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March 1994

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UPERVISORY

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FDIC Rule Limits Activities
/of State,Banks
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On November 30, 1993, the
Federal Deposit Insurance
Corporation (fDIC) approved
a final regulation limiting
the activities of state chartered
banks and their subsidiaries.
Under the new regulation, a
state bank must obtain the
FDIC's prior consent before
engaging as principal, directly
or indirectly through a majorityowned subsidiary, in anY--activity
that is not permissible for a
national bank. All activities
permittfd by Regulation Hfor
state member banks, however,
are permissible under the FDIC's

Checklist
Addresses
Colllmori
FR Y-6 Errors


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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Supervisory
News and Views
for the Eighth District

s

new regulation without further
application. Abank may engage
in an otherwise prohibited activ'.ity if it meets, ~nd continues
' to meet, -its minimum capital
requirements and the FDIC
determines that the activity does
not present a significant risk to
the deposit insurance fund. -

Activities excluded
from the regulation

services and certain other agencies if authorized by state law.

Activities permissible
for a national bank
Permissible activities are
those expressly recognized as
permissible by the Office of the
Comptroller of the Currency
(OCC) in regulations, official
circulars, bulletins, orders or
written'----interpretations. Any
interpretation judged valid by
the dee will be considered
evidence of permissible activity
by a national bank. If a state
bank wishes to conduct the
.

The de(inition of "as principal"
excludes agency, brokerage,
custodial, advisory and administrative activities, and activities
conducted as a trustee. Thus,
a state bank may, wiJhout prior
' (continued on ne,xt page)
FDIC consent, operate insurance
agencies, securities brokerage l ~ - - - - - -- -firD]S, real estate agencies, travel
agencies, financial planning
I

he Annual Report of Bank
the following items to make
with $500 million or more
Holding Companies (Form sure it is accurate and complete.
in total assets; an original
FR Y-6) is due no later than
and two copies for all others.
March 31 for those whose fiscal , • Has each item and sub-item , • Are copies being sent in
year ends on December 31. To
of the report ~een qddressed,
time for 1he Reserv~ Bank
including a notation of
assist financ@l institutions in
to receive them on or before
filing accurate and timely
"NA'' for items that are not
March 31, or no later than
' applicable?
reports, a checklist addressing
90 days following the orga• - Have the correct number of
the most common errors made
nization's fiscal year-end?
in preparing Form FR Y-6 reports
copies been filed? Specifically,
(continued on next page)
an original and three copies
is presented below. Before
mailing your report, review
are needed for institutions

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FDIC Rule

Other authorized
activities

(continued from front page)

activity without first obtaining
Other activities that do not
the FDIC's consent, it must
.-present a significant risk to the
conduct the activity in the same insurance fund are permissible
if allowed by state law. These
manner and subject to the
same conditions or restrictions include activities determined
by the Federal Reserve Board to
applicable to a national bagk.
be "closely related to banking."
In the future, once the FDIC
has determined that a particular The FDIC regulation specifically
activity, as authorized by a state, prohibits insurance underwritis permissible for a national
ing that is not permissible for a
bank, the activity will generally national bank. Awell capitalized
apply to state banks.,
state bank that was lawfully
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Y·6 Chec~list
(continued from front page)

• Is the report signed by either
a holding company officer
who is also a director or by
the chairperson of the board?
• Have the most recent twoyear comparative consolidated and garent-companyonlyfinancial statements,
including a balance sheet,
income statement, statement
of changes in stockholders'
equity, and a cash flow
statement, been submitted?
• Has an independent public
a~countant audited the
financial statements if
consolidated assets are $150
million or more? Acompany
with only one subsidiary
bank and less than $lS0
million in total consolidated
assets does no t need to
submit consolidat

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statements upless the state~
ments are prepared in the
usual course of business.
Have two-year comparative
financial statements,
including balance sheets,
income .statements and
statements of changes in
stockholders' equity, been
submitted for all nonbank
-subsidiaries?
Has an organization chart
showing the percentage of
direct and indirect ownership
or control of all subsidiaries
been included?
Are certified copies of
amendments to organizational documents, charters,
and bylaws, etc., included
with the report if theywere
not previously submitted?
Has all required information
been provided for
·-- _
ch individual
r entity
owning

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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

providing insurance asprincipal
on November 21, 1991, how~ver,
may continue to provide the
same type of insurance to
people residing or employed
in the state.

