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.

Regulators Seek Comments on New Basel Capital Proposals

This story appeared in Bank Digest.

The federal bank and thrift regulatory agencies are encouraging comments on Basel Committee on Banking Supervision proposals that aim to strengthen the resiliency of the banking sector through new capital and liquidity standards. The proposed changes include introduction of new standards for liquidity risk management, the addition of a leverage ratio to the Basel II framework, improvements to the quality and consistency of capital and strengthening of capital requirements for counterparty credit risk.

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.

SEC Enhances Proxy Disclosure, Adviser Custody Rules

This story appeared in Jim Hamilton's World of Securities Regulation.

The SEC adopted rule and form changes intended to enhance the information provided in proxy solicitations and in other forms filed with the SEC. Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made. In addition, the SEC adopted rule changes designed to substantially increase the protections for investors who turn their money and securities over to investment advisers.

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

House Committee Passes Legislation Regulating Systemic Risk, Reforming Securitization, and Creating a Resolution Process for Failed Financial Firms

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

The House Financial Services Committee has passed legislation creating a systemic risk regulator, providing for a resolution authority to wind down large interconnected failed financial companies in an orderly manner, and reforming asset-backed securitization. The legislation also creates a Federal Stability Oversight Council, whose members include the Fed, the SEC and the CFTC, to monitor the marketplace to identify potential threats to the stability of the financial system. The Council, chaired by the Treasury Secretary, will subject financial companies and financial activities posing a threat to financial stability to much stricter standards and regulation, including higher capital requirements, leverage limits, and limits on concentrations of risk.

Acting on Obama Proposal, House Legislation Would Regulate Hedge Funds and Private Equity Funds

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

The Obama Administration asked Congress to pass legislation requiring SEC registration of advisers to hedge funds and other private pools of capital, including private equity funds and venture capital funds, with assets under management over a certain threshold. The Administration’s proposal is broadly in line with proposals advanced by the G-20, which recommended the adoption of a confidential reporting regime pursuant to which hedge funds would be required to register and provide a regulator with information relevant to the assessment of systemic risk.

Dugan Urges Global Minimum Underwriting Standards

This story appeared in Bank Digest.

Comptroller of the Currency John C. Dugan, urged regulators around the world to address the problem that sparked the financial crisis of the past two years by establishing minimum underwriting standards for all mortgages made in their respective countries. These standards "would be the true minimums that we believe must be observed to keep lenders from risking too much loss to both themselves and their customers," he said in a speech to a seminar on international banking and finance sponsored by the Japan Financial News Company. "These standards would not dictate every underwriting feature of a mortgage product; instead, they would focus on core practices of sound underwriting on which there is the broadest consensus." Dugan added that these standards should not be the same everywhere in the world. In the United States, for example, at least three underwriting standards should be mandated: verification of income and assets; meaningful down payments; and for mortgages with monthly payments that increase over time, qualifying borrowers on their ability to afford the later, higher payments rather than just the initial, lower payments.

Key UK Committee Urges EU to Go Slow on Financial Stability Legislation

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

The UK Treasury Committee has urged the European Union to take more time on legislation establishing a systemic risk regulatory framework centered on a new European Systemic Risk Board and new European Supervisory Authorities for banking and securities, replacing CESR and other Lamfalussy Level 3 committees. The UK Committee has concerns about the size and composition of the Board and unease about the power the European Supervisory Authorities would have to override the decisions of national regulators. Similarly, there are concerns that the European Commission will have unilateral power to declare an emergency, which will further empower the Supervisory Authorities to direct national regulators.

Agencies Adopt HAMP Capital Requirements

This story appeared in Bank Digest.

The Federal Deposit Insurance Corp., along with the Office of the Comptroller of the Currency, Federal Reserve Board and Office of Thrift Supervision, has issued a final rule providing that mortgage loans modified under the Treasury Department’s Home Affordable Mortgage Program (HAMP) will generally retain the risk weight appropriate to the mortgage loan prior to modification. The agencies adopted as final their interim final rule issued on June 30, 2009, with one modification. The final rule clarifies 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 rule.

PR-204-2009 at http://www.fdic.gov/news/news/press/2009/pr09204.html

Final Rule at http://www.fdic.gov/news/news/press/2009/pr09204.pdf