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Effective July 21, 2011, the Office of Thrift Supervision (OTS) has merged with the Office of the Comptroller of the Currency (OCC). Pursuant to Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010), all functions of the OTS related to Federal savings associations were transferred to the Office of the Comptroller of the Currency.

Effective July 2011, the Federal Deposit Insurance Company (FDIC) assumed all functions of the OTS related to state savings association.

Effective July 2011, all consumer financial protection functions of the Federal Reserve, the OCC and the FDIC were transferred to the Bureau of Consumer Financial Protection (BCFP). All consumer protection functions of the Secretary of the Department of Housing and Urban Development relating to the Real Estate Settlement Procedures Act, the Secure and Fair Enforcement for Mortgage Licensing Act, and the Interstate Land Sales Full Disclosure Act were also transferred to the BFCP.


There are two objectives in financial institution regulation:
  • Protection of depositors.
  • Stability and efficiency of the monetary system.

  •   United States Bank Regulation & Supervision
     
    The United States maintains a dual banking system: both the states and the federal government issue bank charters.
  • The Office of the Comptroller of the Currency (OCC) charters national banks.
  • State banking departments charter state banks within their jurisdiction.
  • A federal charter pre-empts state laws thus banks (and non-banks) that want to offer services nationally tend to apply for approval by the Federal Reserve or the Office of the Comptroller of the Currency (OCC).

    In addition in the United States, there has never been a single, centralized, primary regulator of financial institutions, which established an overall system or single set of regulatory principles. Thus, domestic banks (savings and commercial) and foreign bank branches are subject to regulations enforced by:
  • Federal Reserve Bank (FRB)
  • Office of the Comptroller of the Currency (OCC, U.S. Treasury Dept.)   (On February 12, 2004, the OCC removed the regulatory authority of state banking departments to regulate nationally chartered banks and reserved that authority at the Federal level). This means that 14 state predatory-lending laws and other consumer-protection laws at the state level no longer apply to banks chartered by the federal government.
  • Fedral Deposit Insurance Company (FDIC)
  • State Banking Office (please also see Links to State Banking Departments)
  • All federal and state regulators have adopted the Capital Adequacy measurement standard that was developed in 1988 by the international Basle Committee on Banking Regulations and Supervisory Practices and is known as the Basel I Accord (International Convergence of Capital Measurement and Capital Standards).

    BankCharterRegulator
    Bank Holding CompanyNational or State charter and Fed member Supervised by the Federal Reserve Bank (FRB)
    Commercial bankNational (federal) charter and Fed member Chartered & supervised by the Office of the Comptroller of the Currency (OCC)
    State / Commercial bankState charter and Fed member Supervised by the Federal Reserve Bank (FRB)
    State / Commercial bankState charter and Fed non-member Supervised by the FDIC
    Savings banksState charter supervised by the FDIC
    Savings & Loan associationsState or federal charter Supervised by the Office of the Comptroller of the Currency (OCC)
    Thrift Holding Cos.State or federal charter Supervised by the Office of the Comptroller of the Currency (OCC)
    Cooperative banks  supervised by the Federal Reserve and/or FDIC
    Edge Act & agreement corps.  supervised by the Federal Reserve Bank (FRB)
    Section 20 affiliates  supervised by the Federal Reserve & SEC
    Foreign bank branchState license supervised by the Federal Reserve Bank (FRB) and FDIC (if insured)
    Foreign bank branchFederal license supervised by the Federal Reserve and OCC; FDIC if insured
    Foreign bank representative office  supervised by the Federal Reserve Bank (FRB)
    Industrial bankState Charter supervised by the state banking department




    Federal Laws That Regulate The U.S. Banking Industry.


    National Bank Act of 1864 (Ch. 106, 13 Stat. 99; June 3, 1864)
  • Revision of the Act to Provide National Currency (ch. 58, 12 Stat. 665, February 25, 1863)
  • Established a national banking system of federally chartered banks and uniform national currency.
  • Established a government agency headed by a Comptroller of the Currency (as a bureau of the U.S. Department of the Treasury) to regulate nationally-chartered banks (National banks were required to purchase U.S. government securities, deposit the securities with the Comptroller, and the received national bank notes in return).
  • On March 3 1865, Congress levied a 10% tax on (non-federal) State Bank Notes in order to phase the bills out of circulation.

  • Aldrich-Vreeland Act of 1908 (Ch. 229, 35 Stat. 546; May 30, 1908)
  • Provided for emergency currency issues during financial crises.
  • Established the National Monetary Commission to search for a long-term solution to the nation's banking and financial problems.

  • Federal Reserve Act of 1913 (P.L. 63-43 / Ch. 6, 38 Stat. 251; 12 USC 226; December 23, 1913).
  • Established the Federal Reserve System as the nation's central bank with 12 regional banks, 7-member Board of Governors, reserve requirements, assist with the management of the money supply, efficient check clearing, and improve bank regulation.
  • Section 19 of the Federal Reserve Act gives the Federal Reserve Board authority to impose reserve requirements on deposits of member institutions for monetary policy purposes and to define terms such as deposit, savings deposit, time deposit, nonpersonal time deposit, and transaction account.

  • Edge Act of 1919 (12 USC, Chapter 6, Subchapter II, 611)
  • Amendment to the Federal Reserve Act, aded section 25(a).
  • Allowed a Bank, Bank Holding Company or Financial Holding Company to form Edge Act corporations in states other than their home state, to engage in international business transactions (chartered by the Federal Reserve under Section 25A of the Federal Reserve Act).
  • Foreign banks operating in the U.S. are permitted to organize and own an Edge Act Corporation.
  • www.law.cornell.edu/uscode/text/12/611

  • McFadden Act of 1927 (P.L. 69-639, 44 Stat. 1224; 12 USC. 36).
  • Amendment to the National Bank Act of 1864 and the Federal Reserve Act of 1913.
  • Gave national banks competitive equality with state-chartered banks by letting national banks branch within the jurisdiction of the state (intrastate branching) to the extent permitted by state law.
  • Established that nationally chartered banks are subject to state authority, thus states do not have to let them in and effectively barring interstate banking.

  • Banking Act of 1933 / Glass-Steagall Act (P.L. 73-66, 48 Stat. 162; 16 June 1933).
  • In the wake of the crash of the stock market, it separated commercial and investment banking (except for U.S. government obligations) as a way to reduce risk in the future.
  • Established the Federal Deposit Insurance Corporation (FDIC), interest rate ceilings, prohibited interest on demand deposits.
  • Established a limitation on commercial banks to purchase securities for their own account.
  • Prohibits investment bank performing commercial bank operations.
  • Authorizes intrastate national bank branching.

  • Banking Act of 1935 (Pub. L. 74-305, 49 Stat. 684)
  • Established the FDIC as a permanent agency of the government.
  • Retires national bank currency in favor of Federal Reserve notes.

  • Bank Holding Co. Act of 1956
  • Regulates formation of bank holding companies (BHC); allows non-bank subsidiaries to operate across state lines.
  • Gave the Federal Reserve regulatory responsibility for holding company subsidiaries that weren't banks.

  • Bank Merger Act of 1960
  • Established that bank mergers that reduced competition are prohibited.