Applications for new
or continuing activities

office. An institution which
has filed an application for
consent to continue an ongoing
activity may continue to engage
in the activity for up to six
months from the receipt of the
application by the FDIC while
the application is pending.

Banks seeking FDIC consent
to continue or begin an otherwise prohibited activity must
file an application promptly
with the appropriate regional

or controlling 5 percerit "
or more of any class of the
company's stock at yearend and for those with 5
percent or more at some
point during the year?
• Has all required information
for every officer, director,
principal shareholder,
trustee, partner or any
person exercising a similar
function, regardless of title,
been submitted? Responses
to this question most commonly omit the number
and percentage of shares
owned or controlled in
any other business when
the ownership or control
represents at least a 25
percent interest.
• Has all required information
been provided for the
trustee(s) if a trust owns
5 percent or more of the
outstanding shares, or is
a principal shareholder?
• Has all required information
been disclosed regarding
loans, which equal more
than 10 percent of consolidated capital accounts,
that have been made by
the holding company or
nonbank subsidiary (not
the bank) to insiders and
their interests?

• Has the confirmation
statement been signed,
indicating that all required
FR Y-6A forms have been
filed?
For questions regarding the
Annual Report of Bank Holding
Companies (FR Y-6), call Rita
J. Rauba at (314) 444-8850.

Guidelines
to Ensure ·
nmeliness
Reports will be considered
timely provided the following guidelines are met:
• fJ S.Ma·
Maflor

Mait

Allow at least three
calendar da~ fot the
reports to reach the
Federal Reserve Bank. "
• Overnight Delivery
Service. Place reports
with the.ov~t:Wght service nol
:11the
day before
Electronic
i,g.
Transmit by Sp.m. on
the due date.
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Examiners Answer Questions on Common ViOlations
xaminers generally Must a creditor ·require
note the same
a writlen application
on a req.uest to ref i•
Regulation B
violations from one nance a loan 10n the
examiriation to the applicant'-s principal
dwelling for w~ich _, .
next'. The following q~estions
'the
creditor alrieady
and-answets were developed
has
aJnortgage dr '
to addre~s the most common
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deed
/of~trus,? ,
violations and assist bankers
with future compliance. _
Yes. Where the dwelling will
secure the loan, a creditor must
When is a written
require a written application forapplication required?
a loan to refinance a principal
Acreditor is required to t?-ke
residence. The creditor who
a written application for a loan receives an application to
to purchase or refinance a
change the 'furms and conditions
dwelling which is or will be the of an existing extension of

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Federal Reserve Bank of St. Louis

• 30 days after receiving a
completed application
co9cerpin~ the approval of,
counteroffer to or adverse
action on the application;
• 30 days afth receiving an
incomplete applicatipn by ·,
providing a notice df incom- ' 1
pleteness or advising the
~ applicant of its approval of,
counteroffer to or adverse
action (for reasons other
than incompleteness);
• 30 days after taking adverse
action on an incomplete
application for the reason
of incompleteness;
• 30 days after taking adverse
action on an ~isting
account; or
• 90 days after notifying the
applicant of a counteroffer
if the applicant does not
expressly accept or use the
credit offered. §202.9(a) (1)
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How should an appli·
cant be notified of
the credit decision?

