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Wednesday, September 3, 2014

OCC Finalizes ‘Heightened Expectations’ for Large Banks

The OCC finalized its program of “heightened expectations” for banks it supervises with assets over $50 billion. The agency outlined a set of enforceable minimum standards for a large bank’s risk governance framework and board oversight, and it appeared to have responded to several ABA concerns about the proposal.

For example, the final guidelines simplify the conditions under which a bank subject to the rule may use its parent company’s risk framework. In its comment letter, ABA had noted that the proposal would have excessively compartmentalized risk governance in a bank and its holding company. The OCC also responded favorably to ABA’s concerns about the expansive concept of a frontline unit by narrowing the definition.

ABA had warned the proposed guidelines would expose directors to greater liability, make it harder to recruit the best-qualified directors and blur the distinction between oversight and management. The OCC said it had not intended to impose management expectations on boards and removed the words “ensure” and “duty” from relevant sections to emphasize the traditional board role of oversight. However, the OCC retained its requirement for two outside directors.

The OCC extended the compliance period for smaller banks subject to the rule. Banks with over $750 billion in assets must comply 60 days after publication in the Federal Register; banks with $100-750 billion in assets must comply within six months after that; and banks with $50-100 billion in assets must comply 18 months after publication.

Read the final rule.
Read ABA’s comment letter.

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