Going forward, insured national banks, federal savings associations and foreign institutions regulated by the OCC with assets over $50 billion will need to meet new risk-management standards likely in most cases to be separate from and more stringent than those governing parent holding companies. As a result, the ability of national banks to upstream dividends to the parent for distribution to shareholders or, conversely, to accept assets or activities from the parent may be significantly constrained. New independent directors at the bank level are likely also further to distance national-banks subsidiaries from their parent companies. Although the standards expressly govern only these federally-charted entities, the agency reserves the right to apply them to any national bank, meaning that all charters under the OCC are vulnerable to these tough new standards and thus may wish to institute as much of them as possible in advance of examiner inquiries. The scope of these standards is such that covered institutions – especially branches of foreign banks – may consider charter conversion. Extensive involvement by the board and CEO in risk management is required, along with new policies that ensure that national banks have risk-appetite statements and “cultures” that ensure adherence to them. How these appetites and cultures are set and, then, evaluated by the OCC will likely be set on a case-by-case basis until the industry and agency gain greater experience with them. In the interim, significant legal and reputational risk could ensue in tandem with demands from the OCC that profitable, but seemingly risky, activities be curtailed or even abandoned.
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