Announcements.

MEETING OF THE CONSUMER ADVISORY COUNCIL

The Federal Reserve Board announced on March 2, 1999, that the Consumer Advisory Council would hold its next meeting on Thursday, March 25, in a session open to the public. The council's function is to advise the Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.

WITHDRAWAL OF THE PROPOSED "KNOW YOUR CUSTOMER" REGULATION

The Federal Reserve Board on March 23, 1999, announced withdrawal of its proposed "Know Your Customer" regulation that was issued for public comment on December 7, 1998.

The Board, acting along with the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, withdrew the proposal in response to comments received.

REGULATIONS H AND Y: FINAL RULES

The Federal Reserve Board on March 2, 1999, issued two final rules amending the risk-based and leverage capital standards for state member banks (Regulation H--Membership of State Banking Institutions in the Federal Reserve System) and the risk-based capital standard for bank holding companies (Regulation Y--Bank Holding Companies and Change in Bank Control). The rules were effective April 1, 1999.

The rules address the risk-based capital treatment of construction loans on presold residential properties, junior liens on one- to four-family residential properties, and investment in mutual funds.

For state member banks and bank holding companies, there is no change in the risk-based capital treatment of construction loans on presold residential properties or junior liens on one- to four-family residential properties.

With regard to the risk-based capital treatment of investments in mutual funds, state member banks or bank holding companies may continue to assign an investment in a mutual fund to the risk category appropriate to the highest risk-weighted asset allowable under the stated investment limits in the fund's prospectus or, at their option, assign the investment on a pro rata basis to different risk categories according to the limits of the fund's prospectus. The total risk weight of the fund under either risk-weighting method may not be less than 20 percent.

With regard to the leverage capital standard for state member banks, institutions with a composite rating of "1" under the Uniform Financial Institutions Rating System will continue to have a minimum ratio of tier 1 capital to total assets (leverage ratio) of 3.0 percent.

Other institutions will now be required to maintain a minimum leverage ratio of 4.0 Percent, rather than the previous minimum of 3.0 percent, plus an additional cushion of 100 to 200 basis points.

The Board notes that an institution may be required to maintain higher-than-minimum capital levels if warranted and emphasizes that an institution should maintain a capital level commensurate with its risk profile.

The Board issued an amendment addressing the bank holding company leverage capital guidelines in June 1998.

These final rules were adopted on a joint basis with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision.

REGULATION M: REVISIONS TO THE OFFICIAL STAFF COMMENTARY

The Federal Reserve Board on March 31, 1999, announced revisions to its Regulation M (Consumer Leasing) official staff commentary, which applies and interprets the requirements of the regulation. The revisions are effective immediately; however, compliance is optional until March 31, 2000.

The revisions provide guidance on disclosures for lease renegotiations and extensions, official fees and taxes, multiple-item leases, and advertisements.

REGULATION Z: REVISIONS TO THE OFFICIAL STAFF COMMENTARY

The Federal Reserve Board on March 31, 1999, announced revisions to its Regulation Z (Truth in Lending) official staff commentary, which applies and interprets the requirements of the regulation. The revisions are effective immediately; however, compliance is optional until March 31, 2000.

The revisions provide guidance on the prohibition against the issuance of unsolicited credit cards and on the calculation of payment schedules involving private mortgage insurance.

In addition, the update discusses credit sale transactions, in which down payments include cash and property used as a trade-in, and adopts several technical amendments.

REGULATION CC: FINAL AMENDMENTS

The Federal Reserve Board on March 23, 1999, announced final amendments to Regulation CC (Availability of Funds and Collection of Checks) that will facilitate banks' efforts for Year 2000 readiness.

The amendments will allow banks that consummate merger transactions on or after July 1, 1998, and before March 1, 2000, greater time to implement software changes related to the merger.

The amendments allow these banks to be treated as separate banks until March 1, 2001. Beginning in March 2000, banks that merge will be subject to the normal, one-year transition period.

The Board's action recognizes that banks are currently dedicating their automation resources to addressing Year 2000 and leap year computer problems.

The extension of the merger transition period will enable merged banks that were Year 2000 compliant to be treated as separate entities and to delay merging their systems until after the key century rollover and leap year events of Year 2000.

This procedure will enable these banks to avoid reprogramming and retesting Year 2000 compliant systems before spring of 2000. The extension should also help ensure that banks have sufficient resources to address unanticipated Year 2000 problems that may arise at the turn of the century.

