CCH Financial Reform News Center

Interest Rate Risk Measures Released

This story appeared in Bank Digest.

The OTS has released the most recent industry statistics for several measures of interest rate risk: the Post-Shock Net Portfolio Value (NPV) Ratio, the Interest Rate Sensitivity Measure, the Pre-Shock NPV Ratio and the Change in NPV Ratio. The tables can be used to assess an institution's level of interest rate risk.

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.

Thrifts Alerted to CRA Rulemaking and Review

This story appeared in Bank Digest.

Thrifts supervised by the Office of Thrift Supervision have been notified of a joint proposed rulemaking that would amend the definition of “community development” as used in the Community Reinvestment Act (CRA) regulations. The revised definition would allow for favorable consideration for loans, investments and services by banks and thrifts that directly support, enable or facilitate eligible projects or activities in HUD–approved designated target areas, in accordance with the Neighborhood Stabilization Program (NSP). The expanded definition of “community development” would help to leverage NSP funds in areas experiencing high foreclosure or vacancy rates and the associated adverse impacts of property deterioration and neighborhood blight. These problems are projected to continue for several years and beyond and have affected middle-income census tracts as well as low- and moderate income tracts.

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.

Senate Reform Bill Would Abolish OTS

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 of 2010 (S. 3217), would eliminate the Office of Thrift Supervision (OTS), transferring its regulatory and rulemaking authority to the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (Fed), primarily, with some functions being absorbed by the Federal Deposit Insurance Corporation (FDIC). In addition, no new federal savings association charters would be allowed. The state thrift charter would not be impacted, however, and no new limits would be placed on existing federal thrifts or their owners.

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.

OTS Amending Credit Practices Rules

This story appeared in Bank Digest.

The Office of Thrift Supervision  is amending its regulations at 12 CFR part 535 titled “Prohibited Consumer Credit Practices” to avoid duplication and inconsistency with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) and the rules adopted by the Federal Reserve Board implementing the Credit CARD Act. The amendments become effective July 1, 2010.

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.

OTS Offers Guidance on Risk Weighting of Early Default Provisions

This story appeared in Bank Digest.

The Office of Thrift Supervision has issued guidance on risk weighting of early default provisions under the agency’s capital regulations. The guidance noted that where there is recourse—the retention of credit risk—a savings association must hold capital for the assets as if they were still carried on its books.

Evaluation of Oversight of Washington Mutual Bank Issued

This story appeared in Bank Digest.

The Inspectors General for the Treasury Department and Federal Deposit Insurance Corp. have issued an evaluation of federal regulatory oversight of Washington Mutual (WaMu). The objectives of the evaluation were to: determine the cause of WaMu’s failure; assess the Office of Thrift Supervision’s (OTS) supervision of WaMu including implementation of Prompt Corrective Action; evaluate the FDIC’s supervision and monitoring of WaMu as deposit insurer; and assess the FDIC’s resolution process for WaMu.