296

The Meeting of the Advisory Committee on Community Banking

of the

Federal Deposit Insurance Corporation

Held in the William Seidman Center

Federal Deposit Insurance Corporation Building

Arlington, Virginia

Open to Public Observation

November 20,2014 - 9:00 A.M.

The meeting ofthe FDIC Advisory Committee on Community Banking ("Committee")

was called to order by Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation

("FDIC") Board of Directors.

The members of the Committee present at the meeting were: Robert F. Baronner, Jr.,

President and Chief Executive Officer ("CEO"), Bank of Charles Town, Charles Town, West

Virginia; Cynthia L. Blankenship, Vice Chairman and Chief Operating Officer, Bank of the

West, Grapevine, Texas; Pedro A. Bryant, President and CEO, Metro Bank, Louisville,

Kentucky; Leonel Castillo, President and CEO, American Bank of Commerce, Provo, Utah;

Jane Haskin, President and CEO, First Bethany Bank & Trust, Bethany, Oklahoma; James

Lundy, Chief Executive Officer, Western Alliance Bank, Phoenix, Arizona; Kim D. Saunders,

former President, CEO and Director, Mechanics & Farmers Bank, Durham, North Carolina;

Dorothy A. Savarese, President and CEO, Cape Cod Five Cents Savings Bank, Orleans,

Massachusetts; and David Seleski, President, CEO and Director, Stonegate Bank, Fort

Lauderdale, Florida;

Carolyn "Betsy" Flynn, President and CEO, Community Financial Services Bank,

Benton, Kentucky, Mark Hesser, President, Pinnacle Bank, Lincoln, Nebraska, Joseph G. Pierce,

President and CEO, Farmers State Bank, Lagrange, Indiana, Mark Stevenson, President and

CEO, Capital Pacific Bank, Portland, Oregon, Alan Thian, President and CEO, Royal Business

Bank, Los Angeles, California, and Derek Williams, President and CEO, Columbus Community

Bank, Columbus, Georgia were absent from the meeting.

Members of the FDIC Board of Directors present at the meeting were: Martin J.

Gruenberg, Chairman, and Jeremiah O. Norton, Director (Appointive).

Corporation staff who attended the meeting included: Willa M. Allen, Ruth R. Amberg,

Eric C. Breitenstein, Richard A. Brown, Robert L. Bums, Patricia A. Colohan, Kymberly K.

Copa, Charles W. Collier, Carolyn D. Curran, Christine M. Davis, Patricia B. Devoti, Doreen R.

November 20,2014
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Eberley, Diane Ellis, Shannon N. Greco, Barbara Hagenbaugh, Leon Hartley, Debra L. 

Hendricks, Lauren S. Hertz, Penny B. King, Christopher Lucas, Rose McDermott, Roberta K. 

McInerney, Jonathan N. Miller, Rae-Ann Miller, Christopher J. Newbury, Thomas E. Nixon, 

Elizabeth Ortiz, Richard J. Osterman, Mark E. Pearce, Marlene M. Roberts, Claude A. Rollin, 

Barbara A. Ryan, Donald R. Saxinger, Robert F. Storch, Ann Johnson Taylor, Ross Waldrop, 

James C. Watkins, and James Yagley.

William A. Rowe, III, Deputy to the Chief of Staff and Liaison to the FDIC, Office of the 

Comptroller of the Currency (“OCC”) was also present at the meeting. 

Chairman Gruenberg welcomed the Committee and provided an overview of the day’s 

agenda. He noted that there would be discussions of: the FDIC’s community bank initiatives, 

including technical assistance videos; a discussion of recent FDIC research on branch banking; 

an FDIC review of regulations for burden reduction and ways in which the Call Report could be 

streamlined; initiatives relating to cybersecurity; and new supervisory guidance and rulemakings. 

Chairman Gruenberg also expressed appreciation to six members for whom this would be their 

last Committee meeting: Robert Baronner, Dorothy Savarese, Kim Saunders, Joseph Pierce, 

Elizabeth Flynn and Alan Thian. He introduced Chief of Staff Barbara Ryan, who moderated the 

day’s proceedings. 

Ms. Ryan introduced the first panel, “Update on Community Bank Initiatives” and the 

speakers: Doreen Eberley, Director, Division of Risk Management Supervision (“RMS”); Mark 

Pearce, Director, Division of Depositor and Consumer Protection (“DCP”); Diane Ellis, Director, 

Division of Insurance and Research (“DIR”); and Richard Brown, Chief Economist. Ms. 

Eberley began by discussing the FDIC technical assistance video program which has had about 

130,000 views in its 18 months of existence. She said that the most popular videos in the 

Directors’ College were interest rate risk and Bank Secrecy Act, while the most popular 

technical assistance videos were interest rate risk and flood insurance. Ms. Eberley said that a 

video on lender management would be released in early 2015. She also described a two-part 

survey the FDIC developed to get feedback about the video technical assistance program. The 

first part would ask a bank representative to indicate: if the bank was aware of the video 

program; how it learned about it; whether any staff had watched videos; whether the topics were 

useful; and what topics would be helpful to the institution. Ms. Eberley said that the second part 

of the survey would be directed to anyone who watched a video and ask them specific questions 

about what they had seen, including whether the video was helpful and, if the video was not 

helpful, why that was so. She said that the FDIC intended to send the survey to about 200 

institutions in each of three asset size categories. 

Mr. Pearce discussed various FDIC initiatives to assist community banks to understand 

and comply with changes to the mortgage rules. First and primarily, he said, the FDIC provides 

teleconferences to familiarize bankers with the new rules and help them adjust their systems to 

them; he said that a recent teleconference on frequently asked questions had over 1,000 banks 

call in. Mr. Pearce also discussed three recent technical assistance videos targeted to the use of 

bank compliance officers: the ability to repay rule/qualified mortgages; the mortgage servicing 

rule; and the mortgage loan originator compensation rule. He said that the videos try to help 

community bankers on two levels: first by providing insights into the substance of each rule; 
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and, second by concentrating on the parts of the rules most likely to affect community banks. 

Mr. Pearce provided examples of the community bank focus from each of the three videos and 

then played a brief sample of the ability to repay/qualified mortgage video for the Committee. 

He added that two more videos were in production and would likely be released by early 2015. 

Member Castillo asked if DCP’s examinations had identified any impacts of the new 

mortgage rules. Mr. Pearce said that the FDIC monitored the issue closely and that examiners 

were talking with institutions about how they were adjusting their systems to comply, but noted 

that it was too early to tell what the cumulative impacts of the rule would be. He said that early 

anecdotal reports indicated that banks were not making significant shifts in their product 

offerings or their engagement in the mortgage market as a result of the rules. Member Bryant 

said that the small entity compliance guide would be helpful to the many small banks in 

Kentucky. 

