Economic Growth and Regulatory Paperwork Reduction Act Review
by Staff from the Divisions of Supervision and Regulation, Consumer and Community Affairs, and Legal at the Board of Governors of the Federal Reserve System
The Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) requires the federal banking agencies1 and the Federal Financial Institutions Examination Council (FFIEC) to perform a review of their regulations every 10 years. The purpose of the review is to identify outdated or otherwise unnecessary regulatory requirements imposed on insured depository institutions.
Much has happened since the first EGRPRA report was sent to Congress in November 2007. The country suffered a financial crisis that destabilized the U.S. economy and weakened banks, resulting in hardships for the people and communities served by banks. The legislative and regulatory responses to the crisis were many, imposing measures designed to strengthen banks and to diminish the likelihood of future crises. As a result of those efforts, the banking system is indeed safer and stronger than it was before the crisis. The most recent EGRPRA report was sent to Congress in March 2017 and included the agencies’ assessment of existing regulations placed on banks, including the newest regulations.2 A particular focus of the most recent EGRPRA review was the effect of regulations on smaller institutions, such as community banks and savings associations.
EGRPRA Review Process
As part of this EGRPRA review, the agencies published four Federal Register notices and held six outreach meetings throughout the country to solicit comment from the public on the agencies’ regulations. In response, bankers, consumer and community groups, and other interested persons submitted more than 230 written comments and voiced more than 120 oral comments at the outreach meetings addressing concerns about the agencies’ regulations.3 Many themes have emerged from the comments, including several of particular interest to community banks:
- Bankers recommended the agencies reevaluate the various thresholds and limits imposed by regulations that may constrain community banks and their lending activities.
- Bankers recommended the agencies reevaluate the regulatory requirement to obtain an appraisal on small dollar real estate loans, particularly in rural areas.
- A number of community bankers recommended reducing the volume of information required in the quarterly filings of the Consolidated Reports of Condition and Income (Call Report).
- Bankers asked the agencies to review the statutorily mandated safety and soundness examination frequency for banks, which varies based on a bank’s asset size and condition, as a way to reduce the frequency of on-site examinations.
- Bankers indicated that they would welcome guidance to assist them in meeting their compliance obligations under the Bank Secrecy Act (BSA) and anti-money laundering rules in more cost-effective ways.
- Bankers commented that some longstanding interagency guidance may now be outdated and warrant a fresh look and revision.
The issues raised by the commenters as well as the agencies’ responses were summarized in the EGRPRA report. The report highlights the agencies’ response to the six topics that received the most comments: (1) regulatory capital, (2) the Call Report, (3) appraisals, (4) the frequency of safety and soundness examinations, (5) the Community Reinvestment Act (CRA), and (6) the BSA and anti-money laundering rules. The agencies also received comments on other interagency regulations and on each agency’s own regulations.
Simplifying the Regulatory Capital Rules. The agencies recently proposed a rule intended to simplify several requirements in the agencies’ regulatory capital rule.4 Specifically, the proposed rule would simplify the capital treatment for certain acquisition, development, and construction loans; mortgage servicing assets; certain deferred tax assets; investments in the capital instruments of unconsolidated financial institutions; and minority interest. The proposed rule is consistent with the EGRPRA report in which the agencies committed to meaningfully reducing the regulatory burden, especially on community banking organizations, while at the same time maintaining safety and soundness and the quality and quantity of regulatory capital in the banking system.
Reduced Regulatory Reporting Requirements with the Introduction of a Small Bank Call Report. In December 2016, the agencies finalized a new, streamlined FFIEC 051 Call Report for institutions with domestic offices only and less than $1 billion in total assets. This new Call Report, which took effect on March 31, 2017, reduces the length of the Call Report from 85 pages to 61 pages and removes approximately 40 percent of the data items included in the FFIEC 041 Call Report.
Further Simplifying the Call Report. Staffs of the agencies have completed or started work on other Call Report revisions, including: (1) completing limited reductions to the Call Report, which were finalized in July 2016 and effective in September 2016 and March 2017; (2) completing the required review this year5 of existing Call Report data items; (3) proposing further burden-reducing changes to the FFIEC 051 and other burden-reducing Call Report changes for larger institutions; and (4) continuing industry outreach and training.
Raising the Appraisal Threshold for Commercial Real Estate Loans. The agencies issued a notice of proposed rulemaking to increase the threshold for requiring an appraisal on commercial real estate loans from $250,000 to $400,000, in a manner consistent with safety and soundness.6 As part of that proposal, the agencies solicited comments on whether the current $250,000 threshold for residential real estate loans should be raised and what factors should be considered in assessing the threshold amount for these loans.7 The proposal also asked for information about the appropriateness of increasing the existing $1 million threshold for real estate-secured business loans. The comment period for the proposal ended on September 29, 2017, and the staffs of the agencies are now reviewing the comments on the proposal in the development of a final rule.
