Financial Crisis News Center

Agencies Issue Final Rules on Risk-Based Pricing Notices

This story appeared in Bank Digest.

The Federal Reserve Board and the Federal Trade Commission have jointly announced final rules that generally require a creditor to provide a consumer with a notice when, based on the consumer’s credit report, the creditor provides credit to the consumer on less favorable terms than it provides to other consumers. Consumers who receive this “risk-based pricing” notice will be able to obtain a free credit report to check the accuracy of the report. Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit provided to a particular consumer based on the consumer’s creditworthiness.

FOMC Maintains Target Rate

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

The Federal Open Market Committee (FOMC) has announced that it will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Information received since the FOMC met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months.

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.

Bernanke Nomination Clears Senate Panel

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

Federal Reserve Board Chairman Ben Bernanke’s nomination to a second four-year term cleared the Senate Banking, Housing and Urban Affairs Committee December 17 by a vote of 16 to 7. Ranking member Sen. Richard Shelby, R-Ala., did not support granting Bernanke a second term.

The full Senate will not vote on Bernanke’s chairmanship until after it returns in January. Sen. Bernie Sanders, I-Vt., has placed a hold on the nomination, meaning that 60 votes will be required to move to a vote.

House Legislation Requires FASB to Study Securitization Standards

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The House has passed legislation requiring the Federal Reserve Board, in consultation with the SEC, to conduct a study and report to Congress on the impact on individual classes of asset-backed securities of FASB’s new securitization accounting standards, FAS 166 and 167, and the Act’s new credit risk retention requirements.

The Wall Street Reform and Consumer Protection Act, HR 4173, says that the report must make statutory and regulatory recommendations for eliminating any negative impacts on the continued viability of the asset-backed securitization markets and on the availability of credit for new lending. The study would be required to be completed in 90 days.

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

Gov. Duke Discusses Shape of Future Housing Finance System

This story appeared in Bank Digest.

Addressing the Federal Reserve Bank of Chicago's Mortgage Foreclosure Policy Conference, Fed Governor Elizabeth A. Duke outlined her ideas for a future housing finance system. According to Duke, such a system should be evaluated on four criteria: consumer protection, transparency, simplicity and alignment of incentives. Based on these, she discussed several aspects of such a system:

• Lending practices should include better consumer protection and disclosures and more financial education.
• Secondary markets would benefit from better access to information, standardized contracts and simplified structures.
• Servicers need contracts that provide clear guidance and incentive structures that lead to transparency and certainty in loan modifications.
• Fannie Mae and Freddie Mac need to operate in a defined manner.

Duke Discusses Community Stabilization

This story appeared in Bank Digest.

“[H]ousing alone is not sufficient to create sustainable and economically resilient communities,” stated Fed Governor Elizabeth A. Duke in remarks before the Community Stabilization Symposium, NeighborWorks Training Institute, National Harbor, Md., on Dec. 9, 2009. According to Duke, the Fed “is committed to continuing to identify ways in which our strengths as a research institution, combined with our network of Community Affairs outreach staff, can be leveraged to help communities recover from high numbers of foreclosures and related economic impacts.”

Interplay Between Loan Mods and Reg. B Notice Requirements Highlighted

This story appeared in Bank Digest.

The Federal Reserve Board has issued a letter to officers and managers in charge of consumer affairs sections to address questions received from consumer compliance examiners regarding whether adverse action notices under Regulation B (Equal Credit Opportunity) are required for mortgage loan modification declinations, including those made pursuant to the Treasury Department's Making Home Affordable Modification Program (HAMP). Regulation B requires an adverse action notice when a creditor declines an application for an extension of credit from a borrower that is not currently delinquent or in default on that loan. The letter presents a four-part analysis to determine whether an adverse action notice is required, using HAMP as an example. For mortgage loan modifications outside the HAMP, the same factors as listed should be analyzed.

Bernanke Argues For Maintaining Fed Supervisory Authority

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

Federal Reserve Board Chairman Ben Bernanke told Congress it would be a “mistake” to remove the central bank’s supervisory authority due to the key role it plays in enabling the Fed to maintain financial stability and act as the lender of last resort.

Bernanke appeared December 3 before the Senate Banking, Housing and Urban Affairs Committee, which is considering his nomination for a second four-year term as Fed Chairman. Committee Chairman Sen. Chris Dodd, D-Conn., who said he strongly supports Bernanke’s re-nomination, has proposed stripping the Fed of its bank supervisory responsibilities so that it can focus on its core mission of monetary policy.