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Supervisory Insights

Overview of Selected Regulations and Supervisory Guidance

This section provides an overview of recently released regulations and supervisory guidance, arranged in reverse chronological order. Press Release (PR) and Financial Institution Letter (FIL) designations are included so the reader can obtain more information.

FDIC Federal Deposit Insurance Corporation
FRB Federal Reserve Bank
OCC Office of the Comptroller of the Currency
OTS Office of Thrift Supervision
NCUA National Credit Union Administration
Banking agencies FDIC, FRB, and OCC
Federal bank and thrift regulatory agencies FDIC, FRB, OCC, and OTS
Federal financial institution regulatory agencies FDIC, FRB, OCC, OTS, and NCUA

Subject Summary
Solicitation of Comments on Legacy Loans Program (PR-48-2009, March 26, 2009) The FDIC announced the opening of the public comment period for the Legacy Loans Program, which is designed to remove troubled loans and other assets from FDIC-insured institutions and attract private capital to purchase the loans. Comments were due by April 10, 2009. See
Changes to Debt Guarantee Component Reporting Requirements of Temporary Liquidity Guarantee Program (FIL-15-2009, March 23, 2009) This FIL amends certain reporting requirements, clarifies previously issued reporting guidance, and consolidates reporting instructions relating to the debt guarantee component of the Temporary Liquidity Guarantee Program. This FIL and its attachments supersede FIL–139–2008 and FIL–2–2009. See
Extension of Debt Guarantee Component of Temporary Liquidity Guarantee Program (PR-41-2009, March 17, 2009; FIL-14-2009, March 18, 2009) The FDIC adopted an interim rule that extends the debt guarantee component of the Temporary Liquidity Guarantee Program from June 30, 2009, through October 31, 2009, and imposes surcharges on existing rates for certain debt issuances to gradually phase out the program. See
Statement in Support of the International Association of Deposit Insurers and Basel Committee on Issuance of Core Principles (PR-40-2009, March 17, 2009) The FDIC issued support for the work of the Basel Committee on Banking and Supervision and the International Association of Deposit Insurers on issuing the Core Principles for Effective Deposit Insurance Systems for public consultation. These principles are a result of the Financial Stability Forum’s call for authorities to agree on an international set of principles for effective deposit insurance systems and address a range of issues, including deposit insurance coverage, funding, and prompt reimbursement. See
Statement in Support of the “Making Home Affordable” Loan Modification Program (PR-35-2009, March 4, 2009) The Treasury Department announced guidelines for the “Making Home Affordable” loan modification program. The federal bank, thrift, and credit union regulatory agencies encourage all federally regulated financial institutions that service or hold residential mortgage loans to participate in the program. See
Use of Volatile or Special Funding Sources by Financial Institutions That Are in a Weakened Condition (FIL-13-2009, March 3, 2009) The FDIC issued guidance emphasizing that FDIC-supervised institutions rated “3,” “4,” or “5” are expected to implement a plan to stabilize or reduce their risk exposure and limit growth. This plan should not include the use of volatile liabilities or temporarily expanded FDIC insurance or liability guarantees to fund aggressive asset growth or otherwise materially increase the institution’s risk profile. Institutions in a weakened financial condition that engage in material growth strategies pose a significant risk to the deposit insurance fund and will be subject to heightened supervisory review and enforcement. Continuation of prudent lending practices generally would not be considered as increasing the risk profile. See
Interim Final Rule on Mandatory Convertible Debt Under the TLGP (FIL-11-2009, March 2, 2009) The FDIC adopted an interim rule that allows entities participating in the debt guarantee portion of the Temporary Liquidity Guarantee Program to issue certain mandatory convertible debt (MCD). No FDIC-guaranteed MCD may be issued without the FDIC’s prior written approval. See
Final Rule on Deposit Assessments; Amended FDIC Restoration Plan; Interim Rule on Emergency Special Assessment (PR-30-2009, February 27, 2009; FIL-12-2009, March 2, 2009; Federal Register, Vol. 74, No. 41, p. 9564, March 4, 2009) The FDIC Board of Directors voted to amend the restoration plan for the Deposit Insurance Fund (DIF), extending from five years to seven the time horizon to restore the DIF reserve ratio to 1.15 percent. The Board also took action to ensure the continued strength of the insurance fund by implementing changes to the risk-based assessment system, setting rates beginning the second quarter of 2009, and adopting an interim rule with request for comments imposing an emergency 20 basis-point special assessment on June 30, 2009, to be collected on September 30, 2009. Comments on the interim rule were due by April 3, 2009. See
Commencement of Forward-Looking Economic Assessments (PR-25-2009, February 25, 2009) The federal bank regulatory agencies announced they will begin conducting forward-looking economic assessments of large U.S. banking organizations as the Capital Assistance Program gets under way. Supervisors will work with institutions to estimate the range of possible future losses and the resources to absorb such losses over a two-year period. See
