The extension responds to requests by AmBA and other finance trade groups urging the Treasury Department and the Federal Housing Finance Agency to extend the Home Affordable Refinance Program beyond its June 10 sunset date.  In a letter to Treasury Secretary Timothy Geithner and FHFA Director Ed DeMarco, the groups said action is needed to extend the program before March 10 “to avoid market disruptions.”

“HARP is just as critical today as it was last year when it was introduced,” the letter said. “HARP makes it easier for families to stay in their homes.

For more information, visit www.MakingHomeAffordable.gov.  Staff Contact--Rod Alba (202) 663-5592.

AmBA: Overzealous Regulators Hindering Small-Biz Credit
AmBA yesterday sent banking regulators a list of areas in which overzealous examiners are acting contrary to the agencies’ recent statement on meeting creditworthy small businesses’ credit needs. Regulatory and examination practices that are inconsistent with the new interagency statement -- based on bankers’ comments at the recent AmBA National Conference of Community Bankers -- are inhibiting bank lending to small businesses and other customers, AmBA President and CEO Ed Yingling said in a letter.

“The [examiners’] conduct described by the bankers threatens to exacerbate the decline in credit that was reflected in the FDIC’s most recent Quarterly Banking Profile,” Yingling said. “We firmly believe there are ample opportunities for system-wide improvements in the areas [ABA noted].”

Those areas include capital, asset classification, funding sources, commercial real estate concentrations, exam reporting delays, Real Estate Settlement Procedures Act compliance and FDIC asset disposition practices. Yingling explained the problems overzealous examiners are causing in each area, and outlined AmBA-recommended solutions.

He said, for example, many bankers report that examiners are requiring banks to hold capital well above the regulatory minimums and above the “well- capitalized” thresholds in the prompt corrective action rules. “Directives to increase capital ratios often leave a bank with no choice but to shrink, which inevitably means selling assets and curtailing lending,” Yingling said. “These outcomes can be avoided by recognizing that capital is to be used as a buffer in bad times and replenished when conditions improve.”

He then listed five AmBA-recommended changes to the capital rules that would avoid inappropriate outcomes, and in many cases could be done quickly for immediate relief. Read the letter.  For more information, contact AmBA’s Mark Tenhundfeld. 

Fed Issues Proposed Rule on Card Fees, Interest Rates
The Federal Reserve yesterday proposed a rule that would implement 2009 Credit Card Act provisions slated to go into effect Aug. 22. The rule is the third stage in the Fed's implementation of the act. The proposal would, among other things, prohibit card issuers from charging penalty fees that exceed the dollar amount associated with the violation. For example, a consumer couldn't be charged a $39 fee for being late on a $20 minimum payment. Instead the fee couldn't exceed $20.

The proposal also would ban inactivity fees, such as those charged for not using the account to make new purchases; bar charging multiple penalty fees based on a single late payment or other violations of account terms; require that consumers are informed about the reasons for rate increases; and mandate that issuers who have increased rates since Jan. 1, 2009, evaluate whether the reasons for the increase have changed and reduce the rate if appropriate. There will be 30-day comment period on the proposal after its publication in the Federal Register. Read more.  For more information, contact AmBA's Nessa Feddis. 

AmBA Urges Changes to Capital Rules Concerning Loan Sales
AmBA yesterday urged the banking regulators to modify risk-based capital rules starting at the end of the coming quarter because there are technical problems with using the Financial Accounting Standards Board’s Statement No. 166 as a basis for regulatory compliance. FAS 166 (Accounting for Transfers of Financial Assets), which is effective for transactions after Dec. 31, 2009, is noted for its effect on securitization structures, but it also changes the requirements to attain sale accounting and can have a big impact on loan participations, AmBA explained in a letter.

The association cited LIFO (last-in, first-out) loan participations and the sales of Small Business Administration-guaranteed loans as examples of how using FAS 166 for regulatory purposes will restrain lending by artificially hurting banks’ capital as well as their compliance with legal lending limits. Under FAS 166, LIFO participations would not qualify for sale accounting and the sales of the guaranteed portions of most SBA loans would be deferred for 90 days. Without sale accounting treatment, such loans would remain on banks’ books.

AmBA recommended, among other things, that the agencies clarify regulations on legal lending limits, and assign a zero risk-weighting to those portions of LIFO participations and SBA loans that would have attained sale accounting prior to FAS 166, but now remain on the books. Read the letter.  For more information, contact AmBA’s Mike Gullette. 

March 2, 2010

Fed Vice Chair Kohn to Step Down in June
Federal Reserve Board Vice Chairman Donald Kohn said yesterday that he will resign on June 23, the day his term as vice chair ends. Kohn, 67, whose Fed career spans 40 years, has been a board member since August 2002 and has served as vice chairman since June 2006. President Obama now has three Fed vacancies to fill, including two of seven governor positions that have been open since before he took office. The president is expected to nominate a replacement for Kohn before he leaves. Read more. 

