About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

4 FDIC Banking Rev. 35 (1991)
Recent Developments Affecting Depository Institution

handle is hein.journals/fdicbnkrv4 and id is 39 raw text is: Recent Developments Recent Developments Affecting Depository Institutions by Benjamin B. Christopher* Regulatory Agency Actions Federal Deposit Insurance Corporation Capital Maintenance The FDIC issued a proposal for public comment to correlate the agency's leverage capital require- ments for banks with the existing risk-based capital framework. The proposed standards would affect the commercial banks and savings banks that the FDIC supervises, and other depository institutions that file appli- cations with the FDIC. Under the existing leverage capital requirements, state nonmember banks must maintain primary capi- tal of at least 5.5 percent of total assets and total capital of six per- cent. Primary capital includes com- mon stockholders' equity, all forms of perpetual preferred stock, the entire allowance for loan and lease losses, and certain amounts of mandatory convertible debt. The new proposal instead would be based on a single narrower category of capital called Tier 1 or core capital. FR, 9/26/90, p. 39288. The FDIC adopted revisions that will replace the primary and total cap- ital definitions with a Tier 1 (core) capital definition and establish a min- imum three percent Tier 1 leverage capital ratio requirement for the most highly-rated banks (CAMEL rating of 1) that are not anticipating or experi- encing any significant growth. All other state nonmember banks will need to meet a minimum leverage ratio that is at least 100 to 200 basis points above this minimum require- ment. State nonmember banks with capital below the minimum leverage capital requirement will be deemed to be engaging in an unsafe or un- sound practice unless they have sub- mitted, and are in compliance with, a capital plan approved by the FDIC. In addition, the previous three per- cent leverage test, which was based on primary capital and used for deter- mining when a depository institution was in an unsafe or unsound condi- tion, is replaced with a new two per- cent unsound condition test based solely on Tier 1 capital. Effective: April 10, 1991. FR, 3/11/91, p. 10154. Purchased Mortgage- Servicing Rights The FDIC adopted a final rule, to implement certain provisions of the Financial Institutions Reform, Re- covery, and Enforcement Act of 1989 (FIRREA), restricting the amount of purchased mortgage - servicing rights (PMSRs) that FDIC-supervised banks and savings associations can use to meet capital requirements. Under the rule, PMSRs in excess of 50 percent of core capital will be deducted from assets and capital when calculating the bank's regula- tory capital. The 50 percent limit ap- plies also indirectly to thrifts supervised by the Office of Thrift Su- pervision (OTS) since FIRREA re- quires that agency to prescribe limits on PMSRs that are at least as stringent as those applied to FDIC-supervised banks. In addition, the FDIC rule di- rectly limits PMSRs for savings asso- ciations to no more than 100 percent of the thrift's tangible capital, which typically consists of core capital minus qualifying supervisory good- will. The rule permits PMSRs in excess of the capital limitations if those ser- vicing rights were purchased on or before February 9, 1990. Also, there *Benjamin B. Christopher is a financial economist in the FDIC's Division of Research and Statistics. Reference sources: American Banker (AB); WallStreetJournal(WSJ); BNA'sBankingReport (BBR); Federa/Register(FR); Commerce Clear- ing House Inc., Electronic Legislative Search System (ELSS). 35

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most