FDIC Enforcement Decisions and Orders
OCC Enforcement Actions
OTS Enforcement Orders (Legacy Site)
Federal Reserve List of Enforcement Actions
|United States Bank Regulation & Supervision|
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).
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).
|Bank Holding Company||National or State charter and Fed member||Supervised by the Federal Reserve Bank (FRB)|
|Commercial bank||National (federal) charter and Fed member||Chartered & supervised by the Office of the Comptroller of the Currency (OCC)|
|State / Commercial bank||State charter and Fed member||Supervised by the Federal Reserve Bank (FRB)|
|State / Commercial bank||State charter and Fed non-member||Supervised by the FDIC|
|Savings banks||State charter||supervised by the FDIC|
|Savings & Loan associations||State 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 branch||State license||supervised by the Federal Reserve Bank (FRB) and FDIC (if insured)|
|Foreign bank branch||Federal license||supervised by the Federal Reserve and OCC; FDIC if insured|
|Foreign bank representative office||supervised by the Federal Reserve Bank (FRB)|
|Industrial bank||State Charter||supervised by the state banking department|
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
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
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.
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 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.
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.
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.
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.
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.
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 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).
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|
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.
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).
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:
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:
The risk weighting of asset classes set out in the 1988 Accord has been revised in Basel II.
|Claims on sovereigns|
|Credit Assessment||AAA to AA-||A+ to A-||BBB+ to BBB-||BB+ to B-||Below B-||Unrated|
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.
|Credit Assessment of Sovereign||AAA to AA-||A+ to A-||BBB+ to BBB-||BB+ to B-||Below B-||Unrated|
|Risk Weight Under Option 1||20%||50%||100%||100%||150%||100%|
|Credit Assessment of Banks||AAA to AA-||A+ to A-||BBB+ to BBB-||BB+ to B-||Below B-||Unrated|
|Risk Weight Under Option 2||20%||50%||50%||100%||150%||50%|
|Claims on corporates|
|Credit Assessment||AAA to AA-||A+ to A-||BBB+ to BB-||Below BB-||Unrated|
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.
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:
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 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 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%).
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.
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.
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.
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/
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
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