AmBA Banker Appointed to Blue Ribbon Accounting Panel
AmBA banker Paul Limbert, president and CEO of Wesbanco Inc., Wheeling, W.Va., has been appointed to a blue-ribbon panel that will address how U.S. accounting standards can best meet the needs of those who use private-company financial statements. After reviewing issues affecting the current system of standard-setting for private companies, the panel will issue recommendations to the Financial Accounting Foundation’s board of trustees, which oversees the Financial Accounting Standards Board. Limbert has served on the AmBA Accounting Administrative Committee and is a certified public accountant. Read more.  For more information, contact AmBA’s Donna Fisher. 

March 1, 2010

Agencies Clarify Risk Weighting of FDIC-Backed Assets
The federal banking agencies on Friday clarified the risk weights for claims on or guaranteed by the FDIC for purposes of banks' risk-based capital requirements. The agencies said that while direct claims on and claims unconditionally guaranteed by the FDIC -- such as FDIC-insured deposits and debt guaranteed under the agency's Temporary Liquidity Guarantee Program -- may be assigned a zero percent risk weight, the same is not true for recent loss-sharing agreements the FDIC entered into with acquirers of assets from failed institutions.

Such agreements "are considered conditional guarantees for risk-based capital purposes due to contractual conditions that acquirers must meet," the agencies said. As a result, the guaranteed portion of assets subject to a loss-sharing agreement should be risk-weighted at 20 percent. Since the terms of specific agreements vary, the agencies advised banks to consult with their primary federal regulator to determine the appropriate risk-based capital treatment.

AmBA had sought clarification on the capital risk weighting for assets the FDIC guarantees. The association continues to seek a lower risk weighting than the current 20 percent for Fannie Mae, Freddie Mac and Federal Home Loan Board debt. AmBA believes such holdings should be given a reduced risk weighting consistent with the protections established under the 2008 Housing and Economic Recovery Act. Read the agencies' statement.  For more information, contact AmBA's Mary Frances Monroe. 

February 26, 2010

FFIEC Issues Updated Retail Payment Systems Booklet
The Federal Financial Institutions Examination Council has issued an updated Retail Payment Systems booklet, part of its information technology examination handbook series. The booklet provides guidance for examiners, financial institutions and service providers on identifying and controlling risks related to retail payment systems and related banking activities. Read and download the booklet. 

February 25, 2010

SEC Adopts ‘Circuit-Breaker’ Short-Selling Restriction
As AmBA expected, the Securities and Exchange Commission yesterday adopted by a 3-2 vote a final rule that will place certain restrictions on short selling when a stock is experiencing significant downward price pressure. The rule will restrict short selling when a stock has triggered a “circuit-breaker” with a price drop of at least 10 percent in one day. At that point, short selling will be permitted only if the stock’s price is above the national best bid.

The rule will apply to the stock’s short-sale orders for the remainder of the trading day as well as the following day. The regulation will become effective 60 days after its publication in the Federal Register, and market participants then will have six months to comply. Read more.  For more information, contact AmBA’s Sally Miller. 

SEC Approves Statement on Global Accounting Standards
In related news, the Securities and Exchange Commission yesterday voted unanimously to issue a statement affirming support for a single set of high-quality globally accepted accounting standards and for ongoing consideration of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers.

The SEC reiterated its cautious support for IFRS, making it contingent on reaching several milestones, including the convergence of U.S. generally accepted accounting principles with IFRS, and improved International Accounting Standards Board governance.

The SEC staff has developed a work plan that standard-setters will follow -- including the Financial Accounting Standards Board in its work with the IASB. Agency staffers will report back regularly to the commissioners on their progress, and a decision will be made in 2011 on whether to move forward on incorporating IFRS into the U.S. financial reporting system. Read more.  For information, contact AmBA’s Donna Fisher.

Bernanke: Interest Rates to Remain Low for Extended Period
Interest rates will remain at exceptionally low levels despite signs the economy is recovering, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee yesterday. Bernanke explained that the economy is still struggling in the wake of the financial crisis, with high unemployment and a troubled housing market. He added that inflationary pressure, the main driver of a tighter monetary policy, is likely to remain subdued.

“The Federal Open Market Committee continues to anticipate that economic conditions -- including low rates of resource utilization, subdued inflation trends, and stable inflation expectations -- are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” he said. Read Bernanke’s testimony. 