Addressing Appraiser Shortages in Rural Areas. The agencies issued an advisory8 to regulated entities, highlighting two options designed to help insured depository institutions and bank holding companies that lend in areas experiencing a shortage of appraisers. The first option, temporary practice permits, allows appraisers credentialed in one state to provide their services on a temporary basis in another state experiencing a shortage of appraisers, subject to state law. The second option, temporary waivers, sets aside requirements relating to the certification or licensing of individuals to perform appraisals in states or geographic political subdivisions when it is determined that there is a scarcity of state certified or licensed appraisers, leading to significant delays in obtaining an appraisal. The agencies will also work to streamline the process for granting temporary waiver requests.9
Clarified the Use of Evaluations Versus Appraisals. To clarify current supervisory expectations regarding evaluations, particularly in response to commenters in rural areas, in March 2016, the agencies issued an interagency advisory on when evaluations can be performed in lieu of appraisals, including when transactions fall below the dollar thresholds set forth in the agencies’ appraisal regulations.10
Frequency of Examinations
Reduced the Full Scope, On-Site Safety and Soundness Examination Frequency for Certain Qualifying Institutions. The agencies increased the number of small banks and savings associations that can qualify for an 18-month, rather than a 12-month, examination cycle. As a result, approximately 83 percent of all insured depository institutions would qualify for an 18-month examination cycle.11
Community Reinvestment Act
Completed the Interagency Questions and Answers (Q&As) Regarding Community Investment. The agencies have revised the CRA Q&As, which are the primary vehicle for CRA policy guidance, twice in the past five years. The 2013 revisions clarified how the agencies consider community development activities that benefit a broader statewide or regional area that includes an institution’s geographic assessment area.12 In 2016, further revisions were adopted to the Q&As that address the availability and effectiveness of alternative delivery systems in reaching low- or moderate-income individuals and geographies under the retail service test as well as innovative and flexible lending practices and community development-related issues, including clarifying the activities considered to meet the purpose test for qualifying economic development activities.13 The agencies are also working together to update interagency examination procedures and make other process improvements. The agencies plan to conduct interagency examiner training to ensure that these policies are applied consistently across the agencies.
Bank Secrecy Act
Reduced Frequency of BSA Reviews for Certain Qualifying Institutions. The change to allow more small banks and savings associations to be eligible for 18-month, rather than 12-month, examination cycles will also result in less frequent BSA reviews.
Referred Bank Secrecy Act and Anti-money Laundering
Comments. The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, is the delegated administrator of the BSA and issues the regulations and interpretive guidance. FinCEN is the federal agency responsible for making any changes related to the Currency Transaction Report (CTR) as that is a FinCEN regulation. Changes to Suspicious Activity Report (SAR) requirements would require a joint effort by FinCEN and the agencies, with changes to both FinCEN’s and the agencies’ regulations. The agencies provided FinCEN with the EGRPRA comments, and FinCEN provided a response, which is included in the report as Appendix 5. FinCEN indicated in its response that information in the CTR and SAR reports provides invaluable information to law enforcement agencies, and those agencies affirmed that the current CTR and SAR thresholds are appropriate and should not be raised.
Interagency Initiative to Review the Examination Process
The agencies are aware that outdated and unnecessary supervisory requirements do not emanate only from statutes and regulations but often come from the agencies’ processes and procedures related to their examination and supervisory oversight responsibilities. To that end, the agencies are conducting a joint review of the examination process, examination report format, and examination report preparation process to identify further opportunities to minimize the burden to bank management where possible, principally by rethinking traditional processes and making better use of technology. The agencies are also reviewing interagency guidance to update and streamline guidance to reflect current banking practices and risks.
Federal Reserve Initiatives
In addition to the joint interagency actions, the Federal Reserve Board has taken additional actions unilaterally to provide regulatory relief on issues that emanate from Board regulations, policies, and practices, including the following:
- Refocusing the holding company inspection process to alleviate unnecessary supervisory oversight by issuing guidance and procedures to ensure Federal Reserve examiners do not duplicate the work of other state and federal regulators when supervising holding companies with assets less than $50 billion.14
- Responding to industry concerns about the disruption caused by large on-site examination teams by providing community and regional banks with the option of having the loan review portion of the examination — the most labor-intensive part of exams — conducted off-site. The Federal Reserve is also conducting other aspects of the examination off-site whenever possible.15
- Addressing concerns about unreasonable demands on boards of directors by clarifying expectations for boards of directors in relation to senior management in revised risk management guidance for supervised institutions with total consolidated assets less than $50 billion.16
- Improving the rigor and accuracy of off-site financial screening to help reduce examination time for well-managed, low-risk community banks and in turn focus more time on higher-risk institutions. As part of this effort, the Federal Reserve streamlined procedures applicable to low-risk banks for key aspects of the examination process. The Federal Reserve is extending this effort to the remaining examination procedures.
