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Nutter Bank Report: October 2025
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- Federal Reserve Offers Clarity on Regulatory Capital Qualifying Mutual Capital Instruments
- OCC and FDIC Propose Rules Meant to Focus Supervision on Material Financial Risks
- Federal Financial Institution Regulators Clarify SAR Filing Requirements and Considerations
- OCC Permits National Bank to Hold Non-Asset Backed Virtual Currencies to Pay Gas Fees
- Other Developments: Fair Banking Executive Order and Automated Valuation Models
1. Federal Reserve Offers Clarity on Regulatory Capital Qualifying Mutual Capital Instruments
The Federal Reserve has issued guidance—including template term sheets—on the process for mutual banking organizations, such as mutual holding companies, to issue capital instruments that qualify as regulatory capital. The guidance as summarized in Supervision and Regulation Letter no. SR 25-5, released on October 22, is in the form of answers to frequently asked questions (FAQs) about Regulation Q (capital adequacy) and Regulation MM (reorganization of federal mutual savings associations into mutual holding companies). For example, the guidance explains that if a mutual holding company is authorized by applicable law to issue mutual capital certificates, and such mutual capital certificates satisfy the applicable additional tier 1 criteria under Section 217.20(c) of Regulation Q, it would be eligible to qualify as additional tier 1 capital. Those qualification standards include requirements that the capital instrument is subordinate to depositors, general creditors, and subordinated debt holders, and that the capital instrument is not secured or guaranteed and has no maturity date. Click to access Supervision and Regulation Letter no. SR 25-5.
Nutter Notes: The Federal Reserve’s template term sheets set out key terms for special instruments or capital certificates issued by mutual banking organizations that are necessary for qualification as common equity tier 1 capital or additional tier 1 capital under Section 217.20 of Regulation Q. It should be noted that the Federal Reserve’s guidance does not provide legal authority for a mutual holding company or other mutual banking organization to issue mutual capital certificates. Such authority must be granted by the law of the jurisdiction in which the mutual banking organization is organized. For example, a federal mutual holding company organized under the Home Owners' Loan Act is authorized to issue mutual capital certificates, provided that its charter conforms to the Mutual Holding Company Model Charter provided at Appendix A to Part 239 of Regulation MM. Currently, 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. OCC and FDIC Propose Rules Meant to Focus Supervision on Material Financial Risks
The OCC and FDIC have issued two joint notices of proposed rulemaking that are meant to focus supervision on material financial risks by codifying the elimination of reputation risk from their supervisory programs and establishing a uniform definition for the term “unsafe or unsound practice.” The proposed rule on reputation risk released on October 7 would prohibit examiners from criticizing or taking adverse action against a bank on the basis of reputation risk. The proposed rule would also prohibit examiners from requiring or encouraging a bank to close an account, to refrain from servicing, or modifying a product or service on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk. Comments on both proposed rules are due by December 29, 2025. Click to access the proposed rule on reputation risk. Click to access the proposed rule on unsafe or unsound practices.
Nutter Notes: The proposed rule on unsafe or unsound practices, also released on October 7, would define that term to mean a practice, act, or failure to act that: (1) is “contrary to generally accepted standards of prudent operation;” and (2) if continued, is likely to materially harm the financial condition of the bank or present a material risk of loss to the Deposit Insurance Fund, or otherwise has materially harmed the financial condition of the bank. The proposed rule also would revise the supervisory framework for the issuance of matters requiring attention (MRAs) and other supervisory communications. Under the proposed rule, an examiner would only be permitted to issue an MRA to address unsafe or unsound practices (as defined in the proposed rule), and violations of banking or banking-related laws or regulations. The proposed rule would clarify that examiners are not prohibited from communicating a suggestion or observation orally or in writing to enhance a bank’s policies, practices, condition, or operations, provided that “the communication is not, and is not treated by the [agency] in a manner similar to, a matter requiring attention.”
3. Federal Financial Institution Regulators Clarify SAR Filing Requirements and Considerations
The Financial Crimes Enforcement Network (FinCEN), jointly with the Federal Reserve, OCC, FDIC, and NCUA, have issued guidance in the form of answers to FAQs regarding Suspicious Activity Reports (SARs) and other anti-money laundering (AML) considerations for financial institutions covered by SAR rules. The guidance issued on October 10 clarify SAR/AML requirements address SAR filings for potential evasive transaction structuring-related activity, continuing activity reviews, timelines for continuing activity reviews, and documentation for decisions not to file a SAR. For example, the FAQs clarify that the mere presence of a transaction or series of transactions by or on behalf of the same person at or near the $10,000 currency transaction reporting (CTR) threshold is not information sufficient alone to require the filing of a SAR in the absence of knowledge, suspicion, or reason to suspect that the transactions are designed to evade CTR reporting requirements. Click to access the FAQs.
