Financial Crisis News Center

Thrift Industry Broke Even in 2009

This story appeared in Bank Digest.

U.S. thrift industry earnings showed signs of stabilizing in 2009, the Office of Thrift Supervision said, as the industry posted a profit of $505 million in the fourth quarter and essentially broke even for the year. The industry reported net income of $29 million in 2009, its first positive annual net income since 2006. The industry had net losses of $15.9 billion in 2008 and $649 million in 2007. In 2009, profits in the final two quarters offset losses in the first two quarters, the agency said. Equity capital rose to 10.7 percent of assets at the end of 2009, up from 8.9 percent a year earlier.

Thrifts Alerted to Policy Statement on Small Business Lending

This story appeared in Bank Digest.

The OTS has alerted thrifts that the Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Conference of State Bank Supervisors and OTS have adopted the Policy Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers. The Statement addresses lending to creditworthy small business borrowers in the current economic environment.

Joint Agency Policy Statement Restates and Elaborates Supervisory Views on Small Business Lending

This story appeared in Bank Digest.

The Office of the Comptroller of the Currency, along with the Federal Reserve Board, Federal Deposit Insurance Corp., Office of Thrift Supervision and the Conference of State Bank Supervisors, have adopted the Policy Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers. The policy statement builds upon principles in existing guidance, including the November 2008 Statement on Meeting the Needs of Creditworthy Borrowers and the October 2009 Statement on Prudent Commercial Real Estate Loan Workouts.

The statement discusses principles of sound underwriting and risk management practices and notes that financial institutions should consider new lending opportunities on the basis of a comprehensive review of a borrower’s financial condition while maintaining prudent lending and concentration risk management standards. Financial institutions should apply the principles of the policy statement in accordance with their internal definitions of small business loans or as appropriate in their loan portfolios. Small business lending includes loans to small businesses and farms, such as working capital lines of credit, secured and unsecured term loans, as well as unsecured revolving credit.

OCC and OTS Release Mortgage Metrics Report for Third Quarter 2009

This story appeared in Bank Digest.

The OCC and OTS Mortgage Metrics Report for the Third Quarter 2009 states that national bank and thrift servicers implemented more than 680,000 home loan modifications and payment plans in the third quarter of 2009 to avoid preventable foreclosures. According to the Report, this number represented a nearly 69 percent increase in home retention actions from the previous quarter. Despite progress in this area, the percentage of current and performing mortgages dropped for the sixth consecutive quarter to 87 percent of the servicing portfolio, serious delinquencies rose to 6.2 percent, and foreclosures in process surpassed 1 million mortgages, or about 3.2 percent of the servicing portfolio. The Report states that “of particular note” was the deterioration among prime mortgages, the largest category of mortgages. Serious delinquencies at the end of the third quarter increased to 3.6 percent of prime mortgages, up almost 20 percent from the previous quarter and more than double a year ago.

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.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

Guidance on Credit Losses, Investment Impairments Issued

This story appeared in Bank Digest.

The OTS has issued guidance on the need to accurately account for credit losses and impairment of investments. The agency specifically noted ongoing problems with thrifts that do not have policies, procedures and written documentation related to impaired loans that comply with accounting standards and interagency guidance. Each thrift must have a well-documented and well-explained allowance for loan and lease losses (ALLL) that is appropriate to absorb the estimated losses that are inherent in its loan and lease portfolio. According to the OTS, an ALLL should be “prudent and appropriate but not excessive.” The agency also emphasized the need to recognize an other-than-temporary impairment of the value of an investment in a timely manner.

OTS Guides on TILA Changes

This story appeared in Bank Digest.

The OTS has provided guidance on changes to the Truth in Lending Act (TILA) made by the Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009 and the Credit CARD Technical Corrections Act of 2009. According to the agency, TILA now states that a creditor may not treat a payment on a credit card account under an open-end consumer credit plan as late for any purpose, unless the creditor has adopted reasonable procedures designed to ensure that each periodic statement is mailed or delivered to the consumer at least 21 days before the payment due date. This correction was effective Nov. 6, 2009.

Thrift Industry Posts Another Breakeven Quarter

This story appeared in Bank Digest.

The Office of Thrift Supervision has reported that the thrift industry broke even for the second consecutive quarter in the third quarter of 2009. Although the industry showed a profit of $1.3 billion for the quarter, $1.1 billion of that figure was due to a non-operating gain at one thrift. Thus, the industry's net operating income was $200 million, which is essentially a breakeven number. “We see some encouraging signs, but we also see signs that give us pause,” said OTS Acting Director John E. Bowman. “We will continue to expect that the thrift industry remain vigilant in case the economic recovery is prolonged.”

OTS Provides Exam Guidance for CPP

This story appeared in Bank Digest.

The OTS has provided savings associations and holding companies participating in the Troubled Asset Relief Program’s Capital Purchase Program guidance for ensuring compliance with the provisions of the Securities Purchase Agreement and applicable laws and regulations. The OTS will monitor a participant's use of CPP funds to augment capital and support lending needs in its market. The OTS noted that, even though the terms of the Securities Purchase Agreement do not mandate specific use of these federal monies, the OTS expects each institution and holding company to document the use of CPP funds as a matter of sound corporate governance. Examiners will expect a level of documentation commensurate with the amount of TARP funds received and the percentage of funds directed to thrift activities.