Interagency Statement on the Financial Stability Plan (February 10, 2009) The federal bank and thrift regulatory agencies announced a comprehensive set of measures to restore confidence in the strength of U.S. financial institutions and restart the critical flow of credit to households and businesses. This program will help lay the groundwork for restoring the flow of credit necessary to support recovery. See
Release of First National Survey of Banks’ Efforts to Serve the Unbanked and Underbanked (PR-15-2009, February 5, 2009) In the first national survey of banks’ efforts to serve unbanked and underbanked individuals and families in their market areas, the FDIC found that improvement may be possible in the areas of focus, outreach, and commitment. The majority of banks (63 percent) offer basic financial education materials, but fewer participate in the types of outreach efforts viewed by the industry as most effective to attract and maintain unbanked and underbanked individuals as long-term customers. See
Revisions to the Consolidated Reports of Condition and Income for 2009 (FIL-7-2009, January 30, 2009) The Federal Financial Institutions Examination Council has approved revisions to the reporting requirements for the Consolidated Reports of Condition and Income. These regulatory reporting revisions will take effect on a phased–in basis during 2009. The U.S. Office of Management and Budget must approve these changes before they become final. See
Interest Rate Restrictions on Institutions That Are Less Than Well-Capitalized (PR-9-2009, January 27, 2009; FIL-5-2009, January 28, 2009; Federal Register, Vol. 74, No. 21, p. 5904, February 3, 2009) The FDIC issued a proposed rule that would make certain revisions to the interest rate restrictions under Part 337.6 (“Brokered Deposits”) of the FDIC Rules and Regulations. The proposal would redefine the “national rate” as a simple average of deposit rates paid by U.S. depository institutions, discontinuing the use of Treasury yields (which are currently well below average deposit rates) in the definition. The proposal, in the absence of contrary evidence as to the rates in a particular market, also would specify that the prevailing rate in all market areas is deemed to be the “national rate” as defined by the FDIC. Comments on the proposed rule were due by April 4, 2009. See
Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure – Final Rule (PR-8-2009, January 27, 2009; FIL-9-2009, February 4, 2009; Federal Register, Vol. 74, No. 20, p. 5797, February 2, 2009) The FDIC issued a final rule on processing deposit accounts in the event of a bank failure. The rule finalizes the interim rule issued in July 2008, which established the FDIC’s practices for determining deposit and other liability account balances at a failed insured depository institution. The final rule also requires institutions to prominently disclose to sweep account customers whether the swept funds are deposits and the status of the swept funds if the institution were to fail. The final rule took effect on March 4, 2009; however, the effective date of the sweep account disclosure requirements is July 1, 2009. See
Risk Management of Remote Deposit Capture (FIL-4-2009, January 14, 2009) The Federal Financial Institutions Examination Council issued guidance to assist financial institutions in identifying risks in their remote deposit capture (RDC) systems and evaluating the adequacy of controls and applicable risk management practices. The guidance addresses the necessary elements of an RDC risk management process—risk identification, assessment, and mitigation—and the measurement and monitoring of residual risk exposure. The guidance also discusses the responsibilities of the board of directors and senior management in overseeing the development, implementation, and ongoing operation of RDC. See
Monitoring of the Use of Funding from Federal Financial Stability and Guaranty Programs (FIL-1-2009, January 12, 2009) The FDIC announced that state nonmember institutions should implement a process to monitor their use of capital injections, liquidity support, or financing guarantees obtained through recent financial stability programs established by the U.S. Department of the Treasury, the FDIC, and the Federal Reserve. In particular, the monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending or efforts to work with existing borrowers to avoid unnecessary foreclosures. The FDIC encourages institutions to include a summary of this information in shareholder and public reports, annual reports and financial statements, as applicable. See
Final Interagency Questions and Answers on Community Reinvestment (PR-3-2009, January 6, 2009; FIL-6-2009, January 28, 2009; Federal Register, Vol. 74, No. 3, p. 498, January 6, 2009) The federal bank and thrift regulatory agencies published final Interagency Questions and Answers Regarding Community Reinvestment (Questions and Answers). The agencies also published for comment one new and two revised questions and answers. The final Questions and Answers took effect on January 6, 2009. Comments on the proposed Questions and Answers were due by March 9, 2009. See
FDIC Teleconference on Conducting a Fair Lending Risk Assessment (FIL-148-2008, December 30, 2008) FDIC Fair Lending Examination Specialists hosted a Fair Lending Conference Call for bankers on January 14, 2009. The call featured a presentation on how bankers can perform an effective fair lending risk assessment. See
