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Nutter Bank Report: July 2026
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- Federal Reserve Proposes Modernizing Regulations and Capital Rules for MHCs
- FDIC Encourages Banks to Participate in FinCEN’s AML Information Sharing Program
- Federal Banking Agencies Update Guidance to Reflect Changes to CBLR Framework
- Banking Agencies Announce Coordinated Approach to Handling Sensitive Exam Information
- Other Developments: Credit Risk Management and Insider Lending
1. Federal Reserve Proposes Modernizing Regulations and Capital Rules for MHCs
The Federal Reserve has released a proposal that would modernize the regulatory framework applicable to mutual holding companies (MHCs) and would amend the agency’s capital rule to clarify that certain mutual capital instruments may qualify as regulatory capital. According to the proposal issued on July 31, the amendments would add model term sheets for qualifying mutual capital certificates as appendices to the capital rule. The proposal also would amend Regulation MM, which governs mutual savings and loan holding companies, by eliminating certain dividend waiver requirements, reducing burdens associated with conversions from mutual-to-stock form, revising certain post-conversion restrictions, eliminating the requirement that subsidiary holding companies of MHCs obtain federal charters, and revising and clarifying other provisions of the regulation. Comments on the proposed rule will be due within 60 days after it is published in the Federal Register, which is expected shortly. Click for a copy of the proposed rule.
Nutter Notes: Among other changes, the proposed rule would amend the Federal Reserve’s capital rule to provide that, if an MHC is authorized by applicable law to issue mutual capital certificates, and such mutual capital certificates satisfy the applicable qualifying criteria, mutual capital certificates would be eligible to qualify as tier 1 capital. One of the model term sheets included in the proposal sets out key terms for mutual capital certificates to be eligible to qualify as common equity tier 1 capital, and the other sets out terms for qualification as additional tier 1 capital. Massachusetts mutual banks and mutual holding companies are not authorized to issue mutual capital certificates. Legislation would be required to amend Massachusetts law to authorize the instruments. State-chartered mutual holding companies that raise capital through either subordinated debt or mutual capital certificates can downstream the capital to their subsidiary banks as tier 1 capital for the bank, even though it only qualifies as tier 2 capital for the holding company.
2. FDIC Encourages Banks to Participate in FinCEN’s AML Information Sharing Program
The FDIC has issued guidance encouraging banks to voluntarily share information under Section 314(b) of the USA PATRIOT Act for purposes of identifying and reporting activities that may involve possible terrorist activity or money laundering. The guidance issued on July 9 in the FDIC’s Financial Institution Letter no. FIL-34-2026 refers to a fact sheet recently published by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that clarifies how banks can voluntarily share information by registering under FinCEN’s Section 314(b) program. FinCEN’s fact sheet highlights the ability of registered participants to share information in real time and provides examples of information that can be shared, including video surveillance footage, cyber-related data such as IP addresses, and fraud indicators. Section 314(b) provides a safe harbor that offers protections from liability for banks that share information with one another to improve the identification and reporting of activities that may involve money laundering or terrorist activities. Click to access FDIC’s Financial Institution Letter no. FIL-34-2026 and click to access FinCEN’s new Section 314(b) fact sheet.
Nutter Notes: The FDIC’s guidance points out that participating institutions may share information relating to activities that may involve suspected illicit activity under FinCEN’s Section 314(b) program even if such activities are merely an attempt to engage in a transaction. Information can also be shared with other program participants even if the sharing bank has no reason to believe that the information relates to any specific customer, account, or transaction of the bank receiving the information according to the FDIC’s guidance. The FDIC pointed out that the sharing and receiving parties each must maintain adequate procedures to protect the information’s security and confidentiality. In a related development, the Federal Reserve on July 7 released a proposal to amend its requirements for banks to maintain anti-money laundering programs that is intended to align with changes to anti-money laundering program requirements separately proposed by FinCEN and corresponding changes proposed by the OCC, FDIC, and NCUA on April 10, 2026.
