“If you wish to forget anything on the spot, make a note that this thing is to be remembered.”
- Edgar Allen Poe, American poet
Born this day in 1849
Absent a last-minute deal or extension, federal government funding will expire at midnight tonight, triggering a government shutdown. Based on funding source and how many “essential employees” are needed, each federal financial regulatory agency would be impacted differently.
The shutdown will not directly affect the operations of the federal banking agencies because they are not subject to appropriations. The FDIC and OCC are independently funded via bank assessments. The Federal Reserve System is funded through its market activities, and the CFPB is directly funded by the Federal Reserve.
However, the Financial Crimes Enforcement Network (FinCEN), the SEC, the Department of Housing and Urban Development (HUD), the IRS, the Commodity Futures Trading Commission (CFTC), and the Small Business Administration (SBA) are all subject to appropriations and would institute significant services rollbacks.
In recent weeks, we have received several questions regarding the potential impact of the tax reform bill on state supervised financial institutions. The Tax Cuts and Jobs Act (the Act) represents the most significant change to the U.S. federal tax code since 1986, and it could have significant impact on an entity's domestic and international tax obligations.
To better understand the implications for state supervised institutions, CSBS staff members have participated in discussions with the Federal Banking Agencies and the Financial Accounting Standards Board (FASB) regarding the Act and regulatory reporting requirements for 2017.
The most significant impact to financial statements will stem from the change to the corporate tax rate. The reduced tax rate will impact the value of deferred tax liabilities and deferred tax assets and thus may have an income statement impact in 2017. Depending on an institution's circumstances, there also are likely implications for amounts reported in Accumulated Other Comprehensive Income (AOCI). In addition, regulatory capital could be impacted given the repeal of the alternative minimum tax (AMT) for corporations and changes to the treatment of deferred tax assets. The effect of these changes and other applicable provisions of the Act must be recognized in 2017 filings (see FIL issued by the FDIC on December 22nd).
Recognizing the difficulty of making these calculations within a very limited time frame, the SEC and FASB have taken a number of actions to provide entities with practical relief in making estimates that can't be fully fleshed out.
In late December, the SEC issued Staff Bulletin No. 118. The bulletin expresses views of staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act. Specifically, the guidance in SAB 118 states that entities can report the income tax effects of the act (for tax effects in which the accounting can not be completed) as a provisional amount based on a reasonable estimate, which could be adjusted during a limited "measurement period" until the accounting is complete. The guidance also describes supplemental disclosures that should be included with the provisional amounts, stating the reasons for the incomplete accounting and any other relevant information.
This week, the FASB issued a staff Q+A document indicating that private companies and non-for-profit organizations can choose to adopt the SEC Staff Bulletin. If these companies were to apply SAB 118, FASB notes that the entities would be in compliance with US GAAP. FASB is also considering amendments to GAAP that would provide relief to the DTA implications by adjusting the longstanding AOCI rules. However, these changes would need to go through public comment and likely wouldn't be finalized prior to the Dec. 31 Call Report filing deadline.
FASB has been in communication with the federal banking agencies, which are expected to issue guidance related to the Act this month.
The FDIC and OCC released reports this week showing continued growth among community and larger banks, while the CFPB delayed compliance with new regulatory rules for payday loans.
FDIC Quarterly Report
The FDIC released this week the “FDIC Quarterly,” a comprehensive summary of the most current financial results for the banking industry.
In the report, FDIC researchers write about community bank mergers since the financial crisis, finding that acquired community banks are typically less profitable and reported lower capital ratios.
Additionally, FDIC researchers found that the number of offices operated by community banks increased slightly over the past five years, but cutbacks in offices at these banks have been large enough to drive a decline in the overall number of banking industry officers since 2012. This continuing trend of fewer banking offices can be attributed to factors like population migration, industry consolidation, and financial technology.
OCC Semiannual Risk Perspective
In the report, the OCC found that the credit environment continues to be influenced by aggressive competition and slow loan growth. Banks also feel strain due to operational costs, largely because of increasingly complex cybersecurity threads and the use of third-party service providers. The OCC additionally notes the increasing complexity of consumer compliance regulations as a driver of compliance cost.
CFPB Delays Payday Lending Rule, Requests $0 for Annual Budget
The CFPB announced Tuesday it intends to engage in a rulemaking process so that the Bureau can reconsider its Payday Lending Rule. The CFPB also said it would entertain waiver requests from payday lenders for the parts of the rule that went into effect Wednesday.
Also, every quarter, the CFPB formally requests its operating funds from the Federal Reserve. Acting CFPB Director Mick Mulvaney’s first quarterly request is for $0. Mulvaney intends to use the CFPB’s $177 reserve fund to cover the estimated $145 million for the CFPB’s second quarter needs.
State Regulators to Share Licensing Data with Federal Trade Commission
Washington, D.C. – The Conference of State Bank Supervisors (CSBS) has agreed to share all non-confidential licensing information from the Nationwide Multistate Licensing System (NMLS) with the Federal Trade Commission. The FTC will gain access to NMLS data on regulated companies, including ownership information. Public FTC enforcement actions will be added to the NMLS database and shared with state regulators and the public.
Thomas Pahl, Acting Director of the FTC’s Bureau of Consumer Protection, said, “Ready access to information on companies under our jurisdiction will increase the efficiency of the FTC’s consumer protection investigations, and will facilitate increased coordination with our state law enforcement partners.”
John Ryan, CSBS president and CEO, added, “The NMLS has become a vital resource for regulators and law enforcement agencies at all levels. And we are pleased to share data that helps better protect consumers.”
As the primary regulator for non-banks, state regulators use the NMLS to license and supervise mortgage companies, money transmitters, debt collectors, and consumer finance companies. Currently, more than 21,000 companies are licensed through NMLS. CSBS also manages NMLS Consumer Access, an online portal where consumers can find out more information about the financial companies they work with.
The NMLS shares select data with several federal agencies, including the Office of Financial Research (OFR), Consumer Financial Protection Bureau (CFPB), Financial Crimes Enforcement Network (FinCEN), Federal Housing Administration (FHA), and now the FTC.
The Role of State Regulators
CSBS Vision 2020