The Financial Institutions Examination Fairness and Reform Act – Redux
This new bill (H.R. 1553) introduced on April 15th is actually a word-for-word duplicate of H.R. 3461 which I wrote about here. The previous bill died in committee, but H.R. 1553 has a few more sponsors. Now, I know what you are thinking…that there is no such thing as “good” regulation. But bear with me, because this bill actually is good for the industry, banks and credit unions alike.
The full text of the bill is here, and I encourage everyone to read it and consider throwing your support behind it, but in summary it…
- …requires that examiners issue their final examination reports in a timely manner, no later than 60 days following the exit interview. This is important for FI’s because all examination findings must be reported to the Board, and assigned to responsible parties for remediation. I have heard stories of institutions waiting 6+ months for a final report, and this just isn’t fair. Since most institutions are on a 12 month examination cycle, this only leaves a few months for remediation in order to avoid repeat findings.
- …requires that the examiner make available all factual information relied upon by the examiner in support of their findings. This levels the playing field, allowing institutions to see exactly why findings occurred and better prepare you to push back if you think the finding is incorrect.
- …changes the treatment of commercial loans. Currently, if the value of the underlying collateral declines, the loan may be forced into non-accrual status regardless of the repayment capacity of the borrower. The bill would prevent that from happening. It would also prevent a new appraisal on a performing loan unless new funds were involved. It stands to reason that if non-accrual status is tied to non-performing status, it should result in higher asset quality assessments, resulting in fairer reserve requirements, fewer enforcement actions, and fewer CAMELS score downgrades.
- …requires a standard definition of “non-accrual” along with consistent reporting requirements. The less institutions are subject to examiner interpretation, the more predictable the examination experience will be. Lack of consistency resulting in unpredictable results is the single biggest complaint of the examination process. I don’t know of a single institutions that wants to “get away” with anything during an exam, they only want to know what to expect.
- …establishes an “examination ombudsman” in the office of the FFIEC, independent of any regulatory agency. In addition to being a more impartial forum for presentation of grievances regarding the examination process, they would also be responsible for assuring that all examinations adhere to the same standards of consistency. In the survey conducted with my previous post on this topic, 60% of respondents said that they would be more likely to appeal an exam finding if the appeal process was with the FFIEC as opposed to the regulator that conducted the exam.
- …would prohibit retaliation against the FI for exercising their rights under the appeals process, and delay any further agency action until the appeals process was complete.
Of course it’s a long road from a bill to a law, but I think you would agree that all these things are good for the industry. At the very least, any regulation that gives bankers more control and less uncertainty is a welcome change from recent events! You can track it here. A companion Senate bill was also just introduced, S. 727. Track it here.
