Trending publication
Nutter Bank Report: August 2026
Print PDFHeadlines
- OCC and FDIC Adopt Final Rule Refocusing Supervision on Material Financial Risks
- OCC and FDIC Propose Targeted CRA Amendments to Reduce Community Bank Burdens
- FDIC Issues Interim Final Rule Expanding the Reciprocal Deposits Exception
- FDIC Adopts New Two-Phase Review Process for Deposit Insurance Applications
- Other Developments: ECOA and Credit Risk Management
1. OCC and FDIC Adopt Final Rule Refocusing Supervision on Material Financial Risks
The OCC and the FDIC have jointly adopted a final rule that defines the term “unsafe or unsound practice” for purposes of section 8 of the Federal Deposit Insurance Act and revises the framework under which the agencies issue matters requiring attention (MRAs) and other supervisory communications. Under the final rule released on August 27, a practice, act, or failure to act is an unsafe or unsound practice only if it is “contrary to generally accepted standards of prudent operation” and, if continued, is “likely to materially harm the financial condition of the institution” or to “present a material risk of loss to the [Deposit Insurance Fund],” or if it “materially harmed the financial condition of the institution.” The final rule defines harm to financial condition as financial losses or other negative impacts to a bank’s capital, asset quality, earnings, liquidity, or sensitivity to market risk, which excludes reputational and other nonfinancial concerns. An agency may issue an MRA on a lower showing of probability, where the conduct “could reasonably be expected to, under current or reasonably foreseeable conditions,” cause that harm, or where there is an actual violation of a banking law or regulation. Weaknesses that do not meet the MRA standard may instead be communicated as informal “supervisory observations,” which require no corrective action, need not be presented to the board of directors, and may not be escalated to an MRA solely because a bank declines to adopt them. The final rule will become effective 60 days after publication in the Federal Register, which is expected shortly. Click for a copy of the final rule.
Nutter Notes: Under the final rule’s tailoring provision, the materiality threshold will be higher for a community bank than for a large or complex institution, and the agencies will assess harm to a community bank’s financial condition “less granularly,” considering the overall asset portfolio rather than a particular business line, product, or service. The agencies did not finalize the proposal’s application to institution-affiliated parties, so enforcement actions against directors, officers, and other individuals will continue to be governed by the agencies’ prior standards and controlling case law rather than the new definition. The FDIC announced in Financial Institution Letter no. FIL-54-2026 that it is ending its use of Matters Requiring Board Attention and Supervisory Recommendations, and that outstanding items in those categories will be reviewed and either redesignated as MRAs or closed out. The agencies also stated that they will issue MRAs for violations of law only for “substantive” violations, meaning those that are systemic or demonstrate a pattern, that have or could reasonably be expected to have a more than minimal adverse impact on the institution’s financial condition, books, and records or customers, that require more than minimal restitution, or that involve insider misconduct or self-dealing. Other violations may be cited and directed for remediation without an MRA, though they may still be considered in assigning ratings. The Federal Reserve did not join the final rule. Click to access the FDIC's Financial Institution Letter no. FIL-54-2026.
2. OCC and FDIC Propose Targeted CRA Amendments to Reduce Community Bank Burdens
The OCC and the FDIC have jointly proposed amendments to their Community Reinvestment Act (CRA) regulations that would raise the asset-size thresholds that determine how a bank’s CRA performance is evaluated and would relieve banks with $10 billion or less in total assets of certain CRA data collection, maintenance, and reporting requirements. The proposal issued on July 31 and published in the Federal Register on August 12 would leave much of the current framework in place, including evaluation under performance tests keyed to a bank’s asset size or business model. Under the proposal, a bank with less than $1 billion in total assets would be a “small bank” evaluated only under the small bank lending test, compared with the current $412 million threshold. The proposed rule would create a new “intermediate bank” category to replace the current “intermediate small bank” category that would apply to banks with $1 billion to $10 billion in assets, compared with the current range of $412 million to $1.649 billion. A “large bank” would be a bank with more than $10 billion in assets, up from $1.649 billion. The proposal also would base a bank’s retail lending evaluation only on its major product lines, narrow the service test to the range of credit services a bank offers by excluding deposit services, and limit CRA consideration for grants and donations to funds directly used by the recipient for a program, project, or initiative with a primary purpose of community development. Comments on the proposed rule are due by October 13, 2026. Click for a copy the proposed rule.