JOINT ISSUANCE BY REGULATORY AGENCIES OF A LETTER ON THE ALLOWANCE FOR LOAN LOSSES BY BANKS

The Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Comptroller of the Currency, and Office of Thrift Supervision jointly issued the following letter to financial institutions on the allowance for loan losses.

Joint Interagency Letter to Financial Institutions

Last November, the Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Comptroller of the Currency, and Office of Thrift Supervision (the Agencies) issued a Joint Interagency Statement in which they reaffirmed the importance of credible financial statements and meaningful disclosure to investors and to a safe and sound financial system. The Joint Interagency Statement underscored the requirement that depository institutions record and report their allowance for loan and lease losses in accordance with generally accepted accounting principles (GAAP). We stress and continue to emphasize the importance of depository institutions having prudent, conservative, but not excessive, loan loss allowances that fall within an acceptable range of estimated losses. We recognize that today instability in certain global markets, for example, is likely to increase loss inherent in affected institutions' portfolios and consequently require higher allowances for credit losses than were appropriate in more stable times.

Despite the issuance of the November Joint Interagency Statement, there is continued uncertainty among financial institutions as to the expectations of the banking and securities regulators on the appropriate amount, disclosure, and documentation of the allowance for credit losses. The Agencies now announce additional measures designed to address this continued uncertainty. These measures are consistent with the Agencies' mutual objective of, and focus on, addressing prospectively, where feasible, issues related to improving the documentation, disclosure, and reporting of loan loss allowances of financial institutions.

* The Agencies are establishing a Joint Working Group, comprised of policy representatives from each of the Agencies, to gain a better understanding of the procedures and processes, including "sound practices," used generally by banking organizations to determine the allowance for credit losses. An important aspect of the Joint Working Group's activities will be to receive input from representatives of the banking industry and the accounting profession on these matters, and will not involve joint examinations of institutions. The common base of knowledge that results will facilitate the joint and individual efforts of the Agencies to provide improved guidance on appropriate procedures, documentation, and disclosures to the banking industry. This will assist the banking community in complying with GAAP and will improve comparability among financial statements of depository and other lending institutions. The Joint Working Group will also share information and insights concerning issues of mutual concern that may arise.

* Using information gathered through the Joint Working Group and from representatives of the accounting profession and the banking industry, the Agencies will work together to issue parallel guidance, on a timely basis, and within a year on the first two items listed below, in the following key areas regarding credit loss allowances:

      Appropriate Methodologies and Supporting Documentation. The Agencies
   intend to issue guidance that will suggest procedures and processes
   necessary for a reasoned assessment of losses inherent in a portfolio and
   discuss ways to ensure that documentation supports the reported allowance.

      Enhanced Disclosures. This guidance will address appropriate disclosures
   of allowances for credit losses and the credit quality of institutions'
   portfolios by identifying key areas for enhanced disclosures, including the
   need for institutions to disclose changes in risk factors and asset quality
   that affect allowances for credit losses. The enhanced disclosures would
   contribute to better understanding by investors and the public of the risk
   profile of banking institutions and improve market discipline.

* The Agencies will work together to encourage and support the Financial Accounting Standards Board's process of providing additional guidance regarding accounting for allowances for loan losses. The Agencies emphasize that GAAP requires that management's determination be based on a comprehensive, adequately documented, and consistently applied analysis of the particular institution's exposures, the effects of its lending and collection policies, and its own loss experience under comparable conditions.

* In addition, the Agencies will support and encourage the task force of the American Institute of Certified Public Accountants (AICPA) that is developing more specific guidance on the accounting for allowances for credit losses and the techniques of measuring the credit loss inherent in a portfolio at a particular date. In particular, the AICPA task force will focus on providing guidance on how best to distinguish probable losses inherent in the portfolio as of the balance sheet date--the guidepost agreed to by the Agencies for reporting allowances in accordance with GAAP--from possible or future losses not inherent in the balance sheet as of that date. Additionally, the Agencies will ask the AICPA task force to consider recently developed portfolio credit risk measurement and management techniques that are consistent with GAAP as part of this effort. The AICPA project already has been initiated and will include representatives from the accounting profession and the banking industry, as well as observers from the SEC and the banking agencies.

