OCC Proposes Formal Guidelines for Its Heightened Expectations for Large Banks

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Office of the Comptroller of the Currency

Jan 16, 2014, 10:29 ET

WASHINGTON, Jan. 16, 2014 /PRNewswire-USNewswire/ -- The Office of the Comptroller of the Currency (OCC) today released a proposal setting forth new standards, based on the agency's heightened expectations program, for large national banks and federal savings associations that would be enforceable under part 30 of its regulations.

Following the financial crisis, the OCC developed a set of "heightened expectations" to strengthen the governance and risk management practices of large national banks and federal savings associations and to enhance the agency's supervision of those institutions. The guidelines build upon and formalize those expectations to provide additional clarity and specificity to the large financial institutions that the OCC oversees.

"The standards announced today build on lessons learned from the financial crisis," said Comptroller of the Currency Thomas J. Curry. "They will contribute to a safer financial system for all of us by providing clear and enforceable standards for the risk management and governance of our largest institutions. They provide additional supervisory tools to examiners of large national banks and federal savings associations, and they will measurably enhance our supervision of these institutions."

The proposed standards, in the form of guidelines under 12 CFR part 30 of the agency's regulations, would apply to any insured national bank, insured federal savings association, or insured federal branch of a foreign bank, with average total consolidated assets of $50 billion or more. The proposal would reserve the OCC's authority to apply the guidelines to an institution with less than $50 billion in assets if the OCC determines that it is highly complex or otherwise presents a heightened risk.

The proposed guidelines set forth the minimum standards for the design and implementation of an institution's risk governance framework and provide minimum standards for oversight of that framework by the board of directors. The guidelines include provisions regarding:

The roles and responsibilities of those organizational units that are fundamental to the design and implementation of the risk governance framework. These units are front line units, independent risk management, and internal audit. Together, these units should establish an appropriate system to manage risk taking.
A comprehensive written statement that articulates the bank's risk appetite, which serves as a basis for the risk governance framework. This statement should include both qualitative components and quantitative limits.
Board of directors' oversight of a bank's compliance with safe and sound banking practices. The board should ensure that the bank establishes and implements an effective risk governance framework that complies with the guidelines.
Active board oversight of a bank's risk-taking activities. This includes establishing accountability for management's adherence to the risk governance framework. The board should also evaluate management's recommendations and decisions by questioning, challenging, and, when necessary, opposing, management proposals that could lead to excessive risk taking or pose a threat to safety and soundness.
Composition of the board of directors. A board of directors should have at least two independent members who are not part of the bank's or the parent company's management.

The OCC is proposing these guidelines pursuant to section 39 of the Federal Deposit Insurance Act (FDIA), which authorizes the OCC to prescribe safety and soundness standards in the form of a regulation or guidelines. If a bank or savings association fails to meet a prescribed standard, the OCC may require the institution to submit a plan specifying the steps it will take to comply with the standard. The OCC may issue an enforceable order under section 8 of the FDIA, 12 U.S.C. section 1818(b), if the institution, after being notified that it is in violation of a safety and soundness standard, fails to submit an acceptable compliance plan or fails materially to comply with an OCC-approved plan.

As part of the agency's efforts to integrate the former Office of Thrift Supervision's regulations, the OCC is also requesting comment on its proposal to make part 30 and all of its appendices applicable to federal savings associations and to remove part 170, which contains comparable regulations that apply to federal savings associations.