Open for Comment
Executive Compensation I
Proposed guidance from the Federal Reserve Board that is designed to help banks develop proper pay practices. Under the guidelines, banks would have to consider three goals: providing incentives that discourage risk taking, matching "effective controls and risk management" and supporting strong corporate governance. As part of the plan, the Fed also will thoroughly review existing pay standards at financial institutions.
The Fed plans to split the job into two pieces: one review for 28 unnamed "large, complex banking organizations" and another for all other banks. At the large banks, the Fed plans to do a "horizontal review" of compensation practices and policies. The Fed did not give a timetable but said the review is designed to help supervisors better understand compensation trends in the industry and identify companies whose practices fall outside the norm. Published Oct. 27 with comments due Nov. 27.
Mortgage Disclosures
A proposal by the Federal Reserve Board that would amend Regulation Z to improve disclosures for closed-end mortgages, home equity lines of credit and originator fees. The plan would require a recalculation of annual percentage rates for certain mortgages, prohibit brokers from receiving certain types of payments and require lenders to give borrowers more notice before reducing their home equity line. Published Aug. 26. Comments due Dec. 24.
Recent Actions
Mortgage Modifications
The Treasury Department said Nov. 10 that trial loan modifications under the Making Home Affordable Program rose 38% in October, bringing the total number to 650,994. The agency did not disclose how many trial modifications were converted to permanent ones.
Bank Failures I
Federal officials coordinated with regulators in China to close the $11 billion-asset United Commercial Bank in San Francisco on Nov. 6, as East West Bank in Pasadena, Calif., agreed to take over United's U.S. operations as well as branches in Hong Kong. The UCB failure was one of five failures that night, totaling $1.5 billion in losses.
The other failures were the $157 million-asset United Security Bank in Sparta, Ga., Prosperan Bank in Oakdale, Minn., the $28 million-asset Gateway Bank of St. Louis; and the $15 million-asset Home Federal Savings Bank in Detroit.
FHLB Seattle
The Federal Housing Finance Agency said Nov. 6 that the Federal Home Loan Bank of Seattle remained "undercapitalized" despite having technically met its minimum capital requirements at the end of the third quarter. The Finance Agency said it made a "discretional determination," because it fears that only modest declines in the value of the bank's private-label mortgage-backed securities could cause it to fall below risk-based capital requirements soon. As a result, the bank, which was barred in 2004 from redeeming stock for five years, will still not be able to redeem stock until it is no longer considered undercapitalized.
23a Exceptions
A Fed policy that freed financial institutions to lend to affiliates during the crisis was allowed to expire Oct. 30. The Fed in September 2008 allowed a blanket exception to the 23a provision of the Federal Reserve Act, which bars several affiliate transactions, to support the then-struggling triparty repo market. It extended the waiver in January. Since then, the market has "improved considerably," the Fed said.
Bank Failures II
Regulators on Oct. 30 closed FBOP Corp.'s nine bank subsidiaries, with assets totaling $19 billion, and sold them to U.S. Bancorp, whose banking unit, U.S. Bank, agreed to assume all $15 billion of FBOP's deposits and take over about $18 billion of its assets. The resolutions were estimated to cost the FDIC $2.5 billion.
The failed institutions were: the $7.8 billion-asset California National Bank in Los Angeles; the $4.7 billion-asset Park National Bank in Chicago; the $3.6 billion-asset San Diego National Bank; the $2.3 billion-asset Pacific National Bank in San Francisco; the $326 million-asset North Houston Bank in Houston; the $257 million-asset Madisonville State Bank in Madisonville, Texas; the $213 million-asset Bank USA in Phoenix; the $118 million-asset Citizens National Bank in Teague, Texas; and the $82 million-asset Community Bank of Lemont in Lemont, Ill.
Park National and Citizens failed after they could not pay a cross-guaranty assessment to the FDIC, which the agency had levied to offset resolution costs from the other seven subsidiaries.
