Headquartered in California, we know all too well about earthquakes. What we didn't know, however, was that Alaska is actually the most earthquake-prone state and one of the most seismically active regions in the world. Alaska encounters a magnitude 7 earthquake nearly every year and a magnitude 8 or greater earthquake on average every 14 years. Perhaps even more notable, the number of earthquakes is actually under-reported, despite the fact that Alaska already accounts for more than 50% of all US earthquakes (because some areas of the state do not have enough seismograph stations to record smaller quakes enough to precisely locate them). As with the shaking that earthquakes cause, today we finish our analysis of new regulatory issues, guidance and rulings that have come out since the beginning of the year we define as New Regulations/Guidance.
New Regulations/Guidance (10 this year): FDIC insurance and advertising - permanently increases the deposit insurance amount from $100k to $250k effective July 22, 2010 and revises official signage. This was done to conform with the Dodd-Frank Act. Residential Mortgage Loan Originator Registration-requires mortgage loan originators to register with a nationwide mortgage licensing system. Intent is to improve accountability and tracking of such originators, enhance consumer protection, reduce fraud and provide consumers with easily accessible information. Beneficial Ownership-clarifies and consolidates regulatory expectations related to identifying and verifying the identity of beneficial owners of an account. Purpose is to clarify expectations related to identifying customers who pose heightened money laundering or terrorist financing risks. Risk-Based Capital Rules related to FAS 166/167-provides an optional 2 quarter implementation delay, followed by an optional 2 quarter partial implementation on risk-weighted assets (and ALLL in Tier 2 capital) that will result from changes to GAAP from FAS 166/167. Intent is to allow banks to delay and phase-in the implementation of these new rules for purposes of risk-based capital requirements and permits banks to include without limit in Tier 2 capital any increase in ALLL. Correspondent Concentration-outlines expectations for identifying, monitoring and managing concentration risks between financial institutions and relative to performing appropriate due diligence on all credit exposures to and funding transactions with other financial institutions. Intent is to have banks focus on the risk of concentrations with correspondent banks and incorporate limits into risk management practices. TAG Extension-extends TAG through Dec 31, 2010, with the possibility of extending it an additional 12 months. Purpose is to ensure liquidity to address disruptions in the financial markets. Deposit Placement-indicates steps banks should take to avoid customer misunderstanding about deposit insurance coverage from third-party deposit arrangements. Intent is to reduce consumer confusion about where money is deposited when it is arranged through a third-party affinity group or trade association that receives a referral fee. Internet Gambling Enforcement-reiterates examination procedures to ensure banks have developed and implemented policies and procedures to make sure transactions of this nature are not accepted. Intent is to tighten up focus on activities around money laundering, bank secrecy and boost consumer protections. Funding/Liquidity Risk Management-emphasizes the importance of cash-flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk. Purpose is to provide sound practices for banks to follow related to managing funding and liquidity risk and strengthening liquidity risk management practices. Management of Interest Rate Risk-clarifies existing IRR guidance and reminds banks to manage exposures using policies and procedures commensurate with complexity, business model, risk profile and scope of operations. Intent is to remind banks not to lose focus on IRR management.
We now let bankers get back to work this morning, as the shaking stops from our analysis.