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Federal

reserve

Bank

DALLAS, T E XA S

of

Dallas

75222

Circular No. 79-207
December 19, 1979

PURCHASE AND SALE OF GOVERNMENT GUARANTEED LOANS

TO ALL STATE MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Printed on the following pages is the Board's press release and statement
of supervisory policy with respect to the purchase and sale of government guaranteed
loans by state member banks. Any questions regarding the policy should be directed
to Uzziah Anderson or M arvin C . McCoy of our Bank Supervision and Regulations
Department, Ext. 6274.
Sincerely yours,
Robert H . Boykin
First Vice President

Banks and others are encouraged to use the fo llo w in g incom ing WATS num bers in co n ta ctin g th is Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

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FEDERAL RESERVE pressrelease

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For immediate release

_________

December 6, 1979

The Federal Reserve Board today approved a new supervisory policy
with respect to the purchase and sale of government guaranteed loans by
State member banks.
The policy adopted by the Board -- which had been recommended to
Federal agencies regulating financial institutions by the Federal Financial
Institutions Examination Council —

concerns participation in government

guaranteed loan programs that:
1.

Provide lenders a partial guarantee of principal
and interest, and

2.

Allow for separate sale of guaranteed portions of loans
to third parties.

Participating institutions may be originators, sellers, servicers
or purchasers of such guaranteed loans.
Adoption of the supervisory policy by all the Federal financial
institutions regulators is intended to help achieve uniform and effective
supervision of participating financial institutions.
The policy addresses three major areas of supervisory concern:
portfolio management, accounting for fee income and asset liquidity.
The statement of supervisory policy adopted by the Board is
attached.

Supervisory Policy
Originating and selling institutions
•

Examiners should review the extent and nature of activities in
connection with the sale of government guaranteed loans. Lax or
improper management of the selling institution's servicing respon­
sibilities should be criticized. Out-of-trade area lending for the
purpose of resale of any portion of U. S. government guaranteed
loans should be carefully reviewed to insure that the practice is
conducted in a safe and sound manner.

•

All income, including servicing fees and premiums charged in lieu
of servicing fees, associated with the sale of D. S. government
guaranteed loans, should be recognized only as earned and amortized
to appropriate income accounts over the life of the loan.

Purchasing Institutions
•

Recognizing that investments in the guaranteed portions of U. S.
government guaranteed loans currently have no formal secondary
market which establishes a uniform pricing structure and that,
therefore, these investments are somewhat less marketable than in­
vestments that do have such a market, the agencies take the following
positions to assure against institution over reliance on such invest­
ments to maintain adequate levels of liquidity:
A.

Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, and Office of the Comptroller of the
Currency
Guaranteed portions of .U. S. government guaranteed loans should
not be recorded or carried as U. S. Government or Federal agency
securities and should not be substituted for U. S. Government or
Federal agency securities in regulatory formulas or procedures
designed to monitor liquidity.

B.

Federal Home Loan Bank Board
Pursuant to Federal Rome Loan Bank System Regulations, Section
523.10, the guaranteed portions of U. S. government guaranteed
loans do not qualify as liquid assets.

C.

National Credit Union Administration
Pursuant to Part 742 of the NCUA Rules and Regulations and
Section 107(7) of the Federal Credit Union Act, the guaranteed
portions of U. S. government guaranteed loans do not qualify
as liquid assets except to the extent that any such investments
have a remaining maturity of only one year or less.
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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102