OPEN FOR COMMENT

New Bank PowersA proposal by the Federal Reserve Board that would grant financial holding companies the right to act as real estate brokers and managers. This would be among the first sets of new powers authorized as “financial in nature” under the Gramm-Leach-Bliley Act of 1999. Published Jan. 3. Comments due March 2.

New Bank Powers II

Interim rule by the Fed and the Treasury Department that establishes procedures for granting new powers to financial holding companies and financial subsidiaries of national banks under Gramm-Leach-Bliley. The law directed the agencies to treat as financial in nature activities in three broadly defined categories. The rule says that a financial holding company, or financial subsidiary, must formally ask the agencies to determine if a particular activity falls into one of those categories and is permissible. Effective Jan. 2. To be published shortly, with comments due Feb. 2.

Predatory Lending I

A proposal by the Fed to toughen measures against abusive lending practices. The plan would lower the annual percentage rate on mortgages that are covered by the Home Mortgage and Equity Protection Act, to eight percentage points above the rate for Treasury securities. The current threshold is 10 points. The proposal also would include the cost of single-premium credit life insurance as part of the points and fees test for the act. Published Dec. 19. Comments due March 16.

The Fed also issued a proposal Nov. 29 that would help the government identify more predatory lenders. Lenders would have to share the annual percentage rates of all loans as part of their Home Mortgage Disclosure Act reports. Published Dec. 14. Comments due March 9.

Securities Loans

A proposal by the banking and thrift agencies to change capital requirements on loans to securities firms. Capital requirements would drop to 20%, from 100%, for loans to brokerage borrowers with good credit ratings and solid management. Published Dec. 6. Comments due Jan. 22.

Credit Union Incidental Powers

A proposal by the National Credit Union Administration that would expand the products federally chartered credit unions may offer directly to members to include Internet banking services, individual retirement accounts, and stored value products such as prepaid phone cards. Published Nov. 24. Comments due Feb. 22.

Predatory Lending II

Guidelines issued Nov. 20 by the Federal Deposit Insurance Corp. to help banks avoid the purchase of predatory loans, either directly or in securitized pools. The guidelines recommended that banks investigate the loan originator’s reputation, practices, underwriting policies, and compliance programs. Published on the agency’s Web site at www.fdic.gov. The comment deadline was extended to Jan. 31.

Capital Requirements

A preliminary proposal by the banking and thrift agencies that would simplify capital requirements for community banks. The proposal includes three options for calculating capital: a standard capital-to-assets leverage ratio, a simplified risk-based ratio, and a modified leverage ratio that includes risk-based elements. Most banks in the country would probably be eligible. Published Nov. 3. Comments due Feb. 1.

GSE Study

A proposal by the Office of Federal Housing Enterprise Oversight to study the financial risks Fannie Mae and Freddie Mac would pose if either government-sponsored enterprise failed or significantly cut back its activities. Published Oct. 30. Comment deadline extended to Jan. 29.

Thrift Holding Companies

A proposal by the Office of Thrift Supervision to require some thrift holding companies to notify the agency 30 days before significantly increasing debt, reducing capital substantially, or acquiring certain assets. The proposal would also establish criteria the agency would use to evaluate holding company capital. Published Oct. 27. Comment deadline extended to Feb. 9.


RECENT ACTIONS

Merchant Banking

The Federal Reserve Board and the Treasury Department issued a joint rule Wednesday that lays out restrictions on merchant banking, including a cap on investments and deadlines on how long an investment may be held.

The agencies made several changes from an interim rule issued in March — for example, removing a $6 billion cap and making it easier to get an extension of the 10-year limit on holding these investments. The final rule still limits merchant banking activities to 30% of Tier 1 capital, but this restriction would be dropped when regulators decide on capital requirements later this year. Expected to be published shortly.

CRA Sunshine

The banking and thrift agencies issued a rule Dec. 21 that implements the so-called Community Reinvestment Act “sunshine” provision of Gramm-Leach-Bliley. The rule requires bank to publicly disclose and file annual reports on loans or grants to community groups made as part of CRA agreements. Recipients have to report annually on how they spent the money. The rule is triggered by any statements by a community group about a bank’s CRA performance to the institution, its affiliate, or its regulator, provided that the group has received a loan of more than $50,000 or grants of at least $10,000 within set time periods. The statements also must have had, in the eyes of regulators, a “material impact” on a bank’s CRA rating. Published Jan. 10.

Financial Holding Companies

The Fed approved a rule Dec. 21 governing how bank holding companies can apply for status as financial holding companies, the corporate structure established by Gramm-Leach-Bliley to exercise expanded financial and related powers. The rule requires holding companies to certify that they and all their subsidiaries are well managed and well capitalized, and that they are in compliance with the Community Reinvestment Act. Published Jan. 3.

State Bank Powers

The FDIC issued a final rule Dec. 21 that lets state nonmember banks engage in any activity through a financial subsidiary that is allowed for a national bank. This rule brings the agency’s regulated institutions in line with similar rules released by the Fed for member banks. Published Jan. 5.

