Open for Comment
Basel II
A proposal from the bank and thrift regulators to implement the standardized approach to the Basel II capital rule. The rule would be optional and is designed to enhance risk management at small and midsize banks. Regulators have said they hope to complete the rule by the middle of next year. Published July 29 in the Federal Register. Comments due Oct. 27.QFCs
A proposal from the Federal Deposit Insurance Corp. that would require a troubled institution, if notified by the agency, to keep certain records and provide it with information the agency could use to decide how to honor qualified financial contracts with counterparties in a failure scenario. Published July 28. Comments due Sept. 26.
Deposit Balances
An interim rule from the FDIC clarifying that the agency uses a bank's deposit balance at the end of each day to calculate the deposits that would qualify for insurance if the bank failed. Published July 17. Comments due Sept. 15.
Recent Actions
GSE Takeover
The Treasury Department and the Federal Housing Finance Agency put Fannie Mae and Freddie Mac into a federal conservatorship Sept. 7, assuming management of the two government-sponsored enterprises.The government ousted the leaders of Fannie and Freddie and picked new chief executives. Herb Allison, the former president of Merrill Lynch & Co. Inc., became Fannie's CEO. David Moffett, the former vice chairman and chief financial officer of U.S. Bancorp, will lead Freddie.
The Treasury also announced plans to buy $5 billion of mortgage-backed securities guaranteed by Fannie and Freddie, to make short-term loans directly to the two companies through the Federal Reserve Bank of New York, and to establish the government as a senior preferred shareholder of the mortgage giants for up to $100 billion of equity.
Silver State
Regulators closed the $2 billion-asset Silver State Bank in Henderson, Nev., on Sept. 5 — the 11th failure of the year.
The Silver State Bancorp unit failed after losing $72 million in the second quarter. Nevada State Bank in Las Vegas agreed to take over its nonbrokered insured deposits.
Silver State Bank had $1.7 billion of deposits, about 98% of which were insured. It held $700 million of brokered deposits, and the FDIC said it would pay the insured portion of that directly to brokers. The FDIC estimated the failure's cost will be $450 million to $550 million.
Downey Order
The Office of Thrift Supervision issued a cease-and-desist order against Downey Financial Corp., the thrift company said in a Sept. 5 securities filing. The order required the $13 billion-asset Downey to boost capital, reduce assets, develop a real estate owned disposition plan, lower its concentration of payment option adjustable-rate and stated-income mortgages, and strengthen its executive management.
Beige Book
The Federal Reserve Board said Sept. 3 in its Beige Book that credit conditions were not showing improvement. Bankers in Fed regional districts reported, among other factors, higher loan rates and larger down payments to reflect credit risk, a decrease in demand for commercial and industrial loans, and further credit deterioration.
Integrity Bank
Federal regulators shut the $1.1 billion-asset Integrity Bank in Alpharetta, Ga., on Aug. 29.
The bank was awash in bad loans from its commercial real estate portfolio. Those loans, which had been tied largely to one guarantor, had resulted in steady losses since the second quarter of last year.
The FDIC said Regions Financial Corp. in Birmingham, Ala., would assume all of Integrity's $974 million of deposits and buy $34.4 million of its assets. The agency will retain the remaining assets for later disposition.
The FDIC estimated that the failure will cost the Deposit Insurance Fund between $250 million and $350 million.
Thrift Earnings
The OTS said Aug. 27 that thrifts lost $5.4 billion during the second quarter, and that nonperforming assets rose to $40.5 billion. The quarterly loss was the second-largest in thrifts' history, behind the $8.8 billion loss in the fourth quarter.
Thrifts put aside $14 billion to offset losses from bad loans, and the OTS added five thrifts to its problem list, which now has 17.
QBP
The FDIC said Aug. 26 that bank failures during the second quarter lowered the Deposit Insurance Fund's reserve ratio by 18 basis points, to 1.01%. The list of problem banks grew to 117 with $78.3 billion of assets, up from 90 institutions in the previous quarter. Much of the asset increase resulted from the addition of IndyMac Bank, which failed in the third quarter.