Revised Identity Theft Brochure (PR-143-2008, December 22, 2008) The federal bank and thrift regulatory agencies announced publication of a revised identity theft brochure—You Have the Power to Stop Identity Theft—to assist consumers in preventing and resolving identity theft. The updated brochure focuses on Internet “phishing” by describing how phishing works, offering ways to protect against identity theft, and detailing steps to follow for victims of identity theft. See
Release of Annual Community Reinvestment Act Asset-Size Threshold Adjustments for Small and Intermediate Small Institutions (PR-140-2008, December 17, 2008; FIL-145-2008, December 17, 2008) The federal bank and thrift regulatory agencies published the joint final rule amending the Community Reinvestment Act to make the annual adjustment to the asset-size threshold used to define “small bank” and “intermediate small bank” under the Act. As a result of the 4.49 percent increase in the Consumer Price Index for the period ending in November 2008, “small bank” or “small savings association” refers to an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.109 billion; “intermediate small bank” or “intermediate small savings association” refers to an institution with assets of at least $277 million as of December 31 for both of the prior two calendar years and less than $1.109 billion as of December 31 for either of the prior two calendar years. These asset-size threshold adjustments took effect January 1, 2009. See
Regulatory Capital Standards Deduction of Goodwill Net of Associated Deferred Tax Liability (PR-139-2008, December 16, 2008; FIL-144-2008, December 16, 2008; Federal Register, Vol. 73, No. 250, p. 79602, December 30, 2008) The federal banking agencies jointly issued a final rule allowing goodwill, which must be deducted from tier 1 capital, to be reduced by the amount of any associated deferred tax liability. The final rule took effect January 29, 2009. However, a bank may elect to apply this final rule for regulatory capital reporting purposes as of December 31, 2008. See
Final Rule on Recordkeeping Requirements for Qualified Financial Contracts (PR-138-2008, December 16, 2008; FIL-146-2008, December 18, 2008) The FDIC issued a final rule to improve the FDIC’s ability to monitor and evaluate risks in certain insured depository institutions with qualified financial contracts, as well as assure preparedness if such institutions fail. The recordkeeping requirements in the final rule require insured depository institutions in a troubled condition to provide certain crucial information to the FDIC in a timely manner, including adequate position level documentation of the counterparty relationships of failed institutions. See
Final Rule on Deposit Insurance Assessments for the First Quarter of 2009 (PR-136-2008, December 16, 2008; FIL-143-2008, December 16 , 2008) The FDIC Board of Directors approved the final rule on deposit insurance assessment rates for first quarter 2009. The rule raises assessment rates uniformly by 7 basis points (annual rate) for first quarter 2009 only. Currently, banks pay between 5 and 43 basis points of their domestic deposits for FDIC insurance. Under the final rule, risk-based rates would range between 12 and 50 basis points (annualized) for the first quarter 2009 assessment. Most institutions would be charged between 12 and 14 basis points. See
Revisions to Regulatory Reports Filed by FDIC-Insured Depository Institutions (FIL-141-2008, December 11, 2008) In response to the FDIC’s adoption of the Temporary Liquidity Guarantee Program (TLGP), the Federal Financial Institutions Examination Council approved revisions to the Consolidated Reports of Condition and Income, the Thrift Financial Report, and the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks. These regulatory reporting revisions, which took effect December 31, 2008, will be applicable to FDIC-insured depository institutions that participate in the Transaction Account Guarantee Program. A participating institution will report the amount and number of its noninterest-bearing transaction accounts, as defined in the FDIC’s regulations governing the TLGP, of more than $250,000. Institutions have the option to exclude such accounts that are otherwise fully insured under the FDIC’s deposit insurance rules as determined and documented by the institution. The FDIC will use this information to calculate assessments for participants in the Transaction Account Guarantee Program. See
Consumer Understanding of Increased Deposit Insurance Coverage (PR-130-2008, December 4, 2008) Federal deposit insurance coverage has significantly increased, primarily as a result of a temporary boost in the basic insurance limit from $100,000 to $250,000. The FDIC issued an explanation of the new changes along with tips and information to help bank customers better understand their insurance coverage and how to be sure all their deposits are fully protected. See
Regulation Z (Truth in Lending) and Regulation C (Home Mortgage Disclosure) — Amendments to the Regulations (FIL-134-2008, December 2, 2008) The closed-end mortgage provisions of Regulation Z, which implement the Truth in Lending Act and the Home Ownership and Equity Protection Act, have been amended. Among other changes, these provisions now include consumer protections specific to “higher-priced mortgage loans.” The compilation and reporting of loan data provisions of Regulation C, which implements the Home Mortgage Disclosure Act, now conform to the definition of higher-priced mortgage loans under Regulation Z. The amendments to Regulations Z (with limited exceptions) and C take effect on October 1, 2009. See