Computer Security Standards

The banking and thrift agencies issued a rule Dec. 21 establishing computer security standards to safeguard customer records at financial institutions. The rule said that each bank must implement a comprehensive written security program that includes administrative, technical, and physical safeguards for customer information. It requires each bank’s board of directors to approve and oversee the development of the security program, and says that any program provided by a third party is ultimately the responsibility of the bank. Expected to be published shortly.

Home Loan Bank Capital

The Federal Housing Finance Board issued a rule Dec. 20 that implements a more risk-based capital structure for the 12 Home Loan Banks. The rule lets the regional banks issue two classes of capital stock — instead of only one under the old system — that must be issued and repurchased at face value. Each Home Loan bank must maintain an at least $ ratio of capital to assets. The agency backed off a proposed provision that would have barred Home Loan bank members from holding more than 40% of the stock of their regional banks. Every Home Loan bank must submit its capital plan for Finance Board approval within nine months of the rule’s publication, which is expected soon.

Risk-Based Capital Rule

The Office of Federal Housing Enterprise Oversight has sent to the Office of Management and Budget a draft of its final rule instituting risk-based capital requirements for Fannie Mae and Freddie Mac. Armando Falcon, OFHEO’s director, said the rule would probably be issued in its final form in the first half of the year.


ACTIONS EXPECTED SOON

Subordinated Debt

Treasury Department officials said a study on the value of subordinated debt is nearing release. The study, mandated by Gramm-Leach-Bliley, is meant to determine whether requiring banks to issue subordinated debt would increase market discipline of banks’ risk taking. Also, it will examine the usefulness of ratings on bank debt as a signal to regulators of an institution’s financial condition.

Credit Union Study

A Treasury study on credit unions’ business lending activities is expected to be released by the end of the month. The study was required by the 1998 Credit Union Membership Access Act and is intended to determine whether tax-exempt credit unions’ entering the commercial lending market could affect the profitability of banks.

Loan-Loss Reserves

On Dec. 11. the standards committee of the American Institute of Certified Public Accountants approved the outline of a plan to standardize banks’ loan-loss reserving practices. The proposal backed down from an earlier plan that would have severely limited banks’ ability to hold funds in reserve against future loan losses. The new plan would let banks reserve against loans when they have “observable data” that indicate a probable loss. The plan, which is still being completed, is expected to be put out for comment this year.

Pooling of Interests

The Financial Accounting Standards Board announced Dec. 6 that it had reached a “tentative decision” to modify a controversial September 1999 proposal that would bar the so-called pooling-of-interests method of accounting for mergers and acquisitions. The revision would let companies carry goodwill on their books as an asset unless it became “impaired” — indicating a decline in value. Any impairment of goodwill would have to be charged against earnings. A final rule is expected no earlier than the end of March.

Money Laundering

The Treasury Department is expected to release guidelines shortly directing banks to give particular scrutiny to transactions involving senior political figures in foreign countries, as a precaution against money laundering. The guidelines are required by the Clinton administration’s national money laundering strategy, published last March.

Deposit Insurance Reform

The FDIC is expected to offer proposals on deposit insurance reform early this year. The agency has already released an “options paper” detailing possible legislative changes relating to the nature and size of the insurance funds, the pricing of premiums, and the amount of coverage. Released Aug. 8. Available at www.fdic.gov. No comment deadline was set.

Lending Guidelines

A policy statement is expected early this year from a task force of 11 federal agencies, including the Fed and the Justice Department, that would outline how regulators could use existing laws to crack down on predatory lending. An early draft indicated that the task force is defining specific activities that are illegal and is considering a wide range of sanctions, from denial of Community Reinvestment Act credit to criminal prosecution, to discourage them.

Market Discipline

A report from a private-sector working group on the best practices for disclosing information about risks being taken by banks and securities firms was due out soon. Former Chase Manhattan Corp. chief executive officer Walter V. Shipley is heading the group, which federal bank and securities regulators formed last April. The panel’s recommendations were supposed to be ready for financial services firms to use in preparing their 2000 performance reports, which should come out in February.


COMMENTS CLOSED

Payday Lending

A proposal by the Office of the Comptroller of the Currency that would let it raise exam fees for banks that strike partnerships with payday or title lenders. Published Dec. 1. Comments were due Jan. 2.

Thrift Applications

A proposal by the OTS to streamline applications processing. The proposal would require a pre-filing meeting of agency officials and a new thrift applicant or a company seeking to acquire an existing thrift, to identify any legal or policy issues. Published Nov. 2. Comments were due Jan. 2.

Thrift Bylaws

A proposal by the OTS to create optional bylaws that savings associations could adopt without regulatory approval. Published Nov. 2. Comments were due Jan. 2.

Subprime Residuals

A proposal by the banking and thrift agencies that would require banks to keep $1 of capital for every $1 of subprime residuals. The proposal also would limit the concentration of residuals to 25% of Tier 1 capital. A residual, also known as a retained interest, is the interest a bank keeps when it securitizes and sells pools of high-risk loans. Published Sept. 27. Comments were due Dec. 26.

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