  • Truth In Lending Act of 1968 (TILA); (15 U.S.C. 1601; Pub. L. No. 90--321; 82 Stat. 146)
  • Title I of the Consumer Credit Protection Act
  • Requires the disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him/her, and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices
  • Requires the disclosure of the terms of leases of personal property for personal, family, or household purposes so as to enable the lessee to compare more readily the various lease terms available to him, limit balloon payments in consumer leasing, enable comparison of lease terms with credit terms (installment loan) where appropriate, and to assure meaningful and accurate disclosures of lease terms in advertisement.
  • Credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to government or governmental agencies or instrumentalities, or to organizations are exempt.
  • The TILA was first amended in 1970 to prohibit unsolicited credit cards. Additional major amendments to the TILA and Regulation Z were made by the Fair Credit Billing Act of 1974, the Consumer Leasing Act of 1976, the Truth in Lending Simplification and Reform Act of 1980, the Fair Credit and Charge Card Disclosure Act of 1988, the Home Equity Loan Consumer Protection Act of 1988, the Home Ownership and Equity Protection Act of 1994 (HOEPA), the TILA Amendments of 1995, and the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).
  • www.fdic.gov/regulations/laws/rules/6500-200.html
  • On July 21, 2011, TILA's general rule making authority was transferred from the FDIC to the Consumer Financial Protection Bureau (CFPB).
  • TILA is implemented by Regulation Z (12 CFR 226), became effective July 1, 1969.
  • Subpart A [sections 226.1 through 226.4] provides general information that applies to open-end and closed-end credit transactions. It sets forth definitions and stipulates which transactions are covered and which are exempt from the regulation. It also contains the rules for determining which fees are finance charges.
  • Subpart B [sections 226.5 through 226.16] contains disclosure rules for home-equity lines of credit, credit and charge card accounts, and other openend credit. It also covers rules for resolving billing errors, calculating the annual percentage rate (APR), credit balances, and advertising open-end credit.
  • Subpart C [sections 226.17 through 226.24] includes provisions for closed- end credit. Residential mortgage transactions, demand loans, and installment credit contracts, including direct loans by banks and purchased dealer paper, are included in the closed-end credit category. It also contains disclosure rules for regular and variable rate loans, refinancings and assumptions, credit balances, calculating the APR, and advertising closed-end credit.
  • Subpart D [sections 226.25 through 226.30] applies to both open-end and closed-end credit and sets forth a creditor’s duty to retain evidence of compliance with the regulation. It also clarifies the relationship between the regulation and state law, and requires creditors to set a cap for variable rate transactions secured by a consumer’s dwelling.
  • Subpart E [sections 226.31 through 226.39] contains special requirements for mortgages that fit the criteria in 226.32(a) (“high-cost mortgages”), 226.33(a) (“reverse mortgages”), and 226.35(a) (“higher-priced mortgage loans”), as well as loans secured by a consumer’s principal dwelling. It also includes new notification requirements to borrowers when their mortgage loan is acquired by, or otherwise sold, transferred, or assigned to a third party in section 226.39.
  • Subpart F [sections 226.46 through 226.48] includes disclosure and timing requirements that apply to creditors making private education loans. It limits certain practices by creditors, including “co-branding” products with educational institutions in the marketing of private student loans.
  • Regulation Z was amended to implement section 1204 of the Competitive Equality Banking Act of 1987, and in 1988, to include adjustable rate mortgage (ARM) loan disclosure requirements. All consumer leasing provisions were deleted from Regulation Z in 1981 and transferred to Regulation M (12 CFR 213).
  • In July 2008, Regulation Z was amended to protect consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices. Specifically, the change applied protections to a newly defined category of "higher-priced mortgages" that includes virtually all closed-end subprime loans secured by a consumer’s principal dwelling. The revisions also applied new protections to mortgage loans secured by dwellings, regardless of loan price, and required the delivery of early disclosures for more types of transactions. The revisions banned several advertising practices deemed deceptive or misleading. The Mortgage Disclosure Improvement Act of 2008 (MDIA) broadened and added to the requirements of the Board’s July 2008 final rule by requiring early truth-in-lending disclosures for more types of transactions and by adding a waiting period between the time when disclosures are given and the transaction is consummated.
  • In 2009, Regulation Z was amended following the passage of the Higher Education Opportunity Act adding disclosure and timing requirements that apply to lenders making private education loans.
  • On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Reform Act), and Section 1461 of the Reform Act creates TILA Section 129D. TILA Section 129D substantially codifies the requirement that escrow accounts for taxes and insurance be established for first-lien higher-priced mortgage loans, adopted by the Board as part of the 2008 HOEPA Final Rule (the 2008 HOEPA Final Rule imposed the escrow requirement on first-lien transactions having an APR that exceeds the average prime offer rate for a comparable transaction by 1.5 or more percentage points).

  • One-Bank Amendment to the Bank Holding Co. Act, 1970
  • established that companies that own one bank are henceforth subject to federal regulations as banks holding companies.

  • Equal Credit Opportunity Act of 1974 (ECOA) (12 CFR Part 202)
  • Requires a creditor to notify a credit applicant when it has taken adverse action against the applicant.

  • Home Mortgage Disclosure Act of 1975 (HMDA) (12 U.S.C. 2801)
  • Implemented by the Federal Reserve Board's Regulation C
  • Requires depository and non-depository financial institutions to collect and disclose information about 1 to 4 family residential housing-related loans and applications for such loans for purchases, home purchase pre-approvals, home improvement, and refinance.
  • Type of information collected and reported includes loan amount, purpose of the loan (home purchase, home improvement, refinancing), type of property involved (single-family, multifamily), loan type (conventional loan, FHA loan, VA loan or a loan guaranteed by the Farmers Home Administration), location (state, county, MSA and census tract) of the property, race of the borrower(s), ethnicity (Hispanic or non-Hispanic) of the borrower(s), gender of the borrower(s), and Whether or not the loan was granted or denied (reason why it was denied).
  • www.ffiec.gov/hmda/
  • www.fdic.gov/regulations/laws/rules/6500-3030.html

  • Community Reinvestment Act (CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 USC § 2901 / Regulation BB 12 CFR 228)
  • Requires that a bank, which receives Federal Deposit Insurance Corporation (FDIC) insurance, to offer services (both consumer and commercial) to all members of the communities within which the branches are loacted in, including low- and moderate-income neighborhoods.
  • Low-income refers to an individual income that is less than 50% of the area median income or a median family income (median family income for the Metropolitan Statistical Area / MSA) that is less than 50% in the case of a geography.
  • Moderate-income refers to an individual income that is at least 50% and less than 80% of the area median income or a median family income that is at least 50% and less than 80% in the case of a geography.
  • Requires that each appropriate federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which the institution is chartered. The FDIC
  • Banks are required to complie a CRA report and provide a copy to the federal regulator conducting the examination.
  • The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) added section 807 (12 USC § 2906) to the existing CRA statutes. The amendment requires the appropriate examining regulator to prepare a written evaluation after completing the examination of an institution's record of CRA activities. The report includes a confidential section provided to the institution and a public section available for public review.
  • The Federal Financial Institutions Examination Council (FFIEC) coordinates inter-agency information about the CRA. Information about the CRA ratings of individual banking institutions from the responsible regulators, and is publicly available from the website of the FFIEC.
  • Code of Federal Regulations:   ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/ecfrbrowse/Title12/12cfr25_main_02.tpl
  • Federal bank regulators emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution just to fulfill CRA compliane. In evaluating an institution, regulators use the following performance levels to rate an institution's performance under CRA:
  • O = Outstanding
  • S = Satisfactory
  • NI = Needs to improve
  • SN = Substantial noncompliance
  • FFIEC Interagency CRA Rating Search   www.ffiec.gov/craratings/default.aspx

    FDIC CRA Rating Search   www2.fdic.gov/crapes/

    OCC CRA Rating Search   www.occ.gov/tools-forms/tools/compliance-bsa/cra-perf-eval-search.html

    There are no guidelines for how a bank should comply with CRA requirements. For instance, there is no percentage of the loan portfolio that must reflect CRA lending. Rather, the guideline is that a bank "meet the credit needs of its assessment area, including low- and moderate income neighborhoods, in a manner consistent with its resources and capabilities." Banks are also permitted and encouraged to develop and apply flexible underwriting standards for loans that benefit low- or moderate-income geographies or individuals, only if consistent with safe and sound operations. Thus, federal examiners review the proportion of the bank's lending in the bank's assessment area(s), the dispersion of lending in the bank's assessment area(s), and The number and amount of loans in low-, moderate-, middle-, and upper-income geographies in the bank's assessment area(s) but there are no set dollar or percentage amounts. There are no monetary penalties for non-compliance with the CRA guidelines. Rather, the bank would receive a NI or SN rating. What an examiner will determine is what low- and moderate-income counties or tracts are located within the bank's indicated lending and banking territory (assessment areas), and then determine the distribution of loans in the assessment area(s).

    FDIC CRA Examination Schedule   www.fdic.gov/regulations/community/exam/index.html

    Federal Reserve Bank CRA Examination Schedule   www.federalreserve.gov/apps/crape/DistrictSchedule.aspx

    OCC CRA Examination Schedule   www.occ.gov/topics/compliance-bsa/cra/community-reinvestment-evaluations-coming-due.html

    Desirable CRA activities include:
  • Home mortgage loans to low- and moderate-income individuals
  • Small business and small farm loans to businesses and farms with gross annual revenues of $1 million or less
  • Consumer loans, if applicable, to low- and moderate-income individuals
  • Retail banking services by opening and operating branches located in low- or moderate-income geographies, which primarily serve low- or moderate-income individuals
  • Community development lending or investment in affordable housing (including multifamily rental housing), providing financing to businesses or farms that meet the size eligibility standards of the Small Business Administration's Development Company or Small Business Investment Company programs (13 CFR 121.301). or have gross annual revenues of $1 million or less, and activities or service that that revitalize or stabilize an assessed area
  • The CRA report often takes on more importance when a bank attempts to merge with another out-of-town or regional bank. Federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions, and the CRA report is an indication to those residing in the target bank's territory of how the acquirer has conducted itself in the past.

