Open For Comment

Banker pay
An advance notice of proposed rulemaking by the Federal Deposit Insurance Corp. asks for comment on whether the agency should charge higher deposit insurance premiums for institutions with compensation plans that promote risky practices. Under the plan, the FDIC would reduce the premiums of institutions whose compensation plans meet certain criteria.

The agency's proposed criteria include paying a large portion of the compensation to employees whose activities present significant risk in restricted, nondiscounted stock; allowing large stock awards to be vested over multiple years, not all at once; subjecting stock awards to "clawbacks" if risky behavior ultimately leads to losses; and establishing a compensation committee made up of a bank's independent directors and advised by outside compensation experts. Expected to be published in the Federal Register soon with comments due in 30 days.

Securitized assets
An advance notice of proposed rulemaking by the FDIC asks questions on how the agency should treat failed banks' securitized assets. The questions were in lieu of a more restrictive proposal that did not have the FDIC board's full support.

Under a "safe-harbor" policy, the FDIC has not seized securitized assets if they matched the characteristics of an off-balance-sheet sale.

But new accounting rules require institutions to report these assets on the balance sheet, prompting the agency to consider the conditions to qualify for safe harbor. Published Jan. 7. Comments are due Feb. 22.

Recent Actions

Final card rules
The Federal Reserve Board on Jan. 12 completed a rule aimed at protecting consumers from exorbitant credit card fees and sharp interest rate increases. The rule, which takes effect Feb. 22, bars increases in an account's first year and requires consumers to sign off on transactions that would put them over their credit limits. Double-cycle billing and issuing cards to borrowers younger than 21 who lack a co-signer are also banned.

FDIC asset sale
On Jan. 8, the FDIC announced it had sold a piece of a $1 billion portfolio of failed-bank loans to Colony Capital Acquisitions, a real estate investment firm in Los Angeles.

Under the deal, the third of its kind, Colony Capital is to pay about $90 million to own 40% of a limited-liability company that will hold the assets, mostly delinquent commercial real estate loans. The FDIC will own the rest and provide $233 million to the LLC in guaranteed financing. The agency completed two similar deals with investors last year. The financing structure was devised to help open institutions sell toxic loans but has since been used only for failed-bank assets.

Bank failures I
Regulators on Jan. 8 closed $1.3 billion-asset Horizon Bank in Bellingham, Wash., the first bank failure of 2010.

The FDIC sold its operations to Washington Federal Savings and Loan in Seattle. The acquirer assumed all of the $1.1 billion in deposits, without paying a premium, and took over virtually all of its assets. The FDIC estimated the failure would cost it $539 million.

Interest-rate risk
The federal regulators issued a joint advisory on Jan. 7 urging banks to strengthen interest rate risk management. They said effective risk management programs should include computer modeling and stress-testing. The advisory said stress scenarios should determine, among other things, how an institution would be affected by "instantaneous and significant changes" in interest rates.

GMAC stake
The Treasury Department announced on Dec. 30 that it was investing another $3.8 billion in GMAC, which boosted its total investment to $16.3 billion. With the bigger stake, the government now owns a majority, 56%, of the company.

New FHLB members
The Federal Housing Finance Agency issued a final rule Dec. 29 that lets community development financial institutions become members of the Federal Home Loan Bank System. The institutions can join the system under a provision of the 2008 Housing and Economic Recovery Act.

GSE compensation
The FHFA said Dec. 24 that average compensation for employees of Fannie Mae and Freddie Mac will be 40% lower than the paychecks they received from the government-sponsored enterprises before the government put them in conservatorship in September 2008.

Under the compensation restrictions, five employees — the chief executives and chief financial officers at both companies and the chief operating officer at Freddie — will make more than $500,000.

GSE aid
On Dec. 24, the Treasury said it would let the $200 billion credit lines available to both Fannie Mae and Freddie Mac increase "as necessary over the next three years so that" the government-sponsored enterprises "retain a positive net worth." The credit lines, which were established with the GSE conservatorships in 2008, were supposed to have expired at yearend.