February 24, 2010

Industry Earned $914 Million in Fourth Quarter
Banks and savings institutions earned $914 million in 2009's fourth quarter, nearly $2 billion less than the $2.8 billion profit in the third quarter, but a $38.7 billion improvement over the industry's $37.8 billion net loss in 2008's final quarter, the FDIC said yesterday. For all of 2009, banks reported $12.5 billion in net income, up from $4.5 billion in 2008. Noninterest income growth, lower noninterest expense, lower securities losses and a decrease in loan-loss provisions contributed to the earnings improvement over last year's final quarter, the agency said.

Noninterest income was $21.7 billion higher in the fourth quarter than a year earlier, and noninterest expense declined by $16.2 billion. Losses on securities and other assets were $8.7 billion lower, and net interest income was $1.7 billion higher. Loan-loss provisions totaled $61.1 billion in the quarter, a decline of $10 from 2008's final quarter -- marking the first time since 2006's third quarter that such provisions were below year-earlier levels, the FDIC said.

Asset-quality indicators continued to deteriorate during the fourth quarter, although the deterioration rate slowed for the third straight quarter, the agency said. Charge-offs were $53 billion, up from $38.6 billion a year earlier, and noncurrent loans and leases increased by $24.3 billion to $391.3 billion -- 5.37 percent of the industry's total -- during the fourth quarter.

The problem bank list grew by 150 to 702 -- the largest number since 1993 -- and the Deposit Insurance Fund's reserve ratio dropped from - 0.16 percent to - 0.39 percent of insured deposits, partly due to a 1.8-percent growth in deposits. FDIC officials stressed that the agency had $66 billion to handle future failures. Much of the FDIC's cash resources -- including the industry's $46 billion in prepaid premiums -- are not counted as part of the DIF.

AmBA Chief Economist Jim Chessen emphasized that while the recovery is arduous, the banking industry continues to buttress its financial position to meet the credit needs of local communities. He added that the banking industry continues to fully fund the FDIC, and that banks' recent prepayment of over $46 billion in assessments “gives the FDIC considerable flexibility to deal with any further contingencies over the foreseeable future.”  Read more.  Read the FDIC Quarterly Banking Profile.  Read Chessen's statement. 

New Service to Enable Banks to Buy, Sell Prepaid Assessment Credits
Banks that want to buy or sell prepaid FDIC assessment credits will be able to use the Prepaid Assessment Marketplace, a password-protected Web site that will help match prospective buyers and sellers, AmBA announced yesterday. Arlington, Va.-based Promontory Interfinancial Network LLC built the service at AmBA's request, and it will available at no cost to bank users on March 1.

"We are pleased to introduce this service and delighted that Promontory was able to work with AmBA to develop this platform and to assist those banks seeking to transfer credits," AmBA President and CEO Ed Yingling said. All FDIC-insured institution will be able to use the service even if they're not members of AmBA or the Promontory Network. Read more. 

OTS to Release Fourth-Quarter Earnings Data Today
The Office of Thrift Supervision at 10 a.m. today will release fourth-quarter performance data on federally regulated thrifts. OTS Acting Director John Bowman will conduct the briefing. For more information, contact AmBA's Rob Strand.

SEC to Consider New Short-Selling Restrictions, IFRS Roadmap
The Securities and Exchange Commission today will consider adopting new short-selling restrictions, and also decide whether to issue a statement on International Financial Reporting Standards.

The agency staff may recommend a "circuit-breaker" approach to short-selling rather than reinstating the uptick rule as the AmBA has advocated. Under that approach, the circuit-breaker would be triggered if a stock's price fell by a certain percentage, and short-selling of the stock then would be permitted only at a price above the national best bid.

On the accounting front, the SEC in August 2008 proposed a roadmap for converging U.S. generally accepted accounting principles with IFRS by 2014. However, it's not clear from the meeting's description whether the SEC will vote to adopt, revise or reject that roadmap. Read the meeting description.  For information on short-selling, contact AmBA's Sally Miller.  For information on IFRS, contact AmBA's Donna Fisher. 

February 23, 2010

AmBA, ABASA Oppose FDIC’s ANPR on Safe Harbor for Securitizations
AmBA and its ABA Securities Association affiliate oppose the changes contemplated in the FDIC’s advance notice of proposed rulemaking on the safe harbor protection of failed institutions’ assets transferred for a securitization or participation after March 31, the trade groups said yesterday in a comment letter. “We believe that the changes contemplated in the ANPR and its sample regulatory text would, in effect, substantively transform the securitization process in the United States by imposing credit-risk retention and other structural restrictions on securitization transactions which could fundamentally change [their] underlying economics … ,” they said.

