporate SA-CCR into capital requirements for cleared transactions and in the supplementary leverage ratio. It will be effective April 1, 2020, with a mandatory compliance date of Jan. 1, 2022, for advanced approaches organizations.

The final rule included several changes from the initial proposals to address concerns raised by industry stakeholders, including ABA. Specifically, the final rule makes adjustments to the exposure amount calculation for derivative contracts with commercial end-user counterparties and the netting treatment for settled-to-market derivative contracts. It also allows for greater recognition of collateral in the calculation of total leverage exposure relating to client-cleared derivative contracts.

MetaBank Announces Agreement to Sell Community Bank Division 

Meta Financial Group, Inc.® yesterday announced that MetaBank®, a wholly-owned subsidiary of Meta, has entered into an agreement with Central Bank, headquartered in Storm Lake, Iowa, for the sale of MetaBank’s community bank division. Included in the sale are all of MetaBank's community bank branches located in South Dakota and Iowa, as well as deposits and fixed assets related thereto, representing approximately $270 million of deposits.

Also included in the sale are approximately $265 million of loans. Following the closing of the transaction, MetaBank will retain approximately $935 million of loans associated with MetaBank’s community bank division that will run-off over time and will be serviced by Central following the closing. The branches will be rebranded as Central Bank following the closing of the transaction.

“We are pleased to reach this agreement with Central Bank, which will allow both companies to focus on their core businesses and provide the highest level of service and value to the customers, employees and shareholders,” said Brad Hanson, president and CEO of Meta Financial Group. "This transaction aligns with Meta's strategy to focus on improving yields from our national lending platforms, growing deposits in our payments division and improving efficiencies by streamlining operations; while serving key markets often overlooked by traditional banks."

“MetaBank employs experienced and valued bankers who represent our vision of community banking," said said Tim Brown, chairman of the board and CEO of Central. "We look forward to working together to make a stronger community bank, bringing new opportunities to our communities, customers and employees. We are pleased to say customers can carry out banking transactions as usual.” 

Pursuant to the terms of the agreement, Central has agreed to offer employment to all current MetaBank community bank employees. The closing of the transaction is subject to the satisfaction or waiver of certain conditions, the receipt of third party and regulatory approval and satisfaction of customary closing conditions. The transaction is expected to close late in the first calendar quarter of 2020. Read more.

South Dakota Receives Fourth Disaster Declaration this Year

Governor Kristi Noem on Tuesday announced that President Donald Trump had approved a presidential disaster declaration for September storm damage done in South Dakota, including the three tornadoes that struck Sioux Falls and the extreme flooding in communities such as Madison and Mitchell.

“This is good news for South Dakota communities, and I’m grateful to President Trump for responding so quickly,” said Noem. “Every aspect of our South Dakota way of life has been impacted by this year’s devastating storms. We have a long way to go, but this will be helpful as we rebuild and recover.”

The declaration, which includes both individual and public assistance, covers the period of Sept. 9-Sept. 26. Preliminary assessments total at least $17 million in requested federal assistance.

South Dakota has now received four disaster declarations this year. FEMA officials are now in South Dakota working on the first three federal disaster declarations and will continue to work on the fourth. More details on the process for the fourth disaster declaration will be announced at a later date. Read more.

Podcast: Celebrating Bankers' Community Commitment

The latest episode of the ABA Banking Journal Podcast continues a pre-Thanksgiving tradition by interviewing the winners of ABA's 2019 Community Commitment Awards. Recorded before a live audience at ABA's Annual Convention in Seattle, where the awards were presented, each interview explores the winning program or initiative at each bank and provides insights on how they might be implemented or adapted at other banks. These stories present the perfect inspiration as we prepare for the season of thanks and giving.

The full episode presents excerpts from each interview. To listen to the full conversation with each Community Commitment Award winner, click on the links below.

Listen to the episode

SDBA To Hold IRA Basics Seminar

The SDBA will hold the IRA Basics Seminar on Dec. 5 at the Ramkota Hotel in Sioux Falls. The seminar gives attendees a solid foundation of IRA knowledge. Real case problems and examples are included throughout the day to help participants apply information to job-related situations. Attendees will leave this session able to work with IRA holders and process basic IRA transactions with confidence.

The course is for all new IRA staff, people who are in a backup position, or an IRA support person wanting to stay current. This is also a great review course for those that have been away from IRAs for a couple of years. This course goes in a logical order from opening an IRA, to talking about contribution rules, then on to distribution rules and regulations, which includes RMDs and death distributions. The course will also address moving money as a transfer or rollover. Learn more and register

SEC Issues Staff Accounting Bulletin on CECL

The SEC this week issued a staff accounting bulletin addressing accounting for loan losses by registrants engaged in lending activities subject to the current expected credit loss standard. The bulletin updates existing guidance regarding methodologies and supporting documentation for measuring credit losses.

This updated guidance continues to focus on the documentation the SEC staff would normally expect registrants engaged in lending transactions to prepare and maintain to support estimates of current expected credit losses for loan transactions. This guidance is applicable to SEC registrants that have adopted CECL. View the bulletin. For more information, contact ABA’s Josh Stein.

Compliance Alliance

Question of the Week

Question: So I am aware of the two walls and a roof requirement in the flood regulations, but what if the building is on a dirt floor but secured to the ground with concreted post? Because there is no floor, does that negate the requirement for flood coverage? 

Answer: Unfortunately, a floor is not a requirement for it to be considered a building requiring flood coverage. Assuming the other conditions of the definition have otherwise been met, flood insurance would still be required in this case.  

Building. A structure with 2 or more outside rigid walls and a fully secured roof, that is affixed to a permanent site;...

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Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email.

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Contact Alisa Bousa, SDBA, at 800.726.7322 or via email.