Ms. Ellis discussed community banking research the FDIC published in 2014, including: 

trends in bank consolidation; trends in banking and population in rural areas; performance and 

condition of minority depository institutions; and, most recently, branch banking. She said that 

the DIR intended to continue a robust research program and welcomed suggestions about useful 

subjects to pursue. Mr. Brown then discussed recent research about branch banking in the U.S., 

referring to a handout titled “Branch Banking in the U.S.: Long-Term Trends and Recent 

Developments.” He noted that there were about 95,000 retail banking offices in the U.S. in June 

2014; about 7 percent are headquarters offices and the rest are branch offices. Mr. Brown said 

that he would discuss four structural trends that the research identified and factors that have 

contributed to those trends. He observed that technology is an important underlying factor; 

technology has created alternatives to doing transactions in person, thus raising the question 

whether technology is a substitute or a complement to physical banking offices.

The first trend Mr. Brown discussed was the long term growth in the number of banking 

offices. He observed that since 1970, there was a more than 100 percent increase in the number 

of banking offices, while there was a 56 percent increase in the population. Mr. Brown noted 

that the increase in offices occurred in the same period as technological innovations, such as 

ATMs, were introduced and became common. The second trend Mr. Brown discussed was the 

cyclicality in the number of offices in the last 30 years. He noted the cycles were related to 

banking crises rather than business cycles. Mr. Brown said the health of the banking industry 

was a factor that governed the number of offices, as well as liquidity and loan demand.

The third trend Mr. Brown discussed was the geographic differences in the growth in the 

number of offices. Referring to a map showing 37 states with increases in the number of banking 

offices and 13 with decreases, he made observations about the causes of the declines in New 

England and the upper Midwest. Mr. Brown said the relaxation of geographic restrictions on 

banking in the 1980s and early 1990s was an important factor affecting the number of offices. In 

places where there had been laws imposing geographic restrictions on banking, there was often 

above average growth in the number of offices after the restrictions were lifted. A fourth trend 

Mr. Brown said was that consolidation has moved banking offices into larger institutional 

networks. In this regard, he noted that before 1994, very few banking offices operated within 

very large (1,000 office or more) networks, but that had changed so that almost one-third of total 
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banking offices are part of just 11 institutions with networks of 1,000 offices or more. Mr. 

Brown indicated that large banks, in particular, increased the size of their office networks 

following the relaxation of geographic restrictions after 1994.

Mr. Brown then discussed the density of banking offices. He said that the peak occurred 

in 1987-1989 with 3.4 offices per 10,000 persons, but noted that the current 2.9 offices per 

10,000 people was higher than at any time prior to 1977. Mr. Brown discussed the question of 

how many banking offices are required to reach a certain number of customers. He noted that 

the average number of teller transactions per branch declined by 45 percent since 1992 and that 

more than 50 percent of adults banked online as of 2013, but noted that, at the same time, tellers 

remain the most common way households interacted with their institution. Mr. Brown also 

observed that demographic factors influenced branch usage; younger persons tended to use 

branches less often than older persons. However, he observed that office density had increased 

about one-third in the same period since ATMs were introduced, thus indicating that physical 

banking offices remain important.

Mr. Brown made additional observations about banking office density over time. He 

noted that density increased since 1987 in states that were previously unit banking states, but 

declined at twice the national average in states that already had statewide branching in 1979. He 

also observed that the research indicated that office density tended to be stable within geographic 

regions; places that had high (or low) office density in 1987 tended to remain that way. Mr. 

Brown noted that rural counties tended to have the highest density of offices, while metropolitan 

areas have the least density, with micropolitan areas being in between. He observed, however, 

that 50 percent of rural counties lost population since 1980 and noted that this movement of 

people to more densely populated places is a factor governing overall banking office density.

Mr. Brown indicated that the number of community bank offices remained relatively 

stable since the mid-1990s, while non-community banks added offices. He noted that, since the 

1994 low point for the total number of banking offices, the number of community bank offices 

declined about 6.5 percent, while the number of community bank charters declined by 44 

percent. In the same period, he said, non-community banks amassed much larger numbers of 

offices, increasing them by 36 percent while the number of their charters decreased by 71 

percent. Mr. Brown indicated that non-community banks have assembled offices, often through 

mergers, and moved into fast growing areas. He said there are over 1,200 U.S. counties (more 

than one-third of all counties) in which community banks hold 75 percent or more of the total 

deposits; the population of those counties is about seven percent of the U.S. population. By 

comparison, counties where non-community banks hold 75 percent or more of the deposits have 

62 percent of the U.S. population.

Mr. Brown observed that FDIC insured institutions had opened and closed thousands of 

banking offices since 2008; between 2008 and 2014, more than 10,000 were opened and more 

than 13,000 closed. He said an important result was that there was a net transfer of offices from 

community banks to non-community banks; specifically, in that period, community bank offices 

declined by almost 9 percent while the non-community bank offices declined by almost 2 

percent. Mr. Brown noted, however, that community banks had opened more offices than they 

had closed in the 2008-2014 period; the net change in number of community bank offices, he 
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explained, was due to large community banks being acquired or growing out of community bank 

status. Mr. Brown said that community banks are a relative source of stability in terms of the 

number of banking offices and that branch banking is still very important to the community 

banking business model. 

Member Savarese thanked the FDIC for its research and discussed the interaction of 

technological change, the number of branches, and how customers use them. She said that 

remote deposit capture using mobile methodologies, for example, is a transformative 

technology. Member Savarese recommended that the FDIC continue to probe whether the 

changes it identifies are cyclical or secular; she indicated that she was skeptical that the changes 

were merely cyclical, her hypothesis was that more secular change was occurring. Mr. Brown 

agreed that those are important questions. He observed that the evidence to the present time 

indicated that technology had not yet replaced customers’ preference for providers who have 

physical offices staffed with people who can provide reassurance when there are technological 

problems. Mr. Pearce said that recent survey data supported the view that technology and 

physical bank branches had a complementary relationship. Specifically, he said, survey data 

indicated that, even among people whose primary strategy for dealing with a financial institution 

is online or mobile, 70 percent of those people also visited a bank branch in the last 12 months.

Member Savarese cautioned against making assumptions that people will always prefer the 

security of face-to-face interaction or dealing with FDIC insured institutions. She noted that her 

interactions with persons in their 20’s indicated that they did not place high value on the security 

of their financial transactions. Member Blankenship agreed that the millennial generation did 

not greatly value security or physical banking offices. She suggested that more research into 

millenials’ views would be helpful because they would have a big impact on how the financial 

system is accessed and on branch structure. 