The trade groups emphasized that such requirements would significantly impair the return of securitization as a robust funding and liquidity mechanism in U.S. markets and put insured institutions at a competitive disadvantage with nonbank and foreign securitizers. They added that FDIC’s proposal is premature because Congress is considering substantive changes to securitizations, and they asked the FDIC to extend for a minimum of six months the safe harbor’s grandfather period in the agency’s interim final rule. Read the comment letter.  Read the advance notice of proposed rulemaking.  For more information, contact AmBA’s Cris Naser. 

SEC to Consider New Short-Selling Restrictions
The Securities and Exchange Commission on Wednesday will consider adopting new short-selling restrictions, and the agency staff may recommend a “circuit-breaker” approach rather than reinstating the uptick rule as the AmBA had advocated, the association has learned. Under that approach, the circuit-breaker would be triggered if a stock’s price fell by a certain percentage, and short-selling of the stock then would be permitted only at a price above the national best bid. AmBA believes the circuit-breaker approach could have the unintended consequence of encouraging higher volumes and volatility in the affected stock until the trigger-point was reached. The association also thinks the stigmatizing effect on individual stocks subject to the circuit-breaker -- coupled with the temporal nature of the ban -- is not likely to improve investor confidence.

Fed Issues Consumer Piece on New Overdraft Rules
The Federal Reserve yesterday issued an online publication -- “What You Need to Know: New Overdraft Rules for Debit and ATM Cards” -- that explains to consumers how the agency’s overdraft rules that take effect July 1 will affect existing and new account-holders. The publication contains basic information about the types and typical costs of overdraft services, and defines common terms consumers may encounter in bank communications about overdrafts. Read more.  Read the publication.

February 19, 2010

FDIC PROPOSES OVERDRAFT CLARIFICATIONS
The FDIC issued proposed clarifications this morning to its final rules on overdraft services under Regulation E for electronic fund transfers and Regulation DD (Truth in Savings).  The proposals “would clarify that the prohibition in Regulation E on assessing overdraft fees without the consumer’s affirmative consent applies to all institutions, including those with a policy and practice of declining automated teller machine (ATM) and one-time debit card transactions when an account has insufficient funds,” the FDIC said.

The proposals will be open for comment for 30 days following their publication in the Federal Register, which is expected soon.

Mutual Council: Linking Compensation Plan Risks, Assessment Rates 'Wrong Approach'
The FDIC's advance notice of proposed rulemaking that explores ways to tie bank premium rates to the certain risky employee compensation practices "is simply the wrong approach," the AmBA Mutual Institutions Council said this week in a comment letter. The MIC letter is a companion to the AmBA letter Newsbytes reported on Thursday, and it emphasized issues unique to mutual institutions.

The mutual council pointed out, for example, that the compensation programs meeting the FDIC's risk goals under its proposal would involve the employee receiving restricted, nondiscounted company stock over a period of years. Such programs also would provide that significant company-stock awards would become vested only over a multiyear period, and those awards would be subject to a clawback if the rewarded risk went sour.

"In the vast majority of the cases for mutuals or other smaller institutions, stock is simply not available for issuance," the MIC said. The council explained that creating a stock-based solution for institutions that do not have stock would make it likely that mutuals would pay higher FDIC premiums simply because of their charter.

"The MIC respectfully urges the FDIC to direct its concerns with incentive compensation to the [Federal Financial Institutions Examination Council] and work cooperatively with the other banking regulators," the council said. "Acting through deposit insurance premiums is the wrong approach … ." Read the MIC's letter.  Read AmBA's letter.  Read the advance notice of proposed rulemaking.  For more information, contact AmBA's Bob Davis. 

February 18, 2010

AmBA Opposes Linking Assessment Rates to Compensation Plan Risks
AmBA strongly opposes an FDIC advance notice of proposed rulemaking that explores ways to tie bank premium rates to the certain risky employee compensation practices, the association said yesterday in a comment letter.

“The DIF premium proposal is ill-advised and would set a terrible precedent by allowing the FDIC to substitute its judgment for that of the functional regulator that has more familiarity and understanding of the banking institution’s business model, risk tolerance and compensation practices and has more nimble tools to deal with supervisory issues,” AmBA said.

The association added that the proposal is out of step with ongoing regulatory policy reviews of financial-institution compensation practices; is not supported by sufficient empirical evidence; and is unworkable and burdensome.

“The proposal, by suggesting ‘a one-size-fits-all’ approach, fails to recognize the diversity in terms of charter type, size, geography and business model of this nation’s 7,000 plus banking institutions,” AmBA said. “As such, it is unworkable and would impose substantial burdens on the nation’s banking system.” Read AmBA’s letter.  Read the advance notice of proposed rulemaking. For more information, contact AmBA’s Sally Miller. 

