Agencies Take a Hard Look at Banking Activities

The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency today released a report to the Congress and the Financial Stability Oversight Council on the activities and investments that banking entities may engage in under applicable law, according to a recent joint release from the above mentioned entities.

The report states that section 620 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires the federal banking agencies to conduct the study and report to Congress on the types of activities and investments permissible for banking entities, the associated risks, and how banking entities mitigate those risks.

For the purpose of this study, the report states that the banking entities include insured depository institutions and any company that controls an insured depository institution or is treated as a bank holding company under the International Banking Act of 1978. Likewise, the study also covers any affiliate or subsidiary of such companies.

Each agency prepared the section of the report relative to the banking entities that it supervises. Each of the three sections includes a discussion of permissible activities, risk mitigation, legal limitations, and specific recommendations as required by the Dodd-Frank Act.

In following with these guidelines, the three agencies each gave specific recommendations for Congress based on their analysis. In particular, the Federal Reserve Board recommended that Congress repeal the authority of FHCs to engage in merchant banking activities, repeal the grandfather authority for certain FHCs to engage in commodities activities the BHC Act, repeal the exemption that permits corporate owners of industrial loan companies (ILC) to operate outside of the regulatory and supervisory framework applicable to other corporate owners of insured depository institutions, and finally repeal the exemption for GUSLHCs from the activities restrictions applicable to all other SLHCs.

The FDIC states that it identified potential for enhancement, reconsideration, and clarification in several areas of the part 362 policy and procedures.

Finally, OCC recommends that Congress address concentrations of mark to model assets and liabilities as well as recommends reconsidering the allowance for national banks to purchase asset-backed securities as Type III securities.