Regulatory Developments
The Federal Reserve has taken several policy actions since the publication of the May 2022 Supervision and Regulation Report. These actions are consistent with promoting a safer and fairer banking system as highlighted in box 4. Significant actions are detailed in table 1 below. All Supervision and Regulation (SR) and Consumer Affairs (CA) letters are available on the Board's public website.8
Table 1. Key Federal Reserve or interagency rulemakings/statements (proposed and final)
From 5/01/2022 to 10/31/2022
| Date issued | Rule/guidance |
|---|---|
| 5/5/2022 | Agencies issue joint proposal to strengthen and modernize Community Reinvestment Act Regulations. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220505a.htm |
| 6/7/2022 | Federal Reserve announces it will soon release second tool to help community financial institutions implement the Current Expected Credit Losses (CECL) accounting standard. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220607a.htm |
| 7/19/2022 | Federal Reserve Board invites comment on proposal that provides default rules for certain contracts that use the LIBOR reference rate, which will be discontinued next year. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220719a.htm |
| 8/16/2022 | Federal Reserve Board provides additional information for banking organizations engaging or seeking to engage in crypto-asset-related activities. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220816a.htm |
| 9/9/2022 | Agencies reaffirm commitment to Basel III standards. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220909a.htm |
| 9/27/2022 | Federal Reserve Board invites comment on updates to its existing guidance on commercial real estate loan accommodations for borrowers. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220927a.htm |
| 9/28/2022 | Federal Reserve Board finalizes supervisory framework for insurance organizations that are overseen by the Board. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220928a.htm |
| 9/29/2022 | Federal Reserve Board announces that six of the nation's largest banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/other20220929a.htm |
| 9/29/2022 | Federal and state financial regulatory agencies issue interagency statement on supervisory practices regarding financial institutions affected by Hurricanes Fiona and Ian. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220929a.htm |
| 9/30/2022 | Agencies announce forthcoming resolution plan guidance for large banks and deliver feedback on resolution plan of Truist Financial Corporation. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220930a.htm |
| 10/3/2022 | Federal Reserve Board finalizes updates to the Board's rule concerning debit card transactions. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20221003a.htm |
| 10/6/2022 | Federal Reserve announces it will replace its current bank application filing system with a new and upgraded system later this month. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20221006a.htm |
| 10/14/2022 | Federal Reserve Board invites public comment on an advance notice of proposed rulemaking to enhance regulators' ability to resolve large banks in an orderly way should they fail. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20221014a.htm |
Recently issued guidance on crypto-asset-related activities (box 5) continues the Federal Reserve's efforts to expand supervisory programs to address emerging technology risks. These efforts support the financial industry's innovative use of technology to efficiently provide financial services in a safe-and-sound manner.
Other policy efforts have focused on operational risks. These include fostering a smooth transition away from London Interbank Offered Rate, or LIBOR, to alternative interest rate benchmarks in financial contracts (box 6). Additionally, the Federal Reserve is working within its existing authority to address climate change implications for supervised financial institutions (box 7).
Box 4. Making the Financial System Safer and Fairer
Vice Chair for Supervision Michael S. Barr spoke recently and detailed the Federal Reserve's commitment to continue working to make the financial system safer and fairer, in support of an economy that serves the needs of households and businesses. The speech set forth Vice Chair Barr's near-term priorities:
Capital: The Federal Reserve is reviewing its capital tools to understand how they are supporting the resilience of the financial system, both individually and in combination. This review will inform any improvements to the regime, including adjustments that align with the final "Basel III" standards.
Resolution: The Federal Reserve, along with the Federal Deposit Insurance Corporation (FDIC), will rigorously review firms' resolution plans and make clear where firms' practices do not meet expectations and when remediation is necessary. The Federal Reserve will also review the current policy framework that supports the resolvability of large banks that are not global systemically important banks and anticipates issuing guidance to these firms. Future policy actions will be considered in consultation with the other bank regulatory agencies.
On October 14, the Federal Reserve Board invited public comment on an advance notice of proposed rulemaking—developed jointly with the FDIC—to enhance regulators' ability to resolve large banks in an orderly way should they fail (box 8). The advance notice of proposed rulemaking asks for comment on several potential new requirements and resources that could be used for an orderly resolution of these large banking organizations, including a long-term debt requirement, "clean holding company" requirements, and other options.
Bank Merger Policy Review: The Federal Reserve will evaluate its approach to reviewing banks' proposed acquisitions of depository institutions.