February 16, 2010

FDIC Responds to 'Blatantly False' Video on OneWestBank
The FDIC on Friday strongly rebutted as "blatantly false" an Internet video alleging, among other things, that the agency's loss-sharing agreement with OneWest Bank -- formerly the failed IndyMac Bank -- allows its owners to profit from short sales and foreclosures, and thereby discourages loan modifications. The video, which Fairfield, Calif.-based Thinkbigworksmall.com is circulating, claims the owners are profiting from the agreement because loss-share claims are based on the original worth of a loan, not what they paid for it.

"OneWest has not been paid one penny by the FDIC in loss-share claims. The loss-share agreement is limited to 7 percent of the total assets that [it] services, and OneWest must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets," FDIC spokesman Andrew Gray said. "In order to be paid through loss-share, OneWest must have adhered to the Home Affordable Modification Program."

"This video has no credibility," Gray added. "Regardless of the personal or professional motivations behind its production, there is always a responsibility to be factually correct and transparent." Read the FDIC's statement.  Read the FDIC's fact sheet.  For more information, contact AmBA's Jim Chessen. 

FDIC Reiterates Statement Addressing ABA's 'Overzealous Examiner' Concerns
The FDIC on Friday reiterated in a letter the Feb. 5 statement from the regulatory agencies and the Conference of State Bank Supervisors emphasizing that financial institutions that make prudent small- business loans after comprehensively reviewing a borrower's financial condition will not receive supervisory criticism.

The statement showed that AmBA's message about overzealous examiners is resonating with the regulators. AmBA, which has stressed in congressional testimony, and in talks with administration officials and regulators, that examiners were discouraging banks from making solid loans, is encouraging bankers to reference the statement as needed during exams. Read the FDIC's financial institution letter.  Read the FFIEC statement.  Read an AmBA backgrounder on bank lending.  For more information, contact AmBA's Mark Tenhundfeld. 

Fed's Tarullo Favors Council to Handle Systemic Risk
Federal Reserve Governor Daniel Tarullo told a Senate Banking Committee subpanel Friday that he favors creating a council of existing regulators to collect and analyze data on systemic risks, rather than creating a new agency. AmBA supports the concept of creating a council of regulators to oversee and identify systemic risks, but it also believes that the council should have input into accounting policies that may affect such risks.

Tarullo said the council approach could provide the benefits of an independent agency, such as greater speed and a broader approach, while avoiding its drawbacks. He added that legislation will be needed to improve regulators' ability to collect data to support effective systemic-risk monitoring. "The absence of data from the shadow banking system was certainly problematic in retrospect," he said. "The degree to which the tightly wound shadow banking system was channeling liquidity around the financial system is something that was under-appreciated." Read Tarullo's testimony. 

February 11, 2010

Bernanke Outlines Fed's Exit Strategy
The Federal Reserve has developed tools to help wean the economy off the central bank's extraordinary support programs and give the Fed greater control of financial conditions, Fed chairman Ben Bernanke said in written testimony to Congress yesterday. Among those tools are the Fed's new authority to pay interest on reserves, which will give the agency leverage to push up short-term interest rates and which may temporarily replace the federal-funds rate as the main operating target for policy.

Bernanke also noted that reverse repo agreements and a new term deposit program will help the Fed drain reserves held by the banking system. Bernanke gave no indication of when the Fed will tighten its monetary policy , but he did suggest a sequence of steps the Fed may use to exit its "very accommodative policy stance."

"The economy continues to require the support of accommodative monetary policies," Bernanke said. "However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus. We have full confidence that, when the time comes, we will be ready to do so." Read Bernanke's testimony. 

Treasury Reviews Progress of Financial Stability Plan
In related news, Treasury Secretary Timothy Geithner yesterday said the expected cost of stabilizing the financial system has fallen dramatically from a projected $550 billion a year ago to $120 billion today. In a one-year review of the Obama administration’s Financial Stability Plan, Geithner noted that Treasury has already recovered two-thirds of TARP investments in banks specifically and earned $17 billion in income from those investments. The report also reviews the amount of private capital raised by stress-tested larger banks and current credit conditions for consumers, small businesses and municipalities.

“The financial system is healing, but still damaged, and we have a lot of repair work still ahead," Geithner said. He noted that credit for small businesses remains tight, foreclosures remain high and bank failures continue to increase, with small banks in particular hurting from losses on commercial real estate loans. Read the report.

February 8, 2010

Regulators Respond to AmBA Concerns; Address 'Overzealous Examiner' Issue
As reported in Friday's special Daily Newsbytes, AmBA's message about overzealous examiners is resonating with the regulators. The federal financial regulatory agencies and the Conference of State Bank Supervisors issued a statement emphasizing that financial institutions that make prudent small- business loans after comprehensively reviewing a borrower's financial condition will not receive supervisory criticism. The regulators also cautioned banks not to overreact to the economic downturn by curtailing credit.