Expansion of Bidder List for Troubled Institutions (PR-127-2008, November 26, 2008) The FDIC is establishing a modified bidder qualification process to expand the pool of qualified bidders for the deposits and assets of failing depository institutions. The process will allow interested parties that do not currently have a bank charter to participate in the bid process through which failing depository institutions are resolved. See
Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup (PR-125-2008, November 23, 2008) In support of the U.S. government’s commitment to supporting financial market stability, on November 23, 2008, the government entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital. As part of the agreement, the Treasury and the FDIC will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan. See
Adoption of TLGP Final Rule (PR-122-2008, November 21, 2008; FIL-132-2008, November 21, 2008) The FDIC adopted the Final Rule implementing the Temporary Liquidity Guarantee Program inaugurated October 14, 2008. The TLGP consists of two basic components: a guarantee of newly issued senior unsecured debt of banks, thrifts, and certain holding companies (the debt guarantee program), and full guarantee of non-interest-bearing deposit transaction accounts, such as business payroll accounts, regardless of dollar amount (the transaction account guarantee program). The purpose of the debt guarantee and the guarantee of transaction accounts is to reduce funding costs and allow banks and thrifts to increase lending to consumers and businesses. See
Availability of IndyMac Loan Modification Model (PR-121-2008, November 20, 2008) The FDIC announced the availability of a comprehensive package of information to give servicers and financial institutions the tools to implement a systematic and streamlined approach to modifying loans based on the FDIC Loan Modification Program initiated at IndyMac Federal Bank. The Program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. See
Proposed Revisions to the Interagency Appraisal and Evaluation Guidelines and Request for Comments (PR-117-2008, November 13, 2008; FIL-131-2008, November 19, 2008; Federal Register, Vol. 73, No. 224, p. 69647, November 19, 2008) The federal bank, thrift, and credit union regulatory agencies jointly issued for comment proposed Interagency Appraisal and Evaluation Guidelines that reaffirm supervisory expectations for sound real estate appraisal and evaluation practices. The proposed guidance builds on the existing federal regulatory framework to clarify risk management principles and internal controls for ensuring that financial institutions’ real estate collateral valuations are reliable and support their real estate-related transactions. The initiative is intended to respond to heightened concerns over appraisals and credit quality. The proposed guidance would replace the 1994 Interagency Appraisal and Evaluation Guidelines to incorporate recent supervisory issuances and reflect changes in industry practice, uniform appraisal standards, and available technologies. Comments were due by January 20, 2009. See
Stored Value Cards and Other Nontraditional Access Mechanisms—New General Counsel’s Opinion No. 8 (FIL-129-2008, November 13, 2008) The FDIC Board of Directors approved the new General Counsel’s opinion on the insurability of funds underlying stored value cards and other nontraditional access mechanisms. The new opinion replaces the previous General Counsel’s Opinion No. 8, published in 1996. The new opinion addresses the issue of whether the funds underlying stored value cards and other nontraditional access mechanisms qualify as “deposits” as defined in the Federal Deposit Insurance Act. Under the new opinion, the funds will be “deposits” to the extent the funds have been placed at an insured depository institution. Consequently, the funds will be subject to assessments and will be insured (up to the insurance limit). See
Interagency Statement on Meeting the Needs of Creditworthy Borrowers (PR-115-2008, November 12, 2008; PR-116-2008, November 12, 2008; FIL-128-2008, November 12, 2008) The federal government has recently put into place several federal programs to promote financial stability and mitigate the effects of current market conditions on insured depository institutions. This statement encourages financial institutions to support the lending needs of creditworthy borrowers, strengthen capital, engage in loss mitigation strategies and foreclosure prevention strategies with mortgage borrowers, and assess the incentive implications of compensation policies. See
Guidance on Payment Processor Relationships (FIL-127-2008, November 7, 2008) The FDIC issued guidance that describes potential risks associated with relationships with entities that process payments for telemarketers and other merchant clients. These types of relationships pose a higher risk and require additional due diligence and close monitoring. The guidance outlines risk management principles for this type of higher-risk activity. See

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Last Updated 06/29/2009

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