    In general, the OCC conducts a CRA examination of a national bank every three years.  

    Census Tract Street Address Lookup   factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml

    FFIEC Census Geocoding System   www.ffiec.gov/Geocode/default.aspx

    Office of Management and Budget (OMB), List of Metropolitan and Micropolitan Statistical Areas   www.whitehouse.gov/sites/default/files/omb/assets/bulletins/b10-02.pdf

    Office of Management and Budget (OMB), 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas   www.whitehouse.gov/sites/default/files/omb/assets/fedreg_2010/06282010_metro_standards-Complete.pdf

    United States Census Bureau, Maps of Metropolitan and Micropolitan Statistical Areas   www.census.gov/population/metro/data/maps.html

    United States Census Bureau, State & County QuickFacts   quickfacts.census.gov/qfd/index.html

    FFIEC Estimated Metropolitan Area Median Family Income Listing   www.ffiec.gov/hmda/pdf/msa12inc.pdf



    International Banking Act of 1978 (12 U.S.C. 3105)
  • The growth of foreign banks means that U.S. banks are at a competitive disadvantage thus it imposed federal requirements on foreign banks and extended national treatment to bring them under same obligations.

  • Electronic Funds Transfer Act of 1978 (15 U.S.C., ch. 41, sub ch. VI, 1693; 12 CFR Part 205)
  • Also known as Federal Reserve Regulation E
  • Electronic fund transfer (EFT) refers to transactions initiated by the account holder through the use of a debit card in an automated teller machine, point-of-sale (POS) transaction such as a retail purchase, pre-authorized deposits to and, if applicable, transfers from an account with a financial institution, and through a telephone bill payment service.
  • If one uses an ATM to withdraw money or make deposits or a POS terminal to pay for a purchase, one can get a written receipt, much like a sales receipt one would get with a cash purchase, showing the amount of the transfer, the date it was made, and other information.
  • The account holder's periodic bank statement must also show electronic transfers to and from the account, including those made with debit cards, by a preauthorized arrangement, or under a telephone transfer plan.
  • In the event of an error related to the EFT transaction the account holder must contact the financial institution within 60 days from the date of the first statement that indicates an error was made. The financial institution must promptly investigate an error and resolve it within 45 days.
  • In the event of transactions not initiated by the account holder due to a lost or stolen credit card(s), the loss is limited to $50 if the account holder notifies the financial institution within two business days after learning of loss or theft of their card or code.
  • www.access.gpo.gov/uscode/title15/chapter41_subchaptervi_.html
  • www.fdic.gov/regulations/laws/rules/6500-1350.html

  • Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980
  • In response to continued non-bank competition, the phase out of Regulation Q allowed deregulation of interest rate ceilings banks could pay
  • Allowed NOW accounts (Negotiable Order of Withdrawal Account)
  • Increased FDIC coverage to $100,000 per account
  • State usury laws are voided
  • Eliminated reserve requirement disparities between different types of depository institutions
  • Required the Federal Reserve to price its financial services competitively against private sector providers.
  • Imposed reserve requirements on depository institutions that maintain transaction accounts or non-personal time deposits.

  • Garn-St. German Act (Depository Institutions Act) of 1982
  • The continuation of deregulation, allowed Money Market Demand Accounts and Super NOW accounts, for the interstate acquisition of failing firms by unlike financial institutions; FDIC may maintain the capital position of distressed institutions by making periodic purchases of net worth certificates.

  • International Lending Supervision Act of 1983
  • Mandated the reporting of country specific loan exposure information by commercial banks and standardized procedures for dealing with problem loans.

  • Competitive Equality in Banking Act of 1987
  • Limits growth of non-bank banks; changes definition of bank to include FDIC insured institutions.

  • Expedited Funds Availability Act of 1987 (12 USC, ch. 40; 12 CFR, part 229)
  • Also referred to as Federal Reserve Regulation CC.
  • Financial institutions must disclose their hold policies to all account holders, and make the policy available in written form upon request by any customer. It must also be provided at the time of opening of all new accounts. Additional disclosures are required on deposit slips, at ATMs, and when the policy is changed in any way.
  • e-CFR / Federal Reserve Regulation CC

  • Financial Institution Reform, Recovery and Enforcement Act of 1989
  • In response to the collapse of the savings and loan industry in the United States the industry was in effect "reregulated," established RTC (Resolution Trust Co.) to deal with the closure/consolidation of failed banks and the disposition of problem loans/assets.

  • Basel Agreement on Minimum Risk Adjusted Capital, 1990
  • Not a U.S. Federal Law, however, the United States is a signatory to the accord so it is enforced. Established 8% capital to risk assets ratio, with a minimum of 4% to Tier One Capital, including off-balance sheet items in determining risk assets; G10 + Switzerland + Luxembourg.
  • see below

    Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
  • Established risk-based formula for insurance premiums to be paid by the bank to the FDIC; provided for early closure of severely undercapitalized depository institutions; mandated that federal regulators of banks and thrifts utilize uniform capital standards to ensure competitive fairness among national vs. state chartered banks, savings & loan associations and savings banks.

  • Foreign Bank Supervision Enhancement Act of 1991
  • In the wake of the BCCI collapse, the Federal Reserve System must approve all foreign banking operations in the United States.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
  • Allows for the establishment of interstate banking by 1997
  • A bank holding company (BHC) may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time (not to exceed five years). Also, such an acquisition is not permitted if the bank holding company controls, prior to or following the proposed acquisition, more than 10.0% of the total amount of deposits of insured depository institutions nationwide, or, if the acquisition is the bank holding company’s initial entry into the state, more than 30.0% of the deposits of insured depository institutions in the state (or any lesser or greater amount set by the state).
  • The Riegle-Neal Act also authorizes banks to merge across state lines to create interstate branches. (Under the Dodd-Frank Act, banks are permitted to establish new branches in another state to the same extent as banks chartered in the other state).

  • Supreme Court Ruling, 1996
  • U.S. Supreme Court rules in favor of Barnett Banks, a decision which allows U.S. banks to sell insurance in all 50 states.

  • Gramm-Leach-Bliley Financial Services Modernization Act Act of 1999
  • Essentially overturned the Glass-Steagall Act of 1933. Under the Gramm-Leach-Bliley Act, bank holding companies meeting certain eligibility criteria may elect to become "financial holding companies," which allows them to an offer expanded list of financial services that includes insurance policy sales, securities underwriting and dealing, merchant banking, investment advisory and lending activities.
  • banking.senate.gov/conf/

    Patriot Act of 2003
  • Requires banks to improve capabilities and controls for the monitoring of accounts with regard to existing money laundering guidelines such as frequent wire deposits that are immediately withdrawn or transferred, check for the creation of multiple accounts by a single entity, all cash transactions in excess of USD $10,000, or the purchase of money orders, traveler's checks or bank drafts in excess of USD 3,000, and provide such information to the U.S. Treasury Department, regional Federal Reserve Bank branch and the respective state banking department. (Sections 311, 312, 314 (a), 314(b), 326, and 352).

  • Check Clearing for the 21st Century Act (Check 21 Act; Effective October 28, 2004; P.L. 108-100; 12 U.S.C. 5001–5018)
  • Banks may exchange digital images of checks rather than actual paper checks in order to reduce processing time (no longer have to move original paper checks from the bank where the checks are deposited to the bank that pays them).

  • Federal Deposit Insurance Reform Act of 2005
  • Created a single insurance fund by merging Savings Association Insurance Fund (SAIF) and Bank Insurance Fund (BIF), effective March 31, 2006, to be known as the Deposit Insurance Fund (DIF).

  • Mortgage Forgiveness Debt Relief Act of 2007
  • Prior to the Act, debt forgiven following mortgage foreclosure or renegotiation on the individual's primary residence was considered income for tax purposes, resulting in tax liability for individuals and families. Thus, the Act provides relief to individuals / families by permanently excluding debt forgiven under these circumstances from tax liability.
  • Assists would-be homeowners to secure their investments through a long-term extension of the tax deduction for private mortgage insurance (December 31, 2010) but one must have closed on the mortgage on or after January 1, 2007.
  • Eases restrictions for qualifying as housing cooperative corporations.
  • Tightens requirements taxpayers must meet to exclude gain from the sale of certain homes that have been used as a vacation home or rental property.

  • Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173)
  • Signed July 21, 2010
  • New agencies created include Financial Stability Oversight Council, the Office of Financial Research, the Bureau of Consumer Financial Protection, and the Office of Complex Institutions.
  • The Financial Stability Oversight Council consists of of 10 federal financial regulators and an independent member and 5 nonvoting members, and is authorized to identify and respond to emerging risks throughout the financial system. The Council will be chaired by the Treasury Secretary and include the Federal Reserve Board, SEC, CFTC, OCC, FDIC, FHFA, NCUA, the new Consumer Financial Protection Bureau, and an independent appointee with insurance expertise. The 5 nonvoting members include OFR, FIO, and state banking, insurance, and securities regulators.
  • Regulates non-bank financial companies.
  • Large bank holding companies that have received TARP funds will not be able to avoid Federal Reserve supervision by simply dropping their banks.
  • Establishes a floor for capital that cannot be lower than the standards in effect today and authorizes the Council to impose a 15-1 leverage requirement at a company if necessary to mitigate a grave threat to the financial system.
  • The Office of Complex Institutions is part of the FDIC, and has oversight of the approximately 2 dozen largest financial institutions within the United States. The agency would have the responsibility to dismantle the U.S. domestic operations / holding company of one of these financial institutions in the event of serious problems.
  • Divides the financial institution regulatory system into three distinct sectors:
  • For state banks/thrifts with assets under $50 billion, the FDIC is responsible
  • For national banks/thrifts with assets under $50 billion, the OCC is responsible
  • All other banks/thrifts, Bank holding companies (and institutions deemed necessary) will be the responsibility of the Fed. Certain Non-bank financial institutions and their subsidiaries will also be supervised by the Federal Reserve in the same manner and to the same extend as if they were a bank holding company
  • Volcker Rule: Requires regulators to implement regulations for banks, their affiliates and holding companies, to prohibit proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and to limit relationships with hedge funds and private equity funds. Nonbank financial institutions supervised by the Fed also have restrictions on proprietary trading and hedge fund and private equity investments. In October 2011, the SEC, the Federal Reserve, the OCC and the FDIC proposed a rule to implement the Volcker Rule.
  • Liquidation Procedure: Requires that Treasury, FDIC and the Federal Reserve all agree to put a financial institution into the orderly liquidation process to mitigate serious adverse effects on financial stability, with an up front judicial review.
  • Limits the Federal Reserve’s 13(3) emergency lending authority by prohibiting emergency lending to an individual entity. Secretary of the Treasury must approve any lending program, programs must be broad based, and loans cannot be made to insolvent firms. Collateral must be sufficient to protect taxpayers from losses.
  • www.gpo.gov/fdsys/pkg/BILLS-111hr4173ENR/pdf/BILLS-111hr4173ENR.pdf
  • The Dodd-Frank Act also permanently increased deposit insurance coverage from $100,000 per account ownership type to $250,000, and extended the unlimited insurance of non-interest bearing transaction accounts under the FDIC Transaction Account Guaranty program to January 1, 2013.

    In June 2011, the OCC, the Federal Reserve and the FDIC adopted a final rule to implement certain requirements of the Dodd-Frank Act, which require these agencies to establish minimum risk-based capital requirements on a consolidated basis for insured depository institutions. Under the rule, banks and bank holding companies must maintain a minimum total risk-based capital ratio of 8.0% and a Tier 1 risk-based capital ratio of 4.0%.

    The Dodd-Frank Act effectively eliminated differences between the minimum capital requirements applicable to insured depository institutions and their holding companies by phasing out the use of hybrid debt instruments (such as trust preferred securities) in determining holding company regulatory capital.

    The Dodd-Frank Act codified existing Federal Reserve policy requiring a bank holding company (BHC) to act as a source of financial strength to its bank subsidiaries, and to commit resources to support these subsidiaries in circumstances where it might not otherwise do so. However, because the Gramm-Leach-Bliley Financial Services Modernization Act Act (GLBA) provides for functional regulation of financial holding company activities by various regulators, the GLBA prohibits the Federal Reserve from requiring payment by a BHC to a depository institution if the functional regulator of the depository institution objects to the payment. In those cases, the Federal Reserve could instead require the divestiture of the depository institution and impose operating restrictions pending the divestiture. As a result of the Dodd-Frank Act, non-bank subsidiaries of a holding company that engage in activities permissible for an insured depository institution must be examined and regulated in a manner that is at least as stringent as if the activities were conducted by the lead depository institution of the holding company.

    In December 2011, the Federal Reserve issued a proposed rule relating to enhanced prudential standards required under the Dodd-Frank Act for bank holding companies with over $50 billion in consolidated assets. The prudential standards include enhanced risk-based capital and leverage requirements, enhanced liquidity requirements, enhanced risk management and risk committee requirements, a requirement to submit a resolution plan, single-counterparty credit limits and stress tests. The proposal requires the Federal Reserve to conduct annual supervisory capital adequacy stress tests of covered companies under baseline, adverse and severely adverse scenarios, and requires covered companies to conduct their own capital adequacy stress tests. The proposal would provide for notification to a covered company as to which the Council has determined to impose a debt-to-equity ratio of no more than 15-to-1, based upon the determination by the Council that (a) such company poses a grave threat to the financial stability of the United States and (b) the imposition of such a requirement is necessary to mitigate the risk that the company poses to the financial stability of the United States.

    The proposed rule also provides, as required by the Dodd-Frank Act, for the early remediation of financial distress at covered companies so as to minimize the probability that the company will become insolvent and to reduce the potential harm of the insolvency of a covered company to the financial stability of the United States. Remedies include, in the initial stages of financial decline of the covered company, limits on capital distributions, acquisitions and asset growth. Remedies in the later stages of financial decline of the covered company include a capital restoration plan and capital-raising requirements, limits on transactions with affiliates, management changes and asset sales. In addition to regulatory capital triggers, the proposed rule includes triggers based on supervisory stress test results, market indicators and weaknesses in enterprise-wide and liquidity risk management.

    Effective July 21, 2011, the Office of Thrift Supervision (OTS) has merged with the Office of the Comptroller of the Currency (OCC). Pursuant to Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010), all functions of the OTS related to Federal savings associations were transferred to the Office of the Comptroller of the Currency.

    In July 2011, all consumer financial protection functions of the Federal Reserve, the OCC and the FDIC were transferred to the Bureau of Consumer Financial Protection (BCFP). All consumer protection functions of the Secretary of the Department of Housing and Urban Development relating to the Real Estate Settlement Procedures Act, the Secure and Fair Enforcement for Mortgage Licensing Act, and the Interstate Land Sales Full Disclosure Act were also transferred to the BFCP at such time. In addition, the authority of the Federal Trade Commission to prescribe rules, issue guidelines or conduct a study or issue a report mandated under such laws transferred to the BCFP. The BCFP has assumed all authority to prescribe rules or issue orders or guidelines pursuant to any federal consumer financial law. On July 21, 2011, the BCFP began an examination process for insured depository financial institutions with assets over $10 billion, which includes the Company’s bank subsidiaries. The BCFP has authority to regulate the offering and provision of consumer financial products or services under the federal consumer financial laws, and the BCFP is expected to undertake a number of rule-making and enforcement initiatives in 2012 under this authority.

    The FDIC issued a final rule effective August 15, 2011 to implement the liquidation provisions of the Dodd-Frank Act. The rule provides a comprehensive framework for the orderly liquidation of a covered financial company. A covered financial company is a financial company (including a bank holding company, but not an insured depository), in situations where the Secretary of the Treasury determines (upon the written recommendation of the FDIC and the Federal Reserve and after consultation with the President) that the conditions set forth in the Dodd-Frank Act regarding the impact of the financial company’s failure have been met. The rule sets forth a comprehensive method for the receivership of a covered financial company. In preparation for the potential exercise of this authority, the FDIC created the Office of Complex Financial Institutions. Its duties include the continuous review and oversight of bank holding companies with assets of more than $100 billion.

    In 2011, the Federal Reserve issued a final rule amending Regulation Y to require bank holding companies (BHCs) with total consolidated assets of $50 billion or more to submit capital plans to the Federal Reserve on an annual basis. BHCs must demonstrate in their capital plans how they will maintain a minimum Tier 1 common ratio above 5 percent under stressful conditions using the Federal Reserve’s existing supervisory definition of Tier 1 common capital. If the Federal Reserve objects to a capital plan and until such time as the Federal Reserve issues a non-objection to the bank holding company’s capital plan, the bank holding company may not make any capital distribution, other than those capital distributions with respect to which the Federal Reserve has indicated its non-objection.