AmBA, which has stressed in congressional testimony, and in talks with administration officials and regulators, that examiners were discouraging banks from making solid loans, welcomed the statement and encouraged bankers to reference it as needed during exams.

"This statement is one of the most positive developments we've seen and can give bankers a powerful tool to help them in their exams," AmBA EVP Wayne Abernathy said. "Here the bosses are saying, 'Don't straitjacket banks' ability to lend to their good customers.' AmBA and our members have been beating this drum long and loud and we're pleased to know the message has been received

Abernathy said AmBA will work to make sure that this announcement holds true during exams, since there have been numerous examples of policies set in Washington not being carried out in the field. He encouraged banks whose exam experience contradicts today's statement to contact AmBA so that such issues can be raised with agency leaders. Read the FFIEC statement.  Read an AmBA backgrounder on bank lending.  For more information, contact AmBA's Mark Tenhundfeld.

February 8, 2010

Treasury Announces Enhancements on TARP Initiative for CDFIs
The Treasury Department announced yesterday that it is expanding a program announced in October to provide up to $1 billion in Troubled Asset Relief Program capital to Community Development Financial Institutions -- or CDFIs -- that focus on lending to small businesses in low- to moderate-income communities. Under the enhanced program, eligible CDFIs would be able to apply for Treasury investments of up to 5 percent of their risk-weighted assets -- up from 2 percent in the original announcement.

They also would owe only a 2 percent dividend on Treasury’s capital investments, compared with the 5 percent dividend banks paid under the Capital Purchase Program. The dividend rate would increase to 9 percent after eight years, compared with the five-year jump term under the CPP. In addition, CDFIs would not be required to issue warrants as part of the assistance.

Agency officials expect to release a program term sheet by the end of the week, and applications could be accepted by the end of the month. There are more than 830 CDFIs, and 60 CDFI banks and thrifts, with more than $20 billion of assets. The program’s goals are similar to the separate program President Obama announced Tuesday to use $30 billion in TARP money to create a Small Business Lending Fund. But that proposal requires congressional approval to transfer the funds. Read more.  For more information, contact AmBA’s James Ballentine. 

Bernanke Sworn In; Calls for More Fed Transparency
Federal Reserve Board chairman Ben Bernanke was sworn in yesterday for a second four-year term. Bernanke told the Fed staff at the ceremony that the agency must work with Congress to become more transparent. The Fed's considerable independence brings with it a fundamental obligation to be transparent, and it is already one the most transparent central banks in the world, he said.

"However, I believe that we should be prepared to do even more ... ," Bernanke said. "It is essential that the public have the information it needs to understand and be assured of the integrity of all our operations, including all aspects of our balance sheet and our financial controls." Read more.  Read Bernanke’s remarks. 

Warsh: Resolution Power Not Enough to Avoid Future Crises
Giving regulators new powers to shut down failing institutions will not necessarily be enough to avoid future financial crises, Federal Reserve Governor Kevin Warsh told the New York Association for Business Economics. “New resolution authority is a welcome step forward, but its efficacy should not be overstated,” Warsh said. He explained that putting the authority “to resolve failing firms in the discretionary hands of regulators is unlikely, in the near-term, to drive the market discipline required to avoid the recurrence of financial crises.”

While the Fed should play a “critical role” in supervision, Warsh emphasized that market discipline needs to be restored. “We must resurrect market discipline as a complementary pillar of prudential supervision,” he said. “Otherwise, the too-big-to-fail problem, exacerbated by recent events, could undermine our financial system and do long-term harm to the real economy.” Read Warsh’s speech. 

February 5, 2010

Regulators: Examiners Will Not Punish Banks for ‘Prudent’ Lending to Small Businesses
In a major sign that AmBA’s message about overzealous examiners is resonating, the federal financial regulatory agencies and the Conference of State Bank Supervisors today issued a joint statement emphasizing that financial institutions that engage in prudent small business lending after performing a comprehensive review of a borrower's financial condition will not be subject to supervisory criticism for small business loans made on that basis.

"As a general principle, examiners will not adversely classify loans solely due to a decline in the collateral value below the loan balance, provided the borrower has the willingness and ability to repay the loan according to reasonable terms," the statement says. "In addition, examiners will not classify loans due solely to the borrower’s association with a particular industry or geographic location that is experiencing financial difficulties."

The regulators also cautioned banks not to overreact to the economic downturn by curtailing credit.

"[W]hile the regulators expect institutions to effectively monitor and manage credit concentrations, institutions should not automatically refuse credit to sound borrowers because of a borrower’s particular industry or geographic location," the statement says. "Financial institutions should understand the long-term viability of the borrower's business and focus on the strength of a borrowers' business plan to manage risk rather than using portfolio management models that rely primarily on general inputs, such as a borrower's geographic location or industry."

