Financial Update (Third Quarter 2002)


Cover Story

Tough Credit Lesson

Accounting Reforms Not Enough

Payment Systems

Patriot Act Implementation

Financial Markets Conference


Data Bank

The Docket

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

April 3 The Federal Reserve Board issued revisions to its Regulation Z (Truth in Lending) official staff commentary, which applies and interprets the requirements of the regulation. The revisions clarify how creditors that place Truth in Lending Act 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.

April 9 The Federal Reserve Board, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision issued a final rule amending their risk-based capital standards for banks, bank holding companies and savings associations to reduce the risk weight applied to claims on, or guaranteed by, qualifying securities firms. Consistent with the Basel Accord, the final rule lowers the risk weight applied to certain claims on qualifying securities firms from 100 percent to 20 percent. The accord is an international framework for assessing the capital adequacy of depository institutions and serves as a basis for the banking agencies’ risk-based capital standards. The rule became effective on July 1, 2002.

April 23 The federal bank and thrift regulatory agencies issued guidance regarding the supervision of the risks of parallel-owned banking organizations. A parallel-owned banking organization consists of a U.S. depository institution and a foreign bank that are both controlled directly or indirectly by one person or group of persons who are closely associated in their business dealings or act in concert. The classification does not include an organization controlled by a company subject to the Bank Holding Company Act or the Savings and Loan Holding Company Act or instances in which one institution is a subsidiary of the other.

May 2 The Federal Reserve Board approved a final rule that postpones the effective date of the recent amendments to Regulation C (Home Mortgage Disclosure Act) from Jan. 1, 2003, to Jan. 1, 2004.

May 20 The Federal Reserve Board alerted financial institutions and the public to the continued proliferation of fraudulent schemes involving financial instruments. These schemes promise extremely high rates of return with little or no risk and often insinuate the involvement of a well-known government agency such as the Federal Reserve, the World Bank or the International Monetary Fund. The Board again stressed the dangers associated with investing in or participating in these illicit transactions and listed several red flags that have been associated with many fraudulent scams.

June 5 The FDIC, the Federal Reserve Board and the OCC issued final regulations amending their rules that prohibit interstate branches from being used primarily for deposit production. The Riegle-Neal Interstate Banking and Branching Efficiency Act prohibits any bank from establishing or acquiring a branch outside of its home state primarily for the purpose of deposit production. Section 106 of the Gramm-Leach-Bliley Act expands this prohibition to include any branch of a bank controlled by an out-of-state bank holding company. To conform their regulations to this statutory change, the agencies have amended their rules so that the prohibition against deposit production offices also applies to any bank or branch of a bank controlled by an out-of-state bank holding company. The regulations become effective Oct. 1, 2002.