Nutter Notes: The proposed reclassification would be significant for community banks. Banks with between $412 million and $1 billion in assets would no longer be subject to a community development test, and banks with between $1.649 billion and $10 billion in assets would move out of the large bank lending, investment, and service tests and out of the data reporting regime. The proposal also would allow an intermediate bank to receive an overall rating of “satisfactory” based on its lending test rating alone, rather than requiring at least a satisfactory rating on both the lending test and the community development test. Two related developments bear watching. The OCC and the FDIC have asked the U.S. District Court for the Northern District of Texas, which enjoined the agencies’ 2023 CRA final rule before it took effect, to enter a final judgment against them declaring that future amendments to their CRA regulations may not rest on an expansive reading of “entire community” to reach retail lending outside the areas where a bank maintains deposit-taking facilities, or of “credit needs” to reach deposit products. If entered, that judgment would constrain the agencies’ CRA rulemaking well beyond this proposal. The Federal Reserve did not join the OCC and FDIC in the motion to the court or the proposed rule, so state member banks would continue to be evaluated under the existing rules unless the Federal Reserve acts on its own.
3. FDIC Issues Interim Final Rule Expanding the Reciprocal Deposits Exception
The FDIC has issued an interim final rule that implements Section 902 of the 21st Century ROAD to Housing Act (the Housing Act) by substantially increasing the amount of reciprocal deposits that a qualifying bank may exclude from treatment as brokered deposits. The interim final rule approved by the FDIC Board of Directors on August 27 replaces the “general cap” in the agency’s brokered deposit regulations, which limited the exception to the lesser of $5 billion or 20% of an agent institution’s total liabilities, with a “new tiered liability-based calculation, up to a maximum of $30 billion.” Under the tiered calculation, a bank may exclude an amount equal to 50% of the portion of the total liabilities of the agent institution that does not exceed $1 billion, 40% of the portion between $1 billion and $10 billion, and 30% of the portion above $10 billion. The interim final rule also amends the definition of “agent institution” to include “3-rated, well capitalized institutions,” which previously would not have qualified. In addition, the interim final rule clarifies that if an institution receives reciprocal deposits in excess of its “special cap” (established by Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act), then it is no longer an “agent institution,” and all of its reciprocal deposits must be reported as brokered deposits. The interim final rule will become effective when it is published in the Federal Register, which is expected shortly, and comments will be due within 30 days after publication. Click for a copy of the interim final rule.
Nutter Notes: Section 902 of the Housing Act became effective on July 11, 2026, so the expanded statutory caps have been available since that date, and the interim final rule conforms Part 337 of the FDIC’s regulations to the amended Section 29(i) of the Federal Deposit Insurance Act. The relief is significant for community banks because classification of a deposit as brokered affects deposit insurance assessment rates, supervisory analysis of a bank’s liquidity, and funding concentrations, and the restrictions that Section 29 imposes on a bank that is not well capitalized. The expanded caps give a community bank considerably more capacity to serve municipal, nonprofit, and commercial depositors that want full deposit insurance coverage through a deposit placement network without incurring brokered deposit treatment. The change to the “agent institution” definition is also consequential. The statute previously required a composite condition of “outstanding or good,” generally understood to mean a composite CAMELS rating of 1 or 2, so a bank that was downgraded to a composite 3 rating lost access to the exception even if it remained well capitalized. The FDIC has indicated that it will coordinate with the FFIEC to update Call Report instructions to reflect the new framework.
4. FDIC Adopts New Two-Phase Review Process for Deposit Insurance Applications
The FDIC has announced what it describes as new streamlined procedures for reviewing applications for federal deposit insurance that front-load the FDIC’s review and provide organizing groups with an earlier indication of the likely outcome. Under the two-phase process announced on August 10, the FDIC will provide a de novo applicant that satisfies the relevant requirements with a “contingent authorization” within 120 days of receipt of the application and then a final decision within the next 12 months, pending the receipt of additional information and completion of key organizational steps. The first phase focuses on the information the FDIC considers most relevant to its initial evaluation, including a comprehensive business plan and supporting financial projections, the proposed ownership and organizational structure, and a description of the planned capital raise. The second phase covers the organizational activities that follow contingent authorization, including raising capital, hiring management, and developing operational infrastructure, and the FDIC will affirm that all pre-opening conditions have been met when the organizers notify the agency that the institution is ready to open. The FDIC expects that applicants generally will be able to file concurrently with the FDIC and the appropriate chartering authority, whether the OCC or a state bank regulator, and the FDIC will coordinate with the chartering authority throughout the review. The revised procedures apply to all deposit insurance applications received after August 15, 2026. Click for a copy of the revised procedures.