AmBA, which has taken the lead in raising concerns that examiners were discouraging banks from making solid loans, welcomed the statement and encouraged bankers to reference it as needed during exams.

"This statement is one of the most positive developments we’ve seen and can give bankers a powerful tool to help them in their exams," AmBA EVP Wayne Abernathy said. "Here the bosses are saying, ‘Don’t straitjacket banks’ ability to lend to their good customers.’ AmBA and our members have been beating this drum long and loud and we’re pleased to know the message has been received."

Abernathy said AmBA will work to make sure that this announcement holds true during exams, since there have been numerous examples of policies set in Washington not being carried out in the field. He encouraged banks whose exam experience contradicts today’s statement to contact ABA so that such issues can be raised with agency leaders.

AmBA has consistently emphasized in congressional testimony and in talks with administration officials that banks continue to lend despite the difficult economy, but their ability to make loans is being hurt by a regulatory environment that has tightened dramatically. The association also has urged regulators in numerous meetings and letters to give banks sufficient flexibility to work with their borrowers. President Obama recently echoed this message, suggesting the regulatory pendulum had swung too far.

Read the FFIEC statement.  Read an AmBA backgrounder on bank lending. For more information, contact AmBA’s Mark Tenhundfeld.

February 2, 2010

HUD REVISES FAQS ON RESPA RULE
On January 28, the U.S. Department of Housing and Urban Development (HUD) issued the seventh set of revisions to its "Frequently Asked Questions" (FAQs) regarding its 2008 amendments to Regulation X, the Real Estate Settlement Procedures Act's implementing regulation.

For a copy of the revised FAQs, click here.

For questions, contact AmBA’s Rod J. Alba.

TREASURY, HUD ISSUE UPDATED HAMP GUIDANCE
On January 28, the U.S. Department of Treasury, along with the U.S. Department of Housing and Urban Development, issued updated guidance—Supplemental Directive 10-01—for mortgage servicers operating under the Home Affordable Modification Program (HAMP).  The most significant program change is a new requirement for full verification of borrower eligibility prior to offering a trial period plan.  In addition, the Directive also provides guidance to assist servicers in making HAMP eligibility determinations for borrowers currently in active trial period plans, including those borrowers subject to the temporary review period required by Supplemental Directive 09-10.  Under the first part of the Directive, for all trial period plans with effective dates on or after June 1, 2010, servicers may evaluate a borrower for HAMP only after the servicer receives the following three items—Request for Modification and Affidavit (RMA) Form, IRS Form 4506-T or 4506T-EZ, and evidence of income.

For a copy of Supplemental Directive 10-01, and related press releases, click here.

For questions, contact AmBA’s Rod J. Alba.

FHA ANNOUNCES VARIOUS PROGRAM UPDATES
In the past several weeks, the Federal Housing Administration (FHA) announced a host of policy and substance changes on various aspects the program.

·         On January 20, FHA announced steps intended to enhance FHA’s ability to manage its risks. These policy changes would (a) increase FHA’s mortgage insurance premium, (b) update the combination of FICO score and down payment requirements for new borrowers, (c) reduce allowable seller concessions from 6% to 3%, and (d) implement a series of significant measures aimed at increasing enforcement authority. In connection with this latter item of increasing enforcement, HUD will do the following—publicly report lender performance rankings to complement currently available Neighborhood Watch data, enhance monitoring of lender performance and compliance with FHA guidelines and standards, implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using a delegated insuring process, and pursue added legislative authorities to increase enforcement on FHA lenders.  For a copy of the press release, click here.

·         On January 15, HUD announced a one-year waiver for rules that prohibit FHA from insuring mortgages on properties where the seller has owned the property for less than 90 days. According to HUD, the purpose of the waiver is to allow homes to resell as quickly as possible, thereby helping to stabilize real estate prices and to revitalize neighborhoods and communities. The waiver only applies to forward mortgages and to sales where there is no identity of interest between the buyer and seller or others participating in the transaction. For a copy of the press release, click here.

·         On January 22, HUD issued Mortgagee Letter 2010-04, providing guidance to FHA-approved servicers on how to assist FHA borrowers facing imminent default. Under the guidance, the term "imminent default" is defined as being current or less than 30 days late on the mortgage and experiencing a significant reduction in income or some other hardship that prevents the borrower from making the next required mortgage payment in the month it is due. In making this determination, servicers must document the borrower's financial condition, as well as the type of hardship affecting the borrower. If a borrower is deemed to face imminent default, the servicer may offer formal or informal forbearance agreements calculated pursuant to the FHA's standard loss mitigation procedures. The letter also allows the servicer to offer the borrower a modification under the Home Affordable Modification Program. For a copy of Mortgagee Letter 2010-04, click here. 

