Open for Comment
Private-Equity Investment
A proposal by the Federal Deposit Insurance Corp. that would restrict private-equity investment in failed banks. Under the plan, private-equity investors that buy failed banks would have to retain ownership of the bank for at least three years and maintain a minimum 15% Tier 1 leverage ratio during that time.Bidders on failed banks who already own majority stakes in other banks would have to issue cross guarantees and pay for losses to the Deposit Insurance Fund. The plan would also institute new disclosure requirements for bidders and prohibit certain institutions from participating. Expected to be published soon in the Federal Register with comments due in 30 days.
Liquidity Risk
Proposed guidance by federal regulators that would require financial institutions to more closely monitor their liquidity risk. The guidances stresses the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a formal, well-developed contingency plan for measuring, monitoring and managing liquidity risk. It mirrors standards released by the Basel Committee on Banking Supervision in September. Published July 6, with comments due Sept. 4.
Deposit Guarantee
An FDIC proposal that seeks comment on whether to extend a blanket guarantee for non-interest-bearing deposits. The plan gives the industry two options. Under one, banks would have six more months of coverage but face a higher fee for participation. The other option would be to simply end the program on its expiration date at yearend. Published June 30. Comments due July 30.
Loan Modifications
An interim final rule by the banking agencies designed to clarify the capital treatment of mortgage loans modified under the administration's plan to reduce foreclosures. The rule says that after a modification institutions can hold the same amount of capital against a specific type of loan that was required before the workout. For example, a mortgage risk weighted at 50% before the modification can receive the same treatment afterward. Published June 30. Comments due July 30.
Mortgage Registration
A proposal by federal banking and thrift regulators that would require all mortgage originators to register with a national licensing database. The plan would carry out a part of the Secure and Fair Enforcement for Mortgage Licensing Act, which was passed last year. Under that law, any originator, including employees of a bank, other depository institution or nonbank lenders, must register with the Nationwide Mortgage Licensing System and Registry. Each originator would be assigned a unique identification number that would remain unchanged for the duration of his or her career. Published June 9. Comments due Aug. 10.
CRA Amendment
A proposal by federal regulators to count an institution's low-cost education loans to low-income borrowers toward their Community Reinvestment Act grade. Published June 30. Comments due July 30.
MSB Definition
A proposal by the Financial Crimes Enforcement Network that would attempt to clarify which companies qualify as money-services businesses. The proposal would revise the definition of such businesses by describing with more clarity the types of financial activities subject to Bank Secrecy Act rules. Published May 12. Comments due Sept. 9.
Recent Actions
Bank Failures I
Federal and state regulators shut seven banks on July 2, most of them in Illinois. The number of failures this year has now reached 52, more than double the total for 2008. The seven banks collectively held assets of roughly $1.5 billion and will cost the Deposit Insurance Fund $314 million.Six of the failed banks were in Illinois, doubling the number of failures in that state this year, to 12, in one evening. In a press release, the FDIC said they were all controlled by one family and "followed a similar business model that created concentrated exposure in each institution."
The failures were: the $962.5 million-asset Founders Bank in Worth; the $70 million-asset John Warner Bank in Clinton; the $36 million-asset First State Bank of Winchester; the $77 million-asset Rock River Bank in Oregon, Ill.; the $166 million-asset First National Bank of Danville; and the $55.5 million-asset Elizabeth State Bank.
Texas state regulators shut the $118 million-asset Millennium State Bank of Texas in Dallas.
FACT Act
The federal banking agencies finalized provisions of the Fair and Accurate Credit Transactions Act on July 1 that give consumers more authority to dispute information in their credit reports.
If consumers detect an inaccuracy on their credit report, the new rule allows them to file a complaint directly with the organization that provided the detail to the credit reporting agency. The complaint must be investigated by that original entity. The rule also dictates that companies include a consumer's credit limit when submitting information to a credit reporting agency. The new standards take effect on July 1, 2010.
Mortgage Metrics
The Office of the Comptroller of the Currency and Office of Thrift Supervision released a report June 30 that showed that servicers have increased the number of sustainable modifications, but serious delinquencies among prime borrowers continue to rise. The report said that servicers modified 185,156 loans in the first quarter, up 55% from the previous quarter and the highest level since regulators began recording the data a year earlier.
Supreme Court
The U.S. Supreme Court ruled 5 to 4 on June 29 that states have the right to enforce certain laws against national banks. While the decision said the OCC has sole "visitorial" powers to examine a national bank, state attorney generals can use judicial proceedings to enforce valid state laws against national banks. The decision said state attorneys general could not go on "fishing expeditions" to subpoena banks but could use the court system to pursue actions against financial institutions.
Bank Failures II
Federal and state regulators shut five banks totaling a combined $1 billion in assets on June 26. The collapses are estimated to cost the DIF $265 million.
The failures were: the $456 million-asset Mirae Bank of Los Angeles; the $80 million-asset MetroPacific Bank in Irvine, Calif.; the $222 million-asset Neighborhood Community Bank in Newnan, Ga.; the $199 million-asset Community Bank of West Georgia in Villa Rica; and the $88 million-asset Horizon Bank in Pine City, Minn.
Warrant Repayments
The Treasury Department released guidance June 26 that lays out a four step process by which banks can repurchase warrants given to the government as part of participation in the Troubled Asset Relief Program. A bank wishing to repay a warrant must submit an offer of fair market value of the warrant within 15 days of repayment of Tarp funds. Treasury then has 10 days to accept the bank's offer. If the government rejects the bank's offer, the Treasury and the bank would each select independent appraisers to conduct their own valuations. Finally, if the appraisers can not agree, a third appraiser would be hired to establish the fair market price of the warrants.
The Treasury said it would value the warrants based on market prices, modeling tools, and outside consultants or financial agents.
Liquidity Facilities
The Federal Reserve Board announced June 25 that it would keep several liquidity facilities in place into early 2010, while allowing other programs to expire.
The central bank said that four programs — the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility and the Term Asset-Backed Securities Lending Facility — would be extended through Feb. 1. All four had been slated to expire Oct. 30.
The Fed did not change the expiration date for the Term Asset-Backed Securities Loan Facility, which was set up to provide liquidity for consumer lending. Once considered a centerpiece of the central bank's efforts to help the markets, Talf, which is due to expire Dec. 31, has generated only limited interest from investors.
Auditing Standards
On June 23 the FDIC finalized a rule that brings auditing requirements for banks more in line with standards established by the Sarbanes-Oxley Act of 2002. The new regulation makes auditing requirements more explicit for both publicly held banks, which already follow Sarbanes-Oxley, and privately held institutions not covered by the 2002 law.
Bank Failures III
Regulators shut three community banks on June 19 in North Carolina, Georgia and Kansas. In all the banks had assets of $1.5 billion, and their failures are estimated to cost the DIF $363 million.
The failures were: the $970 million-asset Cooperative Bank in Wilmington, N.C.; the $377 million-asset Southern Community Bank in Fayetteville, Ga; and the $157 million-asset First National Bank of Anthony in Kansas.
Downey Failure
The Treasury inspector general released a report June 16 that criticized the OTS' supervision of the failed Downey Savings and Loan, saying it could have been tougher on the thrift's emphasis on option adjustable-rate mortgages.
Actions Expected Soon
Overdraft Fees
The Fed is considering whether to require banking companies to get customers' permission before charging overdraft fees. Under a proposal issued late last year, the Fed said it was considering if overdraft protection should be an opt-in or opt-out feature.