    Effective November 30, 2011, the Federal Reserve and the FDIC adopted a final rule to implement the requirements of the Dodd-Frank Act regarding annual resolution plans for bank holding companies with assets of $50 billion or more. The final rule requires each covered company to produce a resolution plan that includes information regarding the manner and extent to which any insured depository institution affiliated with the company is adequately protected from risks arising from the activities of any nonbank subsidiaries of the company; full descriptions of ownership structure, assets, liabilities and contractual obligations of the company; identification of the cross-guarantees tied to different securities; identification of major counterparties; a process for determining to whom the collateral of the company is pledged; and any other information that the Federal Reserve and the FDIC jointly require by rule or order. Plans must analyze baseline, adverse, and severely adverse economic condition impacts. The plan must demonstrate, in the event of material financial distress or failure of the covered company, a reorganization or liquidation of the covered company under the federal bankruptcy code that could be accomplished within a reasonable period of time and in a manner that substantially mitigates the risk that the failure of the covered company would have serious adverse effects on financial stability in the United States. Covered companies and their subsidiaries are subject to more stringent capital, leverage and liquidity requirements or restrictions on growth, activities or operations if they fail to file an acceptable plan.

    In 2011, the U.S. Federal Reserve ordered banks that they may not offer overdraft protestion on debit card transactions without prior consent from the cardholder.

    In January 2012, the FDIC adopted a final rule requiring an insured depository institution with $50 billion or more in total assets to submit periodically to the FDIC a contingency plan for the resolution of such institution in the event of its failure. The rule requires a covered depository institution to submit a resolution plan that should enable the FDIC, as receiver, to resolve the institution under applicable receivership provisions of the Federal Deposit Insurance Act in a manner that ensures that depositors receive access to their insured deposits within one business day of the institution’s failure, maximizes the net present value return from the sale or disposition of its assets and minimizes the amount of any loss to be realized by the institution’s creditors.



    Federal Reserve Bank

    The Federal Reserve is empowered by Congress under the Federal Reserve Act to excercise supervisory and regulatory authority over various types of financial institutions if the bank becomes a member of the Federal Reserve system. The laws that the Federal Reserve enforces through its own regulations are codified in title 12, chapter II, of the Code of Federal Regulations (12 CFR 201). The Fed also works with several of the other federal agencies and state banking departments to supervise and regulate the U.S. and international banking industry to protect depositors / consumers, promote a competitive environment and stabilize the international monetary system.

    The Federal Reserve has the primary responsibility of supervising (monitor and examine specific banks) and regulating (establish guidelines concerning the structure and conduct of banking operations):
  • Bank holding companies (including their non-bank subsidiaries and their foreign subsidiaries)
  • Financial holding companies
  • State-chartered banks that are a member of the Federal Reserve System (referred to as state member banks) and their foreign branches and subsidiaries. (All federally chartered banks are automatically members of the System; state-chartered banks may elect to join the System)
  • Edge Act corporation (set up by a U.S. bank) chartered by the Federal Reserve to engage in international banking operations.
  • Branches of foregin banks operating within the United States.
  • The Federal Reserve has oversight of changes in the control of bank holding companies and state member banks.

    The Federal Reserve requires the Reserve Banks to examine every state member bank and inspect all large bank holding companies at least once every year. Under the terms of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), all insured depository institutions must be examined once every twelve months (certain small banks may be examined once every eighteen months). Under the terms of the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA), all branches and agencies of foreign banks must be examined on-site at least once every twelve months in cooperation with the other federal and state regulators.

    There are several different types of bank examinations and ratings:
  • CAMEL (Uniform Financial Institutions Rating System) (state member banks)
  • BOPEC (bank holding companies)
  • CAMEO (Edge and agreement corporations and overseas subsidiaries of U.S. banks)
  • ROCA (U.S. branches and agencies of foreign banking organizations)
  • Uniform Interagency Trust Rating System
  • Uniform Interagency Rating System for Data Processing Operations
  • Financial institutions also file standardized financial regulatory reports with the Federal Reserve. Banks file what are known as "Call Reports" (Consolidated Reports on Condition and Income) and the holding companies file the FR Y-9 Series report (Consolidated Financial Statements for Bank Holding Companies).

    In the United States, the Federal Reserve is also the nation's central Bank. The Federal Reserve System was created in 1913 (Federal Reserve Act) with 12 regional banks, 7-member Board of Governors (who are accountable to the U.S. Congress), reserve requirements, assistance with the management of the money supply, efficient check clearing, and improve bank regulation (the Board writes bank and consumer protection regulations to implement the laws passed by Congress). The Federal Reserve has oftened been referred to in its structure as a decentralized central bank.
    Federal Reserve Act, 12 U.S.C. ch.3   www.federalreserve.gov/generalinfo/fract/

    The Federal Reserve System consists of the Board of Governors located in Washington, D.C., a network of 12 Federal Reserve Banks and 25 branches. The Fed is responsible for the storage of currency and coin (actual printing of the Federal Reserve Notes is conducted by the Bureau of Engraving and Printing / BEP and minting of coinage is by the U.S. Mint), processing checks and electronic payments, supervision commercial banks within the respective territory of each Federal Reserve District bank, process payments for the U.S. Treasury, sell government securities, assist with the Treasury's cash management and investment activities, and conduct research on regional, national and international economic issues.

    The Federal Reserve Banks are located in Boston (District 1), New York (District 2), Philadelphia (District 3), Cleveland (District 4), Richmond (District 5), Atlanta (District 6), Chicago (District 7), St. Louis (District 8), Minneapolis (District 9), Kansas City (District 10), Dallas (District 11) and San Francisco (District 12). Similarly, each Federal Reserve Note (U.S. currency) issued by a Federal Reserve District Bank has a Letter on the bill indicating which bank it was issued by: Boston (A), New York (B), Philadelphia (C), Cleveland (D), Richmond (E), Atlanta (F), Chicago (G), St. Louis (H), Minneapolis (I), Kansas City (J), Dallas (K) and San Francisco (L).



    Each Federal Reserve District bank president (only five representatives, either presidents or first vice presidents serve on the FOMC at any given time), along with Chairman of the Federal Reserve, is a member of the Federal Open Market Committee (FOMC), which establishes the direction of monetary policy within the United States. The FOMC meetings set the federal funds rate and the Committee's announcements on the economy are widely followed and have a substantial influence on markets. When there is a policy shift and it appears that the FOMC is signalling that it will recommend (or be recommending in the future) an increase in its interest rates (monetary policy "tightening" primarily to respond to inflation) then equities and debt markets are disrupted. Equity sahres in interest sensitive companies (home construction for example) are sold and existing debt at lower interest rates see their prices decline so that the yield increases. In the currency market, the U.S. dollar will increase in value as it is anticipated that foreign investors will wish to purchase higher interest rate debt securities in the future.

    Federal Reserve bank supervision audit reviews must be conducted every 12 to 18 months and mandate that banks are subject to CAMELS ratings (Capital, Asset quality, Management, Earnings, Liquidity and market Sensitivity) based on the result of the examination. The possible rating assignment as a result of the review is a 1 through 5, with 1 being the best. A rating of 1 or 2 indicates that the institution is financially sound while 3 or lower indicates concern over the institution's operations. CAMEL may sometimes also means: Capital Adequacy, Asset Quality, Margins, Earnings and Leverage / Liquidity.

    The Federal Reserve also controls the amount of the money supply available within the United States and targets money supply growth rates as part of its monetary policy oversight. The money supply measurements are reported weekly by the Federal Reserve and are presented in the form of monetary aggregates: M1, M2 and M3. M1 is the "narrowest" measure of the available money supply and includes cash (currency) and checking accounts, essentially immediate cash assets. M2 includes the components of M1, however it also adds savings accounts and personal CDs, essentially assets that are not readily available but could quickly be converted to immediate cash assets. M3 is referred to as the "broadest" measure of the money supply and it includes the components of the M1 and M2 aggregates and also includes financial instruments held by financial institutions, which could be converted to cash.

    The Fed controls the money supply by selling and purchasing securities in the open market and by establishing and monitoring the reserve account that depositroy institutions must maintain with their respective district Federal Reserve Bank. First, by purchasing securities the Fed releases cash to banks who in turn lend it to consumers and businesses. Conversely, when the Fed sells securities they take cash (in exchange for security) thus removing liquidity (excess cash). In addition, the Reserve Account requirement also influences how much "money" is created by banking activity. For instance, if the Reserve requirement is 10%, then if a bank receives $1,000 it must place $100 into the reserve account and can then lend out the $900 blance. When the $900 is lent and then deposited with another bank, that bank must deposit $90 into the reserve account and can then lend the $810 balance ($900 minus the $90). Thus, if the Reserve Account requirement is moved to 12% or 8% then either more cash would be held in reserve or less cash would be held in reserve, which would result in less cash or more cash in circulation and available for successive transactions.

    The Federal Reserve also functions as the Clearing House operation for processing all of the billions of checks written in the United States every year.

    The Federal Reserve Bank of New York performs foreign currency exchange transactions on the behalf of the Fedral Reserve system and also functions as the central paying agent for FNMA MBS pass-through securities.

