The Office of the Comptroller of the Currency (“OCC”) has issued an interim final rule amending its lending limit rule to apply to certain credit exposures that were not considered as part of the legal lending calculation previously.
Per the OCC Publication:
“Beginning July 21, 2012, section 610 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 revises the statutory definition of loans and extensions of credit for purposes of the lending limit to include certain credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim final rule adopted by the OCC implements this statutory change which applies to both national banks and savings associations. State banks are subject to separate restrictions under section 611 of the Dodd-Frank Act.
National banks and savings associations have through January 1, 2013, to comply with the rule’s requirements as to derivative transactions and securities financing transactions.
The interim final rule, which amends [12 CFR part 32], also consolidates the lending limit rules applicable to national banks and savings associations. The interim final rule applies to both federal and state savings associations, pursuant to section 312 of the Dodd-Frank Act, which gives the OCC rulemaking authority for both federal and state savings associations. The interim final rule is effective July 21, 2012.
To reduce the burden of these new credit exposure calculations, particularly for smaller and mid-size banks and savings associations, the rule permits use in certain circumstances of look-up tables for measuring the exposures for each transaction type. This method permits institutions to adopt compliance alternatives that fit their size and risk management requirements, consistent with safety and soundness and the goals of the statute.”
While this ruling may not impact many institutions, it should be taken as a pre cursor to other changes from Dodd Frank that are coming down the regulatory pipe. Dodd Frank was a sweeping change to the industry and the dust of its passing still has not quite settled in the community.
To protect itself from this current revised rule, institution management should review its lending practices to ensure that this type of lending is or isn’t on the books currently. If it is, then these types of transactions have to be coded/incorporated into the total borrower relationship and evaluated under the Legal Lending Limit. This may result in a few instances of non compliance.
Even if you are not lending or making transactions in these particular areas, this may be an excellent impetus to evaluate your current tracking of your borrower relationships via CIF or whatever method your institution is using. By ensuring that are tracking ALL relationships appropriately, you are safeguarding your bank against incorrectly reported borrower relationships that may come back to haunt you in an examination. Implementing steps like dual reviews on the relationship reports, and (more importantly) checks of the data when a loan is approved and entered into the loan administration system are simple, yet effective ways to safeguard against unnecessary errors that can be easily caught and corrected before it snowballs into something greater than an input mistake.
Thomas LaChac is an Associate Director of P&G Associates, and brings a wide range of experience in regulatory underwriting, quality assurance, regulatory compliance management and the banking and mortgage industries.