The proposal seeks to make executive compensation arrangements more sensitive to risk and would require complex risk management programs to ensure compliance.

By Arthur S. Long, Pia Naib, and Deric Behar

On May 6, 2024, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Housing Finance Agency (FHFA), and the National Credit Union Administration (NCUA) (collectively, the agencies) issued a joint Notice of Proposed Rulemaking (the Proposed Rule) to curb “excessive risk-taking” resulting from incentive-based compensation arrangements. The Board of Governors of the Federal Reserve System (FRB) and the Securities and Exchange Commission (SEC) did not join in the Proposed Rule.[1],[2] Critically, without the FRB’s participation, the Proposed Rule may not be finalized.

The Proposed Rule seeks to curtail incentives for certain financial services sector officers, employees, and directors to take inappropriate risks as a result of seeking excessive compensation, fees, or benefits. It uses a tiered approach based on asset size categories, where covered institutions (defined below) within the two largest asset size categories would be subject to prescriptive requirements related to the structure of their incentive-based compensation arrangements, including incentive award limits, deferral requirements, downward adjustments, forfeitures, and clawbacks.

The Proposed Rule re-proposes the regulatory text previously proposed in June 2016 (with a new preamble that acknowledges developments and supervisory learnings) and seeks additional feedback from commenters on potential alternatives to various provisions.

The Proposal clarifies the FDIC’s bank merger approval process but may prove challenging for new large bank consolidations with the FDIC as the primary regulator.

By Arthur S. Long, Pia Naib, and Deric Behar

On March 21, 2024, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved Proposed Revisions to its Statement of Policy on Bank Merger Transactions (the Proposal). The Proposal adopts a principles-based approach and aims to update, strengthen, and clarify the FDIC’s

Banking agencies are alleged to have exceeded their congressional authorization, with potentially adverse consequences on banks and consumers.

By Arthur S. Long, Pia Naib, and Deric Behar

On February 5, 2024, several banking trade groups[1] (the Plaintiffs) sued the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the Agencies) in the US District Court for the Northern District

A recent bipartisan bill, if enacted, would particularly benefit small lenders and bank-fintech partnerships by promoting transparency, appellate rights, and examiner accountability.

By Arthur S. Long, Parag Patel, Barrie VanBrackle, Pia Naib, and Deric Behar

On December 14, 2023, a bipartisan group of senators introduced the Fair Audits and Inspections for Regulators’ Exams Act (FAIR Exams Act), which seeks to increase transparency in the bank examination process. The proposed legislation would require examining agencies to act quickly and transparently, while creating an independent review and appeals process under the Federal Financial Institutions Examination Council (FFIEC),[1] which would allow banks to seek independent review of material examiner findings.

Guidance for the largest US financial institutions is intended to promote climate risk management consistent with general safety and soundness practices.

By Sarah E. Fortt, Betty M. Huber, Arthur S. Long, Pia Naib, Karmpreet (Preeti) Grewal, Austin J. Pierce, and Deric Behar

On October 30, 2023, the three US federal bank regulatory agencies — the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) — jointly finalized Principles for Climate-Related Financial Risk Management for Large Financial Institutions (the Principles).

The Principles are intended to provide large financial institutions (i.e., those with $100 billion or more in total assets) with a high-level framework for understanding and managing exposures to climate-related financial risks, including physical[1] and transition[2] risks. Such “financial institutions” include national banks and federal thrifts, state member banks, FDIC-insured state nonmember banks and savings associations, bank holding companies, savings and loan holding companies, intermediate holding companies, branches, agencies and the combined US operations of non-US banking organizations, and any systemically important non-banks that may become supervised by the FRB.

Following this spring’s shocks to the banking system, US, UK, and European regulators are considering whether existing regulatory and crisis management measures require reform and enhancement.

By David Berman, Nicola Higgs, Markus E. Krüger, Arthur S. Long, Rob Moulton, Axel Schiemann, Pia Naib, Ja Hyeon Park, Deric Behar, and Charlotte Collins

The spring of 2023 saw more dislocation in the global financial sector than any time since the 2008-09 financial crisis.

In contrast with the White House’s position, the Vice Chairman denied that loosened Dodd-Frank rules contributed to the recent bank failures.

By Arthur S. Long, Pia Naib, and Deric Behar

On April 12, 2023, Federal Deposit Insurance Corporation (FDIC) Vice Chairman Travis Hill delivered a speech at the Bipartisan Policy Center, “Recent Bank Failures and the Path Ahead.” In it, he addressed key themes and takeaways from the March 2023 bank failures that saw the FDIC appointed as receiver for a bank with over $200 billion in consolidated assets and another with over $110 billion in consolidated assets, as well the voluntary liquidation of another bank with over $10 billion in consolidated assets. Notably, his views indicate that the US banking agencies do not agree over the regulatory lessons to be drawn from the failures.

President Biden is calling for tougher standards and supervision for large regional banks in the wake of recent instability in the US banking sector.

By Arthur S. Long, Pia Naib, and Deric Behar

On March 30, 2023, the White House issued a Fact Sheet calling on the federal banking agencies, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), in consultation with the Treasury Department, to safeguard the banking system by imposing stricter rules on certain financial institutions — mostly large regional banks with US$ 100-250 billion in assets.

Notably, the White House recommended that regulators reverse some of the deregulatory measures that the Trump Administration had enacted in 2018. The Fact Sheet argues that this weakening of safeguards and supervisory requirements under the Dodd-Frank Act led directly to recent banking industry failures and the resulting threat of contagion.

The amended rule includes modifications to existing exclusions and creates new exclusions for the activities and investments of certain issuers.

By Alan W. Avery and Pia Naib

The US federal regulatory agencies responsible for implementing the Volcker Rule recently issued a rule (Final Rule) to finalize proposed modifications to certain restrictions related to “covered funds” that were adopted in 2013 (2013 Rule). The issuance of the Final Rule, whose effective date is October 1, 2020, followed an extended comment period

The three US federal banking agencies continue to take additional steps to promote the functioning of the financial system in the face of the pandemic.

By Alan W. Avery, Pia Naib, and Deric Behar

The three US federal banking agencies — the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) — have continued to take additional measures to support the public and private sectors as a result of the market volatility caused by the ongoing impact of COVID-19.  These latest economic and regulatory relief measures, which are intended to enhance the steps taken during the past month (discussed in our previous posts on March 19 and March 24), include the following: