Guidance is guidance, and rules are rules.  This straightforward statement was reiterated by Treasury Secretary Mnuchin, Federal Reserve Vice Chairman for Supervision Randal Quarles and Comptroller of the Currency Joseph Otting in separate Congressional hearings earlier this year.[1]  Nevertheless, for at least the past ten years, the failure to be in compliance with some guidance has often been treated as binding on banking organizations.  It has often been used as the basis for…

Another circuit court has opined on the Federal Housing Finance Agency (FHFA) and the legality of its net worth sweep.  Late last week, the United States Court of Appeals for the Eighth Circuit held in Saxton v. FHFA that the FHFA did not exceed its statutory authority under the Housing and Economic Recovery Act (HERA) by agreeing to the net worth sweep.  As the Eighth Circuit noted in the introduction to its opinion, four other…

The decision by the United States Court of Appeals for the Fifth Circuit earlier this week in Collins v. Mnuchin holding that the structure of the Federal Housing Finance Agency (FHFA) is unconstitutional is an important development not only for the FHFA but also for the constitutionality of the CFPB.  The per curiam opinion in Collins almost guarantees that the Supreme Court will grant cert in the near future on whether the FHFA, the CFPB…

Arguments surrounding the constitutionality of the CFPB’s structure, never fully put to rest despite the D.C. Circuit’s en banc decision in PHH v. CFPB, are back in the headlines this week.  Yesterday, Senior United States District Judge Loretta A. Preska of the Southern District of New York issued a decision in CFPB v. RD Legal Funding, LLC, finding that the structure of the CFPB created by the Dodd-Frank Act—an agency headed by a single…

Davis Polk has submitted a comment letter on the Federal Reserve’s proposed amendments to its guidelines on internal appeals of material supervisory determinations (the Proposal).  While we understand, of course, that discretion is a necessary element of supervision, our concern is with discretion that is insufficiently accountable, involves legal interpretation more often than is realized and takes place behind the curtain of confidential supervisory information. In our view, this realm of secret legal interpretation should…

Continuing the trend of Congressional attention to U.S. capital requirements for banking organizations, the United States House of Representatives has passed a bill that seeks to address the calculation of risk-weighted assets (RWAs) for operational risk under the U.S. Basel III capital rules (House Bill).  The House Bill would prohibit the U.S. banking agencies from establishing an operational risk capital requirement unless that requirement is appropriately risk sensitive and based primarily on the risks posed…