open for comment

Basel Committee The Basel Committee on Banking Supervision on July 30 issued a working paper on the capital treatment of expected losses and future margin income. The paper addresses some of the most controversial elements of the committee’s proposal to rewrite international capital standards. There is no deadline for comment, but the Basel Committee is expected to produce its next version of the proposal for comment in early 2002. Available at Community Reinvestment Act A proposal by bank and thrift regulators seeking comments in advance of next year’s scheduled review of Community Reinvestment Act compliance rules. Regulators are considering, among other things, whether to: make examinations of lending practices at nonbank affiliates mandatory; more thoroughly scrutinize CRA loans for predatory terms; permit more banks to qualify for streamlined exams; revamp the investment test; and redefine assessment areas to account for Internet banks. Published July 19. Comments due Oct. 17.

Additionally, the regulators have revised their "Questions and Answers on Community Reinvestment" document. The new version amends several questions and adds new ones. Published July 12. recent actions Lending Limits A rule took effect Monday that established a three-year pilot program under which national banks in 36 states can raise lending limits for individual borrowers for one-to-four-family residential real estate and small businesses. They could lend as much as 25% of capital, compared with the current 15% cap.

Internal Audit Practices The Basel Committee on Banking Supervision issued a set of best practices Aug. 28 for banks’ internal audit departments, outlining the departments’ proper roles within their own companies and in dealings with bank regulators. The full paper is available at the Basel Committee’s Web site at

Asset Management The Office of Thrift Supervision updated its guidelines on Aug. 25 for examiners of trust management operations at thrifts. The handbook gives officials an overview of the products and services, laws and regulations, and risks and fiduciary duties applicable to institutions that engage in trust and asset management activities.

Bank Units The Federal Reserve Board on Aug. 13 completed a regulation governing financial subsidiaries. The rule, required by the Gramm-Leach-Bliley Act of 1999, lets state-chartered banks that are members of the Federal Reserve System own subsidiaries that engage in certain financial activities, such as general insurance, securities, and travel agency sales. It is intended to establish parity between state member banks and national banks, which were given similar powers last year by the Office of the Comptroller of the Currency.

"Canary" Program The Office of the Comptroller of the Currency updated last month its 1998 community bank supervision booklet to incorporate its "canary" early warning process and to make the assessment of a small bank’s information technology part of its safety and soundness exam. Canary is a computer system that rates national banks against 15 benchmarks in three categories: credit, liquidity, and interest rate risk. actions expected soon Merchant Banking Capital The Fed is expected to release a rule this fall that will finalize the regulatory capital treatment of banks’ equity investments. The rule is required because the Gramm-Leach-Bliley Act eased restrictions on banking company investments in nonfinancial companies. Subprime Residuals The banking and thrift agencies are expected to issue a final rule next month that would impose higher capital requirements on subprime residual assets, the interest retained after subprime loans are bundled and sold. A year ago the agencies proposed requiring banks to hold $1 of capital for each $1 of their residual interest in these loan pools, and limiting banks’ holdings of such assets to no more than 25% of Tier I capital. Basel Capital Standards The Basel Committee on Banking Supervision is expected to issue a revised proposal to update international capital rules during the first quarter of 2002. The committee announced June 25 that it would delay issuing final rules until late next year. Implementation was pushed back to 2005. The Basel Committee said it needs more time to process the large number of detailed comments it has received, and indicated that significant changes to the plan are being contemplated. The committee still intends to let banks use their internal rating systems to set regulatory capital levels as outlined in its January 2001 proposal. That plan, for which comments were due May 31, and the committee’s announcement explaining its decision to delay are available at comments closed National Bank Powers A proposal by the Office of the Comptroller of the Currency that would establish criteria for national banks to engage in broader electronic activities. The criteria would include whether the activity is a logical outgrowth of a recognized banking activity, strengthens the bank by benefiting customers and its business, presents a risk that the bank has experience managing, and is permissible for state-chartered banks. The proposal would update rules authorizing national banks to act as finders, and seeks comment on the risks involved in authorizing banks to issue digital certificates and on the extent banks to which intend to use that authority. Published July 2. Comments were due Aug. 31. Online Banking A request for comment by the Federal Reserve Board on how to update regulations to fit the demands of online banking. The Gramm-Leach-Bliley Act of 1999 required federal banking regulators to review rules that affect online banking services and to report to Congress on any needed legislative or regulatory changes. The Fed is to work with the other regulators on the report, which is due to Congress on Nov. 12. Published May 21. Comments due were Aug. 20. Broker-Dealer Registration An interim rule from the Securities and Exchange Commission that outlines exemptions for banks from registering as broker-dealers. The interim rule establishes exemptions in 15 areas, including certain trust and fiduciary activities, banking products, securities transactions, sweep accounts, affiliate transactions, and third-party brokerage arrangements. The compliance deadline extended to May 12, 2002. Published May 11. Comments were due Sept. 4. Bank-Affiliate Transactions A proposal by the Fed that would codify past interpretations of rules 23a and 23b, which govern transactions between affiliates.

The Fed also issued an interim final rule that would confirm that the 23a and 23b rules apply to derivatives transactions between banks and their affiliates, and would govern the intraday extension of credit by banks to their affiliates. The interim rule will not take effect until January.

Both were published May 11. Comments were due Aug. 15. Strategic Plan A proposal from the Federal Deposit Insurance Corp., issued July 2, that seeks comments on its strategic plan for the next five years. The plan addresses areas of insurance, supervision, and receivership management. Available at Comments were due July 31. State Bank Definition A proposal by the FDIC that would clarify the definition of a state bank as an institution that has one or more deposits equaling more than $500,000. The definition is important because it could affect the ability of state-chartered credit card banks to export interest rates across state lines. Published April 19. Comments were due July 18. Prohibition Against Deposit Production A proposal by the banking regulators to amend the uniform regulations enforcing the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 that prohibit any bank from establishing or acquiring a branch or branches outside its home state primarily for the purpose of deposit production. The proposal would expand that prohibition on acquisitions to include any branch of a bank controlled by an out-of-state bank holding company. Published April 9. Comments were due June 8. Exam Fees II A proposal by the OTS that would increase exam fees for thrifts rated Camels 3, 4, or 5. Published April 30. Comments were due May 30. New Bank Powers A proposal by the Fed that would give financial holding companies the right to act as real estate brokers and managers. This would be among the first new powers authorized as "financial in nature" under the Gramm-Leach-Bliley Act of 1999. Published Jan. 3. Comments were due May 1. Merchant Banking Capital A joint proposal by federal banking regulators that would institute capital requirements for banks’ merchant banking activities. The plan, which reverses the Fed’s controversial first attempt last year, would employ a sliding scale based on each banking organization’s aggregate equity investments and Tier 1 capital. It would require them to hold 8 cents for every $1 of equity investments up to 15% of Tier 1 capital, and 12 cents for every $1 of investments for the next 10%. For investments exceeding 25% of Tier 1 capital, banks would have to hold 25 cents for every $1. Published Feb. 14. Comments were due April 16.

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