Financial Update (Fourth Quarter 2009)

Updates on Lending Facility, Compensation Policies Among Recent Federal Reserve Actions

Fed Actions graphicThe announcement of changes to a Fed lending facility and the issuance of a proposal concerning the compensation policies of banking organizations are among recent actions taken by the Federal Reserve.

  • The Federal Reserve announced two changes to the procedures for evaluating asset-back securities pledged to the Term Asset-Backed Securities Loan Facility (TALF). First, the Federal Reserve Board proposed a rule that would require a certain minimum level of experience among statistical rating organizations that rate the eligibility of assets pledged as collateral to the TALF. The proposed rule is intended to promote competition among statistical rating organizations and ensure appropriate protection against credit risk for the U.S. taxpayer. Second, beginning in November, the New York Fed will conduct a formal risk assessment of all proposed TALF collateral to ensure that the collateral meets standards for credit quality and transparency.
    Changes to the TALF facility
    Compensation policies proposal

  • The Federal Reserve Board recently issued a proposal designed to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of their organizations. One supervisory initiative applies to 28 large, complex banking organizations and will review each firm's policies and practices to determine their consistency with the principles for risk-appropriate incentive compensation set forth in the proposal. The policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance. Second, supervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization.

"Today's proposal is but one part of a broad program by the Federal Reserve to strengthen supervision of banks and bank holding companies in the wake of the financial crisis," Federal Reserve Gov. Daniel K. Tarullo said. "In customizing the implementation of our compensation principles to the specific activities and risks of banking organizations, we advance our goal of an effective, efficient regulatory system."


October 29, 2009