Letter to the OCC and FDIC on the Proposed Rulemaking re: Unsafe or Unsound Practices, Matters Requiring Attention

To Whom it May Concern:

The American Bankers Association (ABA) appreciates the opportunity to respond to a proposed rulemaking (Proposal) by the OCC and FDIC (collectively, the Agencies) to define the term "unsafe or unsound practices" for purposes of section 8 of the Federal Deposit Insurance Act (12. U.S.C. § 1818) and revise the supervisory framework for the issuance of matters requiring attention (MRAs) and other supervisory communications. This is an important Proposal to provide regulatory clarity regarding certain enforcement and supervision standards and focus the attention of supervised institutions and examiners on material financial risks.

ABA supports the Proposal and outlines recommendations in this letter that should be incorporated into the final rule. Regarding unsafe or unsound practices, our recommendations for the final rule include the following: (1) clarifying that isolated or technical incidents do not qualify as "practices"; (2) requiring Agency examiners to provide demonstrable and quantifiable evidence to support the conclusion that material financial harm is "likely"; and (3) tying the materiality standard explicitly to case law. We also recommend revising or removing the Agencies' comments on tailoring as it relates to community banks. ABA also supports the proposed standard for issuing MRAs and recommends the following revisions: (1) requiring that violations of law must be "substantive" rather than technical, isolated, or immaterial; and (2) incorporating our comments regarding "material harm" throughout the Proposal.

Additionally, the final rule should codify the strict parameters applicable to the Agencies informal supervisory communications. We are also seeking clarification whether composite rating downgrades within other rating systems would only occur in cases where the institution receives an MRA that meets the standard outlined in the Proposal or an enforcement action pursuant to the Agencies' enforcement authority. Finally, ABA encourages the Agencies to consider other recommendations related to the Proposal, including self-identified acts or practices, MRA closure, coverage of legacy MRAs, and examiner training.

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