If adverse action is taken, a
_written notic~ must be provided
to help the applicant understand why the application was
denied and ~hat the applicant's
rights are if the applicant
believes the denial was based
on a prohibited basis.
applicant's principal residence
credit may request the required
Afavorable credit decision
monitoring
information,
but
if the extension of credit will be
does not have to be communicated in writing, but may be
' recured by the dwelling. Under · does not have to if this infor'"
_ Regulation B, creditors do not f mation wa,s 9btained in the
communicated, for example, in
have to take written applications ,. earl,ier trans ~ction. §202 .5 (e), a telephonG ccinversation or by
• issuing a requestea credit card
for loans to finance homes that §202.13(a)
or loart proceeds. §202.9(a) (2) '
are n<;:>t principal residences,
When
must
a
creditor
such as vacation homes or
(continued on next page)
1,1otify a loan applicant
rental properties. Such loans
of its credit decision?
might, however, be covered by
the Home Mortgage Disclosure
Acreditor is required to notify
Act (HMDA) provisions in Regu- an applicant of action taken on
lation C. §202.S(e), §202.13(a) a credit application within:
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Yei Creditor-s may use the
May a credjtor accept,
notification rules for consumer a telepllone applica•
credit or follow the rules estab- lion for credit when
a writt~n application
lished in the regulation for
is required?
busiµess credit. §202.9(a) (3)
The creditor must notify the,
,
•
_ Yys. Acreditor may complete
•How can a creditor 1 ' the applicationrorr behalf of
1 applicant of a counteroffer
, within 30 days after receiving 1 ~$alisfy the writt.rn
• an' applicant without r~quirjng --'
t~e c6mpleted appli~ation. Jf( ~ app 1·1ca 1•10n ru Ie."
,
Jthe applicant to sign the appli;the applicant does not use or " Awtitterr application m~st'-.
1 cation. Therefore, telephone
expressly accept the counter-.
applications in which the f (
contain both the credit inforoffer within 90 days, the creditor II1atiotl normally required to
application inforrrption is
then must send an adverse
written by the creditor qualify
make a credit decision and
action notification.·
JllOnitoring information. The
as written applications. If an
To avoid sending two notices,
applicant must be informed
applicant does not apply in
the creditor may elect to send
that disclosure of monitoring
person, a creditor does not
within 30 days a combin~d
information is optional and
have to request tfie monitoring
1 information' or complete that
couriter?ffe_r and notification of , th_at the federfl govern~ent
aqverse action. _§20t-9(a) (1)
requestsJhe information to
portion of the application'. If it
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IS not evidept on the ~pp!ication
Are business loans
monitor com~liance witli
that it was receivedby telephor1e,
·subiect to the notifi•.
federal discFimination laws.
the creditor should indicate
cation req~ir,menfs?
§202--j (e), §202.13 .

how it was received. §202.S(e),
§202.13(b)

When 111aking a
counteroffer, what
notiffcation is a
creditor required to
,provide an applicant?

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Fair Lending
Affects
Expansion
Pjr~posal

he importance of fair
lending compliance
was evident in the Board of
Governors' denial of a regional
bank holding compa'ny's
acquisition proposal.
On the applicatio~ by Shawmut
National £orporation, the Board;
for the first time, ,denied an / ·
expansio~ary proposal solely
on-fair lending grounds. The
Board noted that Shawmut,
through its mortgage company
subsidiary, may have engaged

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Aquestion and answer
booklet, covering all aspects
of Regulation B, is currently
being developed by this Reserve
Bank. Notification
of its
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compJetiqn and information
for ordering copies.will be
published in an upcoming
issue of Supervisory Issues.

concerns related to past lending
practices and to report accurate
HMDA data. These steps, however, were considered too new
to aJlow an adequate evaluation
of the overall effectiveness of
Shawmut's actions. •

in discriminatory treatment
in violation of the Equal Credit
Opportu~ity Act (ECOA). The
Board also noted that data
reported by Shawmut's mortgage
company; as required by the\
Home Mortg3rge Disclopme Act
(HMDA), contained numerous
inaccuracies.
In denying the ;pplication,
the Bo·ard-recognized that
Shawmut had recently taken
positive steps to improve its
lending record, to address
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Age-ci.e_
(onsider)
Effect of
~ ·FASB 11/5
-on Capital
Rules
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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he Federal Reserve and
for certain debt and equity
~"new account in calculatingother
federal banking
securities and establishes a
regulatory capital. Until these
{
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new equity account reflecting
comments are evaluated and
' banking,o,rg~nizations should -unre;lized gains and lbsses on
a final an;iendment is issued,
continue to calculate regulatory ' / "available-for-sale" secudties.
banking
organiz~tions should-I
capital in accordanee with
The agencies have not yet
continue to calculate regulatory
current guidelines.
determined, howiver, whether / caphal according to current
Last August, the agencies
-this new equity account will be
guidelines.
adopted FASB No. 115 effective
included in regulatory capital.
with the March 31, 1994, report- 0n December 20, 1993, the
ing period. FASB No. 115
agencies requested comment
prescribes accounting standards on a proposal to include this
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BANKI: PERFoRMANcE,

