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.

The OCC outlines safety and soundness principles and appropriate risk management processes for its regulated institutions that engage in venture lending.

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

On November 1, 2023, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2023-34 (the Guidance), which clarifies the OCC’s policy positions regarding the risk management of venture loans. These lending activities involve commercial loans made to companies that do not primarily rely on their own internally generated cash flow to maintain and grow operations, but rather on equity infusions.

As a general matter, the OCC states that a bank’s venture lending practices should be appropriate to the bank’s size and complexity, and consistent with the bank’s risk appetite and policies and procedures (as established and communicated by the bank’s board of directors and senior management). The OCC expects banks involved in this type of lending activity to identify, measure, monitor, and implement adequate controls over the bank’s risks, while maintaining sufficient capital buffers.

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”).

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.

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 Acting Comptroller of the OCC discussed the limits of large bank manageability and the steps that regulators can take to address the risks posed by size and complexity.

Arthur S. Long, Pia Naib, and Deric Behar

On January 17, 2023, Acting Comptroller of the US Office of the Comptroller of the Currency (OCC) Michael Hsu delivered a speech titled “Detecting, Preventing, and Addressing Too Big to Manage.” The OCC charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of non-US banks. The speech is the latest statement by the leader of the OCC on US bank size in the wake of substantial mergers in the banking sector, which have become a political as well as supervisory issue.