FRIDAY! June 24, 2022

To access specific issuances, go to our Top Stories section, where you'll find links to all the relevant documents.
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OCC reports key risks facing banking system
The Office of the Comptroller of the Currency has reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2022. The OCC highlighted operational, compliance, interest rate, and credit risks, among the key risk themes in the report.

Highlights from the report include:
  • Bank financial performance faces challenges from inflation, a rising interest rate environment, and other implications related to the pandemic and geopolitical events.
  • Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment. Cyber risk remains elevated.
  • Compliance risk is heightened as banks navigate the current operational environment, regulatory changes, and policy initiatives.
  • Credit risk remains moderate as banks face some areas of weakness and potential longer-term implications related to the pandemic, inflation, and direct and indirect impacts of the war in Ukraine.
  • Across key risk areas, banks are experiencing challenges retaining and replacing staff with specialized experience due to increasing turnover. During this period of increasing volatility, these staffing challenges present increased risk.
The report also highlights an OCC initiative to act on climate-related financial risks to the federal banking system.

Fed stress test shows banks have strong capital levels
The Federal Reserve Board has released the results of its annual bank stress test, which showed that banks continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession.

All banks tested remained above their minimum capital requirements, despite total projected losses of $612 billion. Under stress, the aggregate common equity capital ratio—which provides a cushion against losses—is projected to decline by 2.7 percentage points to a minimum of 9.7 percent, which is still more than double the minimum requirement.

This year's hypothetical scenario is tougher than the 2021 test, by design, and includes a severe global recession with substantial stress in commercial real estate and corporate debt markets. The unemployment rate rises by 5-3/4 percentage points to a peak of 10 percent and GDP declines commensurately. Asset prices decline sharply, with a nearly 40 percent decline in commercial real estate prices and a 55 percent decline in stock prices.

The individual bank results from the stress test will factor directly into a bank's capital requirements, mandating each bank to hold enough capital to survive a severe recession. If a bank does not stay above its capital requirements, it is subject to automatic restrictions on capital distributions and discretionary bonus payments.

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FTC proposes rule to protect car buyers
The Federal Trade Commission has proposed a rule to ban junk fees and bait-and-switch advertising tactics that can plague consumers throughout the car-buying experience. As auto prices surge, the Commission is seeking to eliminate the tricks and traps that make it hard or impossible to comparison shop or leave consumers saddled with thousands of dollars in unwanted junk charges. The proposed rule would protect consumers and honest dealers by making the car-buying process more clear and competitive. It would also allow the Commission to recover money when consumers are misled or charged without their consent. The Commission seeks comment on the proposal, which would:
  • Ban bait-and-switch claims
  • Ban fraudulent junk fees
  • Ban surprise junk fees
  • Require full upfront disclosure of costs and conditions
Comments will be accepted for 60 days following Federal Register publication.

FinCEN: FATF reports on countries with AML/CFT/CPF deficiencies
FinCEN has reported that the Financial Action Task Force (FATF), an intergovernmental body that establishes international standards for anti-money laundering, countering the financing of terrorism, and countering the financing of proliferation of weapons of mass destruction (AML/CFT/CPF), has issued public statements updating its lists of jurisdictions with strategic AML/CFT/CPF deficiencies following its plenary meeting this month. U.S. financial institutions should consider the FATF's stance toward these jurisdictions when reviewing their obligations and risk-based policies, procedures, and practices.

On June 17, FATF removed Malta from its list of Jurisdictions under Increased Monitoring and added Gibraltar. FATF's list of High-Risk Jurisdictions Subject to a Call for Action remains the same with Iran and the Democratic People's Republic of Korea (DPRK) still subject to the FATF's countermeasures.

Final rule on credit reports on human trafficking victims
The CFPB has announced it has issued a final rule, "Prohibition on Inclusion of Adverse Information in Consumer Reporting in Cases of Human Trafficking," which was published in today's Federal Register.

The rule amends Regulation V, which implements portions of the Fair Credit Reporting Act, to address FCRA amendments that assist consumers who are victims of human trafficking. The final rule establishes a method for a victim of trafficking to submit documentation to consumer reporting agencies, including information identifying any adverse item of information about the consumer that resulted from certain types of human trafficking, and prohibits the consumer reporting agencies from furnishing a consumer report containing the adverse item(s) of information. The Bureau took this action as mandated by the National Defense Authorization Act for Fiscal Year 2022 to assist consumers who are victims of trafficking in building or rebuilding financial stability and personal independence.

The CFPB reported that the rule:
  • Provides guidance to survivors on the "trafficking documentation" they need to provide to credit reporting companies
  • Provides guidance to survivors on reporting status as having experienced a form of trafficking
  • Requires credit reporting companies to block adverse information in credit reports
  • Applies to all credit reporting companies
The rule will become effective on July 25, 2022.

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