Member Castillo asked if the FDIC had additional information about the actual 

transactional activity at branches and if it was changing significantly. He observed that some 

financial institutions, such as Ally, had a non-brick-and-mortar strategy. Member Castillo also 

inquired about the impact of credit unions on the number of branches. Mr. Brown said that there 

had been tremendous growth in the credit union industry over a long period and that it was 

something that the FDIC would continue to monitor. Regarding teller transactions, he said that 

some external studies indicated that the number of teller transactions had declined by about 45 

percent since 1992. Mr. Brown said that there is somewhat of a conundrum at the present, there 

are still many physical locations, but many transactions are occurring through other venues; he 

noted that about 92 percent of business checks had been electronically imaged in the last year, 

thus showing a huge amount of electronic delivery of some financial services. Member Saunders 

said that her institution had established a student advisory board of high school and college 

students and found that their banking perspectives were significantly different than older 

persons'. However, she said that the students indicated that branches were still important to them 

for the personal, familiar experience that they provided and because the students wanted a person 

to talk with if they experienced a problem. Member Saunders indicated that her view was that 

there would continue to be a need for brick-and-mortar locations.

Member Blankenship inquired if the FDIC’s data indicated why branches remained 

relevant to the people who used them. Because of the evidence of the number of transactions 
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decreasing, she suggested that some branches may be just loan offices; she observed that loan 

customers would continue to need and want to come to a physical location. Mr. Brown said that 

the FDIC’s information is primarily focused on the deposit side, the FDIC can look at how big 

offices are and how many deposits they control; the FDIC does not have similar information 

about the lending side. In response to a question from Member Lundy about limited branching 

in grocery stores, Mr. Brown said that there had been growth in those in the 1990’s followed by a 

plateau in the numbers.

Member Lundy referred to the map of U.S. counties showing where community or noncommunity banks controlled 75 percent or more of the deposits and suggested that the FDIC 

share it with the Consumer Financial Protection Bureau (“CFPB”) as it deals with defining rural 

areas for the purpose of the Qualified Mortgage (“QM”) rule. He indicated that the map helped 

illustrate that a rural area can be relatively close to a metropolitan area. Mr. Pearce noted that the 

CFPB had indicated that it was continuing to review the definition of rural and that the FDIC 

would continue to share its perspective on where community banks are and the rural aspect of 

some of them. Referring to the same map, Member Haskin asked about the deposits per branch 

in the larger banks compared to community banks as an indicator of branch viability. She 

indicated that this information might indicate how viable a branch was going forward; a branch 

that has lots of deposits and loan activity would be more viable than one that did not.

Member Castillo inquired if the FDIC had seen any indication of banks using their 

branches differently as the number of transactions went down. He noted that his bank’s deposits 

had doubled, but its staff had decreased approximately 30 percent; he said that his bank was 

exploring different uses for its building to take advantage of its asset in a new way. Mr. Brown 

agreed that community banks are looking for ways to generate non-interest income, but that the 

FDIC did not have much data available on the subject. Member Baronner observed that banks 

may need fewer employees to do tasks such as cashing checks, but that they might keep their 

branches and have employees with higher skill levels who can respond to developing customer 

needs. 

Chairman Gruenberg complimented the research and said that, like any good research, it 

raised many questions. He said that, before becoming aware of the research results, his 

expectation would have been that technology and online avenues would have had a more 

dramatic impact on the number of banking offices and a significant reduction in branch bank 

utilization. Instead, the Chairman observed, the large majority of people with a banking 

relationship in the U.S. still utilize bank branches in addition to online access, and the number of 

banking offices has remained relatively stable. He added that qualitative questions remain, such 

as the intensity of branch usage by bank customers, what branches are being used for, and the 

interaction between online and physical access to the system.

In response to Chairman Gruenberg’s invitation, several members provided additional 

comments on the panel’s subject. Member Savarese agreed with Chairman Gruenberg’s 

observations and also noted that a difficulty facing community banks is that brick-and-mortar 

decisions play out over extended time periods. She also noted that what is typically thought of as 

a “banking” transaction might be actually migrating to other systems not controlled by banks, 

such as PayPal. Member Lundy discussed a situation where his bank, which had previously 
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stopped mortgage lending, chose to make a first mortgage as part of a commercial loan. He 

indicated that the CFPB had specifically chosen to include the bank’s situation in its rule’s 

coverage and that compliance with the rule was burdensome because it had to be done for a rare 

situation rather than part of its ongoing business model. Member Lundy said that the situation 

appeared to be an example of unintended consequences. Mr. Pearce said, as the QM rule had 

gone into effect, DCP was receiving more questions from bankers about the application of the 

rule to unusual situations. He indicated that examiners needed to be conscious of these unusual

situations so that they could provide the correct guidance. Member Blankenship said that the 

technical assistance videos on the mortgage rules were very effective and that she intended to 

make sure that all her branch staff reviewed them. Mr. Pearce said that the FDIC appreciated the 

feedback on what bankers found useful. Member Lundy suggested that an effective way to let 

banks know about the videos would be to routinely discuss them at the opening meeting of 

examinations. He observed that a bank’s executive management attend those meetings, as do 

many directors, and that the information communicated in the meeting is taken very seriously.

For the second panel, “Update on FDIC’s Regulatory Review under the Economic 

Growth and Paperwork Reduction Act (“EGRPRA”), Ms. Ryan introduced Roberta McInerney, 

Deputy General Counsel, Ruth Amberg, Assistant General Counsel, and James Watkins, Senior 

Deputy Director, RMS. Ms. McInerney provided an overview of the EGRPRA review process 

which requires the FDIC, OCC and the Federal Reserve Board to conduct a review of their 

regulations every ten years to identify any that are outdated or unnecessary; she noted that the 

first EGRPRA review was completed in 2006 so that the second one would be completed in 

2016. She observed that EGRPRA requires the agencies to categorize their regulations by type, 

and then publish one or more categories for comment at regular intervals requesting the public to 

identify those that are outdated, unnecessary or unduly burdensome. Ms. McInerney said that 

the agencies coordinated their effort and would publish 12 categories of regulations in four 

separate Federal Register notices. The first notice (concerning the categories of: applications 

and reporting; powers and activities; and, international operations) was published in June 2014 

and closed for comment on September 2, she said, and 40 comment letters were received.

Ms. McInerney said the banking agencies were seeking direct banker input through at 

least five outreach sessions that would be held around the country over the next 12 months. At 

the meetings, there would be panels of banking groups moderated by an agency representative 

and audience members would have the opportunity to ask questions and make comments. The 

first meeting would be in Los Angeles on December 12, she said, and would be attended by 

Chairman Gruenberg and Comptroller Curry. Ms. McInerney said that spaces were still 

available for the Los Angeles meeting which would also be livestreamed so that non-attendees 

could listen to the discussion. Later meetings would be held in Dallas, Boston, Chicago and 

Washington, D.C., she noted. 

