FINAL RULE ON RISK WEIGHTING FOR CLAIMS ON SECURITIES FIRMS
The federal banking agencies issued on April 9, 2002, a final rule amending their risk-based capital standards for banks, bank holding companies, and savings associations (institutions) to reduce the risk weight applied to claims on, or guaranteed by, qualifying securities firms.
The Board of Governors of the Federal Reserve System Board of Governors of the Federal Reserve System
The managing body of the Federal Reserve System, which sets policies on bank practices and the money supply. (Board), the Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000. (FDIC FDIC
See: Federal Deposit Insurance Corporation
See Federal Deposit Insurance Corporation (FDIC). ), the Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (or OCC) was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States. (OCC OCC
See: Options Clearing Corporation
See Options Clearing Corporation (OCC). ), and the Office of Thrift Supervision The Office of Thrift Supervision (OTS) was established as a bureau of the Treasury Department in August 1989 as part of a major Reorganization Plan of the thrift regulatory structure mandated by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (12 U.S.C.A. (OTS See Office of Thrift Supervision. ) published the final rule in the Federal Register on April 9, 2002.
The final rule lowers the risk weight applied to certain claims on qualifying securities firms from 100 percent to 20 percent. This change is consistent with the treatment of claims on securities firms under an April 1998 amendment to the Basel Accord Basel Accord
Agreement concluded among country representatives in 1988 in Switzerland to develop standardized risk-based capital requirements for banks across countries. . The Accord is an international framework for assessing the capital adequacy of depository institutions by risk weighting their assets and off-balance-sheet exposures and serves as a basis for the banking agencies' risk-based capital standards.
Under the final rule, qualifying securities firms include the following:
* Securities firms incorporated in the United States that are broker-dealers registered with the Securities and Exchange Commission (SEC) and are in compliance with the SEC's net capital requirements
* Securities firms incorporated in other member countries of the Organization for Economic Cooperation and Development Organization for Economic Cooperation and Development (OECD), international organization that came into being in 1961. It superseded the Organization for European Economic Cooperation, which had been founded in 1948 to coordinate the Marshall Plan for European (OECD OECD: see Organization for Economic Cooperation and Development. ) that are subject to supervisory and regulatory arrangements, including risk-based capital requirements, comparable to those imposed on banks in OECD countries.
The following are the three ways in which a 20 percent risk weight on a claim against a qualifying securities firm may apply:
* The qualifying securities firm has a long-term credit rating in one of the three highest investment-grade credit rating categories used by a nationally recognized statistical rating organization A Nationally Recognized Statistical Rating Organization (or "NRSRO") is a credit rating agency which issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes.
* The qualifying securities firm's parent company satisfies the rating requirement and guarantees the claim
* The claim on the qualifying securities firm arises from a repurchase/reverse repurchase agreement or securities lending/borrowing transaction and satisfies certain collateral and other requirements.
Consistent with the existing rules of the Board and the OCC, the FDIC and the OTS are also amending their risk-based capital standards to permit a zero percent risk weight for certain claims on qualifying securities firms that are collateralized by cash or by securities issued or guaranteed by the U.S. or OECD central governments.
The rule will become effective on July 1, 2002. However, institutions may choose to immediately apply the provisions of the final rule, including in the risk-based capital calculations for the March 31, 2002, Reports of Condition and Income (Call Reports) filed by banks; the March 2002 Thrift Financial Reports filed by savings associations; and the March 31, 2002, Consolidated Financial Statements Consolidated Financial Statements
The combined financial statements of a parent company and its subsidiaries.
Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge for Bank Holding Companies (FR Y-9C) filed by bank holding companies.
REVISIONS TO STAFF COMMENTARY ON REGULATION Z (TRUTH IN LENDING)
The Federal Reserve Board issued on April 3, 2002, revisions to its Regulation Z (Truth in Lending) official staff commentary, which applies and interprets the requirements of the regulation.
The commentary revisions clarify how creditors that place Truth in Lending Act The Truth in Lending Act is contained in Title I of the Consumer Credit Protection Act (15 U.S.C.A. § 1601 et seq.). The CCPA is designed to assure that every customer who needs Consumer Credit is given meaningful information concerning the cost of such credit. disclosures on the same document with the credit contract may satisfy the requirement for providing the disclosures, in a form the consumer may keep, before consummation. In addition, the revisions provide guidance on disclosing costs for certain credit insurance policies and on the definition of "business day" for purposes of the right to rescind certain home-secured loans.
The Board is also publishing technical changes to the regulation and commentary. The revisions are effective immediately.
PUBLICATION OF CONSUMER GUIDE ON ELECTRONIC CHECK CONVERSION TRANSACTIONS
The Federal Reserve Board announced on March 21, 2002, the publication of a guide to help consumers better understand their rights and responsibilities with regard to electronic check conversion transactions.
The guide, When is Your Check Not a Check? Electronic Check Conversion, discusses what electronic check conversion is, how consumers can tell if their check will be electronically converted, some of the differences between a regular check transaction and electronic check conversion, consumers' rights in an electronic check conversion transaction, and what consumers can do if they have problems with such transactions.
In an electronic check conversion transaction, a consumer authorizes the use of a check to obtain information for initiating an electronic debit from the consumer's account. When Is Your Check Not a Check? covers electronic check conversion at the point of sale as well as when the consumer has mailed a check to a company that uses electronic check conversion.
The guide also provides a checklist for consumers to use before and after an electronic check conversion transaction, and items to review when they receive their account statements from financial institutions.
Print copies of the guide are available from Publications Services, Mail Stop 127, Board of Governors of the Federal Reserve System, Washington, DC 20551. The first 100 copies are free of charge.
The guide is also available on the Board's web site at http://www.federalreserve.gov/pubs/checkconv/. A PDF (Portable Document Format) The de facto standard for document publishing from Adobe. On the Web, there are countless brochures, data sheets, white papers and technical manuals in the PDF format. (Portable Document Format (file format) Portable Document Format - (PDF) The native file format for Adobe Systems' Acrobat. PDF is the file format for representing documents in a manner that is independent of the original application software, hardware, and operating system used to create those documents. ) version is provided on the web site so that consumer groups, financial institutions, and retailers can download and print copies for distribution to their clients and customers. It includes a space on the back panel for organizations to provide their own contact information.
MINUTES OF BOARD DISCOUNT RATE MEETINGS
The Federal Reserve Board released on March 29, 2002, the minutes of its discount rate meetings from December 17, 2001, to January 28, 2002.