- Implementing a revised consumer compliance examination frequency policy to lengthen the time frame between on-site consumer compliance and CRA examinations for many community banks with less than $1 billion in total consolidated assets.17 The Board adopted a new consumer compliance examination framework for community banks at the same time.18 The new framework more explicitly bases examination intensity on the individual community bank’s risk profile, weighed against the effectiveness of the bank’s compliance controls.
For a comprehensive list of Board actions taken to provide regulatory relief, please refer to the EGRPRA report.
The initiatives identified in the EGRPRA report are part of an ongoing effort by the agencies to provide regulatory relief, especially for community banks. The Federal Reserve will continue to engage in dialogue with the banking industry to better understand which requirements may be outdated or unnecessary. The Federal Reserve is also committed to identifying ways to provide relief, especially for community banks, on issues that emanate from Board regulations, policies, and practices, balanced against the need to ensure the safety and soundness of banks.
The Community Banking Connections Advisory Board would like to thank Jinai Holmes for coordinating the writing of this article.Back to top
- 1 The federal banking agencies are the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, together “agencies.” The National Credit Union Administration (NCUA), which is not subject to EGRPRA, conducted a separate review of its own regulations concurrently with the EGRPRA process. The NCUA’s report on its review follows the interagency report.
- 2 See the “Joint Report to Congress: Economic Growth and Regulatory Paperwork Reduction Act,” available at www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf .
- 3 See http://egrpra.ffiec.gov/ for further information on the EGRPRA process.
- 4 The press release announcing the proposal is available at www.federalreserve.gov/newsevents/pressreleases/bcreg20170927a.htm .
- 5 This review is mandated by section 604 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 1817(a)(11)).
- 6 The press release announcing the proposal is available at
- 7 In accordance with the Dodd–Frank Wall Street Reform and Consumer Protection Act, the agencies are required to receive the concurrence of the Consumer Financial Protection Bureau to change the current $250,000 threshold above which an appraisal is required for a residential mortgage.
- 8 See Supervision and Regulation (SR) letter 17-4, “Interagency Advisory on the Availability of Appraisers,” available at www.federalreserve.gov/supervisionreg/srletters/sr1704.htm . This advisory applies to state member banks and bank holding companies and their nonbank subsidiaries; it does not apply to savings and loan holding companies.
- 9 Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 allows the FFIEC Appraisal Subcommittee, after finding that there is a shortage of appraisers leading to significant delays and with the approval of the FFIEC, to grant temporary waivers of any requirement relating to certification or licensing of a person to perform appraisals under Title XI.
- 10 See SR letter 16-5, “Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions,” available at www.federalreserve.gov/supervisionreg/srletters/sr1605.htm .
- 11 See SR letter 17-2, “Updates to the Expanded Examination Cycle for Certain State Member Banks and U.S. Branches and Agencies of Foreign Banking Organizations,” available at www.federalreserve.gov/supervisionreg/srletters/sr1702.htm .
- 12 See 78 Fed. Reg. 69671 (November 20, 2013).
- 13 See 81 Fed. Reg. 48506 (July 25, 2016).
- 14 See SR letter 16-4, “Relying on the Work of the Regulators of the Subsidiary Insured Depository Institution(s) of Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of Less Than $50 Billion,” available at www.federalreserve.gov/supervisionreg/srletters/sr1604.htm.
- 15 See SR letter 16-8, “Off-Site Review of Loan Files,” available at www.federalreserve.gov/supervisionreg/srletters/sr1608.htm.
- 16 See SR letter 16-11, “Supervisory Guidance for Assessing Risk Management at Supervised Institutions with Total Consolidated Assets Less Than $50 Billion,” available at www.federalreserve.gov/supervisionreg/srletters/sr1611.htm .
- 17 See Consumer Affairs (CA) letter 13-20, “Consumer Compliance and Community Reinvestment Act (CRA) Examination Frequency Policy,” available at www.federalreserve.gov/bankinforeg/caletters/caltr1320.htm .
- 18 See CA letter 13-19 “Community Bank Risk-Focused Consumer Compliance Supervision Program,” available at www.federalreserve.gov/bankinforeg/caletters/caltr1319.htm .