Ms. McInerney said that, at the conclusion of the comment periods for all the categories 

of regulations, the agencies’ staffs would summarize the comments, including those from the 

outreach sessions, and publish the summary together with the agencies’ response to significant 

issues raised. The agencies would then report to Congress about the significant issues raised, 

their relative merits and whether the agencies can make responsive changes to regulations or 

whether additional legislation would be required. 
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Mr. Watkins then spoke about two financial institution letters (“FIL”) that the FDIC 

issued; the first FIL is titled “Guidance Related to the FDIC Statement of Policy on Applications 

for Deposit Insurance” (FIL 56-2014). Mr. Watkins said that the FDIC’s primary sources of 

guidance on deposit insurance applications are contained in the FDIC’s rules and regulations and 

the Statement of Policy on Applications for Deposit Insurance. The new FIL was developed to 

further aid applicants in developing proposals for new banks, he said, and was prompted, in part, 

because of comments received in the EGRPRA review process. The FIL addresses four issues in 

the form of Questions and Answers. The first topic is pre-filing meetings. Mr. Watkins said the 

FIL reinforces the point that pre-filing meetings coordinated with the FDIC Regional Office are 

strongly encouraged and should be attended by individuals with the greatest knowledge of the 

significant aspects of a proposal. The FIL’s second topic is FDIC processing timeline, he noted, 

which is usually done four to six months after an application is considered substantially 

complete. The third topic is initial capitalization, which needs to be sufficient to provide a Tier 1 

leverage ratio of at least eight percent through the first three years of operation, he said. The 

fourth topic addressed in the FIL is the intial business plan, which should also cover the first 

three years of operation. 

The second FIL Mr. Watkins described is titled “Filing and Documentation Procedures 

for State Banks Engaging, Directly or Indirectly, in Activities or Investments that are Permissible 

for National Banks” (“FIL 54-2014”). As background, he noted that bank activities are governed 

by Section 24 of the Federal Deposit Insurance Act and Part 362 of the FDIC’s regulations. Mr. 

Watkins said that, until the announced change, State banks seeking to conduct activities through 

limited liability companies (“LLC”) were required to file an application with the FDIC. He 

noted that the FDIC processed over 2,200 applications over the last decade and the vast majority 

of them related to LLC or similar structures. Mr. Watkins said that the FDIC had recently 

evaluated the application requirements and determined that applications would no longer be 

required for State banks to engage in otherwise permissible activities through LLCs. In essence, 

he said, State banks would be able to establish an LLC without filing an application with the 

FDIC provided that the activity is permissible and the bank maintains documentation concerning 

the activity’s compliance with Part 362. Mr. Watkins said that the new policy would reduce 

burden by requiring far fewer applications and would allow cases that still required applications 

to usually be resolved at the Regional Office level. 

In response to a question from Member Castillo, Ms. McInerney and Ms. Amberg said 

that the 2006 EGRPRA report to Congress recommended changes that resulted in burden 

reduction legislation that was passed. Ms. McInerney and Ms. Amberg said the agencies also 

reviewed what streamlining and simplifying they could do at the regulatory level and took 

burden reduction steps concerning deposit insurance rules, as well as procedural, examination 

and information technology processes. Member Castillo indicated approval of the burden 

reduction effort and suggested that the agencies publicize the beneficial effects of the review 

completed in 2006. 

Member Blankenship inquired about the types of activities for which banks most often 

used LLCs. Mr. Watkins said the most typical use of LLCs was in the commercial real estate 

foreclosure process; the LLC could help shield the institution from potential liabilities while still 
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allowing the foreclosure process to proceed. He added that the use of an LLC is not limited to 

that purpose, however, and that a bank may use the LLC for any permissible activity as long as it 

documents how the practice complies with Part 362. In response to a question from Member 

Castillo, Mr. Watkins said that the FILs had been prompted in part by EGRPRA comment letters 

and feedback received in banker roundtables; on the LLC matter, he said that the FDIC reviewed 

its policy and decided that it could make the change. Ms. McInerney added that, under the 

EGRPRA process, if the agencies can fix an issue immediately they will try to do so. In 

response to a question from Member Savarese, Ms. McInerney clarified that many consumer 

rules are now the responsibility of the CFPB and not technically subject to the EGRPRA review 

process; however, the EGRPRA agencies welcomed comment on those subjects because they are 

important to bankers and the FDIC is in regular contact with the CFPB concerning its 

regulations. 

Ms. Ryan then introduced the speakers for the panel titled “Bank Regulatory Reporting,” 

Robert Storch, Chief Accountant, RMS, Charles Collier, Chief, Risk Analysis Section, RMS, and 

Ross Waldrop, Senior Banking Analyst, DIR. Mr. Storch noted that the Independent 

Community Bankers of America (“ICBA”) had proposed that, for well-capitalized and highly 

rated community institutions, the banking agencies institute a short-form Call Report for the first 

and third quarters of each year (while maintaining a full Call Report for the second and fourth 

quarters). In response to the ICBA proposal, he said the Federal Financial Institution 

Examination Council (“FFIEC”) Task Force on Reports (“Task Force”) had taken various steps 

and will be advising the FFIEC on a range of possible actions that the FFIEC agencies could 

take.

Mr. Collier and Mr. Waldrop discussed some uses that the FDIC makes of Call Report 

data to provide context for Mr. Storch’s later discussion of possible changes to the Call Report.

Mr. Collier said that Call Report data are used in ratio analysis through the Uniform Bank 

Performance Report (“UBPR”). He said the UBPR has about 1,500 ratios that are made publicly 

available and are heavily used by regulators, bankers, and the public. Mr. Collier said the FDIC 

uses Call Report data to assess risks in banks and to plan onsite examination activities. He said 

the interest rate risk tool was dependent on quarterly Call Report data and would be severely 

impacted by the ICBA proposal. Mr. Collier noted that the information requested in RMS’s preexamination entry letters would also need to be increased if less information was available 

through quarterly Call Reports. He added that the Federal Reserve had recently moved from a 

12 month to an 18 month examination cycle because Call Report data was currently available for 

examiners, but that reduced amounts of information from the Call Report might result in an 

increase in examination activity or accelerated activity.

Mr. Waldrop discussed how Call Report data is used by the FDIC’s research components, 

including the Quarterly Banking Profile (“QBP”). He observed that the QBP was developed 

because it was believed that publishing timely, comprehensive and authoritative data about 

financial institutions was an antidote to public uncertainty and misconceptions during a banking 

crisis. Mr. Waldrop said that the QBP regularly draws from about 18 of 24 schedules of the 

FFIEC 041 Call Report so the information banks provide is extensively used.
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Mr. Waldrop described how, since the development of the internet, the FDIC was able to 

provide data directly through its website. In addition, he said, the FDIC is now able to provide 

data at the individual institution level and also provide the capability for the public to 

interactively query the data; thus, bankers may compare themselves to other industry segments, 

specific competitors or groups of competitors. Mr. Waldrop said banking is a very transparent 

industry and that the transparency was a source of strength for it; he suggested that banks could 

view their expenditure on regulatory reporting as also being an investment because it provides 

useful information to the industry, investors and customers.

