Washington, D.C. – The OCC should rescind its “heightened standards” guidelines, which focus on process and paperwork over substance and divert bank and examiner attention away from material risks, the Bank Policy Institute and American Association of Bank Directors said in a comment letter filed yesterday. The OCC’s proposal to raise the application threshold for these guidelines helpfully narrows the field of institutions subject to them, but the guidelines should be rescinded rather than revised, BPI and AABD wrote.
Background: The OCC’s heightened standards guidelines prescribe a single design for a national bank’s risk governance framework and prescribe how every board of directors should oversee the bank’s risk. The OCC first began developing these expectations in 2010 to strengthen supervision of large banks’ governance and risk management after the Global Financial Crisis, culminating in a proposal and final rule in 2014. The OCC has now proposed to revise the guidelines, raising their application threshold from $50 billion to $700 billion.
“The proper role of examination is to focus on material safety and soundness risks, not prescribe how a bank chooses to organize its functions and manage its risks. Banks have different businesses, risk profiles and cultures, and their boards and management should be able to choose how to manage them, while examination focuses on the condition of the bank. The existing guidelines have become an unproductive compliance exercise that only distracts from efficient operation and sound management. The right response to a bad rule is to end it, not apply it in fewer cases,” the associations stated upon filing the letter.
Recommendations: The organizations support the proposal insofar as it removes heightened standards requirements for virtually all national banks and savings associations, but the OCC should go further and rescind the guidelines for the largest institutions. If the OCC does not rescind the guidelines, BPI and AABD recommended the agency revise them with the following changes and issue them as nonbinding guidance.
- Limiting how the guidelines may be used in connection with enforcement actions and matters requiring attention (i.e., in a manner that prioritizes material financial risks over concerns related to policies, process or documentation)
- Allowing banks subject to the guidelines to use their parent bank holding company’s enterprise-wide risk governance framework in a wider set of circumstances to avoid unnecessary duplication of functions, personnel, and systems at the bank level.
- Eliminating the guidelines’ one-size-fits-all approach to prescribing roles and reporting lines within a bank’s risk management framework.
- Eliminating certain board approval and reporting requirements that impose cumbersome processes not targeted to material risks.
- Revising requirements prescribing the role and responsibilities of banks’ boards to allow them greater flexibility, including by eliminating compliance requirements (such as prescriptive annual self-assessments) and by permitting boards to delegate certain functions to a committee or management.
- Adopting automatic adjustments to the asset threshold to reflect nominal gross domestic product growth.
Bottom Line. Rescinding the guidelines would give all the banks currently subject to the guidelines greater flexibility to operate in the manner most appropriate for their individual business and risk profiles. Without the guidelines, banks could prioritize management of material risks, rather than focusing on compliance with prescriptive process requirements.
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About Bank Policy Institute
The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.
About the American Association of Bank Directors.
Founded in 1989, AABD, a non-profit trade association, is the only trade group in the United States solely devoted to bank directors and their information, education and advocacy needs. The Institute for Bank Director Education was established in 1993 as AABD’s educational arm. AABD’s advocacy efforts include amicus briefs, Congressional testimony, comment letters, and meetings with banking agency representatives and members of Congress and their staffs. AABD has established the Bank Apprenticeship Resource Coalition (see WeArebarc.org) to encourage banks in the U.S. to consider apprenticeships similar to the highly successful bank apprenticeship programs established by banks in the UK.
Media Contacts
Tara Payne
Bank Policy Institute
tara.payne@bpi.com
David Baris
American Association of Bank Directors
dbaris@aabd.org