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Use of Derivative ProductS limited
in Eighth District ,
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ederal banking
Volume' of ,Derivative Products
supervisors are
Expressed in Billions (9 /30 /9~)
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increasing their
,
surveillance of the
Type 1.. •
U.S. Banks
District Banks
industry's use of
Interest Rate
financial derivative products.
, Contracts
$7,005.0
$8.2 .
. Afew large banks that serve as
, intertnediarjes account for the ,
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Foreign Exchange
vast majority of derivatives
Contracts$4,790.6 :
$1.4
volume. A growing number of
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banks, however, use derivatives
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as a risk management tool; for these products are held by
have in place sound risk
example, :a p;operly executed
larger institutions, 'with six
management systems. Federal
interest rat~ swap can reduce
banks accounting for over 90
b_anking regulators will be
the risk Ito earnings from a
perc~nt of the tot~l.
"
(eviewing the model\~nd .
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mismatched i1Verest rate gap.
Althqugh ~eriv;itrves acti~ity
proc~dure~ banks use to mea- ,
Banks\are required to di~_dose among Distric,t banks appears
sure the rfsks,br derivatives.
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the values (notional or par) of to be nomina(quarterly calJ 1/1 In December 1993 the FederaJ
interesrdte swaps, futures and , reports ihdicate·that participa-/ ·- Reserve and the Office of1the
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forwards contt'acts, option~
·tion in the derivative markets
Comptroller of the Curren~y
contracts, and similar contracts increased during \19%. As.
issued written guidance on
involving\ommodities and
shown on the chart abo¥e,,: - internal conitroJs for banks l
equities on Schedule RC-L of
both nationally and within th~ using derivative instmm,ehts.
.the call report. Corrditionr
District, interest rate contracts
Future supervisory attention
repo3ts for the September +993 comprise the largest
segrhen't
will
focus on disclosure,
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pedod reflect limited use of
of derivative contracts.
investor pro!ection and risk
derivatives by Eighth Distrkt
Banks considering the use
management.
•banks. Of banks with assets
of derivative instruments must
less than $1 billion, fewer
have the abi!ity to assess accuthan ten report any derivative
rately the manx risks assoc(ated
instruments. The,majority of
with these\ nstrilinents and

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_endingdevelopment of
. computer.software, the
ne~ uniform criminal referral
form, as designed by the five
federal banking agencies, will
notbe,distributed for at least ·
two mor~ months. Therefore,
institutions should continue
to report suspected criminal

New

Criminal
Refe,_ral
Forms
Delayed

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

offenses on the existing criminal
referral form. This will satisfy
compliance with the banking
agencies' regulations urifil
the new forms are distributed.
The computer software being
developed will facilit;ite preparation of the form. Dlstributfon
of the new form without the
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software; however, would create
a potential burden to many
financial institutions.

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Census Data is Available
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ending institutions
may purchase on
magnetic tape for
$250 the census
data that the
FFIEC will use to prepare r994
Home Mortgage Disclosure "Act
(HMDA) reports. Alth9µgh
institutions do dot ne,ed\he file
to prepare their HMDA-LAR for
subinis~ion, they may choose
to obtain the data to conduct
statistical analyses examining
' the demographics of the census
tracts in which they make
loans. AHMDA data order
form can be obtained by calling

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the Federal Reserve Board's
automated answering system
at (202) 452-2016.
Currently, the tape does nof
contain HUD income estimates
used to group loans and applications based on the income
of borrowers and applicants
relative to median family
riqcome
for
their"
metropolitan
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statistical area (MSA) . The
HUD data are expected by the
second quarter and will be
added to the tape at thaftime.
Purchasers may wait to order
until the tape is complete or
may request on the order form
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that a hard copy of the listing
be mailed to them when
available. The FFIEC will
provide the hard-copy listing
at no additional cost.

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CTR Filing Deadlines
. The Department of the Treasury
If, for any reason, a bank
reminds banks that the 25-day withdraws from the magnetic
allowal)ce for filing Currenc-y
tape program or files a paper
CTR,,it must do so within 15
Tfansaction Rep6r~ (CTRs)
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applies only to CTRs thatcare
days following the repprtable
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filed magnetically.
" transact10n. I
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Post Office Box 442
- St. Louis, Missouri 63166

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Supdvisory Issues is published bi, monthly by the Banking Supervision
and Regulation Division of the
Federal Reserve Bank of St. Louis.
Views expressed are not necessarily
official opinions of the Fede1;al
Reserve System or the Federal
Reserve Bank of St. Louis. Questions
regarding this publication should
be directed to Dawn C. Ligibel,
editor, 314-444-8902.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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