Mr. Waldrop also observed that the process for determining deposit insurance premiums 

was dependent on Call Report data and the vast majority of ratios used in the calculation come 

from Call Report schedules other than Schedule RC-O. He said that the law does not require the 

FDIC to assess insurance premiums quarterly, but that the FDIC had chosen to because it was 

believed that more frequent assessments tended to benefit banks that were struggling but 

improving because their premiums could be reduced sooner (than if there was a semi-annual 

assessment). Similarly, he said that quarterly assessments benefitted well-managed institutions 

by causing institutions that took on higher risk to pay higher premiums sooner.

Mr. Storch discussed the range of specific actions the Task Force was considering 

recommending to the FFIEC to address community bank regulatory reporting burden and the 

concept of a short-form Call Report. He said that, to lay the groundwork, the Task Force is 

identifying the specific Call Report items used to prepare the UBPR and in the offsite 

surveillance systems and the deposit insurance assessment system that had been discussed by Mr. 

Collier and Mr. Waldrop. He observed that Call Report data items that are often reported as zero 

may be identified as having little or no recurring need. Mr. Storch also said that the Task Force 

was considering accelerating the start of the next statutorily required review of Call Report data.

He said that agency staff members who have been identified as users of specific Call Report data 

items would be challenged to prepare a robust justification that explains the use of each data 

item, whether it is needed quarterly, and the population of institutions from which it is needed.

Mr. Storch said that the Task Force would prioritize the scope of the review by beginning with 

the Call Report schedules that are considered most burdensome, for example, Schedule RC-C on 

loans and leases. He said that data items for which there was insufficient justification for 

continued collection would be considered for elimination, less frequent collection, or the creation 

of new (or upwardly revised) reporting thresholds.

Mr. Storch reported that the Task Force could also consider the merits of a community 

bank version of the FFIEC 041 Call Report for institutions below a specified asset size. He said 

this short form could exclude schedules or items not applicable to institutions below the 

threshold, as well as items pertaining to activities or transactions that are not typically engaged in 

by community institutions. Mr. Storch said that, although the existing Call Report software 

already limits the Call Report schedules and items that must be completed to those specifically 

relevant to an individual institution, the starting point for institutions nevertheless is an 80-page 

report form. Thus, he said, a community bank Call Report may not in itself reduce the reporting 

burden, but it could reduce the size of the report form by 16 pages or more. Mr. Storch said that 

the Task Force could assess the merits of moving to a community bank Call Report starting in 

2015 with the earliest implementation date likely to be the first quarter of 2016.
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Mr. Storch said that the Task Force could also focus on which Call Report data items 

tend to need manual intervention and explore why community banks’ core processing systems 

are not or cannot be integrated with their Call Report software. In this regard, he said that the 

Task Force could work with the ICBA to target what types of manual efforts are typically 

necessary, agency staffs could visit individual banks to observe their processes, and the agencies 

could publish a request for comment from the industry. Mr. Storch said that the use of targeted 

training could be used to reduce Call Report burden by reducing training costs. For example, he 

said, teleconferences and webinars could provide guidance on Call Report changes and areas of 

the report identified by community bankers as challenging. Mr. Storch noted that some 

previously identified burden-reducing changes had been delayed while the agencies were 

revising the regulatory capital reporting requirements and these changes could be issued for 

comment and then implemented later in 2015 or 2016. He said that the FDIC welcomed 

feedback from the Committee. 

Several Committee members commended the FDIC and the FFIEC for undertaking the 

comprehensive review to reduce Call Report burden. Member Blankenship described Call 

Report issues at her $400 million asset bank. She reported that it requires two experienced and 

efficient staff persons at least two days each quarter to complete the Call Report; she said that the 

work could not be assigned to less experienced staff and that training for Call Report preparation 

was not easy. Member Blankenship said the manual correction processes took the most time and 

that it was not possible to just hit a single key from the core processing system because 

sometimes its coding approach does not align with what the Call Report asks. She said that her 

bank concentrates on eliminating incorrect information because it wants to avoid having to refile any Call Report. Member Blankenship indicated that if the FFIEC could eliminate the need 

for manual processes it would result in more accurate information being submitted because the 

manual processing allows for interpretation and error. Eliminating the need for manual 

processing would not only reduce burden on the bank, she indicated, but also on examiners who 

need to consult with bank staff about the decision making that occurred within the manual 

processing. Member Baronner agreed that accurate reporting was an important goal for 

community banks and that manual processing increased the likelihood data would become 

compromised. He suggested that the Task Force work directly with data processing vendors 

because many community banks had outsourced data processing in the last decade. Mr. Storch 

agreed that additional direct and formal discussions with vendors could be helpful. He noted that 

some recent Call Report proposals had been modified or withdrawn based on what vendors’ 

systems could (or could not) support.

Member Castillo said that agency-sponsored training events would be very helpful. He 

reported that it was sometimes challenging to understand how the agencies intended for certain 

items to be classified and that review of the Call Report instructions and glossary did not always 

yield an answer. Member Castillo inquired if there were individual Call Report analysts 

available who could respond to specific questions about report preparation. Mr. Storch 

responded that there are Call Report analysts whose roles include confirming that incoming data 

is correct and/or properly explained, and answering questions from bankers about how 

transactions should be reported. He added that the Task Force regularly holds calls to try to 

make reporting instructions as clear as possible. Ms. Ellis added that the FDIC has about 15 Call 
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Report analysts who are familiar with the Call Report requirements and can field a wide variety 

of questions. Chairman Gruenberg said that the FDIC would seriously consider Member 

Castillo’s suggestions.

Member Bryant said that the UBPR is an important tool, especially for small community 

banks, minority depository institutions, and community development financial institutions to 

create appropriate comparisons of themselves to selected peer groups. In response to a question 

from Member Bryant, Mr. Storch said that the Call Report does not ask respondents how much 

time was required to complete the report. Member Bryant advised that this would be useful 

information to gather; he suggested that examiners would have insight into how much time was 

required to complete the Call Report and later suggested that the survey at the end of a bank 

examination was an alternate source of the information. Members Blankenship and Saunders 

added that FDIC examination staff would also be good sources of information about where 

reporting errors occur within the Call Report. Mr. Storch said that the Task Force gets informal 

feedback from examiners on such issues, but agreed that it could be helpful to formalize the 

feedback process.

