June 5, 2019
Community Bank Services

Argent Money


Fannie, Freddie officially move to Uniform MBS
June 3rd marked the official launch of the Fannie Mae and Freddie Mac Uniform Mortgage-Backed Security, which will replace the current TBA-eligible MBS issued by the two GSEs. The UMBS will be issued by Common  Securitization Solutions, Fannie and Freddie's joint venture. The launch is the latest step in a years-long effort to issue a common security.


FHFA Deputy Director Robert Fishman noted that the launch is "a significant milestone that combines the separate Fannie Mae and Freddie Mac to-be-announced markets into one, bringing additional liquidity and efficiency to the market. By addressing structural issues and trading disparities, the UMBS will benefit taxpayers and the nation's housing finance system."

Begin Transition from Libor Now

In the clearest terms expressed by regulators to date, Federal Reserve Vice Chairman for Supervision Randal Quarles emphasized that banks need to begin transitioning away from the London Interbank Offered Rate as a benchmark. "Regardless of how you choose to transition, beginning that transition now would be consistent with prudent risk management and the duty that you owe to your shareholders and clients," he said in prepared remarks for a roundtable hosted by the Alternative Reference Rates Committee in New York.


Quarles noted that the ARRC has developed Libor fallback language for a variety of financial instruments, and he encouraged market participants to implement this language. He added that an "easier path . . . is simply to stop using Libor." Relying on fallback language "brings a number of operational risks and economic risks," he explained. "Firms should be incorporating these factors into their projected cost of continuing to use Libor, and investors and borrowers should consider them when they are offered Libor instruments."


Quarles provided additional details on the Fed's supervisory approach to the reference rate transition, including that the agency will expect to see "an appropriate level of preparedness at the banks we supervise . . . and that level must increase as the end of 2021 grows closer." He also responded to concerns that the Fed's supervisory stress tests might penalize banks that replace Libor with the ARRC's recommended alternative, the Secure Overnight Financing Rate. "Choosing to lend at SOFR rather than Libor will not result in lower projections of net interest income under stress in the stress-test calculations of the Federal Reserve," he said. 

Trade Groups Urge FCC to Protect Lawful Bank Calls

Industry trade groups urged the Federal Communications Commission to seek feedback before moving forward on its proposal to allow telephone companies to block unwanted calls. The FCC's draft declaratory ruling-which is expected to be voted on during the agency's June 6 meeting-would permit voice service providers to enroll customers automatically in a call-blocking program that is "based on any reasonable analytics designed to identify unwanted calls."  The ability for customers to opt out of the program would be required. If adopted, the ruling would be effective immediately.
The trade associations expressed concern that legitimate bank calls are currently being incorrectly labeled as spam or nuisance and may be blocked under the declaratory ruling.  "Public safety alerts, fraud alerts, data security breach notifications, product recall notices, healthcare and prescription reminders and power outage updates all could be inadvertently blocked under the draft declaratory order, among other time-sensitive calls," the groups said.
In earlier meetings with FCC Commissioner Michael O'Rielly and key FCC staff, the groups urged the FCC to permit voice service providers to block only illegal calls-not "unwanted" calls-and to require providers to offer a robust challenge mechanism for legitimate calls that are inadvertently blocked.
The Letter  >> 

Joint Agency Capital Simplification Proposal Approved 

The FDIC voted to approve a final interagency rule that would simplify the complex Basel III regulatory capital calculations for all but the very largest banks. The final rule would simplify the treatment of assets subject to common equity tier 1 capital threshold deductions and limitations on minority interest with a more straightforward measure.
The final rule would simplify regulatory capital requirements for mortgage servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions (such as investments in trust preferred securities) by effectively raising the deduction threshold for each of these to 25%. The final rule also simplifies the calculation for capital issued by a consolidated subsidiary of a banking organization and held by third parties (sometimes referred to a minority interest) that is includable in regulatory capital.
The Proposal  >> 

Bank Performance Remains Strong in Q1

FDIC-insured banks and savings associations earned $60.7 billion in the first quarter of 2019, an increase of $4.9 billion from the industry's earnings a year before, the FDIC said today in its Quarterly Banking Profile. The agency attributed the growth to higher net interest income, which reflected a modest growth in interest-earning assets and wider net interest margins.
Net interest income was up 6% year-on-year, totaling $139.3 billion. The average net interest margin was 3.42%, up 10 basis points from a year ago as average asset yields grew more rapidly than funding costs. Noninterest income fell by $2 billion year-on-year due in part to lower servicing fees. Average return on assets was 1.35% for the quarter.
Total loans outstanding increased over the year, growing by $395 billion, or 4.1%. Loan balances dipped slightly from the previous quarter as consumer loans declined due to seasonal factors. Loan growth was strongest in commercial and industrial lending, which increased 7.6% from the first quarter of 2018. Total deposits continued to grow, increased 2.9 percent over the year. However, noninterest-bearing deposits were down 6.6% from the year prior as consumers increasingly sought out higher-yield products. Bank capital reached a record high, apprroaching $2.1 trillion, while asset quality remained strong. Net charge-offs ticked up 5.5% from a year ago. Meanwhile, the noncurrent loan balance rate (which reflects loans 90 days or more past due) remained unchanged at 0.99%.

Compliance Conference  -  September 10 & 11
Double Tree Hotel, Little Rock