May 23, 2005 News Archive

Updated Risk Committee Findings
The March 2005 Risk Committee findings are now available.

New Interagency Advisory on Accounting and Reporting for Commitments to Originate and Sell Mortgage Loans has been issued
The federal bank and thrift regulatory agencies have issued an Interagency Advisory on Accounting and Reporting for Commitments to Originate and Sell Mortgage Loans. The advisory provides guidance on the appropriate accounting and reporting for derivative loan commitments, i.e., commitments to originate mortgage loans that will be held for resale, and forward loan sales commitments, i.e., commitments to sell mortgage loans. The Federal Reserve reminds institutions, in SR 05-10, that they are expected to apply Generally Accepted Accounting Principles when accounting for these transactions. Institutions must account for derivative loan commitments and forward loan sales commitments as derivatives. [See Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities; and related guidance in SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments.]

Governor Bies on Financial Stability Benefits and Implementation Challenges of Basel II
Speaking at the Central Bank of the Republic of Turkey's International Conference on Financial Stability and Implications of Basel II, Governor Bies stated, "Maintaining financial stability in global banking and financial markets continues to be an important objective of regulators, bankers, and other market participants, particularly because of the negative impact that financial instability has on economies as a whole. Basel II, in my view, will help improve financial stability.The new framework will enable bank regulatory capital ratios to be more responsive to changes in risk and will foster additional disclosures by banks about their risk-measurement and -management systems. And even though minimum regulatory capital ratios are likely to be more volatile under Basel II, this reflects greater risk sensitivity. Perhaps most important, Basel II will encourage banks to develop their systems to measure and manage risk as part of the investment needed to support strategic initiatives. The greater volatility in measured risk, coupled with strategic capital planning, should encourage bankers to continue to maintain actual capital levels above regulatory minimums.

In the United States, we are working very hard on Basel II implementation and are taking the appropriate, measured steps to ensure that we get it right. I expect that those in other Basel member countries are doing the same, and facing similar challenges. Of course, certain non-Group of Ten countries are looking to see if adapting Basel II is the best choice for them in the near term. For all of us engaged in Basel II work, it is helpful to remember that certain prerequisites have to be met--particularly for the advanced approaches--including the development of qualified and experienced staff to oversee banks' adoption of the new framework."