ABA today responded to a notice of proposed rulemaking issued by the FDIC and the Office of the Comptroller of the Currency in October that would define the term “unsafe or unsound practice” for purposes of section 8 of the Federal Deposit Insurance Act and “revise the supervisory framework for the issuance of matters requiring attention and other supervisory communications.”
While its letter recommends some changes to the final rule, ABA supports the joint agency proposal overall.
Regarding unsafe or unsound practices, ABA urged that the rule clarifies that isolated or technical incidents do not qualify as “practices”; requires agency examiners “to provide demonstrable and quantifiable evidence to support the conclusion that material financial harm is ‘likely’”; and ties the materiality standard explicitly to case law. ABA also recommended revising or removing the agencies’ comments on tailoring as it relates to community banks, noting that supervisory and enforcement actions should be focused on a risk-based approach that “takes the risk profile of each institution into account rather than setting expected thresholds for materiality based on the size of an institution.”
ABA also supports the proposed standard for issuing MRAs and recommended requiring that violations of law must be “substantive” rather than technical, isolated, or immaterial; and incorporating the association’s comments regarding “material harm” throughout the proposal.
Additionally, ABA recommended that the final rule should codify the “strict parameters applicable to the agencies’ informal supervisory communications,” in addition to clarification about “whether composite rating downgrades within other rating systems would only occur in cases where the institution receives an MRA that meets the standard outlined in the proposal or an enforcement action pursuant to the agencies’ enforcement authority.” ABA also encouraged the FDIC and OCC to consider other recommendations related to the proposal, including self-identified acts or practices, MRA closure, coverage of legacy MRAs and examiner training.
