As financial markets evolve, regulatory frameworks must adapt. This article explores how supervisors are recalibrating capital rules, liquidity oversight and governance expectations in response to digital transformation and recent market stress.
As we settle into the new year, a
reflection into the past 12 months of regulatory evolution appears to be in
order.
The banking sector has eased into
the new administration plans of a
broad agency overhaul, resulting in much of the
first part of the year spent with an air of uncertainty.
The Consumer Financial Protection Bureau
(CFPB) was an early target and was hit hard, forcing them to
rescind dozens of guidance documents and put its data-sharing rule on hold to
seek public input.
The rest of the agencies in
this arena quickly took a step back to regroup and
are now starting to slowly move forward with some
changes. A strategy that appears to be working for them so far.
A New Approach Emerges at the OCC
An alignment with the new
administration’s streamlining priorities is taking shape.
In the spirit of this optimization, the Office of the Comptroller of
the Currency (OCC) has announced several new outlines for bank
regulatory changes. These include:
Paired down and streamlined oversight
of community banks
Removal of climate change-related financial risk
mandates
A redefended approach to bank
oversight
What Does This New Direction Entail?
Early steps offer relief to the smaller
community banks by no longer subjecting them to mandatory OCC policy-based
examination requirements. This reduces supervisory burden and
focuses efforts towards risk-based oversite with an emphasis on material
financial risk (OCC - Reduction Regulatory Burden Community Banks).
They are also revisiting their data collection
practices, encouraging examiners to pay more attention to quarterly monitoring
and other existing reports, as well as placing emphasis on tailoring the
frequency of exams to align with perceived risk while maintaining compliance
with applicable laws/regulations.
CRA Reversal
On the chopping block, we saw the 2023
Community Reinvestment Act (CRA) Final Rule thatsaw the finalized
framework rolled back to the 1995 regulations. The final rule segments
from 2023 were contested with claims of exceeding statutory authority and
creating unnecessary regulatory hurdles. Thus, they have
been rolled back.
A Shift on Climate-Related Risk
Next up is the removal of climate-related risk
mandates for large institutions that were enacted in October 2023 in the form
of scenario analysis. This change removes the specific classification of
climate-related risk in favor of a broader emphasis on the large
bank’s safety and soundness guardrails that are expected to encompass
comprehensive risk management policies, including climate (OCC Guidance - Climate).
Additional Guidance Reversed
