CCH Financial Reform News Center

Comptroller Sums Up Lessons from Financial Crisis

This story appeared in Bank Digest.

In what was described as the last formal speech of his five-year term as Comptroller, John C. Dugan said the financial crisis had exposed glaring gaps and differences in the regulation of different types of financial institutions and made clear the need for an updated capital framework. Dugan told the Exchequer Club that perhaps the most important part of the Dodd-Frank Act is its effort to bridge the gaps between the regulation of banks and the regulation of other financial products, services and institutions. He noted the need for increased capital levels, as called for by the Dodd-Frank Act, but warned that “at some point, increases in capital levels become counterproductive by causing banks to reduce lending in order to shrink their balance sheets.”

Banks Alerted to Guidance on Sound Incentive Compensation

This story appeared in Bank Digest.

The Office of the Comptroller of the Currency has alerted banks to interagency guidance on sound incentive compensation policies and practices. The guidance is intended to assist banking organizations in designing and implementing incentive compensation arrangements that do not encourage imprudent risk-taking and that are consistent with the safety and soundness of the organization. The guidance became effective June 25, 2010.

First Quarter Trading Revenues Strong; Derivatives Credit Exposures Declined

This story appeared in Bank Digest.

The latest Quarterly Report on Bank Trading and Derivatives Activities, issued by the Office of the Comptroller of the Currency found that bank trading revenues in the first quarter of 2010 rebounded from seasonally lower fourth quarter levels, and credit exposure from derivatives continued to decline. “We expected to see a sharp rebound in trading revenues from the seasonally weak fourth quarter, as client demand is typically very strong in first quarters,” said Deputy Comptroller for Credit and Market Risk Kathryn Dick.

Regulators Find Deficient Incentive Compensation Practices at Many Firms

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Many financial firms have been “deficient” in ensuring that their incentive compensation practices are risk appropriate, and will face additional reviews to ensure that revised practices do not undermine the safety and soundness of the firm or create undue risks to the financial system as a whole, banking regulators said June 21, 2010.

Among their findings were that many firms need better ways to identify which employees can expose banking organizations to material risk. Firms have also been using deferral arrangements to adjust for risk, but are using a “one-size-fits-all” approach, regulators noted. Other firms were found not to have adequate mechanisms to evaluate whether established practices were successful in balancing risk.

OTS Alerts Thrifts to Public Hearings on CRA Rule Proposals

This story appeared in Bank Digest.

The Office of Thrift Supervision has notified its supervised thrifts of public hearings on the bank regulatory agencies’ (Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corp. and OTS) Community Reinvestment Act (CRA) regulations. The hearings will be held in Los Angeles, Arlington, Va., Atlanta, and Chicago during the summer of 2010. Most will take place at Federal Reserve Banks. They will seek a wide range of perspectives on how the agencies could revise their regulations to meet the purposes of the CRA more effectively. The agencies invite oral and written testimony from interested persons on these issues.

FDIC Issues Proposed Securitization Safe Harbor

This story appeared in Bank Digest.

The Federal Deposit Insurance Corp. is proposing to clarify the safe harbor protection in a conservatorship or receivership for financial assets transferred by an insured depository institution in connection with a securitization or participation. Securitizations or participations in process as of Sept. 30, 2010, already are covered by a transitional safe harbor; the current proposal seeks comments on the treatment of securitizations and participations created after that date. The proposal incorporates what was learned from an advance notice of proposed rulemaking issued earlier this year.

Interagency Guidance on Correspondent Concentration Risks Issued

This story appeared in Bank Digest.

The Office of the Comptroller of the Currency and Office of Thrift Supervision have notified national banks (OCC 2010-16) and federal savings associations (CEO Ltr 346)of an interagency guidance reminding financial institutions of supervisory expectations on sound practices for managing risks associated with funding and credit concentrations arising from correspondent relationships. A correspondent relationship occurs when a financial organization provides another financial organization with services related to deposits, lending or other activities. The guidance highlights the need for institutions to identify, monitor and manage correspondent concentration risk on a standalone and organization-wide basis. The guidance also cautions institutions to be aware of their affiliates' exposures to correspondents as well as the correspondents' subsidiaries and affiliates.

Senate Reform Bill Would Cause Holding Company Regulatory Shuffle

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

“The Enhancing Financial Institution Safety and Soundness Act of 2010” (Title III of the Restoring American Financial Stability Act (S. 3217)) would cause many bank and thrift holding companies to come under the supervision of a different regulatory agency. Under the act, which has been approved by the Senate Banking Committee and recently moved to the Senate floor for amendment, national bank and thrift holding companies with total consolidated assets of less than $50 billion—the threshold for being designated a “systemically important institution”—would be supervised by the Office of the Comptroller of the Currency, rather than the Federal Reserve Board or Office of Thrift Supervision, respectively, and federally insured state banks and thrifts would be supervised by the Federal Deposit Insurance Corporation, rather than the Fed. Thus, all bank and thrift holding companies with less than $50 billion in total consolidated assets would experience a change in their primary federal regulator at the holding company level.

Dugan Discusses Future Role of CRA

This story appeared in Bank Digest.

Comptroller of the Currency John C. Dugan encouraged a redesign of the Community Reinvestment Act (CRA) to boost its role in today's much larger, more technology-driven financial services industry. Speaking before the International Economic Development Council Federal Economic Development Forum on April 20, 2010, Dugan commented that a redesign of CRA would necessarily raise a number of important issues, notably including whether to expand CRA's coverage to non-bank affiliates and bank and thrift holding company subsidiaries.

OCC Wary of Routine Disclosure of Bank Stress Tests

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Comptroller of the Currency John Dugan warned against routine disclosure of bank supervisory stress tests in the future, even though stress tests conducted last year on the nation’s 19 largest banks were successful in large part due to disclosure.

Speaking April 15, 2010, Dugan acknowledged that last year’s stress tests played a “crucial” role in restoring market confidence in the nation’s largest banks, and were “the most significant and successful policy proposal of the new administration to address the banking crisis.”