Financial Crisis News Center

New Supervisory Insights Discusses Interest Rate Risk Management

This story appeared in Bank Digest.

The lead article in the Winter 2009 Issue of the FDIC's Supervisory Insights addresses the need to maintain a strong, effective interest-rate risk management program that helps mitigate excessive exposure, especially in the current low rate environment. Other articles discuss achieving Community Reinvestment Act goals and customer information risk assessments.

Capital Treatment of Securitized Assets Finalized

By Serena Lynn, Editor, the CCH Federal Banking Law Reporter and Bank Digest.

The federal bank regulatory agencies have finalized the regulatory capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Beginning in 2010, these new accounting standards will make substantive changes to how banks account for securitized assets that are currently excluded from their balance sheets. The Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Federal Reserve Board and Office of Thrift Supervision developed this final rule to better align regulatory capital requirements with the actual risks of certain exposures. Banks affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The final rule provides an optional delay and phase-in for a maximum of one year for the effect on risk-based capital and the allowance for lease and loan losses related to the assets that must be consolidated as a result of the accounting change. The final rule also eliminates the risk-based capital exemption for asset-backed commercial paper assets. The transitional relief does not apply to the leverage ratio or to assets in conduits to which a bank provides implicit support.

Securitization Safe Harbor ANPRM Approved

This story appeared in Bank Digest.

The Federal Deposit Insurance Corp. Board of Directors has approved an Advance Notice of Proposed Rulemaking (ANPR) Regarding Safe Harbor Protection for Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation. Since 2000 and the adoption of 12 C.F.R. Part 360.6, the FDIC has provided important safe harbor protections to securitizations by confirming that in the event of a bank failure, the FDIC would not try to reclaim loans transferred into a securitization so long as an accounting sale had occurred. However, with the Financial Accounting Standards Board June 2009 changes in FAS 166 and 167, most securitizations will no longer meet the off-balance sheet standards for sale treatment when they take effect on Jan. 1, 2010. The ANPR requests comments on the standards that should be adopted to provide safe harbor treatment in connection with participations and securitizations issued after March 31, 2010.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

Banks Reminded of Interest-Rate Restrictions

This story appeared in Bank Digest.

Effective Jan. 1, 2010, institutions subject to the interest rate restrictions of 12 CFR 337.6 are required to use the “national rate” to determine conformance with the restrictions. The “national rate” is defined as a simple average of rates paid by insured depository institutions and branches for which data are available. Institutions subject to the restrictions that believe they are operating in an area where the rates paid on deposits are higher than the “national rate” can use the local market to determine the prevailing rate if they seek and receive a determination from the Federal Deposit Insurance Corp. that it is operating in a high-rate area. Regardless of the determination, institutions must use the national rate to determine conformance for all deposits outside the market area. The FDIC has also issued Questions and Answers regarding the interest-rate restrictions.

ComE-IN Meeting Agenda Released

This story appeared in Bank Digest.

The Federal Deposit Insurance Corporation's Advisory Committee on Economic Inclusion (ComE-IN) will meet on Wednesday, Dec. 2, 2009, to discuss the results of the agency's National Survey of Unbanked and Underbanked Households, issues related to overdrafts, and the strategic focus of ComE-IN's future work. The committee will also hear a summary of the FDIC Study of Overdraft Programs and an overview of current and pending guidance regarding overdrafts. Finally, ComE-IN members will discuss the strategic focus of the committee's activities going forward, including future agenda topics, and policy and project options for increasing access to the financial mainstream.

Bank Notified of Capital Rules for HAMP Loans

This story appeared in Bank Digest.

Banks supervised by the Federal Deposit Insurance Corp. have been notified of an  interagency final rule that clarifies that a banking organization may retain the risk weight assigned to a mortgage loan before the loan was modified under the Treasury Department's Making Home Affordable Program (HAMP). The FDIC also noted that mortgage loans whose HAMP modifications are in the trial period, and not yet permanent, qualify for the risk-based capital treatment contained in the final rule.

Problem Bank List Rises Despite Earnings Improvement

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

The Federal Deposit Insurance Corp. has reported that the number of institutions on its “Problem List” rose to its highest level in 16 years. At the end of September 2009, there were 552 insured institutions on the “Problem List,” up from 416 on June 30, 2009. This is the largest number of “problem” institutions since Dec. 31, 1993, when there were 575 institutions on the list. Total assets of “problem” institutions increased during the quarter from $299.8 billion to $345.9 billion, the highest level since the end of 1993, when they totaled $346.2 billion. Fifty institutions failed during the third quarter, bringing the total number of failures in the first nine months of 2009 to 95.

FDIC Deposit Insurance Fund Drops Below Zero; Problem Banks Rise

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The Federal Deposit Insurance Corp’s deposit insurance fund balance dropped to negative $8.2 billion in the third quarter of 2009, while the number of banks on its “problem list” rose to the highest level in 16 years.

The last time the DIF fell below zero was in the third quarter of 1992, the FDIC said, noting that the decline was primarily due to $21.7 billion in additional provisions for bank failures. The FDIC noted that the negative $8.2 billion already reflects a $38.9 billion contingent loss reserve set aside to cover estimated losses over the next year, so that total DIF reserves actually stand at $30.7 billion.

SAFE Act Rules Adopted

This story appeared in Bank Digest.

The Federal Deposit Insurance Corp. Board of Directors has approved a draft final rule implementing the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). The FDIC noted that rule will not be published in the Federal Register until the other agencies involved in this rulemaking complete their review and approval of the regulation.