Stablecoins: The Federal Reserve will continue to partner with other regulatory agencies and work with Congress to develop supervisory guardrails to address the risks of stablecoins.
Financial Risks from Climate Change: The Federal Reserve will work with the Office of the Comptroller of the Currency (OCC) and the FDIC to provide guidance to large banks on the financial risks of climate change. The Federal Reserve will also conduct a pilot microprudential climate scenario analysis exercise in 2023 to enhance the ability of supervisors and firms to measure and manage climate-related financial risks.1
Innovation, Access, and Consumer Protection: The Federal Reserve aims to support innovation while exercising oversight to ensure the safety of the banking system. The Federal Reserve will use supervision and regulation to promote fair lending, consumer protection, and transparency in the consumer financial services marketplace. Additionally, the Federal Reserve will focus on providing access to fast and efficient digital payments.
Crypto-Asset-Related Activity: The Federal Reserve will work with the OCC and FDIC to make sure that the crypto-asset-related activity of supervised banks is subject to the necessary safeguards to protect the safety of the banking system as well as bank customers.
Community Reinvestment Act: With the other bank regulatory agencies, the Federal Reserve will strengthen and modernize Community Reinvestment Act regulations to achieve the objectives of the law.
Links to the speech and video replay are available on the Board's public website at https://www.federalreserve.gov/newsevents/speech/barr20220907a.htm.
1. See Board of Governors of the Federal Reserve System, "Federal Reserve Board Announces that Six of the Nation's Largest Banks Will Participate in a Pilot Climate Scenario Analysis Exercise Designed to Enhance the Ability of Supervisors and Firms to Measure and Manage Climate-Related Financial Risks," news release, September 29, 2022, https://www.federalreserve.gov/newsevents/pressreleases/other20220929a.htm. Return to text
Box 5. Guidance on Engagement in Crypto-Asset-Related Activities
The emerging crypto-asset sector presents potential opportunities for banking organizations, their customers, and the overall financial system; however, crypto-asset-related activities may also pose risks related to safety and soundness, consumer protection, and financial stability.
In August, the Federal Reserve issued a supervisory letter, SR 22-6, "Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations," that provides information for banking organizations engaging or seeking to engage in crypto-asset-related activities.1 This supervisory letter outlines the steps Federal Reserve supervised banks should take prior to engaging in crypto-asset-related activities. These steps include assessing whether such activities are legally permissible and determining whether regulatory filings are required. Additionally, the supervisory letter states that Federal Reserve-supervised banking organizations should notify the Federal Reserve prior to engaging in crypto-asset-related activities.
The supervisory letter also emphasizes that Federal Reserve supervised banking organizations should have adequate systems and controls in place to conduct crypto-asset-related activities in a safe and sound manner prior to commencing such activities.
The Federal Reserve continues to work with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation on crypto-asset-related policy initiatives.
1. See SR Letter 22-6, "Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations," at https://www.federalreserve.gov/supervisionreg/srletters/SR2206.htm. Return to text
Box 6. London Interbank Offered Rate Transition
U.S. banking supervisors have observed significant progress on the United States dollar (USD) London Interbank Offered Rate (LIBOR) benchmark transition. Supervisors encouraged banks to stop using LIBOR as a pricing benchmark in new transactions after December 31, 2021.1 In the second half of 2021, banks began shifting their contracts from USD LIBOR to alternative reference rates. The Secured Overnight Financing Rate (SOFR) has been the predominant alternative reference rate for both loans and derivative instruments.
Firms previously had identified a subset of legacy LIBOR contracts that did not have a clearly defined or practicable replacement benchmark rate as problematic. In March, Congress passed the Adjustable Interest Rate (LIBOR) Act.2 This law eases the transition for these contracts by directing the Federal Reserve to select an alternative SOFR-based benchmark for these contracts to use as of June 30, 2023, when USD LIBOR will no longer be available. The Federal Reserve published a notice of proposed rulemaking to implement the law on July 28.3
Supervisors continue to closely monitor firms' LIBOR transition efforts. Firms are making substantial progress in updating contracts with new alternative rate benchmarks. However, the volume of legacy USD LIBOR contracts remains high, and significant work remains. Supervisors are focusing their monitoring efforts on evaluating firm plans for addressing legacy contracts. They want to ensure that banking organizations are proactively transitioning legacy contracts to alternative benchmark rates and reducing LIBOR exposures well in advance of the rate's cessation.
