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.

A proposed rule would lower the maximum amount that large debit card issuers can charge merchants for each transaction.

By Arthur Long, Parag Patel, Barrie VanBrackle, and Deric Behar

On October 25, 2023, the Board of Governors of the Federal Reserve System (FRB) published a proposal that would lower the maximum interchange fee — transaction fees that a merchant must pay to card issuers whenever a customer uses a debit card to make a purchase — that a debit card issuer can charge per transaction (the Proposal). The Proposal would apply only to issuers with at least $10 billion in total consolidated assets (covered issuers). It would also establish a process and formula for updating the maximum fee amount every other year going forward, based on data voluntarily reported by covered issuers to the FRB.

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.

After a lengthy “holistic” review and a spring banking crisis, US bank capital requirements finally face overhaul.

By Arthur S. Long, Pia Naib, Ja Hyeon Park, and Deric Behar

On July 10, 2023, US Federal Reserve Board (FRB) Vice Chair for Supervision Michael Barr delivered a speech that outlined his approach to regulatory reform after the FRB’s nine-month-long “holistic” review of capital standards in the wake of the spring 2023 US bank failures (for more information, see this Latham blog post).

Proposed changes will include strengthening capital standards for a broad range of US banks with assets over US$100 billion. The changes to capital requirements would come as a proposal to implement the final aspects of the Basel III capital accord (the so-called “Basel III Endgame”).

Governor Bowman calls for transparent supervisory expectations and attention to the consequences of regulatory reform on the broader financial system.

By Arthur S. Long, Pia Naib, Ja Hyeon Park, and Deric Behar

On June 25, 2023, US Federal Reserve Board (FRB) Governor Michelle W. Bowman gave a speech that outlined her views of the best path forward for regulatory reform in the wake of the spring 2023 US bank failures (for more information, see this Latham blog post). To achieve optimal supervisory results and preserve a dynamic banking sector, while minimizing unintended consequences, Governor Bowman cautioned against implementing higher capital requirements on banks based on incomplete information or erroneous assumptions. Instead, she recommended bolstering institutional risk management and the effectiveness of the FRB’s supervisory program.

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 decisive action will mitigate emerging liquidity and solvency risks, contain pressure on the banking system, and protect depositors.

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

On March 12, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve) took a unanimous emergency step to protect the safety and soundness of the financial system from contagion risk following the second largest bank insolvency in US history. The move aims to “reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.”

The guiding principles are similar to related proposals from other banking regulators, but will require further clarification through the comment process.

By Nicola Higgs, Betty M. Huber, Arthur S. Long, Pia Naib, Anne Mainwaring, and Deric Behar

On December 2, 2022, the Board of Governors of the Federal Reserve System (Federal Reserve) published proposed Principles for Climate-Related Financial Risk Management for Large Financial Institutions (the Proposal). The Proposal urges large financial institutions[1] to consider how best to identify, measure, monitor, and control the various risks associated with climate change over a variety of time horizons. It also specifies that large financial institutions should monitor microprudential risks, including credit, market, liquidity, operational, and legal and compliance risks, as well as other financial and nonfinancial risks that could arise from climate change.

The Proposal aims to support financial institution boards of directors and management in incorporating mitigation of climate-related financial risks into their broader risk management frameworks, consistent with safe and sound practices and the Federal Reserve’s rules and guidance on sound governance.

Large financial institutions are defined as those with over $100 billion in assets that are subject to Federal Reserve supervision, including the US operations of non-US banking organizations. The Federal Reserve’s guidance is founded on the premise that climate change poses an emerging risk to the safety and soundness of financial institutions and the financial stability of the United States.

The US prudential regulator is paying attention to climate risks, and will likely act to mitigate those risks if they threaten financial stability.

By Alan W. Avery, Pia Naib, Deric Behar, and Kristina S. Wyatt

In its November 2020 Financial Stability Report (the Report), the Board of Governors of the Federal Reserve System (Federal Reserve) acknowledged, for the first time in the Report’s history, the impact of climate risks on financial stability. The Report, which aims to provide a current assessment of the resilience of the US financial system on a biannual basis, reflects Chairman Jerome Powell’s November 5, 2020, statement, in which he said that the Federal Reserve is “actively … getting up to speed” on climate risks and impacts to the financial system.