Nutter Notes: The OCC issued a statement on August 11 commending the FDIC’s new deposit insurance application procedures, noting that the new process “aligns with the OCC’s efforts to reverse the decline in de novo chartering.” Comptroller of the Currency Jonathan Gould described de novo chartering as “a sign of a healthy banking system,” and the OCC reported that it has received 40 de novo applications over the past 18 months, that it has decided many charter applications within 120 days of receiving a complete application, and that a full-service national bank has received final approval and opened for the first time in five years. By comparison, the OCC received an average of fewer than four charter applications per year from 2011 through 2014. The FDIC noted that its revised procedures are generally consistent with the Housing Act, which directs the federal banking agencies to review and streamline the de novo application process. Organizing groups should bear in mind that the revised procedures change the sequence and timing of the FDIC’s review rather than the substantive standards, and that the FDIC must still evaluate an application against the statutory factors in Section 6 of the Federal Deposit Insurance Act. Because the first phase front-loads the business plan, financial projections, and capital plan, organizers will need those materials substantially complete before filing.
5. Other Developments: ECOA and Credit Risk Management
- Federal Agencies Rescind the 2022 Interagency Statement on Special Purpose Credit Programs
The FDIC, OCC, NCUA, CFPB, HUD, DOJ, and FHFA published a notice in the Federal Register on August 25 rescinding the “Interagency Statement on Special Purpose Credit Programs Under the Equal Credit Opportunity Act and Regulation B,” issued on February 22, 2022, which had encouraged creditors to offer special purpose credit programs to meet the credit needs of historically economically disadvantaged classes of persons. According to the notice, the agencies rescinded the interagency statement to make clear that creditors may not discriminate against borrowers based on prohibited characteristics and “should not rely upon the Interagency Statement or other related issuances going forward.” The rescission was effective immediately on publication. Click for a copy of the notice.
Nutter Notes: The agencies explained that the 2022 interagency statement referenced a provision of Regulation B that has since been amended by the CFPB, as well as an interpretation under HUD guidance that is no longer in effect. The Federal Reserve joined the 2022 interagency statement but did not join the rescission notice, having separately withdrawn its own Consumer Affairs Letter 22-2 on August 21, 2026. Banks that maintain a special purpose credit program should review the program for compliance with the amendments to Regulation B.
- Federal Reserve Issues Guidance on Lending to Individuals Not Legally Authorized to Work in the United States
The Federal Reserve has issued guidance reminding the banking organizations it supervises of their existing obligations with respect to credit risk management, particularly as those obligations relate to borrowers who are not legally authorized to work in the United States. The guidance issued on August 13 in Supervision and Regulation Letter 26-4 states that such lending “may present elevated credit risk because a borrower’s ability to generate income, maintain employment, and remain financially stable may be subject to greater uncertainty,” and it identifies underwriting considerations relating to the source of repayment, collateral, documentation and verification, and portfolio and concentration risk. The guidance states that it “does not amend, expand, or alter the [Federal Reserve’s] existing regulations.” Click for a copy of the guidance.
Nutter Notes: The Federal Reserve’s guidance closely parallels the guidance issued on July 13, 2026 by the OCC, FDIC, and NCUA. The Federal Reserve noted that a banking organization may face additional difficulty enforcing security interests because it may be harder to contact such borrowers or to locate and repossess unaffixed collateral, and that significant exposure to borrowers concentrated in particular geographic markets, employers, or industries could produce correlated credit deterioration rather than isolated borrower-level stress.
Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at Chambers.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Daniel W. Hartman and Heather F. Merton. The information in this publication is not legal advice. For further information, contact:
|
Matthew D. Hanaghan Tel: (617) 439-2583 |
Daniel W. Hartman |
Michael K. Krebs Tel: (617) 439-2288 |
Kate Henry |
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