1. See SR Letter 20-27, "Interagency Statement on LIBOR Transition," at https://spweb.frb.gov/sites/BSRWeb/SR/Policy/PolLtrDocs/SR2027a1.pdf. Return to text
2. See the Adjustable Interest Rate (LIBOR) Act of 2021, P.L. 117-103, div. U, 136 Stat. 49, https://www.congress.gov/117/plaws/publ103/PLAW-117publ103.pdf. Return to text
3. See 87 Fed. Reg. 45,268 (July 28, 2022), at https://www.govinfo.gov/content/pkg/FR-2022-07-28/pdf/2022-15658.pdf. Return to text
Box 7. Climate-Related Policies and Actions
Climate change poses significant challenges for the global economy and the financial system. The Federal Reserve's responsibilities with respect to climate change are important, but narrow: the Federal Reserve is committed to working within its existing mandates and authorities to promote a safe and stable financial system.
The Federal Reserve's primary supervisory focus is to evaluate whether supervised institutions operate in a safe and sound manner and manage all material risks, including those related to climate change. For large institutions, the Federal Reserve is taking steps to promote the resilience of these institutions to climate-related financial risks.
Federal Reserve Board to Develop Interagency Guidance for Large Banks
In that regard, the Federal Reserve Board intends to develop interagency guidance on the financial risks of climate change for large banks. The Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) have identified the effects of climate change as an emerging risk to the safety and soundness of financial institutions and the stability of the financial system. The Federal Reserve Board intends to work with the OCC and the FDIC to propose guidance for large banks on the identification, measurement, monitoring, and management of climate-related financial risks. These principles will help large banks understand risk exposure and incorporate climate-related financial risks into risk-management frameworks.
Pilot Climate Scenario Analysis Exercise in 2023
In addition, the Federal Reserve Board will engage with six of the nation's largest banks to conduct a pilot climate scenario analysis exercise in 2023.1 Climate scenario analysis is an emerging tool that assesses the resilience of financial institutions under different hypothetical climate-related scenarios. This exercise will be distinct and separate from bank stress tests. Bank stress tests are designed to assess whether large banks have enough capital to continue lending to households and businesses during a severe recession. The climate scenario analysis exercise, however, will be exploratory in nature and will not have capital consequences. By considering a range of possible future climate pathways and associated economic and financial developments, scenario analysis can assist firms and supervisors in understanding climate-related financial risks.
Box 8. Advance Notice of Proposed Rulemaking on Large Bank Resolvability
The Federal Reserve Board has invited public comment on an advance notice of proposed rulemaking to enhance regulators' ability to resolve large banks in an orderly way should they fail.
Recent merger activity and organic growth have increased the size of large banking organizations. If they were to fail, their large size could complicate efforts by regulators to resolve the firms without disruption to customers and counterparties.
As a result, the advance notice of proposed rulemaking asks for comment on several potential new requirements and resources that could be used for an orderly resolution of these large banking organizations, including a long-term debt requirement.
"As the banking system changes, policymakers must continuously evaluate whether resolution-related standards and prudential standards for large banks keep pace," Vice Chair for Supervision Michael S. Barr said. "That is why we welcome comment on an advance notice of proposed rulemaking on resolution-related standards, and are evaluating whether capital requirements for large banks, including global systemically important banks—as well as other elements of the prudential framework—should be updated."
The advance notice of proposed rulemaking was jointly developed with the Federal Deposit Insurance Corporation. Comments will be accepted for 60 days after publication in the Federal Register.1
1. See the Federal Reserve news release on large bank resolution, Board of Governors of the Federal Reserve System, "Federal Reserve Board Invites Public Comment on an Advance Notice of Proposed Rulemaking to Enhance Regulators' Ability to Resolve Large Banks in an Orderly Way Should They Fail," news release, September 29, 2022, https://www.federalreserve.gov/newsevents/pressreleases/other20220929a.htm. Return to text
References
8. The Federal Reserve publishes SR and CA letters to address significant policy and procedural matters related to the Federal Reserve System's supervisory responsibilities and its consumer compliance supervisory responsibilities, respectively. SR letters are available on the Board's public website at https://www.federalreserve.gov/supervisionreg/srletters/srletters.htm, and CA letters are available are available on the Board's public website at https://www.federalreserve.gov/supervisionreg/caletters/caletters.htm. Return to text