Mortgage metrics
The Office of the Comptroller of the Currency and the Office of Thrift Supervision on Dec. 21 released a mortgage metrics report showing that current and performing mortgages in the third quarter were 87% of national banks' and thrifts' total servicing portfolios, down 1.5 percentage point from the previous quarter. It was the sixth consecutive drop. The report also said foreclosures rose to 3.2% of the portfolios and delinquencies grew in all loan categories. Serious delinquencies rose to 6.2% of the servicing portfolio.

Bank failures II
Regulators on Dec. 18 closed seven institutions, including the $6 billion-asset First Federal Bank of California in Santa Monica.

First Federal was sold to OneWest Bank of Pasadena, Calif. The failure was expected to cost the government $619 million.

Regulators also closed $4 billion-asset Imperial Capital Bank in La Jolla, Calif.; $585 million-asset Independent Bankers' Bank in Springfield, Ill.; $1.8 billion-asset Peoples First Community Bank in Panama City, Fla.; $1.5 billion-asset New South Federal Savings Bank in Irondale, Ala.; $294 million-asset RockBridge Commercial Bank in Atlanta, and $169 million-asset Citizens State Bank in New Baltimore, Mich.

Basel comments
The federal regulators on Dec. 17 urged institutions to comment to the Basel Committee on Banking Supervision on proposed changes in international capital rules. Since last year, market turmoil has prompted the committee to discuss changes to the Basel II standards.

Under proposed rules issued by the committee, institutions would have to improve the quality of their capital base and use "a leverage ratio as a supplementary measure to the Basel II risk-based framework."

Institutions have until April 16 to comment.

Cross-border transfers
On Dec. 17, the federal regulators issued guidelines to help institutions enforce new standards from the Basel committee on improving the transparency of cross-border funds transfers. The guidance came after a May 2009 paper by the committee saying institutions should supply better information in the special instruction messages that accompany wire transfers.

FDIC budget
The FDIC on Dec. 15 approved a 2010 operating budget of $4 billion, a 55% increase from the previous year. The increase largely resulted from funding for receivership operations, up 92%, to $2.5 billion. The agency also said it planned to nearly double its temporary staff, to 3,421, a move primarily aimed at bolstering its resolution force.

FASB changes
On Dec. 15, the FDIC completed an interagency rule to bring capital in line with new policy from the Financial Accounting Standards Board requiring institutions to move off-balance-sheet assets onto their balance sheets. Institutions must hold enough capital for assets subject to the FASB change, and the rule drops an exclusion for certain commercial paper among an institution's risk-weighted assets. The other agencies were expected to sign off on the rule soon.

Bank failures III
Three failures on Dec. 11 built the 2009 total to 133.

The closed institutions were: $511 million-asset SolutionsBank in Overland Park, Kan.; $433 million-asset Republic Federal Bank in Miami and $40 million-asset Valley Capital Bank in Mesa, Ariz.

All depositors were protected in the seizures, and the three resolutions together were expected to cost the government $252 million.

Tarp extension
Treasury Secretary Tim Geithner on Dec. 9 formally notified Congress that the Troubled Asset Relief Program would be extended to Oct. 3, 2010. Under the law establishing Tarp in 2008, the Treasury only must inform lawmakers of such an extension.

Comments Closed

Safe harbor
An interim rule by the FDIC to leave in place until April the safe-harbor protection for securitized assets in bank failures. The temporary extension was meant to give the agency time to consider long-term conditions to qualify for safe harbor. Special status for securitized assets was called into question by a FASB decision requiring that securitizations be reported on banks' balance sheets. Published Nov. 17 in the Federal Register. Comments were due Jan. 4.

Mortgage disclosures
A proposal by the Fed 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 lines. Published Aug. 26. Comments were due Dec. 24.

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