* Senior staff of the Agencies will continue to meet to discuss banking industry accounting and financial disclosure policy issues of interest that affect the transparency of financial reporting and bank safety and soundness. These discussions will address progress in the application of accounting and disclosure standards by banking institutions, including those impacting the allowance for credit losses, with particular focus on recently identified issues and trends. The meetings also will be used to coordinate projects of the Agencies in areas of mutual interest. The first of these meetings was held on January 27.

The Agencies believe that the actions announced above will promote a better and clearer understanding among financial institutions of the appropriate procedures and processes for determining credit losses in accordance with GAAP. The Agencies intend that these steps will enhance the transparency of financial information and improve market discipline, consistent with safety and soundness objectives. In recognition of the specialized regulatory nature of the banking industry and in order to resolve ongoing uncertainties in the industry, with the announcement of these initiatives, the Agencies' focus, in so far as feasible, will be on enhancing allowance practices going forward.

ENFORCEMENT ACTIONS

The Federal Reserve Board on February 25, 1999, announced the issuance of a consent order against Daniel K. Walker, senior vice president, a director, and an institution-affiliated party of the Farmers and Merchants Bank of Long Beach, Long Beach, California, a state member bank.

Mr. Walker, without admitting to any allegations, consented to the issuance of the order in connection with the bank's extensions of credit in 1996 to a bank affiliate that resulted in alleged violations by the bank of the prior approval, collateral, documentation, and certain other requirements of sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 371c-1), Regulation O of the Board of Governors (12 C.F.R. Part 215), and a written agreement between the Federal Reserve Bank of San Francisco and the bank, dated November 10, 1993. Mr. Walker paid a fine of $12,500.

The Federal Reserve Board on February 25, 1999, announced the issuance of a consent order against Kenneth G. Walker, president, chairman of the board of directors, chief executive officer, and institution-affiliated party of the Farmers and Merchants Bank of Long Beach, Long Beach, California, a state member bank.

Mr. Walker, without admitting to any allegations, consented to the issuance of the order in connection with the bank's extensions of credit in 1996 to a bank affiliate that resulted in alleged violations by the bank of the prior approval, collateral, documentation, and certain other requirements of sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 371c-1), Regulation O of the Board of Governors (12 C.F.R. Part 215), and a written agreement between the Federal Reserve Bank of San Francisco and the bank, dated November 10, 1993.

The Federal Reserve Board, on February 25, 1999, announced the issuance of a combined order to cease and desist and of assessment of a civil money penalty against Hogi Patrick Hyun, a former employee of BT Singapore, a wholly owned nonbank subsidiary of Bankers Trust New York Corporation, New York, New York.

Mr. Hyun, without admitting to any allegations, consented to the issuance of the order in connection with his involvement in the marketing and sale of leveraged derivative transactions to customers of BTNYC and its subsidiaries. Mr. Hyun paid a fine of $120,000.

CHANGES IN BOARD STAFF

The Federal Reserve Board announced on April 5, 1999, that Theodore E. Allison, Assistant to the Board for Federal Reserve System Affairs in the Office of Board Members, would retire on April 30, 1999, after more than twenty-seven years of service with the Board.

The Board of Governors announced on April 13, 1999, approval of a reorganization of the Division of International Finance and the appointment to the official staff of Ralph W. Tryon as Assistant Director. In connection with the reorganization, the Board approved changes in responsibilities for Lewis Alexander, Peter Hooper, and Donald Adams and a change in Mr. Adams's title from Assistant Director to Senior Adviser.

Mr. Tryon first joined the Board's staff in 1979 and since 1992 has been Chief of the Trade and Financial Studies Section. He will assume direct supervisory responsibility for the Research and Information Systems program and will coordinate the division's information technology activities. He received his Ph.D. from the Massachusetts Institute of Technology.

The Federal Reserve Board announced on April 26, 1999, that S. David Frost, Staff Director for Management, would retire on June 1, 1999, after sixteen years of service with the Board.

The Federal Reserve Board on March 18, 1998, announced the appointment of Stephen R. Malphrus as Staff Director for Management. His appointment is effective on June 1, 1999, when S. David Frost, the current Staff Director, will retire.

The Staff Director for Management coordinates general management and administrative functions, including human resources, planning and budgeting, information technology, and general logistic support.

Mr. Malphrus joined the Board's staff in 1976. In 1991 he was promoted to the position of Director of the Board's Division of Information Resources Management.3