Banking Conditions, Regulatory Updates Discussed in New "ViewPoint"

June 28, 2019

By Michael Johnson, Executive Vice President
Supervision, Regulation & Credit
Federal Reserve Bank of Atlanta

It’s hard to believe that it’s been over a year since I last wrote to you! I am sincerely grateful to my colleague, Cynthia Goodwin, who took over while I was in Washington. My time at the Board of Governors as acting deputy director in Supervision and Regulation was very worthwhile. I arrived a week after the passage of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), and as a result, I saw firsthand the challenges associated with implementing legislation. However, we have made substantial progress— more to come on that later. As always, we begin with our regular feature, State of the District.

State of the District
The median return on average assets for Sixth District community banks improved from 1.06 percent in the first quarter of 2018 to 1.11 percent in the first quarter of 2019. Overall, 97 percent of banks were profitable, despite an uptick in the number of banks that experienced a decline in the net interest margin. Annualized asset growth for community banks in the District was 4.14 percent in the first quarter. With the exception of consumer loans, all loan categories continued to increase, though the pace is moderating. Overall asset quality remained strong. The median coverage ratio for community banks in the District has grown to 1.8 percent, surpassing the peak before the financial crisis. In the first quarter of 2019, Sixth District community banks had a median Tier 1 common capital ratio of 15.46 percent, the highest in four years. Sustained earnings growth and relatively low dividend payouts have contributed to high capital levels in the postcrisis period. Liquidity remains healthy for the District’s community and regional banks. The median loan-to-deposit ratio for banks remained stable at 84 percent in the first quarter. Looking ahead, community banks should be planning for implementation of the new current expected credit losses (CECL) methodology.

Regulatory update
The second quarter was very busy. Final rules, proposals, and reports were released to implement EGRRCPA, clarify supervisory expectations, and provide enhanced transparency.

  • Proposed rule for determining control of a banking organization: On April 23, the Board issued a proposal to simplify and increase the transparency of the rules used to determine control of a banking organization. The proposal would reduce complexity and burden for banking organizations and their investors, and provide clarity to other stakeholders.
  • New Interagency CECL FAQs: Also in April, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration issued an update to the interagency frequently asked questions on the CECL methodology via a new Supervision and Regulation letter (SR 19-8). The letter and its attachments include all of the FAQs issued to date. The agencies continue to emphasize the scalability of CECL to institutions of all sizes and the expectation that community institutions will not need to adopt complex modeling techniques to comply. Additional resources are available here.
  • The Federal Reserve Board’s semiannual Supervision and Regulation Report: On May 10, the Board released its semiannual Supervision and Regulation Report covering the Fed’s efforts to tailor supervision and regulation. The report also provides an overview of trends in the banking industry, regulatory policy work, and key supervisory priorities for large, regional, and community banks.
  • Comments on Community Reinvestment Act reform: On June 13, the Federal Reserve Board published “Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act,” a summary of feedback received from bankers and community groups during 29 roundtable discussions, hosted by the Board and Reserve Banks, on the Community Reinvestment Act (CRA). The Board will use the information to inform its consideration of efforts to modernize the CRA.
  • Final rule implementing reduced Call Report requirements for qualifying institutions: Also in June, the three federal bank regulatory agencies adopted a final rule to permit insured depository institutions with total assets of less than $5 billion, which do not engage in certain complex or international activities to file the most streamlined version of the Call Report, the FFIEC 051. In addition, the rule allows reduced reporting for the first and third quarters, decreasing the number of existing data items reported by approximately a third. The agencies are exploring additional revisions to the FFIEC 051 to further reduce the burden associated with reporting requirements.
  • Federal Reserve announces Bank Examination Tailored for Risk (BETR) program for State Member Banks with less than $100 billion in assets: Supervision and Regulation letter 19-09, Bank Exams Tailored to Risk (BETR), was issued on June 3, describing a key element in the Fed’s risk-focused supervision program for most community and regional state member banks (SMBs) with less than $100 billion in assets. BETR combines data-driven, forward-looking surveillance metrics with examiner judgment to classify the levels of risk at an SMB. Examination work programs have been developed for each risk to align examination staff resources and activities with a bank’s risk profile and minimize regulatory burden for the bank. We expect to provide even more transparency into the BETR program in the future.

As always, we welcome your comments or questions. Please share your feedback at Remember to check back here for the articles that will be published next quarter.

photo of Michael Johnson
Michael E. Johnson

Executive Vice President, Supervision, Regulation, & Credit
The Federal Reserve Bank of Atlanta