3. Federal Banking Agencies Update Guidance to Reflect Changes to CBLR Framework
The federal banking agencies have jointly issued an updated community bank leverage ratio (CBLR) framework compliance guide that reflects the changes made to the CBLR framework in a final rule released by the agencies in April 2026. Specifically, the updated compliance guide published on July 30 addresses the lowering of the tier 1 leverage ratio requirement from 9% to 8%, which allows more community banks to qualify for the CBLR framework. The updated compliance guide also points out that the grace period which begins as of the end of the calendar quarter in which an electing bank ceases to satisfy any of the CBLR qualifying criteria has been extended from two quarters to four quarters to provide additional time for community banks to either satisfy the criteria under the CBLR framework or to achieve compliance with risk-based capital requirements. The compliance guide explains that the extended grace period is subject to a limit of eight quarters during the previous five-year period. Click for a copy of the updated CBLR compliance guide.
Nutter Notes: The CBLR framework implements section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which requires the agencies to establish a CBLR requirement of not less than 8% and not more than 10% for qualifying community banking organizations. That section of the EGRRCPA provides that a qualifying community banking organization that exceeds the CBLR requirement will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules, among other benefits. In 2019, the agencies originally established a CBLR requirement of greater than 9% for banks and bank holding companies that have less than $10 billion in total consolidated assets, which was lowered to 8% by the April 2026 final rule. Other qualifying criteria for the CBLR framework include off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and trading liabilities of 5% or less of total consolidated assets, each as of the end of the most recent calendar year.
4. Banking Agencies Announce Coordinated Approach to Handling Sensitive Exam Information
The federal banking agencies have issued a joint statement explaining supervisory expectations for enhanced security procedures to be used for handling highly sensitive information in connection with bank examinations. According to the joint statement released on July 16, the agencies will rely on bank management to identify data and documents requested for an examination that management believes should be considered highly sensitive information. The requesting agency will then evaluate whether additional protocols should be invoked in the review of that information during examinations. The joint statement describes a range of potential options the agencies will consider to minimize collection and storage of highly sensitive information, including on-site review, direct digital review from the systems of the bank, redacted or summarized versions of documents, and additional measures related to transmission of, and access to, sensitive information. The joint statement directs banks that have information they believe could be highly sensitive in nature to discuss their concerns with their examiners or primary agency contact. Click for a copy of the joint statement.
Nutter Notes: According to the joint statement, the federal banking agencies plan to provide their examiners with written guidance and training on the new approaches to handling highly sensitive information. Examiners will notify banks at the beginning of examination activities that bank management may identify to examiners any information that bank management considers highly sensitive. The joint statement explains that examiners will also be expected to notify banks of the specific processes through which they may escalate any concerns to their primary federal regulator regarding examiner determinations of how to appropriately identify and handle highly sensitive information. Additionally, the agencies have committed under the joint statement to notify affected banks of a data security breach involving confidential supervisory information as soon as practicable and within no more than 72 hours after the impacted agency has a reasonable basis to believe a security breach has occurred and determines the banks affected, subject to applicable legal considerations.
5. Other Developments: Credit Risk Management and Insider Lending
- Federal Agencies Issue Guidance on Lending to Individuals Not Legally Authorized to Work in the United States
The OCC, FDIC, and NCUA issued guidance on July 13 to remind supervised depository institutions of their existing obligations with respect to credit risk management, particularly as it relates to borrowers who are not legally authorized to work in the United States. According to the guidance, lending to individuals who are not legally authorized to work in the United States 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. Click for a copy of the guidance.
Nutter Notes: The guidance also advises supervised depository institutions to consider guidance issued on June 8, 2026, by the CFPB, which noted the obligations of creditors under the Truth in Lending Act and the Equal Credit Opportunity Act as they relate to non-work authorized borrowers. Click for a copy of the CFPB’s guidance.
- Federal Reserve Issues Proposed Amendments to Insider Lending Rules
The Federal Reserve on July 31 requested comment on a proposal to modernize its Regulation O governing the extension of credit to bank “insiders”—bank executives, board members, and major shareholders who could potentially influence a bank’s lending decisions. The proposed amendments would update dollar-based thresholds and index them to economic growth going forward. Comments on the proposed rule will be due within 60 days after it is published in the Federal Register, which is expected shortly.
Nutter Notes: The proposed amendments also would address unnecessary applications of the Regulation O restrictions to passive interests in companies held by investment funds, codify other statutory requirements, incorporate long-standing regulatory interpretations, and simplify the application of the rule. Click for a copy of the proposed rule.
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 Heather F. Merton. The information in this publication is not legal advice. For further information, contact:
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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.