Earnings at commercial banks and thrifts fell 87% from a year earlier, to $5 billion. Banks' average return on assets dropped 106 basis points, to 0.15%, the FDIC said in its Quarterly Banking Profile.
HELOC Guidelines
The OTS released guidelines Aug. 26 that outline when it is appropriate to suspend consumers' access to home equity lines of credit.
The OTS said lines can be frozen in cases of fraud, when an outstanding balance is not repaid, for actions that adversely affect a property, and when a home's value declines significantly below its appraised value.
Liquidity Guidance
The FDIC issued guidance Aug. 26 instructing banks to be wary of their concentrations of brokered deposits and to consider other factors in managing their liquidity risk. The guidelines recommended contingency plans for when sudden events can squeeze liquidity, and advised banks to supplement traditional measures of liquidity adequacy with more detailed tests of funding sources.
Columbian Bank
Federal and state regulators shut the $752 million-asset Columbian Bank and Trust Co. in Topeka, Kan., on Aug. 22. Regulators blamed the collapse on an exodus of noncore deposits that caused a liquidity failure. The bank had roughly $308 million of core insured deposits, which the $1 billion-asset Citizens Bank and Trust Co. in Chillicothe, Mo., assumed. Columbian held $268 million of brokered deposits.
The failure is estimated to cost the Deposit Insurance Fund about $60 million, the FDIC said.
IndyMac Mods
The FDIC said Aug. 20 that it would modify tens of thousands of loans at IndyMac Federal Bank in hopes of boosting its sale value and spurring more modifications across the industry.
The agency, long an advocate of large-scale modifications to avoid foreclosures, said it is offering modified loans initially to 25,000 borrowers. It is proposing to lower interest rates for borrowers who live in their home and are "seriously delinquent or in default" on their first mortgage.
Under the program, modified loans will be capped at the Freddie prime survey rate of 6.5% and must achieve a debt-to-income ratio of 38%, including taxes and insurance. In addition to interest rate reductions, modified loans may receive principal forbearance and an extension of payment terms. Eventually, the FDIC plans to expand the program to target 60,000 total borrowers, who had fallen 60 days or past due on their loans, for possible modifications.
Defense Report
The Department of Defense issued a report to the Senate Armed Services Committee on the implementation and enforcement of the Talent Amendment, a portion of the 2007 Defense authorization that restricts lenders targeting military members and their families.
The report recommended that lawmakers narrow the law — which was aimed mainly at payday lenders — to define better which financial services companies qualify for a cap on interest rates to military personnel.
Actions Expected Soon
FDIC Premiums
The FDIC is expected to unveil changes to its risk-based pricing system for deposit insurance premiums, including higher rates for next year to recapitalize the Deposit Insurance Fund. The fund's ratio of reserves to insured deposits stood at 1.01% at the end of the second quarter. Once the ratio falls below 1.15%, federal law requires a restoration plan.The agency is also expected to consider a bank's level of secured liabilities, such as Federal Home Loan bank advances, as a factor in its deposit insurance pricing.
Housing Rules
Regulators are expected to unveil a series of regulations mandated by the recent housing legislation. They include rules on implementing a new Federal Housing Administration program aimed at refinancing as many as 400,000 borrowers out of troubled mortgages. The program is supposed to begin by Oct. 1.
Loan-Mod Report
The OTS and the Office of the Comptroller of the Currency are expected to release a joint report later this month to measure recent loan modification efforts by the industry. The agency had previously issued separate reports on workout efforts.
Comments Closed
Public Welfare
An interim rule from the OCC that implements a provision of the new housing law allowing national banks to invest in public welfare projects. The rule provides guidance to banks on the types of projects the OCC will approve on a case-by-case basis. Published Aug. 11. Comments were due Sept. 10.Risk-Based Pricing
A proposal by the Fed and the Federal Trade Commission to require creditors to provide notice of their risk-based pricing standards to those charged more for credit as a result of credit history problems. Published May 19. Comments were due Aug. 18.