Nutter Notes: The FAQs also advise that financial institutions are not required to conduct a review of a customer or account after a SAR has been filed to determine whether suspicious activity has continued. Financial institutions instead may rely on their existing risk monitoring and reporting functions, provided those internal policies, procedures, and controls are reasonably designed to identify and report any suspicious activity. The FAQs clarify the timing expectations for subsequent reporting of continuing suspicious activity via a SAR after an initial SAR has been filed. The FAQs also clarify the regulatory requirements related to SARs to assist financial institutions with their compliance obligations in cases where law enforcement inquiries have been made or a customer has been the subject of negative public news media, among other subjects.
4. OCC Permits National Bank to Hold Non-Asset Backed Virtual Currencies to Pay Gas Fees
The OCC has granted a conditional approval for a national bank that for the first time permits a bank to hold non-asset backed virtual currencies on balance sheet to pay transaction fees (commonly referred to as “gas fees”) in connection with the national bank’s permissible crypto-asset custody services. The conditional approval was issued on October 15 for an application to charter a new national bank “that plans to target its products and services to technology companies and ultra-high-net-worth individuals that utilize virtual currencies.” The OCC concluded that holding “limited amounts of crypto-assets as principal to pay gas fees is convenient or useful to a bank’s permissible crypto-asset custody services,” and therefore permissible under the National Bank Act as incidental to the business of banking. Click for a copy of the OCC’s conditional approval.
Nutter Notes: So-called gas fees are transaction costs paid in a crypto asset (or a fractional share) to validators to execute operations on a blockchain network that requires validation, such as transferring cryptocurrency. Validators operate on the decentralized network of computers that perform the work of adding blocks of transactions to the blockchain. For blockchains that use crypto-mining to verify transactions on a blockchain, the gas fees are paid to the miners. Previously published OCC interpretations and guidance on permissible crypto-asset activities have involved national banks and savings associations engaged in custody and execution services, and not holding crypto-assets as principal. The OCC’s conditional approval noted that the newly chartered national bank projects that it would hold an average of $1 million in gas-fee-related virtual currencies on balance sheet during its first three years of operation. The conditional approval does not specify what quantitative limits, if any, apply to the bank’s authority to hold virtual currencies on balance sheet.
5. Other Developments: Fair Banking Executive Order and Automated Valuation Models
- SBA Publishes Template Response Letter for Fair Banking Executive Order
Earlier this month, the Small Business Administration (SBA) issued a clarification letter for community banks with less than $30 billion in total assets (as of June 30, 2025), by providing a form letter that may be used by qualified institutions in responding to the SBA’s prior letter requiring SBA lenders to cease and desist any politicized or unlawful debanking prohibited by Executive Order 14331, Guaranteeing Fair Banking for All Americans, reinstate any affected customers, and produce a report showing compliance with the Executive Order. In addition, during an interview at a Utah banking and fintech conference, Comptroller of the Currency Jonathan Gould indicated that the focus of the OCC’s enforcement of the Executive Order is large banking institutions, and would not be used in a way that forces smaller banks to begin offering bank accounts and services that they are not equipped to handle. Click to access the template response letter.
Nutter Notes: These initial actions from the SBA and OCC are the first indication that the enforcement of the Executive Order is not going to unfairly target small community banks, many of whom do not have the staffing, expertise, or capacity to offer all banking products and services to all customers. Banks should continue to monitor their policies for adherence to fair lending and other applicable laws that guarantee the right to fair banking. Earlier this month, Nutter banking attorneys presented a webinar in partnership with the Massachusetts Bankers Association covering compliance with the legal issues raised by the Executive Order. Please contact a member of our team to request a copy of the Nutter presentation.
- Quality Control Standards for Automated Valuation Models Rule Became Effective on October 1
The final interagency rule that is meant to ensure the credibility and integrity of automated valuation models (AVMs) used in valuing collateral for home mortgage loans became effective on October 1. The rule applies to AVMs used in decisions to originate, modify, terminate, or make other changes to home mortgage loans, and decisions about whether to extend new or additional credit or change the credit limit on a home equity line of credit. Click for a copy of the final rule and click for our initial coverage from 2024 when the rule was first announced.
Nutter Notes: Nutter attorneys will present more information and provide guidance on complying with the new AVM rule at the New Hampshire Bankers Association’s Fall Compliance Workshop on November 19; click to view more information about the workshop.
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:
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Michael K. Krebs Tel: (617) 439-2288 |
Matthew D. Hanaghan Tel: (617) 439-2583 |
Daniel W. Hartman |
Kate Henry khenry@nutter.com Tel: (617) 439-2304 |
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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.
