Financial Institutions

Wednesday, 13 July 2016

Incentive-based compensation in focus for regulators

Written by Rehmann Team

Federal regulators released a preliminary second proposal detailing a tiered approach for institution executives' incentive-based compensation. This was done in an effort to discourage actions that may present immediate opportunities to earn incentives but open up the institution to potential material losses in the future. This has been a hot-button issue with regulators since the financial crisis when, some argue, executives and others received incentives to take excessive risks in pursuit of greater personal rewards without adequate consideration or oversight of potential pitfalls. The proposal, which does not require disclosure of compensation that is not incentive based, would be dependent on asset level (institutions with less than $1 billion in assets would be exempt)...

Out of necessity and in an effort to control costs while remaining compliant, financial institutions rely on third-party vendors for expertise and efficiency. When managed appropriately, such relationships — especially “significant” third-party relationships — can enhance competitiveness, diversify systems and strengthen safety and soundness. Effective management is so important because the responsibility for third-party activities, successes and failures ultimately rests with the institution and its leadership...

Monday, 04 April 2016

CECL debate heats up

Written by Rehmann Team

Financial Accounting Standards Board (FASB) board member Larry Smith chaired a February 2016 public meeting for financial institutions and other interested parties to express concerns about the proposed Current Expected Credit Loss (CECL) standard, such as administrative burdens of compliance, increased auditing costs, unrealistic modeling expectations and the potential impact on loan loss provision requirements. Smith opened the meeting by noting that CECL was conceived to address concerns that the incurred loss model failed to consider forward-looking information. He said that in 2005, long before the financial crisis, 10 to 15 employees from mid-sized financial institutions met with FASB because they knew loan loss provisions were too low, yet there was no accounting method allowing them to increase reserves. They wanted to use expectations to determine loan loss reserves and avoid writing loans they knew might go bad even though such loans didn’t show typical loan failure characteristics...

Monday, 04 April 2016

Longer exam cycle announced for smaller institutions

Written by Rehmann Team

The Federal Deposit Insurance Corporation (FDIC) and other federal regulatory agencies jointly adopted interim final rules to implement Section 83001 of the Fixing America's Surface Transportation Act (FAST Act). Depository institutions that meet the following criteria will qualify for an 18-month on-site exam cycle instead of a 12-month cycle: $1 billion or less in total assets, up from $500 million or less CAMELS composite rating of “1” or”2” Well capitalized, well managed with no change in control during the previous 12-month period Not subject to a formal enforcement proceeding or order The implementation of these rules — which will put approximately 600 more institutions and savings associations on the 18-month cycle, for a total of about 5,000 institutions — allows the agencies to focus resources on institutions with capital, management or other supervisory concerns. It also reduces compliance burdens and costs on small, well-capitalized and well-managed financial institutions while maintaining safety and soundness protections. The new rules are applauded by community banks that will be able to direct more resources toward serving their local communities...

Monday, 04 April 2016

Is FDICIA going to impact your financial institution?

Written by Rehmann Team

Is the FDICIA going to impact your financial institution? If your financial institution will surpass $500 million in consolidated assets, the answer is YES. Passed in 1991 at the height of the savings and loan crisis, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) fortified the FDIC's role and resources in protecting consumers by, among other provisions, revamping FDIC auditing and evaluation standards to help with early identification of problem institutions. Today, most institutions expect growth in overall assets through acquisition and in lending as customers’ economic situations improve...

Monday, 04 April 2016

Mortgage originations continue strong pace

Written by Rehmann Team

Implementation of the TILA-RESPA Final Rule and Amendments on October 3, 2015, does not seem to have significantly impacted the pace of mortgage originations in late 2015. Some anticipated that new disclosure requirements would place additional burdens on their employees and processes and lead to a slowdown in originations. However, if they were prepared with up–to-date systems and forms and trained staff, they may have easily transitioned into the new process. On the consumer side, the new Consumer Financial Protection Bureau (CFPB) requirement may be empowering consumers to pursue home ownership and refinancing opportunities because they have increased confidence in understanding their loan terms and obligations...

Monday, 04 April 2016

Apple encryption issue may have far-reaching impacts

Written by Rehmann Team

The U.S. government has been trying to force Apple to help the FBI unlock an iPhone used by one of the people involved in the San Bernardino terrorist attack last year. The lawsuit took a surprising twist at the end of March, when a hearing slated for federal court in the Central District of California was postponed at the government’s request...

Monday, 25 January 2016

Loosening terms underscore importance of thorough loan review

Written by Rehmann Team

Financial institutions' hard work following the financial crisis has paid off with improved credit. Based on the FDIC Quarterly Banking Profile for 3Q 2015: Community banks (93 percent of all insured institutions) reported a 7.5 percent increase in net income (compared to 5.1 percent for all FDIC insured institutions) over the prior year due to improved net interest income and noninterest income and lower loan-loss provisions 5...

Monday, 25 January 2016

Updated FFIEC booklet focuses on ITRM

Written by Rehmann Team

The FFIEC recently released an updated booklet in its Examination Handbook Series. The new "Management" booklet replaces the June 2004 version and explains how risk management is a component of governance and how IT Risk Management (ITRM) is a component of risk management. Financial institutions would be well-served to review the new booklet because examiners use booklet guidance to measure how well executive management understands, at a high level, IT risks faced by the institution, as well as the adequacy of ITRM processes.Some key points of guidance for financial institution leadership to consider include: IT supports most aspects of an institution's business, so ITRM should go beyond technology to include back-office operations for lines of business, network administration, systems development and acquisition, business continuity and resilience, and third-party management ITRM not only contains costs and controls operational and cybersecurity risks, it also supports business strategies for sustained success IT systems connect with affiliates, customers, third party providers and the public through interdependent infrastructure, applications, and Web content...

Monday, 25 January 2016

FASB to release CECL standards update later this year

Written by Rehmann Team

While the FASB keeps reviewing CECL (current expected credit loss) standards, financial institutions will have to wait a little longer for the final Accounting Standards Update (ASU). The FASB recently pushed the release date back again, to the end of the first half of 2016. Russell G. Golden , FASB Chair, noted in a December 2015 presentation, “The credit crisis of 2008 underscored the need for a more forward-looking model—one that gives preparers the opportunity to recognize losses that exist in the loan portfolio, and recognize them up front...

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