Member Lundy said he appreciated the panel’s descriptions of how the Call Report data 

are used. He inquired about the interaction of the data collection and new loan loss reserve rules 

and efforts by the Financial Accounting Standards Board (“FASB”) to implement quarterly 

mark-to-market requirements for loans and leases. Mr. Waldrop said that many changes in the 

Call Report and its increased complexity were driven less by bank regulators and more by the 

accounting profession and the FASB. He said there had been a trend to allowing institutions 

more flexibility to use different methodologies for valuations and reporting and a second trend to 

increase the focus on reporting fluctuations in values. Both of these trends, Mr. Waldrop 

indicated, made it more difficult to compare institutions to each other and to compare one 

institution over time. Mr. Storch noted that a challenge facing the Task Force was to keep the 

Call Report current with accounting changes and he provided further insights into the status of 

recent proposed changes to accounting rules. 

Member Seleski emphasized the importance of timely and accurate data to the banking 

industry’s ability to obtain capital and advised against reducing the reporting of quarterly 

financial data. He added that, with increasing automation, it should be possible to continue 

gathering the necessary information while reducing the burden of reporting. Member Savarese 

supported the rigorous reviews that new data requests to the Call Report are subjected to and 

inquired if the CFPB’s requests were subject to the same standards. Mr. Storch said that the 

CFPB was a member of the FFIEC and its proposed additions to the Call Report data requests 

were subject to the same reviews as other agency requests. He added that the FFIEC agencies 

had been effective in distinguishing between necessary and less-than-necessary new data 

requests, but had not applied a similarly rigorous standard to data requests that had been present 

in the Call Report for longer periods. Director Norton agreed that the FFIEC agencies need to be 

mindful of distinguishing between data requests that are necessary and those that that are merely 

convenient for an agency to request through the Call Report rather than through other paths 

available to them. Member Blankenship noted that, even if information is necessary, it is also 

important to inquire if it is needed quarterly and whether every bank needs to provide the 

information. Member Haskin observed that, although her bank may only need to complete 40 
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percent of the Call Report fields, it still must review the entire form in order to make that 

determination.

Member Haskin inquired whether the information gathered from banks had been useful in 

predicting the last financial crisis. Mr. Waldrop said that DIR uses Call Report data every 

quarter to look at trends and risks in banks’ portfolio composition and to run forward-looking 

“what if ?” scenarios. Ms. Eberley said that the FDIC continuously uses data collected to inform 

itself about trends and emerging risks. For example, she said that the FDIC had seen risk 

building in commercial real estate lending before the last crisis, and those observations prompted 

guidance that the FDIC issued in 2006, which itself followed many conversations and 

roundtables with banking groups. Mr. Collier noted that the focus of FDIC surveillance systems 

was on well-rated institutions to try to identify those that are starting to show characteristics of 

weaker-rated institutions; he observed that the surveillance systems did identify a number of 

banks that were moving in that direction before the crisis.

The Committee stood in recess at 11:59 a.m. and reconvened at 1:37 p.m. that same day. 

Ms. Ryan then introduced the presenters for the panel, “Update on Cybersecurity,” 

Doreen Eberley, Marlene Roberts, Senior Examination Specialist, RMS, and Donald Saxinger, 

Senior Examination Specialist, RMS. Ms. Eberley explained that the FFIEC agencies, through 

the Cybersecurity and Critical Infrastructure Working Group (“Working Group”), assessed the 

cybersecurity preparedness of over 500 community banks during 2014 and issued “FFIEC 

Cybersecurity Assessment General Observations” which summarized its findings. [The 

document, provided to the Committee, can be accessed at: 

http://www.ffiec.gov/press/PDF/FFIEC_Cybersecurity_Assessment_Observations.pdf

Ms. Roberts reviewed the FFIEC’s findings in five domains and Mr. Saxinger discussed how 

those findings related to existing FFIEC and FDIC guidance. Ms. Roberts noted that 

cybersecurity is just an element of information technology and that many elements of 

cybersecurity are already addressed within existing regulatory guidance; thus the discussion 

would not raise many new elements but would merely focus on specific elements already in 

place. 

The first domain of cybersecurity preparedness the panel discussed was risk management 

and oversight which includes governance, allocation of resources, training and awareness. Ms. 

Roberts discussed the 2014 study’s findings within this domain and also areas that financial 

institution management could consider to improve their preparedness. These considerations 

included, she said, having a process that ensured ongoing discussions about cybersecurity and 

vulnerabilities and making clear who is accountable for managing cyber risk. Mr. Saxinger 

reviewed various sources of guidance that address these issues, including a 1999 FIL titled “Risk 

Assessment Tools and Practices,” the FDIC Information Technology (“IT”) Examination 

Program, the IT Officers’ Questionnaire, and customer information security elements of the 

Gramm-Leach-Bliley Act. The second domain of cybersecurity preparedness the panel 

discussed was threat intelligence and collaboration, or, how institutions acquire and analyze 

information about cyber threats. Ms. Roberts said that many institutions rely on reports from 

third-party providers or gather information when prompted by law enforcement or regulators. 

The FFIEC report suggested that institutions consider establishing a process for gathering and 
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analyzing threat and vulnerability information from multiple sources; incorporating cyber 

intelligence into risk management practices; determining what types of reports will be provided 

to the institution’s board; and, identifying who is accountable for maintaining relationships with 

law enforcement representatives. Mr. Saxinger said the key concern was that financial 

institutions need to maintain their awareness of threats and vulnerability information and 

incorporate that knowledge into their risk management decisions. He reviewed a variety of 

sources that provide guidance on the subject including the Information Security Handbook.

The third domain the panel discussed was cybersecurity controls, including preventive 

controls, detective controls, and corrective controls. Ms. Roberts shared the FFIEC’s general 

observations about controls and subjects that financial institutions should consider. She said that 

financial institutions should have: a process for determining and implementing preventive, 

detective, and corrective controls on their institution's network; procedures for reviewing and 

updating controls when there are changes in the IT environment; a process for classifying data 

and determining appropriate controls over the data based upon risk; and, a process for ensuring 

risk that has been identified through detective controls are remediated. Mr. Saxinger discussed 

various sources of guidance about controls and said the goal was to ensure that data and systems 

achieve appropriate levels of confidentiality, integrity and availability. He noted that IT 

examinations in the past may have focused on specific controls, but that the rapidly changing 

environment required regulators to take a risk management focus instead. 

The fourth domain the panel discussed was external dependency management, which Ms. 

Roberts said assessed an institution’s connectivity to (and oversight of) third-party service 

providers, business partners, customers and others. She said many institutions have processes to 

manage third-party relationships and document their connections, but said the report suggested 

they should also consider: how the institution connects to third parties and how those third 

parties manage their cybersecurity controls; what the third parties’ responsibilities are during a 

cyber attack; and, how those responsibilities are outlined in incident response plans. Mr. 

