Financial Crisis News Center

FHFA Proposes Rule for Temporary Capital Increases

This story appeared in Bank Digest.

The FHFA has proposed a rule that would implement a provision of the Federal Housing Enterprises Financial Safety and Soundness Act providing for a temporary increase in the minimum capital level for the entities regulated by the agency--the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks. The proposed rule would permit the FHFA Director to impose on the institutions capital levels higher than the statutory minimum and provide for periodic reviews of capital levels.

Agencies Jointly Adopt Changes to Risk-Based Capital Rules

This story appeared in Bank Digest.

The federal bank and thrift regulatory agencies have announced the final risk-based capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. The new accounting standards make substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from these organizations' balance sheets. The rule:

• eliminates the exclusion of certain consolidated asset-backed commercial paper programs from risk-weighted assets;

• provides for an optional two-quarter implementation delay, followed by an optional two-quarter partial implementation, of the effect on risk-weighted assets that will result from the new standards;
• provides for an optional two-quarter delay, followed by an optional two-quarter phase-in, of the application of the agencies' regulatory limit on the inclusion of the allowance for loan and lease losses (ALLL) in tier 2 capital for the portion of the ALLL associated with the assets a banking organization consolidates as a result of the change;
• and reserves the agencies' authority to require a banking organization to treat entities that are not consolidated under accounting standards as if they were consolidated for risk-based capital purposes

.

Regulators Seek Comments on New Basel Capital Proposals

This story appeared in Bank Digest.

The federal bank and thrift regulatory agencies are encouraging comments on Basel Committee on Banking Supervision proposals that aim to strengthen the resiliency of the banking sector through new capital and liquidity standards. The proposed changes include introduction of new standards for liquidity risk management, the addition of a leverage ratio to the Basel II framework, improvements to the quality and consistency of capital and strengthening of capital requirements for counterparty credit risk.

Basel Committee Seeks Comments on Strengthening Liquidity and Capital

John M. Pachkowski, J.D., Editor, CCH Federal Banking Law Reporter and Bank Digest; Author, Anti-Money Laundering and Bank Secrecy: Compliance and the USA PATRIOT Act; Co-Author CCH Financial Privacy Law Guide.

The Basel Committee on Banking Supervision has issued two consultative documents to address deficiencies in the operations and structure internationally active financial institutions that came to light in the global financial crisis.

Capital Treatment of Securitized Assets Finalized

By Serena Lynn, Editor, the CCH Federal Banking Law Reporter and Bank Digest.

The federal bank regulatory agencies have finalized the regulatory capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Beginning in 2010, these new accounting standards will make substantive changes to how banks account for securitized assets that are currently excluded from their balance sheets. The Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Federal Reserve Board and Office of Thrift Supervision developed this final rule to better align regulatory capital requirements with the actual risks of certain exposures. Banks affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The final rule provides an optional delay and phase-in for a maximum of one year for the effect on risk-based capital and the allowance for lease and loan losses related to the assets that must be consolidated as a result of the accounting change. The final rule also eliminates the risk-based capital exemption for asset-backed commercial paper assets. The transitional relief does not apply to the leverage ratio or to assets in conduits to which a bank provides implicit support.

G-20 Calls for Broad Financial Regulatory Reform; Exec Comp Overhaul and Regulation of OTC Derivatives

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

In the final communiqué from their Pittsburgh summit, the G-20 leaders called for the sweeping reform of global financial regulation, including strengthening prudential oversight, improving risk management, enhancing transparency, promoting market integrity, establishing supervisory colleges, and reinforcing international cooperation. The G-20 endorsed tougher regulation of over-the-counter derivatives, securitization markets, credit rating agencies, and hedge funds. The G-20 also endorsed the institutional strengthening of the Financial Stability Board as it assumes its role of coordinating the international consistency of financial regulation. The G-20 said that the FSB’s ongoing efforts to monitor progress will be essential to the full and consistent implementation of needed reforms.

Deputy Secretary Discusses Moral Hazard

This story appeared in Bank Digest.

The government's intervention in the financial system will make the problem of moral hazard worse unless meaningful financial services system reforms are enacted, Deputy Treasury Secretary Neal S. Wolin told the Financial Services Roundtable. Investment banks must be subject to consolidated federal supervision by the Federal Reserve Board, he asserted, and both capital and liquidity standards must be raised. Also, it must be made clear that there is no guarantee of future federal government support, and there must be a mechanism for resolving the failures of such institutions.

IASB Assures Obama and G-20 on Fair Value Accounting Reforms

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Ahead of the G-20 Pittsburgh summit, the oversight body of the IASB has assured the G-20 that the reform of the international standard for fair value accounting in proceeding along the lines of principles outlined by the Basel Committee. Complimentary reform of loan loss provisioning is also on target. In a letter to President Barack Obama, host of the G-20, Gerrit Zalm, chair of the IASB oversight committee, stressed the urgency in completing the first component of the comprehensive revision of IAS 39, the IASB’s financial instrument standard, by year end. In this work, the IASB is guided by principles of transparency and the avoidance of undue complexity enunciated by Basel and recently endorsed by the G-20 Finance Ministers, including Treasury Secretary Tim Geithner. In addition, Basel urges that the standards reflect the need for earlier recognition of loan losses.

Treasury Announces Stronger Capital and Liquidity Standards

Lisa M. Psaute, J.D., Editor, Secured Transactions Guide and Financial Privacy Law Guide.

The Treasury Department has announced stronger capital and liquidity standards for banking firms in order to better protect the safety and soundness of individual banking institutions and the stability of the global financial system and economy.

The Treasury's core principals include: