FDIC Issues Two NPRs, Finalizes Three Regulatory Relief Rules

On Tuesday, November 19, 2019, the FDIC Board of Directors met in open session and voted to issue two notices of proposed rulemaking (NPR) and finalize three rules aimed at regulatory relief for large banks.


Notices of Proposed Rulemaking (NPR):

  • Section 19 Statement of Policy: The FDIC seeks public comment on all aspects of the FDIC’s Section 19 Statement of Policy, which provides guidance to those seeking relief from Section 19 of the Federal Deposit Insurance Act (FDI Act). Section 19 of the FDI Act prohibits, without the prior written consent of the FDIC, any person who has been convicted of certain types of crimes from working at a bank. 
  • Federal Interest Rate Authority: The FDIC also announced it seeks comment on the Federal Interest Rate Authority, and is proposing regulations implementing sections 27 and 24(j) of the FDI Act by codifying guidance regarding interest rates that may be charged by state-chartered banks and insured branches of foreign banks. The NPR reaffirms and codifies in regulation the valid-when-made doctrine (that permissible interest rates are determined when loans are made and are not impacted by subsequent assignment, sale, or transfer) and provides much needed clarity to the secondary markets for loan sales following the United States Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC.   


Three Rules Aimed at Regulatory Relief for Large Banks:

  • Revisions to the Supplementary Leverage Ratio to Exclude Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in Custody, Safekeeping, and Asset Servicing Activities: This rule implements section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Section 402 directs the FDIC, OCC, and the FRB to amend the regulatory capital rule to exclude from the supplementary leverage ratio certain funds of banking organizations deposited with central banks if the banking organization is predominantly engaged in custody, safekeeping, and asset servicing activities. 
  • Tuesday’s rule defines a custody bank as any U.S. top-tier depository institution holding company with a ratio of assets-under-custody-to-total-assets of at least 30:1. The rule currently applies to only three institutions: The Bank of New York Mellon Corporation, Northern Trust Corporation, and State Street Corporation.
  • Regulatory Treatment for High Volatility Commercial Real Estate (HVCRE) Exposures: This rule raises the risk-based capital requirements for certain HVCRE exposures from 100% to 150% and clarifies the treatment of credit facilities that finance one-to-four-family residential properties and the development of land. 
  • The final rule permits banking organizations to maintain their current capital treatment for acquisition, development, or construction of loans originated between January 1, 2015 and April 1, 2020.  
  • Standardized Approach for Calculating the Exposure Amounts of Derivative Contracts: The final rule provides advanced approaches banks with a new standardized approach for counterparty credit risk, or SA-CCR that is consistent with the core elements of the Basel Committee standard and replaces the current exposure methodology (CEM) for derivative contracts. Under the final rule, the largest banks must use SA-CCR to determine the exposure amount of derivatives for purposes of the supplementary leverage ratio (SLR). 
  • The implementation of the SA-CCR responds to concerns that CEM did not keep pace with market practices adopted by large banking organizations and is proposed to provide a method that is less complex than internal models methodology (IMM).


In addition to the regulatory relief measures, the Board voted to approve a new advisory committee for state regulators (ACSR) to facilitate dialogue between the FDIC and its state regulatory partners. The ACSR will meet throughout the year to facilitate discussions of safety and soundness, consumer protection issues, the creation of new banks, and the protection of the nation’s financial system from risks such as cyberattacks and money laundering