Saxinger said the primary source of guidance on this domain was the FFIEC Handbook on 

Outsourcing Technology Services, but the topic was also addressed in the IT Officer’s 

Questionnaire and the FFIEC Business Continuity Book. He noted that some traditionally lowrisk systems from third-party connections have recently been avenues for cyber attacks into more 

critical or sensitive systems, so that institutions should be sensitive to that element. 

The fifth domain the panel discussed was cyber incident management and resilience 

which includes incident detection, response, mitigation, and escalation. Ms. Roberts said many 

institutions have business continuity plans, but many need to expand those plans to address cyber 

events. The FFIEC report suggested that, prior to the event of a cyber attack, institutions should 

consider how they will respond internally, with their customers, with third parties, with 

regulators, and with law enforcement. Institutions should also consider if cyber incident

scenarios are incorporated into the institution's business continuity and disaster recovery plans, 

and whether those plans are tested. Mr. Saxinger reviewed the applicable guidance and noted 

that preventive practices were not enough, that institutions need to be prepared for a cyber attack 

by planning and testing a response plan. He said the regulators were considering how they 

identify significant cyber events and noted that although regulators maintain relationships with 

law enforcement and intelligence, it is often bank-provided information that is the most helpful. 
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Ms. Roberts reported that the agencies are reviewing and updating their IT examination 

programs and that the focus will be on basic cyber hygiene and incident response and recovery. 

In response to a question from Member Savarese, Ms. Eberley said that the agencies would 

likely reemphasize some of their existing policies from a cyber perspective and that some new 

guidance might also be issued. Member Bryant observed that it was widely reported that large 

corporations had experienced cyber breaches and asked if the regulators had noticed the breaches 

trickling down to smaller institutions. Ms. Roberts said that she would speak only about general 

trends, not specifics; she reported the regulators had seen an exponential increase in cyber 

activity, especially against the financial services sector. After reviewing some new and 

continuing cyber attack trends, Ms. Roberts said that bad actors were scanning companies’ 

systems daily looking for vulnerabilities, many of which are unknown until they are exploited 

and which may be in products which are widely used in the industry. She emphasized that basic 

cyber controls could prevent most attacks, but added that it was possible to have controls in place 

and still become a victim; for that reason, she said, institutions need to have appropriate incident 

response plans and a solid backup for system recovery. Ms. Eberley reiterated the importance of 

having strong controls in place and the continued applicability of the earlier guidance documents. 

Member Savarese inquired whether the agencies had gathered any best practices from 

instances of cyber attacks and responses. Mr. Saxinger stated that the agencies appreciated being 

notified by banks about cyber incidents because it allows the agencies to track down lessons 

learned. He said that bank reporting had yielded some best practices the agencies had not 

previously identified, and that those practices had been incorporated into guidance the agencies 

subsequently issued. Member Lundy asked for an update on the FFIEC’s interactions (on cyber 

security) with third party service providers that many community banks rely upon. Ms. Roberts 

reported that, although she could not go into specifics, a significant amount of information 

sharing had occurred in recent months and the FFIEC was encouraging service providers (as well 

as banks) to become members of various forums that share threat and vulnerability information. 

She added that the financial services industry is dependent on the telecommunications and 

energy sectors so that the FFIEC agencies were also engaging with those sectors to ensure they 

are resilient against cyber attacks.

Member Saunders suggested that community banks gather information about the costs 

associated with cyber attacks. Ms. Roberts agreed that would be important information to gather 

and suggested that it include soft costs such as personnel costs, as well as fraud losses and card 

reissue costs. She observed that law enforcement may decline to look at an incident unless it 

meets a certain dollar threshold; but that if banks establish they meet those thresholds, then they 

can file Suspicious Activity Reports and law enforcement can start putting patterns of crimes 

together. Member Bryant reported that about every 18 months, his institution invites an FBI 

cybersecurity representative to discuss recent trends. Ms. Eberley said that she thought that was 

a great best practice. In response to an inquiry from Member Savarese about banks auditing their 

service providers on their cyber preparedness, Mr. Saxinger said that the FFIEC agencies had 

reviewed many service provider contracts on this issue. He said that it would not be feasible for 

thousands of banks to audit service providers independently, but that contracts often allow the 

provider to create an audit that can be shared; he said banks would still need to determine if such 

an audit addresses its needs. 
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 Ms. Ryan then introduced the presenters for the panel, “Recent Supervisory Guidance,” 

Rae-Ann Miller, Associate Director, RMS, Robert Burns, Deputy Director, RMS, and Jonathan 

Miller, Deputy Director, DCP. Ms. Miller discussed the interagency credit risk retention rule 

required by Section 941 of the Dodd-Frank Act. The final rule, she said, generally requires a 

sponsor of an Asset-Backed Security (“ABS”) to retain an economic interest equal to at least five 

percent of the aggregate credit risk of the assets collateralizing the ABS. Ms. Miller said the rule 

is intended to align the interests of ABS sponsors and investors, interests which were misaligned 

before the recent financial crisis, and which led to serious problems for the financial system.

Ms. Miller said an important exemption to the rule was one for ABSs that are secured 

solely by Qualified Residential Mortgages (“QRM”). Ms. Miller noted that the Dodd-Frank Act 

directed the agencies to define QRM, taking into consideration their underwriting criteria and 

product features, but not allowing the QRM definition to be any broader than that established for 

QM by the CFPB. She reported that the agencies chose to align the definitions for QRM and 

QM and described their rationale for doing so, including that the QM definition excludes many 

of the risk loan features that caused problems in the last crisis. Ms. Miller explained that 

aligning the definitions of QRM and QM would streamline compliance and costs and would 

provide the mortgage market with a uniform framework for underwriting and securitizing 

mortgages. She said the QRM definition would be reviewed by the agencies periodically and 

described other exemptions from the rule’s coverage. Ms. Miller stated that, in order to keep risk 

retention meaningful, the rule generally prohibits an ABS sponsor from hedging, transferring, or 

pledging their risk retention obligations. Ms. Miller said that the risk retention rule would be 

applicable to few community banks; specifically, community banks that merely originate or sell 

loans that are securitized (and are not ABS sponsors) do not have obligations under the rule 

concerning those originations and sales.

Ms. Miller also discussed an interagency final rule and an interagency proposed rule that 

generally would not be applicable to community banks. The liquidity coverage ratio rule is 

intended to improve the liquidity risk profile of large banking organizations and to strengthen the 

measurement and management of liquidity and risk at those organizations. The second, a 

proposed rule, applies to the most active participants in the over-the-counter derivatives market.

