House Banking Committee evaluates potential risks of structured notes.Henry B. Gonzalez Henry Barbosa Gonzalez (May 3, 1916 – November 28, 2000) was a Democratic politician from the state of Texas. He represented Texas's 20th congressional district from 1961 to 1999. Gonzalez was born in San Antonio, Texas. (D-Tex.), chairman of the House Committee on Banking, Finance and Urban Affairs, asked regulators to estimate insured depository The place where a deposit is placed and kept, e.g., a bank, savings and loan institution, credit union, or trust company. A place where something is deposited or stored as for safekeeping or convenience, e.g., a safety deposit box. institutions' losses due to structured notes and to provide overviews of their transactions. Structured notes are a relatively new type of debt security with derivativelike characteristics issued by corporations and government-sponsored enterprises. In letters addressed to Federal Reserve Chairman Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. , acting Federal Deposit Insurance Corp. Chairman Andrew C. Hove Hove (hōv), city (1991 pop. 65,587), East Sussex, SE England. It is a modern residential seaside resort. , Jr., Comptroller of the Currency Comptroller of the Currency A government official, appointed by the President of the United States, who keeps control over all national banks, and receives reports from the banks at least quarterly, to be published in newspapers. Eugene A. Ludwig and acting 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. ) Director Jonathan Fiechter, Gonzalez said difficulties in evaluating cash flow characteristics and risks of structured notes were reasons to "ensure thrifts that purchase structured notes are capable of managing the risks they pose." A spokesperson for the House committee said there was no full-fledged investigation of structured notes under way; however, the committee is gathering information as a part of its oversight responsibilities. The OTS issued a bulletin in August urging savings associations to use caution when investing in structured notes. Thrift Bulletin no. 65 said although structured notes could be useful investments, their complexity made them inappropriate for unsophisticated investors. "The risks--credit, liquidity and market risks--of structured notes vary considerably, as they are issued in many different forms," the bulletin says. "An evaluation of the risk and return characteristics of certain types of stractured notes can be difficult if they contain complex rate adjustment formulas or embedded options. For this reason, certain types of structured notes may be appropriate investments for only the most sophisticated investors." The bulletin establishes investment guidelines for savings associations buying structured notes. The guidelines include * Ensuring structured note purchases remain consistent with business plans and investment strategy. * Reviewing the notes' terms and provisions. * Evaluating the risk and return characteristics. * Assessing the effect of interest rate volatility on value. * Evaluating liquidity and credit risk. The bulletin also describes the most common types of structured notes, including step-up bonds, index amortizing notes, dual index notes, deleveraged bonds, range bonds and inverse floaters. To obtain a copy of the bulletin, contact the OTS information services department The Information Services Department (ISD) (Traditional Chinese: 政府新聞處; Simplified Chinese: 政府新闻处 at (202) 906-5900; fax: (202) 906-7755. |
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