    As per the terms of the Securities Exchange Act of 1934, the Federal Reserve is responsible to regulate the margin requirements in securities markets where securities are purchased on credit.

    Banks chartered as national banking associations and state banks that apply, may be members of the Federal Reserve system. Any state bank that has sufficient Tier 1 and Tier II capital ratios may through the vote of 51% of its sharenolders convert to a national banking association. Mututal savings banks that have no capital stock but have surplus and undivided profits not less than the amount of capital required for the organization of a national bank in the same place, may apply for and be admitted to membership in the Federal Reserve System on terms similar to savings banks.

    A bank holding company, a foreign bank subject to the Bank Holding Company Act or a state member bank may acquire a broker-dealer authorized to engage in securities underwriting, dealing, or market-making.



    Office of the Comptroller of the Currency (OCC)

    The National Bank Act of 1864 established the Office of the Comptroller of the Currency (OCC), which charters, regulates and supervises nationally chartered banks. The OCC is also responsible for changes in the control of national banks, and state-chartered federal savings associations, which include savings banks and savings and loan associations, as the successor institution of the Office of Thrift Supervision (OTS) in 2011. If the OCC is the chartering authority then it is also the supervising and examining authority. In addition, the OCC also supervise the federal branches and agencies of foreign banks.

    The OCC is a bureau of the Treasury Department, and is headed by a single person appointed by the President of the United States to a five-year term. In addition to its headquarters in Washington, D.C., the OCC has four district offices (Central, Northeastern, Southern, Western) and an office in London, UK. In addition, the Comptroller of the Currency serves as a director of the FDIC. The National Bank Act requires national banks to submit regular reports of condition for the OCC’s use in verifying their safety and soundness. The Act also requires the OCC to conduct an on-site examination of every national bank and to prepare “a full and detailed report” on its condition.



    Federal Deposit Insurance Corporation (FDIC)

    In the United States, not only does the Federal Deposit Insurance Corporation (FDIC) manage the deposit insurance system, the agency also supervises and examines banks. If the bank obtains deposit insurance then the bank is subject to certain statutes of the Federal Deposit Insurance Act and, in the case of state nonmember banks, to direct FDIC supervision. The Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, and state banking authorities combined regulate state chartered banks. The FDIC is also responsible for changes in the control of insured state nonmember (of the Federal Reserve) banks.

    The FDIC has been arranging for the sale of the assets of banks that have been placed into FDIC receivership by their regulators during 2008 through 2009. The FDIC has been selling interests in portfolios of the distressed assets at a discount to book value, and has been providing zero-percent financing terms, however the FDIC retains a 50% interest in the portfolio, and in some cases the FDIC receives a 60% share of any profit(s) earned on the loans that are sold or restructured out of the portfolio.



    Federal Financial Institutions Examination Council (FFIEC)

    The Federal Financial Institutions Examination Council (FFIEC; 1978) was developed as an inter-regulatory agency organization for the establishment of uniform federal principles and standards for the examination of depository institutions. The FFIEC uniform financial reporting forms and the Uniform Financial Institutions Rating System is used by all federal and state banking regulators in their examinations of banks / depository institutions.



    Financial Stability Oversight Council (FSOC)

    The Financial Stability Oversight Council was established under the Dodd-Frank Act and is charged with identifying threats to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States financial system. The Council consists of 10 voting members and 5 nonvoting members and brings together the expertise of federal financial regulators, state regulators, and an insurance expert appointed by the President.

    The FSOC includes representatives from the Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, Office of the Comptroller of the Currency, Securities and Exchange Commission, and the Treasury Department.

    The FSOC does not directly regulate financial institutions. Rather, the FSOC has two important functions:
  • Authority to require consolidated supervision of nonbank financial companies, regardless of their corporate form.
  • A significant role in determining whether action should be taken to break up those firms that pose a “grave threat” to the financial stability of the United States.


  • State Banking Departments

    The U.S. states have chartered and regulated banks within their respective jurisdictions since the late 1830s. This was a period when many banks actually issued theor own bank notes for circulation and usage in monetary transactions. The National Bank Act of 1864 established a national currency, Congress imposed a prohibitive 10.0% tax on state bank notes in 1865 in order to motivate state banks to apply for a national charter. However, in the 1870s, checks became more accepted in financial transactions and there was a resurgence in state-chartered banks (as there was no need to issue or maintain a bank note supply).



    Uniform Commercial Code (UCC)

    The Uniform Commercial Code is the body of law that provides for nationwide uniformity in the way certain kinds of loans are secured. A UCC lien is a financial document stating that the Lender (secured party) has a claim in certain property belonging to the Borrower (debtor). By filing a UCC lien, a secured party establishes his or her priority for payment over subsequent secured parties if the debtor defaults on the loan. The lien document is usually filed with the Secretary of State's Office of the respective state where the Borrower is registered (or if an individual then the UCC is filed in the state of the Borrower's legal residence) and serves as a notice to interested parties of the existence of a security interest against specific collateral. A number of states have set up web-based / on-line UCC filing systems.



      International Bank Regulation & Supervision
     


    Bank for International Settlements (BIS)

    The Bank for International Settlements was created in 1930 as a result of the Hague Conference. The bank is owned by its membership, which are the central banks of nations from all over the world. The bank is primarily designed to facilitiate financial stability and international money flows between nations. The BIS is located in Basel / Basle Switzerland (hence the name of various agreements).

    The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten (G10) countries in 1975. The Basel Committee does not possess any formal supranational supervisory authority, and its conclusions do not have legal force. However, the Basel Committee does formulate broad supervisory standards and guidelines and recommends statements of best practices, which have been adopted by many financial institutions for the management and control international and commercial banking operations.

    Basel I

    The 1988 Capital Accord of the Basel Committee (Basel I; International Convergence of Capital Measurement and Capital Standards) established minimum bank capital adequacy requirements (minimum BIS Ratio of 8.0% capital to risk-weighted assets) that could be applied to many banks in many jurisdictions.

    The Basel Committee has supplemented the 1988 Capital Accord’s original focus on credit risk with explicit capital charge for exposures to market risk in 1996 (which has been incorporated into the comprehensive version of the International Convergence of Capital Measurement and Capital Standards: A Revised Framework / Basel II).

    Basel II

    The 2004 Capital Accord of the Basel Committee (Basel II; International Convergence of Capital Measurement and Capital Standards: A Revised Framework) is a revision of the Basel I Accord, which continues to focus on the adequate capitalization of banks and improvements in risk management practices. The structure of the framework is organized around three pillars:

  • Minimum Capital Requirements
  • Supervisory Review Process
  • Market Discipline
  • Basel II will allow banks to have some flexibility by allowing them to be able to select between two regulatory frameworks to calculate capital requirements for credit risk:

  • Standardized Approach (SA), which is a universal risk weighting of assets based on the SRO credit rating agency rating (S&P, Moody's and Fitch; the Basel report refers to them as external credit assessment institutions / ECAIs) of the specific borrower or a universal risk weighting based on the asset class.
  • Internal Ratings-Based (IRB), which is a financial institution developed proprietary internal capital model based on their own internal estimates of risk components; approved by U.S. rgulators

    The risk weighting of asset classes set out in the 1988 Accord has been revised in Basel II.

    Claims on sovereigns
    Credit AssessmentAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-Unrated
    Risk Weight0%20%50%100%150%100%

    For the purpose of risk weighting claims on sovereigns, supervisors may recognise the country risk scores assigned by Export Credit Agencies (ECAs). To qualify, an ECA must publish its risk scores and subscribe to the OECD agreed methodology. Banks may choose to use the risk scores published by individual ECAs that are recognised by their supervisor, or the consensus risk scores of ECAs participating in the “Arrangement on Officially Supported Export Credits”.

    Claims on Multilateral Development Banks (MDBs) - The claims on highly rated MDBs - Bank for International Settlements, the International Monetary Fund, World Bank Group: International Bank for Reconstruction & Development and the International Finance Corporation, Asian Development Bank, African Development Bank, European Bank for Reconstruction & Development, Inter- American Development Bank, European Investment Bank, European Investment Fund, Nordic Investment Bank, Caribbean Development Bank, Islamic Development Bank and Council of Europe Development Bank, evaluated by the Basel Committee, shall be assigned 0% risk weight. The claims on other MDBs will be based on external credit assessments.

