January 21, 2002 News Archive

Announcing New Top Banking Risks Added to Banking Supervision and Regulation Pages
The Chicago Fed's bank supervisors are taking a hard look at the risks facing District banks in the current economic environment. Large commercial loans continue to deteriorate, and weakness is spreading to middle-market, small-business, and consumer portfolios. As the Fed's latest Senior Loan Officer survey indicates, banks have understandably been tightening their credit standards. Chicago Fed supervisors continue to promote "just right" credit standards - not too tight and not too loose. The supervisors' Risk Committee meets every quarter to determine the top banking risks for the next few months and develop appropriate responses. The top banking risks from the December meeting, which are now available on the left menu under Banking Risks.

Agencies Adopt Final Rules on Regulatory Capital Treatment of Nonfinancial Equity Investments
The Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency announced the adoption of final rules governing the regulatory capital treatment of equity investments in nonfinancial companies held by banks, bank holding companies and financial holding companies. The new capital requirements would impose a capital charge that would increase in steps as the organization's level of concentration in equity investments increases. An 8% Tier 1 capital deduction would apply on covered investments that in aggregate represent up to 15% of an organization's Tier 1 capital with a top marginal charge of 25% for investments exceeding 25% of Tier 1 capital. Equity investments through SBICs, up to a certain amount, and grandfathered investments are exempted from coverage.

The agencies are amending their respective capital guidelines in accordance with the final rules (PDF), which will become effective on April 1, 2002.

Revised Supervision Procedures for Small Bank Holding Companies
The Board has issued revised procedures for the supervision of bank holding companies with total consolidated assets of $5 billion or less. The revisions detailed in SR 02 -01 promote more effective use of targeted on-site reviews to fulfill the requirements of full scope inspections of BHCs with total consolidated assets of between $1 billion and $5 billion. The key elements of the revisions are as follows:

Supervision of companies with total consolidated assets of $1 billion or less
An assessment of the financial condition and the assignment of ratings may be conducted off-site using available financial, supervisory, and other information. Complex companies in this size category will be assigned a full holding company rating. Noncomplex holding companies where all subsidiaries have satisfactory composite and management ratings and no material outstanding issues will be assigned only a management rating and a composite rating. Supervision of companies with total consolidated assets of $1 billion or less

Supervision of companies with total consolidated assets of between $1 - $5 billion
A full scope inspection may be satisfied with a targeted or limited scope on-site review. All companies in this size range will be assigned a complete holding company rating.

Surveillance
In addition to identifying significant issues that may have an adverse impact on insured depository institutions, the surveillance program for small BHCs identify companies classified as noncomplex, but exhibit characteristics of complex organizations. The surveillance screens also monitor compliance by financial holding companies with the capital, managerial, and CRA standards set forth in the Gramm-Leach-Bliley Act.