OPEN FOR COMMENT
Capital Proposal
A joint proposal by federal banking regulators that would institute capital requirements for banks merchant banking activities. The plan, which is a reversal of the Federal Reserve Boards controversial first attempt last year, would employ a sliding scale based on each banking organizations 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. The plan would then require banks to hold 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. The proposal was released Jan. 18 and is expected to be published in the Federal Register soon. Comments are due 60 days after publication.
Basel Committee I
Guidelines by the Basel Committee on Banking Supervision for banks customer due diligence lay out a framework of regulatory protections for financial institutions against money laundering and other financial crimes. The paper praises private-sector efforts to combat money laundering but says that voluntary initiatives are insufficient. The paper, issued Jan. 31, is available on the Basel Committees Web site, www.bis.org. Comments due March 31.
National Bank Revisions
A proposal by the Office of the Comptroller of the Currency for seven revisions in regulations that govern the activities of national banks. Among other things, the revisions, which the agency said are designed to bring regulations into line with new laws, would give national banks the authority to underwrite, deal in, and buy certain municipal bonds, as permitted by the Gramm-Leach-Bliley Act of 1999. Published Jan. 30. Comments due April 2.
Basel Committee II
A proposal by the Basel Committee on Banking Supervision to revise international bank capital rules. The proposal, which expands on an earlier draft, would let banks use their internal rating systems to help set regulatory capital and would also impose a new capital charge for operational risk. The paper, released Jan. 16, is available on the Basel Committees Web site, www.bis.org. Comments due May 31.
Farm Credit National Charters
A proposal by the Farm Credit Administration that would permit any of the 133 Farm Credit regional lenders to apply for a national charter, permitting them to lend beyond their current regional boundaries. The proposal, issued Jan. 11, was sent to Congress for a 30-day review that is to end Monday. The agency then will publish it in the Federal Register, with comments due 30 days afterward.
New Bank Powers I
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 sets of new powers authorized as financial in nature under the Gramm-Leach-Bliley Act of 1999. Published Jan. 3. Comments due March 2.
Predatory Lending I
A proposal by the Fed to toughen measures against abusive lending practices. The plan would reduce the annual percentage rate on mortgages 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 under 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 disclose the annual percentage rates on all loans as part of their Home Mortgage Disclosure Act reports. Published Dec. 14. Comments due March 9.
Credit Union Incidental Powers
A proposal by the National Credit Union Administration to include Internet banking services, individual retirement accounts, and stored-value products such as prepaid phone cards among products that federally chartered credit unions may offer directly to members. Published Nov. 24. Comments due Feb. 22.
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. Comments due Friday.
RECENT ACTIONS
Subprime Capital
The banking and thrift agencies issued guidelines Jan. 31 that instruct examiners to require banks that have high concentrations of subprime assets to hold higher capital for these portfolios. The guidelines also broadly define subprime loans as those that target borrowers with higher risk characteristics, including: a Fair, Isaac & Co. score of 660 or lower, two or more 30-day delinquencies in the preceding year, bankruptcy in the last five years, and a debt service-to-income ratio of 50% or greater. The guidelines are expected to apply to 150 institutions. Available at www.federalreserve.gov.
CRA Study
The Treasury Department released a report Jan. 23 that concluded the Gramm-Leach-Biley Acts mandatory disclosures of bank loans or grants to community groups as part of Community Reinvestment Act agreements will not significantly deter lending to low- and moderate-income borrowers and may improve it. The so-called CRA sunshine rule may raise compliance costs, the report said, but the deterrent effect of higher costs may be offset by banks need under the law to maintain satisfactory CRA ratings to engage in broader investment and insurance activities.
Credit Union Studies
Two Treasury Department studies on credit unions were released Jan. 18. The twin reports one on business lending to credit union members, the other comparing credit unions and other financial institutions were mandated by the Credit Union Membership Access Act of 1998. They found that credit unions share of the business lending market is less than 1% and concluded this is too little to threaten the viability and profitability of other depository institutions.
Money Laundering
The Treasury Department released guidelines Jan. 16 that urged banks and other financial institutions to deter money launderers through closer scrutiny of transactions involving senior foreign politicians. The final guidelines, co-issued by the bank regulators and the State Department, ask institutions to determine whether current or prospective customers are top foreign officials or close relatives or associates of such officials.
Subordinated Debt
The Treasury Department released a study on Jan. 12 that pointed to the issuance of subordinated debt as a useful regulatory tool but stopped short of recommending that it should be made mandatory. The study, mandated by Gramm-Leach-Bliley, was meant to determine whether requiring banks to issue subordinated debt would increase market discipline of banks risk taking. But it said that the voluntary issuance of subordinated debt could be a useful tool for regulators in examining a financial institution.
Market Discipline
A report from a private-sector working group on Jan. 11 outlined best practices for disclosing information about risks being taken by banks and securities firms. Former Chase Manhattan Corp. chief executive officer Walter V. Shipley headed the group, which federal bank and securities regulators formed last April. The report encouraged more frequent reporting of risk exposures and other data but warned regulators that requiring uniformm reports from institutions that may have very different risk profiles could lead to investor confusion. The report is available on the Fed Web site at www.federalreserve.gov.
ACTIONS EXPECTED SOON
Deposit Insurance Reform
The FDIC is expected to offer proposals on deposit insurance reform by late March. FDIC Chairman Donna Tanoue said the agency will also release a Gallup poll about consumer attitudes toward the coverage limit per account by the end of February. The agency has already released an options paper detailing possible legislative changes in 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.
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.
COMMENTS CLOSED
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 whether a particular activity falls into one of these categories and is permissible. Effective Jan. 2. Comments were due Feb. 2.
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 originators reputation, practices, underwriting policies, and compliance programs. Published on the agencys Web site at www.fdic.gov. Comments were due 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 were due Feb. 1.
Thrift Applications
A proposal by the OTS to streamline application processing. The proposal would require a prefiling meeting of agency officials with a new thrift applicant or a company seeking to acquire an existing thrift, to identify 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.
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. Comments were due Jan. 29.
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 loans. Published Sept. 27. Comments were due Dec. 26.
