Financial Update (First Quarter 2002)


Cover Story

Bank Securitization

Subordinated Debt

Board Appointments

Small Banks

Atlanta Fed Board

Guynn’s Speech

2002 Outlook


Did You Know?

Data Bank

The Docket

T he following is a summary of recent Federal Reserve actions or announcements. Circular letters are available online at

Oct. 17 The Federal Reserve Board issued comprehensive revisions to Regulation K (international banking operations) expanding permissible activities abroad for U.S. banking organizations and reducing associated regulatory burdens. The final rule became effective following publication in the Federal Register.

Oct. 18 The Federal Reserve Board announced the annual adjustments in the amount of net transaction accounts used in the calculation of reserve requirements and the cutoff level used to determine the detail and frequency of deposit reporting. For net transaction accounts in 2002, the first $5.7 million, up from $5.5 million in 2001, will be exempt from reserve requirements. A 3 percent reserve ratio will be assessed on net transaction accounts over $5.7 million up to and including $41.3 million, down from $42.8 million in 2001. A 10 percent reserve ratio will be applied above $41.3 million. The Board also increased the deposit cutoff level that is used with the exemption level to determine the frequency and detail of deposit reporting.

Oct. 31 The Federal Reserve Board approved fee schedules for Federal Reserve Bank payment services, effective Jan. 2, 2002. Overall, the price level for Federal Reserve priced services in 2002 is projected to increase 2.1 percent from the 2001 level. Prices across all electronic payment services will decline 5 percent in 2002, reflecting lower prices for Fedwire funds and book-entry securities transactions. Automated clearinghouse prices will remain at their current levels. Reflecting, in part, investments in check automation and electronic check technologies, check service fees will increase approximately 4 percent on average. These investments should lead to greater operating efficiencies at the Reserve Banks and result in long-run cost savings. The 2002 priced services fee schedules are available at the Federal Reserve’s Financial Services Web site at

Nov. 14 The Federal Reserve Board published the annual adjustment of the dollar amount that triggers additional disclosure requirements under the Truth in Lending Act for mortgage loans that bear rates or fees above a certain amount. The dollar amount has been adjusted from $465 for 2001 to $480 for 2002 based on the annual percentage change reflected in the Consumer Price Index that was in effect on June 1, 2001. The adjustment was effective Jan. 1, 2002.

Nov. 29 The Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision issued a final rule that changes the regulatory capital standards to address the treatment of recourse obligations, residual interests and direct credit substitutes that expose banks, bank holding companies and thrifts (collectively, banking organizations) to credit risk. The final rule treats recourse obligations and direct credit substitutes more consistently than the agencies’ previous risk-based capital standards and introduces a credit ratingsÐ based approach to assigning risk weights within a securitization. The final rule also imposes a “dollar-for-dollar” capital charge on residual interests and a concentration limit on credit-enhancing interest-only strips, a subset of residual interests. The rule became effective Jan. 1, 2002. Banking organizations that entered into transactions before Jan. 1, 2002, that result in increased capital requirements under the final rule may delay the application of this rule to those transactions until Dec. 31, 2002.

Dec. 11 The Federal Reserve Board announced revisions to the Policy Statement on Payments System Risk. The revised policy allows certain depository institutions to pledge collateral to the Federal Reserve in order to access additional daylight overdraft capacity above their net debit caps and modifies the net debit cap calculation for U.S. branches and agencies of foreign banks. The revised policy also modifies the time electronic check presentments are posted to depository institutions’ Federal Reserve accounts for purposes of measuring daylight overdrafts. The revised policy became effective Dec. 10, 2001, with some exceptions.

Dec. 12 The Federal Reserve Board announced the approval of a final rule aimed at curbing predatory lending. The rule amends Regulation Z (Truth in Lending) by making a broader range of loans subject to the Home Ownership and Equity Protection Act. The new rule prevents certain mortgage lenders from hiding optional credit insurance or similar products in closing fees and from making loans to individuals who have equity in their homes but insufficient income to make their loan payments. Compliance with the new rule becomes mandatory on Oct. 1, 2002.

Dec. 12 The federal agencies that supervise banks, thrifts and credit unions announced the issuance of guidance to help financial institutions comply with the agencies’ consumer privacy regulations. The staff guidance was issued in a series of frequently asked questions covering various aspects of the privacy rules.