    Claims on banks - There are two options for claims on banks. National supervisors will apply one option to all banks in their jurisdiction.
  • Under the first option, all banks incorporated in a given country will be assigned a risk weight one category less favourable than that assigned to claims on the sovereign of that country. However, for claims on banks in countries with sovereigns rated BB+ to B- and on banks in unrated countries the risk weight will be capped at 100%.
  • The second option bases the risk weighting on the external credit assessment of the bank itself with claims on unrated banks being risk-weighted at 50%. Under this option, a preferential risk weight that is one category more favourable may be applied to claims with an original maturity of three months or less, subject to a floor of 20%. This treatment will be available to both rated and unrated banks, but not to banks risk weighted at 150%.
  • Option 1
    Credit Assessment of SovereignAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-Unrated
    Risk Weight Under Option 120%50%100%100%150%100%
    Option 2
    Credit Assessment of BanksAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-Unrated
    Risk Weight Under Option 220%50%50%100%150%50%


    Claims on corporates
    Credit AssessmentAAA to AA-A+ to A-BBB+ to BB-Below BB-Unrated
    Risk Weight20%50%100%150%100%

    Claims secured by residential property - Lending fully secured by mortgages on residential property that is or will be occupied by the borrower, or that is rented, will be risk weighted at 35%.

    Claims secured by commercial real estate - Lending fully secured by mortgages on commercial real estate will be risk weighted at 100%. The Committee, however, recognises that, in exceptional circumstances for well-developed and longestablished markets, mortgages on office and/or multi-purpose commercial premises and/or multi-tenanted commercial premises may have the potential to receive a preferential risk weight of 50% for the tranche of the loan that does not exceed the lower of 50% of the market value or 60% of the mortgage lending value of the property securing the loan. Any exposure beyond these limits will receive a 100% risk weight.

    Past due loans. The unsecured portion of any loan (other than a qualifying residential mortgage loan) that is past due for more than 90 days, net of specific provisions (including partial writeoffs), will be risk-weighted as follows:
  • 150% risk weight when specific provisions are less than 20% of the outstanding amount of the loan.
  • 100% risk weight when specific provisions are no less than 20% of the outstanding amount of the loan.
  • 100% risk weight when specific provisions are no less than 50% of the outstanding amount of the loan, but with supervisory discretion to reduce the risk weight to 50%.
  • Banks are required to file the Internal Capital Adequacy Assessment Process (ICAAP) form on an annual or biennial basis as part of Basel II compliance.

    The Basel II Accord requires that banks set aside capital against operational risk (defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems, or from external events). The measurement of operational risk requires that financial institutions track transactions and measure the failure rate of reconciliation with counterparties. The measurement system must be able to model a probability of events that could occur and may result in an operational loss.

    Basel II will allow banks to have some flexibility by allowing them to be able to select between three regulatory frameworks to calculate capital requirements for operational risk:

  • Basic Indicator Approach (BIA)
  • Standardized Approach (SA)
  • Advanced Measurement Approach (AMA), which is a financial institution developed proprietary internal capital model; approved by U.S. rgulators

    Basel II requires that banks improve management practices to meet the minimum requirements of the Internal Models Method for market risk.

    www.bis.org/publ/bcbs128.pdf   (.pdf format; Comprehensive Version, June 2006)

    There was some controversy over the implementation of Basel II due to the additional charge to capital for expected losses that is already covered by a charge against earnings (provisions). The U.S. plans to obligate only 12 core banks to follow the Basel II Accord guidelines.

    On July 20, 2007, U.S. banking regulators indicated that the implementation of Basel II in the United States should be technically consistent in most aspects with the international version. The U.S. implementation timetable is expected to consist of parallel calculations under the current regulatory capital regime (Basel I) and Basel II, starting January 1, 2008, and an implementation transition period, starting January 1, 2009 through year-end 2011 or possibly later. The U.S. regulators have reserved the right to change how Basel II is applied in the U.S. following a review at the end of the second year of the transitional period, and to retain the existing Prompt Corrective Action and leverage capital requirements applicable to U.S. banking organizations.

    The Committee on Payment and Settlement Systems (CPSS) is a coordinating committee among central banks to provide guidance on the development of domestic and cross border payment, settlement (including multi-currency) and clearing systems for large-value payments, securities and foreign exchange.

    Basel 2.5

    Basel 2.5 went into effect on January 1, 2012. Investments held on-blance sheet for the purpose of trading (not held to maturity) receive an increased capital charge. The charge was increased because recent data indicates that during time of market duress, securities that were previously thought to be liquid can become rather illiquid.

    Basel III

    Basel III (Basel Committee on Banking Supervision, September 12, 2010) proposes that Tier 1 capital be increased from 4.0% to 4.5% by January 1, 2013 through January 1, 2015, and then increase again to 6.0% by January 1, 2019. In addition, banks will be required to hold a capital conservation buffer of 2.5%, which will consist of common equity, to withstand future periods of stress bringing the total common equity requirements to 7.0% (4.5% + 2.5%).

  • On January 1, 2013, the minimum common equity requirement will rise from the current 2% level to 3.5%. The Tier 1 capital requirement will rise from 4% to 4.5%.
  • On January 1, 2014, banks will have to meet a 4% minimum common equity requirement and a Tier 1 requirement of 5.5%.
  • On January 1, 2015, banks will have to meet the 4.5% common equity and the 6% Tier 1 requirements.
  • The capital conservation buffer will be phased in between January 1, 2016, and year end 2018 becoming fully effective on January 1, 2019. It will begin at 0.625% of Risk Weighted Assets (RWAs) on January 1, 2016 and increase each subsequent year by an additional 0.625 percentage points, to reach its final level of 2.5% of RWAs on January 1, 2019.

  • www.bis.org/press/p100912.htm

    In order to become effective, the Basel III guidelines must first be presented and ratified by the Group of 20 forum (South Korea, November 2010), and then be ratified by each respective national government.

    The Basel III liquidity component sets out two minimum standards for funding liquidity: the Liquidity Coverage Ratio (“LCR”), which is designed to promote the short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high-quality liquid assets to survive a significant stress scenario lasting for 30 calendar days; and the Net Stable Funding Ratio (“NSFR”), which is designed to promote longer-term resilience by requiring banks to have capital or longer term high-quality funding so that the banks can survive over a one-year period of less severe stress. The LCR will be introduced on January 1, 2015. The NSFR will move to a minimum standard by January 1, 2018. The Federal Reserve in its proposed rule for enhanced prudential standards has stated that it intends to implement these liquidity standards in the United States through one or more separate rules.



    Canada

    Financial institutions are regulated by the Office of the Superindendent of Financial Institutions (OSFI). The OSFI is an independent agency of the Government of Canada reporting to the Minister of Finance, and has oversight of domestic banks, foreign bank branches and representative offices, trust and loan companies, and cooperative credit associations.



    European Union

    On July 31, 2012, the European Banking Authority (EBA) publicly indicated that it would extend the deadline for the implementation of the supervisory reporting requirements so that European banks would be compliant with the Basel III banking standards, which includes new requirements to report solvency and liquidity levels and leverage ratios to supervisors, to January 1, 2014.

    In September 2012, it was announced by the European Commission that the European Central Bank (ECB) would become the primary bank supervisor within the 27 state euro zone as of January 1, 2014.



    Information Sources

    Asia Pacific Group on Money Laundering (APG)   www.apgml.org/

    Austrac (Australian Transaction Reports and Analysis Centre)   www.austrac.gov.au/

    Bank for International Settlements (BIS / Bank für Internationalen Zahlungsausgleich)   www.bis.org/index.htm

    Basel Committee on Banking Supervision   www.bis.org/bcbs/index.htm

    Caribbean Financial Action Fask Force (CFATF)   www.cfatf.org/

    Depository Trust Company   www.dtcc.com/

    Deutsche Bundesbank, Members of the Bund Issues Auction Group   www.bundesbank.de/download/kredit/kredit_bietergruppe_mitglieder_en.pdf

    Euribor Historical Data   www.euribor.org/html/content/euribor_data.html

    European Banking Federation   www.ebf-fbe.eu/

    European Central Bank   www.ecb.int/

    European Securitisation Forum   www.europeansecuritisation.com/

    Eurepo Panel Banks   www.eurepo.org/eurepo/panel.html

    Federal Deposit Insurance Company (FDIC)   www.fdic.gov/
    FDIC Institution Directory   www2.fdic.gov/idasp/index.asp
    FDIC Banking Review   www.fdic.gov/bank/analytical/banking/index.html
    FDIC Research and Analysis   www.fdic.gov/bank/analytical/index.html
    FDIC State Profiles   www.fdic.gov/bank/analytical/stateprofile/index.html
    FDIC Industry Analysis   www.fdic.gov/bank/index.html

    Federal Financial Institutions Examination Council (FFIEC)   www.ffiec.gov/
    FFIEC Uniform Bank Performance Report (UBPR)   www2.fdic.gov/ubpr/UbprReport/SearchEngine/Default.asp

