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Supervisory Insights - Winter 2010

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Issue at a Glance
Letter from the Director
Trust Preferred Securities and the Capital Strength of Banking Organizations
Insights from the FDIC's Credit and Consumer Products/Services Survey
Senior Life Settlements: A Cautionary Tale
From the Examiner's Desk
Regulatory and Supervisory Roundup
Credits

Issue at a Glance
Volume 7, Issue 2 Winter 2010

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Letter from the Director

Articles

Trust Preferred Securities and the Capital Strength of Banking Organizations
During 2010, legislators and regulators undertook a number of significant regulatory reforms in response to the financial crisis. One important theme of these reforms is the need for banking organizations to have stronger capital positions to weather periods of economic stress. This paper discusses one component of regulatory capital that was the subject of significant discussion, debate, and reform: trust preferred securities issued by bank holding companies.

Insights from the FDIC's Credit and Consumer Products/Services Survey
The FDIC's Credit and Consumer Products/Services Survey was implemented in late 2009 to augment the collection of more traditional examination information. This Survey targets underwriting practices, new and evolving banking activities and products, local commercial real estate market conditions, funding practices, and consumer compliance issues. The authors summarize areas of particular interest to regulators and bankers from the analysis of recent survey results.

Senior Life Settlements: A Cautionary Tale
Senior life settlements (SLS), also known as death bonds, are increasingly being touted by Wall Street firms and financial advisers as a unique investment option. However, substantial financial risks, aggressive and deceptive sales practices driven by the possibility of high commissions, as well as the potential for fraud have resulted in heightened regulatory and legislative scrutiny of the SLS industry. SLS, in fact, have never received the supervisory approvals required to be deemed permissible bank investments. This article provides an overview of the development of the SLS market and identifies significant risks associated with these transactions to financial institutions, investors, and consumers.

Regular Features

From the Examiner's Desk: Managing Agricultural Credit Concentrations
The agricultural sector has continued to perform well during the recent economic downturn. However, the industry is cyclical and subject to substantial inherent volatility, and adherence to prudent and safe-and-sound banking practices will help ensure farm banks are well positioned to weather any challenges. This article identifies perennial hazards to the agricultural economy and highlights best practices related to agricultural lending and management of agricultural credit concentrations.

Regulatory and Supervisory Roundup
This feature provides an overview of recently released regulations and supervisory guidance.





Last Updated 03/09/2011 supervisoryjournal@fdic.gov