CRE Workouts
The federal banking agencies and state regulators issued guidelines Oct. 30 for prudent workouts of troubled commercial real estate loans. The 33-page guidance outlined the scenarios where modifications of such loans should take place, gave examples of model workouts and told institutions they will not be penalized for workout efforts even if a modified loan still has weaknesses. The regulators said lenders should consider providing commercial developers with additional credit if a project ran into trouble and the original loan had become delinquent. The guidelines advised institutions to analyze repayment ability, guarantor support and a loan's underlying collateral value to assess whether a workout is needed.
Bank Failures III
Regulators on Oct. 24 closed seven institutions, including the 100th failed bank of 2009, bringing the year's total to 106. Failures hit triple digits for the first time since 1992 with the collapse of the $65 million-asset Partners Bank in Naples, Fla.
Regulators also closed the $83 million-asset Hillcrest Bank in Naples; the $190 million-asset Flagship National Bank in Bradenton, Fla.; the $108 million-asset Riverview Community Bank in Otsego, Minn.; the $327 million-asset Bank of Elmwood in Racine, Wis.; the $111 million-asset American United Bank in Lawrenceville, Ga.; and the $279 million-asset First Dupage Bank in Westmont, Ill.
The seven failures cost the government an estimated $357 million.
Executive Compensation II
Kenneth Feinberg, the Treasury's pay czar, released executive compensation standards Oct. 22 for all companies that have received exceptional assistance from the Troubled Asset Relief Program. Only two banks — Bank of America Corp. and Citigroup Inc. — fall into that category. The standards are designed to tie executive compensation at the company to stock rather than cash.
TLGP Unwind
The FDIC on Oct. 20 finalized a rule that confirmed Oct. 31 as the last day of its debt guarantee, but allowed a limited extension for emergency cases.
Under the rule, institutions could not issue debt covered by the agency's Temporary Liquidity Guarantee Program beyond last month. However, institutions could still apply for a six-month extension if they needed the FDIC's continued backing to issue debt they could not issue on their own. The extension was expected to be granted in rare cases, and carried an elevated fee of $3 for every $100 of guaranteed debt.
Bank Failures III
On Oct. 17, San Joaquin Bank of Bakersfield, Calif., became the year's 99th failure. The $775 million-asset bank's operations were sold to Citizens Business Bank in Ontario, Calif., which agreed to assume all $631 million of San Joaquin's deposits and take over virtually all of its assets. The failure cost the FDIC an estimated $103 million.
Actions Expected Soon
Contingent Capital
Regulators are considering forcing large, systemically risky banks to issue "contingent capital," a new type of instrument that lets institutions quickly convert debt to equity during stressful periods.
Fed Chairman Ben Bernanke said during a hearing Oct. 8 that regulators were still working on new capital standards, including requiring institutions to hold more capital, maintain a greater share of capital in common equity and issue contingent capital "that converts to common equity when necessary to mitigate systemic risk."
Short-Sale Guidance
The Treasury plans to announce financial incentives for servicers soon to pursue short sales and deeds in lieu of foreclosure for troubled homeowners who do not qualify for the Obama administration's loan modification program.
Overdraft Fees
The Fed is considering whether to require banks to get customers' permission before charging overdraft fees. In a 2008 proposal, the Fed said it was considering whether overdraft protection should be an opt-in or opt-out feature.
Comments Closed
Premium Prepayment
A proposal by the Federal Deposit Insurance Corp. that would require all banks to prepay the next three years' worth of premiums. The FDIC said it would receive approximately $45 billion that it could use to deal with rising bank failures. Under the plan, institutions can apply for a waiver if the prepayment would jeopardize their safety and soundness. Published Oct. 2 in the Federal Register with comments due Oct. 28.
Correspondent Concentration
A proposal by the federal banking regulators that would require institutions to identify their level of exposure to correspondent banks, set correspondent concentration limits and conduct an independent analysis to assess the credit and funding risk of any transaction with another institution before it occurs. Published Sept. 25. Comments were due Oct. 26.
Off-Balance-Sheet Assets
A proposal by the banking and thrift regulators that would implement a June ruling by the Financial Accounting Standards Board that financial institutions must bring many off-balance-sheet assets back on to their books. Under the plan, regulators would require banks to immediately hold higher capital when the rule goes into effect next year. Published Sept. 15. Comments were due Oct. 15.