For questions, contact AmBA’s Rod J. Alba.

Banks Stopped Tightening Loan Standards in Fourth Quarter
U.S. banks stopped tightening standards on many loan types -- with the exception of commercial real estate loans -- in the fourth quarter of last year, according to the Federal Reserve’s latest Senior Loan Officer Opinion Survey. The survey found that large net fractions of respondents further tightened their credit standards for CRE loans, in addition to substantially tightening terms for such loans over the past year. Banks also reported that loan demand from both businesses and households weakened further, on net, over the survey period. Read the report. 

Volcker, Wolin to Testify Today on Proposal to Limit Large Banks
Former Federal Reserve Chairman Paul Volcker and Deputy Treasury Secretary Neal Wolin will testify today at a Senate Banking Committee hearing on President Obama's proposals to limit the size and activities of large commercial banks. Volcker -- after whom the president named his initiatives -- is a key advocate of the measures.

The committee on Thursday will hold another hearing on the proposals. That hearing -- titled “Implications of the ‘Volcker Rules’ for Financial Stability” -- will include testimony from witnesses Gerald Corrigan, managing director of Goldman Sachs; Barry Zubrow, EVP and chief risk officer of JPMorgan Chase; and former Citigroup CEO John Reed, who has advocated some resurrection of barriers between commercial and investment banks.

AmBA Generally Supports Fed’s Term Deposit Proposal; Makes Recommendations
AmBA generally supports the Federal Reserve’s proposal to create a term deposit program to assist the management of bank reserves, the association said yesterday in a comment letter. Under the proposed program, financial institutions could place funds with the Fed for 30 days to one year at rates equal to the “general short-term rate.”

AmBA recommended, among other things, that the Fed carefully manage its role as a market participant to avoid interference with natural market processes. “That includes a careful consideration of potential competition with -- or at least comparison with -- Treasury securities,” AmBA said.

The association also recommended that the Fed clarify the need for the program; make it accessible to banks of all sizes; avoid exposing participants to abrupt changes in the terms; and enact a hard sunset provision to end the program. Read the letter.  Read the Fed proposal.  For more information, contact AmBA’s Denyette DePierro.

Fed Launches New Web Site for Community Bank Directors
The Federal Reserve yesterday launched a new Web site -- BankDirectorsDesktop.org -- to help new community bank directors learn how to ensure the safety and soundness of their institutions. The Web site includes links to the interactive course “Training for Bank Directors,” and the latest edition of the guide Basics for Bank Directors to help new directors better understand the issues and challenges associated with serving on a bank board. Read more.  Go to the Web site.

February 1, 2010

SENATE CONFIRMS BERNANKE
Federal Reserve Board Chairman Ben Bernanke won Senate confirmation to a second four-year term yesterday.  The Senate confirmed the nomination by a vote of 70-30, after passing a procedural motion on the nomination by a vote of 77-23.  Bernanke’s current term as Chairman expires on Sunday, and his term on the Board expires in 2020.

Fed Clarifies Card Act Rules Related to Variable Rates with 'Floors'
Federal Reserve staff members -- in two recent AmBA-hosted conference calls -- have clarified alternatives to dealing with the recently adopted rules related to credit card plans with variable rates. The new rules, mandated by the 2009 Credit Card Act, state that for a variable-rate plan to increase the rate without an advance notice and other restrictions, it may not have a "floor" or minimum rate above the index rate plus margin.

Issuers had questions about how to make variable-rate changes and the timing of any required notices, especially given the rules' short implementation time frame. Fed staffers explained that there are several alternatives available to card issuers. Read about the alternatives.  For more information, contact AmBA's Nessa Feddis. 

Kohn: Plan Now for Rise in Interest Rates
Banks must plan now for a future rise in interest rates, Federal Reserve Vice Chairman Donald Kohn said Friday at an FDIC interest-rate risk symposium in Arlington, Va. Kohn declined to give a rate outlook, but he said that as the economic recovery gains traction, it will become appropriate at some point for the Federal Open Market Committee to raise rates.

While "interest-rate risk is inherent in the business of banking … it is especially important now for institutions to have in place sound practices to measure, monitor and control this risk," he said. "They must not become distracted from this critical task by their efforts to deal with credit problems, nor can they think that assuming greater interest-rate risk is a sound strategy for compensating for losses they are taking on their loan portfolio."

Symposium panelists -- including consultants, market participants and bankers -- recommended strategies for managing interest-rate risk. A transcript of the meeting will be posted later this week on the FDIC Web site. Read more.  Read Kohn's speech. 


i