Mr. Burns said that the banking regulatory agencies had recently released the results of 

the Shared National Credit Annual Review Program and indicated that the risk in the shared 

national credit portfolio is almost exclusively within the leveraged lending component of it. He 

reported that agencies found high risk in the leveraged lending component, which suggested the 

existence of serious deficiencies in underwriting standards and risk management that were 

inconsistent with 2013 interagency guidance on the subject. Mr. Burns said the agencies 

recognized the importance of leveraged lending, but did not want originators to distribute poorlyunderwritten and low-quality loans throughout the banking industry. He said the agencies 

recently supplemented their guidance on the subject and instituted a program of much more 

frequent reviews of the loans being originated to ensure that the originators had proper controls 

in place and are complying with the agency guidance. Mr. Burns observed that community 

banks do not generally originate this type of risk, but may acquire it by participating in the 

Shared National Credit Program (of which leveraged lending is one segment). He said that 
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regulatory expectation for community banks who participate in loans or purchase collateralized 

loan obligations is that they should engage in their own independent evaluation of the risks 

presented, applying the same standards of prudence as if the bank was originating the loans. 

Mr. Miller then discussed a recent CFPB proposed rule concerning prepaid cards. He 

said the growth of prepaid cards was especially great among the unbanked. In 2013, he said, 12 

percent of all U.S. households used a prepaid card (up from 10.1 percent in 2011), while 27.1 of 

the unbanked used prepaid cards (up from 18 percent in 2011). Mr. Miller said that about $1 

billion had been loaded onto prepaid cards in 2003, but the amount had grown to $65 billion by 

2012. He explained that, if finalized, the proposed CFPB rule would extend the Regulation E 

error resolution and fraud protection provisions to prepaid cards to level the playing field with 

credit and debit cards.

Mr. Miller then described the proposed requirements concerning periodic statements for 

prepaid cards; they may be in paper form or they can be provided electronically subject to certain 

additional requirements. He said the proposed rules are very similar to Department of Treasury 

rules applicable to payroll cards, in part because it is understood that many prepaid cards are 

already being used for payroll purposes. Mr. Miller also discussed the proposed rule’s disclosure 

requirements for prepaid cards. Certain disclosures (“short form disclosures”) would have to be 

made before purchase, including: the monthly fee; the fee per purchase; the ATM withdrawal 

fee; and the fee to reload cash. Other disclosures (“long form disclosures”) would have to be 

made after purchase, he said; these would include all the short form disclosures, plus any other 

potential fees that could be imposed. Mr. Miller said that the proposed rule would require a 

card’s program manager to disclose if the card does not carry deposit insurance. He noted that 

the rule would require the card companies to provide the disclosures to the CFPB which would 

post them all on its website to promote “one-stop shopping.”

Mr. Miller also discussed the proposed rule’s conditions for credit and overdraft features 

(noting that overdraft is treated as an offer of credit). First, he observed that prepaid card 

providers would not be allowed to market any credit features to card purchasers within the first 

30 days of the card’s registration. After 30 days, Mr. Miller said, credit marketing could be done 

if it is in compliance with the Truth-in-Lending Act and the Credit Card Accountability, 

Responsibility, and Disclosure Act (“CARD Act”). Thus, he explained, there would be 

limitations on how many fees could be charged in the first year, there must be notices concerning 

interest rates, card issuers could not require electronic payment, and billing could not occur more 

than once every 21 days. Mr. Miller said the proposed rules were not limited to plastic cards and 

would also be applicable to payment instruments contained in smartphones, for example. In 

response to a question from Member Haskin, Mr. Miller said that the proposed rule would apply 

only to general-purpose reloadable prepaid cards, not gift cards.

Member Seleski observed that the shared national credit market had grown from $1 

trillion to $3 trillion in the last 5-6 years and inquired whether there should be a risk retention 

rule applicable to it. Ms. Miller explained that leveraged loans are the primary product that is 

packaged into collateralized loan obligations (“CLO”) and would be covered under the risk 

retention rule to the extent that they are placed into CLOs, but that originators of leveraged loans 

that are not placed into CLOs are not covered by the risk retention rules because they are not 
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considered a sponsor of a securitization. Member Seleski expressed concern that many of the

credits in the shared national credit program were criticized and asked if a bubble was brewing.

Mr. Burns clarified that the leveraged loan portion of the shared national credit was

approximately $800 billion of the $3 trillion shared national credit market, but comprised almost

all of the criticized credits. Concerning risk distribution and a potential bubble, he said that the

regulators are concerned about the banks that are holding the criticized credits as well as the

originators. Ms. Miller said that the regulators tried to improve underwriting on leveraged loans

underwritten by banks when they issued updated interagency guidance in 2013; however, the

2014 review found that the originators were not following the 2013 guidance. Ms. Miller and

Mr. Burns indicated that the OCC, the Federal Reserve, and the FDIC all shared a high level of

concern and were jointly undertaking monthly reviews of the leveraged loan portion of the

Shared National Credits to improve the situation. Mr. Burns said that shared national credits can

be good investments and the agencies did not want to discourage their prudent use, but agreed

with Member Bryant that purchasers needed to be aware that they were purchasing risk. He

added that some firms who were originating the leveraged loans were distributing all of it into

the financial market although they themselves rate them as criticized credits. Member Bryant

recommended that the agencies share information about the shared national credits with various

organizations that represent community development financial institutions, minority depository

institutions, and community banks because those organizations are often targeted for sales

presentations.

Member Haskin suggested that the new FASB plan concerning loan loss reserves and the

newly expanded Home Mortgage Disclosure Act requirements would be helpful topics for future

Committee discussion. Member Blankenship suggested that payment systems that operated

outside ofthe FDIC-insured payment system would be another useful topic, as well as new

technologies being introduced to respond to cyber crime.

Chairman Gruenberg said that he thought that the staff presentations and Committee

member contributions made the day a meaningful and informative experience. He expressed his

gratitude for the service of the departing Committee members. Member Savarese thanked

Chairman Gruenberg and the FDIC for their support of community banking.

There being no further business, the meeting was adjourned at 2:53 p.m.

4/#-

Robert E. Feldman

Executive Secretary

Federal Deposit Insurance Corporation

And Committee Management Officer

November 20,2014
Minutes

of the

Meeting of the FDIC Advisory Committee on Community Banking

of the

Federal Deposit Insurance Corporation

Held at the

Federal Deposit Insurance Corporation William Seidman Center

3rd Floor Auditorium

Arlington, Virginia

Open to Public Observation

November 20, 2014 — 9:04 A.M.

I hereby certify that, to the best of my knowledge, the attached minutes are accurate and

complete.

Martin J. Grue erg

Chairman

Board of Directors

Federal Deposit Insurance Corporation

November 20, 2014