    Federal Reserve Bank Discount Window   www.frbdiscountwindow.org/

    Federal Reserve Beige Book   www.federalreserve.gov/FOMC/BeigeBook/2008/

    Federal Reserve Board: Economic Research and Data   www.federalreserve.gov/rnd.htm

    Federal Reserve Board of Governors   www.federalreserve.gov/

    Federal Reserve Board Regulations   www.federalreserve.gov/regulations/default.htm

    Federal Reserve: Check 21 Act   www.federalreserve.gov/paymentsystems/truncation.htm

    Federal Reserve: Financial Holding Companies   www.federalreserve.gov/generalinfo/Fhc/

    Federal Reserve: Financial Services   www.frbservices.org/

    Federal Reserve: Historical Federal Funds Rate   www.federalreserve.gov/fomc/fundsrate.htm

    Federal Reserve: List of the Primary Government Securities Dealers   www.ny.frb.org/markets/pridealers_current.html

    Federal Reserve: National Informaion Center   www.ffiec.gov/nicpubweb/nicweb/nichome.aspx

    Federal Reserve Releases   www.federalreserve.gov/releases/

    Federal Reserve Reporting and Reserves   www.reportingandreserves.org/

    Federal Reserve: Reserve Maintenance Manual   www.frbservices.org/Accounting/pdf/rmm.pdf#Page=122

    Federal Reserve Selected Interest Rates   www.federalreserve.gov./releases/H15/current/

    Federation of Latin American Banks / Federación Latinoamericana de Bancos (FELABAN)   www.latinbanking.com/

    Financial Action Task Force (FATF)   www.fatf-gafi.org/

    Financial Crimes Enforcement Network / FinCEN (U.S. Treasury)   www.fincen.gov/pub_main.html

    Financial Stability Oversight Council (FSOC)   www.treasury.gov/initiatives/fsoc/Pages/default.aspx

    Fintrac (Financial Transaction Reports Analysis Centre of Canada)   http://www.fintrac.gc.ca/   (Français / English)

    International Money Laundering Information Network (IMoLIN)   www.imolin.org/

    New York State Banking Department   www.banking.state.ny.us/

    Office of Foreign Assets Control (U.S. Treasury)   www.ustreas.gov/offices/eotffc/ofac/
    Sanctions Program and Country Summaries   www.treas.gov/offices/eotffc/ofac/sanctions/index.html
    Specially Designated Nationals and Blocked Persons   www.treas.gov/offices/eotffc/ofac/sdn/index.html

    Office of the Comptroller of the Currency (OCC)   www.occ.treas.gov/
    Oversight of nationally chartered banks in the U.S.

    Office of the Superintendent of Financial Institutions (Canada)   www.osfi-bsif.gc.ca/   (Français / English)

    United States, House Committee on Financial Services   financialservices.house.gov/

    United States, Senate Committee on Banking, Housing & Urban Affairs   banking.senate.gov/



    U.S. State Banking Departments (Regulators)

    Alabama State Banking Department   www.bank.state.al.us/

    Alaska Department of Commerce - Division of Banking, Securities & Corporations   www.dced.state.ak.us/bsc/banking.htm

    Arizona Department of Financial Institutions   www.azdfi.gov/

    Arkansas State Bank Department   www.state.ar.us/bank/banking1.html

    California Dept. of Financial Institutions (DFI)   www.dfi.ca.gov/

    Colorado Division of Banking   www.dora.state.co.us/banking/

    Connecticut Department of Banking   www.state.ct.us/dob/

    Delaware, Office of the State Bank Commissioner   www.state.de.us/bank/

    District of Columbia Banking Services   www.dbfi.dc.gov/dbfi/site/default.asp

    Florida Office of Financial Regulation   www.flofr.com/

    Georgia Department of Banking and Finance   dbf.georgia.gov/

    Hawaii, Dept. of Commerce and Consumer Affairs, Division of Financial Institutions   www.state.hi.us/dcca/dfi/

    Idaho Department of Finance   finance.idaho.gov/

    Illinois Office of Banks and Real Estate   www.obre.state.il.us/

    Indiana Department of Financial Institutions   www.in.gov/dfi/

    Iowa Division of Banking   www.idob.state.ia.us/

    Kansas, Office of the State Bank Commissioner   www.osbckansas.org/

    Kentucky Department of Financial Institutions   www.dfi.state.ky.us/

    Louisiana Office of Financial Institutions   www.ofi.state.la.us/

    Maine Bureau of Financial Institutions   www.state.me.us/pfr/bkg/bkg_index.htm

    Maryland Commissioner of Financial Regulation   www.dllr.state.md.us/finance/

    Massachusetts Division of Banks   www.state.ma.us/dob/

    Michigan Office of Financial and Insurance Services   www.michigan.gov/cis/0,1607,7-154-10555---,00.html

    Minnesota Dept. of Commerce   www.state.mn.us/cgi-bin/portal/mn/jsp/content.do?subchannel=-536881744&id=-536881351&agency=Commerce

    Mississippi Department of Banking and Consumer Finance   www.dbcf.state.ms.us/

    Missouri Division of Finance   www.missouri-finance.org/

    Montana Banking and Financial Institutions Division   www.discoveringmontana.com/doa/banking/

    Nebraska Dept. of Banking and Finance   www.ndbf.org/

    Nevada Division of Financial Institutions   www.fid.state.nv.us/

    New Hampshire Banking Department   www.state.nh.us/banking/

    New Jersey Dept. of Banking and Insurance   www.njdobi.org/

    New Mexico Financial Institutions Division   www.rld.state.nm.us/fid/index.htm

    New York State Banking Department   www.banking.state.ny.us/

    North Carolina Commissioner of Banks   www.nccob.org/

    North Dakota Dept. of Financial Institutions   www.state.nd.us/dfi/

    Ohio Dept. of Commerce, Financial Insitutuions Division   www.com.state.oh.us/dfi/

    Oklahoma State Banking Department   www.state.ok.us/~osbd/

    Oregon Division of Finance & Corporate Securities   www.cbs.state.or.us/external/dfcs/

    Pennsylvania Dept. of Banking   www.banking.state.pa.us/

    Puerto Rico Bureau of Financial Institutions   www.ocif.gobierno.pr/

    Rhode Island Department of Business Regulation   www.dbr.state.ri.us/

    South Carolina Dept. of Consumer Affairs   www.state.sc.us/consumer/

    South Dakota Division of Banking   www.state.sd.us/drr2/reg/bank/BANK-HOM.htm

    Tennessee Department of Financial Institutions   www.state.tn.us/financialinst/

    Texas Department of Banking   www.banking.state.tx.us/

    Utah Dept. of Financial Institutions   www.dfi.state.ut.us/

    Vermont Banking Division   www.bishca.state.vt.us/BankingDiv/banking_index.htm

    Virginia Bureau of Financial Institutions   www.state.va.us/scc/division/banking/index.htm

    Washington Department of Financial Institutions   www.dfi.wa.gov/

    West Virginia Division of Banking   www.wvdob.org/

    Wisconsin Dept. of Financial Institutions   www.wdfi.org/

    Wyoming, Dept. of Audit, Division of Banking   audit.state.wy.us/BANKING/default.htm



    Non-U.S. Information Sources

    Argentina Ley de Entidades Financieras   www.bcra.gov.ar/pdfs/marco/Ley%20de%20Entidades%20financieras.PDF

    Australia Financial Services Reform Act 2001   www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200402681?OpenDocument

    Austria Banking Act and Financial Market Authority Act   www.oenb.at/en/img/austrianbankingact_tcm16-11181.pdf

    Canada Bank Act   laws.justice.gc.ca/en/B-1.01/index.html

    Denmark Acts   www.dfsa.dk/sw7804.asp

    France Code monétaire et financier   www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006072026&dateTexte=20080203

    Germany Banking Act (Gesetz über das Kreditwesen)   www.bundesbank.de/download/bankenaufsicht/pdf/kwg_e.pdf

    Hong Kong Chapter 155 Banking Ordinance   www.legislation.gov.hk/eng/home.htm

    Netherlands Bank Act   www.dnb.nl/dnb/home/file/bankact1998_tcm47-147521.pdf

    Norway Financial Institutions Act   www.kredittilsynet.no/archive/stab_pdf/01/01/20040063.pdf

    People's Republic of China Law on Commercial Banks   www.pbc.gov.cn/english//detail.asp?col=6800&ID=3

    Saudi Arabia Banking Control Act   www.sama-ksa.org/en/control/procedure/cofmblr/3.htm

    Singapore Banking Act   statutes.agc.gov.sg/non_version/cgi-bin/cgi_retrieve.pl?actno=REVED-19

    United Kingdom Financial Services and Markets Act 2000   www.opsi.gov.uk/acts/acts2000/ukpga_20000008_en_1

     





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