Financial Update (Fourth Quarter 2002)
he following is a summary of recent Federal Reserve actions or announcements. Circular letters are available online at www.frbatlanta.org/bank_info/circ_router.cfm.
Aug. 20 The Federal Reserve Board announced that it will not, over the near term, incorporate two policy options into its longer-term Payments System Risk policy plan. The Board will, however, continue to analyze the benefits and potential drawbacks of a two-tiered pricing regime for daylight overdrafts. For the foreseeable future, the Board will not pursue a policy that lowers self-assessed net debit caps and eliminates two-week average caps or rejects all payments with settlement-day finality that would cause an institution to exceed its daylight overdraft capacity level.
Sept. 27 The Federal Reserve Board published its 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 of the fee-based trigger has been adjusted from $480 for 2002 to $488 for 2003 based on the annual percentage change reflected in the Consumer Price Index that was in effect on June 1, 2002. The adjustment is effective January 1, 2003. The Home Ownership and Equity Protection Act of 1994 bars credit terms such as balloon payments and requires additional disclosures when total points and fees payable by the consumer exceed the fee-based trigger (initially set at $400 and adjusted annually) or 8 percent of the total loan amount, whichever is larger.
Oct. 3 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. All depository institutions must retain a percentage of certain types of deposits in the form of vault cash, as a deposit in a Federal Reserve Bank, or as a pass-through account at a correspondent institution. Reserve requirements currently are assessed on the depository institution's net transaction accounts (mostly checking accounts). For net transaction accounts in 2003, the first $6 million, up from $5.7 million in 2002, will be exempt from reserve requirements. A 3 percent reserve ratio will be assessed on net transaction accounts over $6 million to and including $42.1 million, up from $41.3 million in 2002. A 10 percent reserve ratio will be applied above $42.1 million. These annual adjustments, known as the low reserve tranche adjustment and the reservable liabilities exemption adjustment, are based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2001, and June 30, 2002.
Oct. 8 The Federal Reserve Board, the FDIC and the OCC reported results of the agencies' annual Shared National Credit Program review. The Shared National Credit Program was established in 1977 to provide an efficient and consistent review and classification of large syndicated loans. The annual program covers loans or loan commitments of at least $20 million that are shared by three or more financial institutions.
Oct. 31 The Federal Reserve Board approved a final rule, effective Jan. 9, 2003, that amends Regulation A and revises the Fed's discount window programs. The rule replaces adjustment credit, which currently is extended at a below-market rate, with a new type of discount window credit called "primary credit" that will be broadly similar to credit programs offered by many other major central banks. Primary credit will be available for very short terms as a backup source of liquidity to depository institutions that are in generally sound financial condition in the judgment of the lending Federal Reserve Bank. The Board expects that most depository institutions will qualify for primary credit. Reserve Banks will extend primary credit at a rate above the federal funds rate, currently anticipated to be 100 basis points above the Federal Open Market Committee's target federal funds rate. The Board's final rule also establishes a secondary credit program that will be available in appropriate circumstances to depository institutions that do not qualify for primary credit. The Board anticipates that Reserve Banks will initially establish a secondary credit rate at a level 50 basis points above the primary credit rate.
Oct. 31 The Federal Reserve Board decided to issue a final Regulation W that comprehensively implements sections 23A and 23B of the Federal Reserve Act. The rule is expected to be published in the Federal Register by Thanksgiving. These sections and Regulation W restrict loans by a bank to its affiliates, asset purchases by a bank from its affiliates, and other transactions between a bank and its affiliates. The purpose of the statute and the rule is to limit a bank's risk of loss in transactions with affiliates and to limit a bank's ability to transfer to its affiliates the benefits arising from its access to the Federal safety net.