Publication of the May 2004 update to the Commercial Bank Examination Manual.
1. Rules on the Authority to take Disciplinary Actions against Independent Accountants and Accounting Firms that Perform Audit and Attestation Services. The federal banking agencies (the agencies) jointly issued rules, as implemented by 12 CFR 363, that govern the agencies' authority to take disciplinary actions against independent accountants and accounting firms that perform audit and attestation services that are required by section 36 of the Federal Deposit Insurance Act. See the Board's August 8, 2003, press release.
Attestation services address management's assertions concerning internal controls over financial reporting by an independent public accountant. A federally insured depository institution must include the accountant's audit and attestation reports in its annual report. The rules, effective October 1, 2003, established procedures under which the agencies can, for good cause, remove, suspend, or bar an accountant or firm from performing audit and attestation services for federally insured depository institutions with assets of $500 million or more.
2. Mortgage Banking. The loan portfolio management section was revised to provide references to accounting pronouncements (that are consistent with the bank Call Report's instructions) that apply to mortgage banking transactions and activities. Also, comprehensive mortgage banking examination procedures are provided in the manual's appendix, inclusive of the examination procedures and valuation concerns found in the February 25, 2003, Interagency Advisory on Mortgage Banking, "Risk Management and Valuation of Mortgage Servicing Assets Arising from Mortgage Banking Activities"; the mortgage banking examination modules; and many of the inspection (examination) procedures found in the mortgage banking section 3070.0 of the Bank Holding Company Supervision Manual. See SR letter 03-4.
3. Interagency Statement on Independent Appraisal and Evaluation Functions. The section on real estate appraisals and evaluations and the respective examination procedures and internal control questionnaire were revised to incorporate this October 27, 2003, interagency statement. The statement emphasizes that a banking institution's board of directors is responsible for reviewing and adopting policies and procedures that establish and maintain an effective, independent real estate appraisal and evaluation program (the program) for all of its lending functions. Concerns about the independence of appraisals and evaluations arise from the risk that improperly prepared appraisals may undermine the integrity of credit-underwriting processes. An institution's lending functions should not have undue influence that might compromise the program's independence. See SR letter 03-18.
4. Interagency Policy on Banks' and Thrift Institutions Providing Financial Support to Funds Advised by the Banking Organization or its Affiliates. New sections discuss this January 5, 2004, policy that alerts banking organizations, including their boards of directors and senior management, of the safety-and-soundness implications of and the legal impediments to a bank providing financial support to investment funds advised by the bank, its subsidiaries, or affiliates (that is, an affiliated investment fund).
The interagency policy emphasizes the following three core principles. A bank should not (1) inappropriately place its resources and reputation at risk for the benefit of affiliated investment funds' investors and creditors; (2) violate the limits and requirements contained in Federal Reserve Act sections 23A and 23B and Regulation W, other applicable legal requirements, or any special supervisory condition imposed by the agencies; or (3) create an expectation that the bank will prop up the advised fund (or funds). See SR letter 04-1.
5. Foreign Banking Offices and Organizations. The section on bank-related organizations was revised to include brief definitions and descriptions on limited Regulation K authorized activities and services that are applicable to foreign bank offices and organizations (that is, foreign bank branches, agencies, commercial lending companies, representative offices, and correspondent banks). Also, for the purposes of sections 23A and 23B, the definition of affiliate was further clarified and expanded based upon the provisions of the Board's Regulation W.
A more detailed summary of changes is included with the update package. Copies of the new supplement were shipped directly by the publisher to the Reserve Banks for the distribution to examiners and other System staff. The public may obtain the Manual and the updates (including pricing information) from Publications Fulfillment, Mail Stop 127, Board of Governors of the Federal Reserve System, Washington, DC 20551 (or charge by facsimile at 202728-5886). The Manual is also available on the Board's public web site at www.federalreserve.gov/ boarddocs/supmanual/.
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|Publication:||Federal Reserve Bulletin|
|Date:||Jun 22, 2004|
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