Agencies Issue Statement to Clarify Supervisory and Enforcement Responsibilities For Federal Consumer Financial Laws

By Jeffrey M. Werthan on November 18, 2011

Posted in Banking, Derivatives, Dodd-Frank Developments

On November 17, a statement was issued by the Bureau of Consumer Financial Protection (CFPB), the three federal banking agencies, and the National Credit Union Administration that explains how the total assets of an insured bank, thrift or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Under section 1025 of the Dodd-Frank Act, the CFPB has exclusive authority to examine for compliance with federal consumer financial laws and primary authority to enforce those laws for institutions with total assets of more than $10 billion, and their affiliates. Section 1026 of the Dodd-Frank Act confirms that the four prudential regulators—the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency—will retain supervisory and enforcement authority for other institutions. The policy statement issued on November 17 clarifies the application of sections 1025 and 1026 of the Dodd-Frank Act by addressing two key matters: the measure to be used to determine asset size and the schedule for making such determinations.

The statement explains that a common measure of the asset size of an insured depository institution is the total assets reported in the quarterly Reports of Condition and Income that banks, thrifts, and insured credit unions are required to file with their respective primary federal regulators.
The policy statement also explains that the agencies are adapting measuring criteria used for deposit insurance assessment purposes. Accordingly, after an initial asset size determination based on June 30, 2011 data, an institution generally will not be reclassified unless four consecutive quarterly call or thrift financial reports indicate that the institution has switched categories of supervision, as follows:

If an institution had total assets of greater than $10 billion as of June 30, 2011, and subsequently reported total assets of $10 billion or less for four consecutive quarters, the Institution would no longer be subject to the CFPB’s supervisory or enforcement authority as a Large Institution.
If an institution had total assets of $10 billion or less as of June 30, 2011, and subsequently reported total assets in excess of $10 billion in four consecutive quarters, the Institution would become subject to the CFPB’s supervisory and enforcement authority as a Large Institution with respect to Federal consumer financial law beginning in the following quarter.
If, in the case of an acquisition, merger, or combination involving an institution occurring after June 30, 2011, where each of the constituent entities has total assets of $10 billion or less before the transaction, the Agencies will review the combined assets of the constituent entities for the four quarters prior to the transaction to determine if the resulting institution is a Large Institution as necessary. For example, if two institutions merge, and neither constituent institution has total assets of greater than $10 billion, the resulting institution generally would be subject to the CFPB’s supervisory and enforcement authority with respect to Federal consumer financial law beginning in the first full quarter after the merger is consummated if the combined total assets reported by the two Institutions were more than $10 billion in each of the four consecutive quarterly Call Reports prior to the merger. However, if the combined total assets reported by the two institutions were not more than $10 billion in each of the four consecutive quarterly Call Reports prior to the merger, the resulting institution would not be considered a Large Institution subject to the CFPB’s supervisory and enforcement authority with respect to Federal consumer financial law. Subsequently, the resulting institution would become subject to the CFPB’s supervisory and enforcement authority with respect to Federal consumer financial law as a Large Institution if it has reported total assets of greater than $10 billion in its quarterly Call Report for four consecutive quarters.

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