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OCC Guidelines Establishing Heightened Standards …

DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Parts 30 and 170 [Docket ID OCC-2014-0001] RIN 1557-AD78 OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Integration of 12 CFR Parts 30 and 170 AGENCY: Office of the Comptroller of the Currency, Treasury. ACTION: Proposed rules and Guidelines . SUMMARY: The Office of the Comptroller of the Currency (OCC) is requesting comment on proposed Guidelines , to be issued as Appendix D to part 30 of its regulations, Establishing minimum Standards for the design and implementation of a risk governance framework for large insured national banks, insured Federal savings associations, and insured Federal branches of foreign banks with average total consolidated assets of $50 billion or more and minimum Standards for a board of directors in overseeing the framework s design and implementation ( Guidelines ).

DEPARTMENT OF THE TREASURY . Office of the Comptroller of the Currency 12 CFR Parts 30 and 170 [Docket ID OCC-2014-0001] RIN 1557-AD78 . OCC Guidelines Establishing Heightened Standards for Certain Large Insured National

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1 DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Parts 30 and 170 [Docket ID OCC-2014-0001] RIN 1557-AD78 OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Integration of 12 CFR Parts 30 and 170 AGENCY: Office of the Comptroller of the Currency, Treasury. ACTION: Proposed rules and Guidelines . SUMMARY: The Office of the Comptroller of the Currency (OCC) is requesting comment on proposed Guidelines , to be issued as Appendix D to part 30 of its regulations, Establishing minimum Standards for the design and implementation of a risk governance framework for large insured national banks, insured Federal savings associations, and insured Federal branches of foreign banks with average total consolidated assets of $50 billion or more and minimum Standards for a board of directors in overseeing the framework s design and implementation ( Guidelines ).

2 The Standards contained in the Guidelines would be enforceable by the terms of a Federal statute that authorizes the OCC to prescribe operational and managerial Standards for national banks and Federal savings associations. In addition, as part of our ongoing efforts to integrate the regulations of the OCC and those of the Office of Thrift Supervision (OTS), the OCC is also requesting comment on its proposal to make part 30 and its respective appendices applicable to both national banks and Federal savings associations and to remove part 170 as unnecessary. Other technical changes to part 30 are also proposed. 2 DATES: Comments must be submitted by [INSERT DATE THAT IS 60 DAYS FROM THE DATE OF PUBLICATION] ADDRESSES: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments through the Federal eRulemaking Portal or e-mail, if possible.

3 Please use the title OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Integration of 12 CFR Parts 30 and 170 to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: Federal eRulemaking Portal " ": Go to Enter Docket ID OCC-2014-0001" in the Search Box and click "Search". Results can be filtered using the filtering tools on the left side of the screen. Click on Comment Now to submit public comments. Click on the Help tab on the home page to get information on using , including instructions for submitting public comments. E-mail: Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street, SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.

4 Hand Delivery/Courier: 400 7th Street, SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219. Fax: (571) 465-4326. 3 Instructions: You must include OCC as the agency name and Docket ID OCC-2014-0001 in your comment. In general, the OCC will enter all comments received into the docket and publish them on the Web site without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this rulemaking action by any of the following methods: Viewing Comments Electronically: Go to Enter Docket ID OCC-2014-0001" in the Search box and click "Search".

5 Comments can be filtered by Agency using the filtering tools on the left side of the screen. Click on the Help tab on the home page to get information on using , including instructions for viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649-6700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. 4 Docket: You may also view or request available background documents and project summaries using the methods described above. FOR FURTHER INFORMATION CONTACT: For questions concerning the Guidelines , contact Molly Scherf, National Bank Examiner, Large Bank Supervision, (202) 649-7298, or Stuart Feldstein, Director or Andra Shuster, Senior Counsel, Legislative & Regulatory Activities Division, (202) 649-5490, or Martin Chavez, Attorney, Securities and Corporate Practices Division, (202) 649-5510, 400 7th Street SW.

6 , Washington, DC 20219. SUPPLEMENTARY INFORMATION: Background The recent financial crisis demonstrated the destabilizing effect that large, interconnected financial companies can have on the national economy, capital markets, and the overall financial stability of the banking system. Many governments and central banks across the world, including the government, responded to the crisis by providing unprecedented levels of support to companies in the financial sector to mitigate the impact of the crisis and to sustain the global financial system. The financial crisis and the accompanying legislative response underscore the importance of strong bank supervision and regulation of the financial system. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)1 to address, in part, weaknesses in the framework for the supervision and regulation of large financial These changes underscore the view that large, complex institutions can have a significant impact on capital markets and the economy and, therefore, need to be supervised and regulated more rigorously.

7 1 Public Law 111-203, 124 Stat. 1376 (2010). 5 Following the financial crisis, the OCC developed a set of Heightened expectations to enhance our supervision and strengthen the governance and risk management practices of large national banks. The first expectation, often referred to as preserving the sanctity of the charter, maintains that one of the primary fiduciary duties of an institution s board of directors is to ensure that the institution operates in a safe and sound manner. Since large banks are often one of several legal entities under a complex parent company, each bank s board must ensure that the bank does not function simply as a booking entity for its parent and that parent company decisions do not jeopardize the safety and soundness of the bank. This often requires separate and focused governance and risk management practices.

8 The second expectation generally requires large institutions to have a well-defined personnel management program that ensures appropriate staffing levels, provides for orderly succession, and provides for compensation tools to appropriately motivate and retain talent that does not encourage imprudent risk taking. The third expectation pertains to risk appetite (or tolerance) and involves institutions defining and communicating an acceptable risk appetite across the organization, including measures that address the amount of capital, earnings, or liquidity that may be at risk on a firm-wide basis, the amount of risk that may be taken in each line of business, and the amount of risk that may be taken in each key risk category monitored by the institution. The OCC also expects institutions to have reliable oversight programs under the fourth expectation, including the development and maintenance of strong audit and risk management functions.

9 This expectation involves institutions comparing the performance of their audit and 2 See, , 12 5365 (requiring enhanced prudential Standards for certain bank holding companies and nonbank financial companies). 6 risk management functions to the OCC s Standards and leading industry practices and taking appropriate action to address material gaps. The fifth expectation focuses on the board of directors willingness to provide a credible challenge to bank management s decision-making and thus requests independent directors to acquire a thorough understanding of an institution s risk profile and to use this information to ask probing questions of management and to ensure that senior management prudently addresses risks. In 2010, the OCC began communicating these Heightened expectations informally to institutions in the Large Bank program3 through our supervisory function.

10 Examiners met with independent directors and executive management from these institutions to discuss the Standards and explain how each national bank should apply Through its work with the Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS), the OCC found that many supervisors are Establishing , or are considering Establishing , similar expectations for the financial institutions they regulate. The OCC continued to refine and reinforce the Heightened expectations during 2011, and in 2012, started examining each large institution for compliance with the expectations, including documenting its conclusions in the OCC s Report of Examination5 to reflect each institution s progress in complying with the expectations. Currently, OCC examiners meet with each large institution s management team on a quarterly basis to discuss the institution s progress towards meeting the OCC s Heightened expectations.


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