[Federal Register Volume 75, Number 85 (Tuesday, May 4, 2010)]
[Notices]
[Pages 23764-23771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10382]
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FEDERAL DEPOSIT INSURANCE CORPORATION
FEDERAL RESERVE SYSTEM
[Docket No. OP-1369]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket ID OCC-2010-0016]
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[Docket ID OTS-2010-0013]
Correspondent Concentration Risks
AGENCY: Federal Deposit Insurance Corporation (FDIC); Board of
Governors of the Federal Reserve System (Board), Office of the
Comptroller of the Currency, Treasury (OCC); and Office of Thrift
Supervision, Treasury (OTS).
ACTION: Final guidance.
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DATES: Effective upon publication in the Federal Register.
SUMMARY: The FDIC, Board, OCC, and OTS (the Agencies) are issuing final
guidance on Correspondent Concentration Risks (CCR Guidance). The CCR
Guidance outlines the Agencies' expectations for financial institutions
to identify, monitor, and manage credit and funding concentrations to
other institutions on a standalone and organization-wide basis, and to
take into account exposures to the correspondents' affiliates, as part
of their prudent risk management practices. Institutions also should be
aware of their affiliates' exposures to correspondents as well as the
correspondents' subsidiaries and affiliates. In addition, the CCR
Guidance addresses the Agencies' expectations for financial
institutions to perform appropriate due diligence on all credit
exposures to and funding transactions with other financial
institutions.
FOR FURTHER INFORMATION CONTACT: FDIC: Beverlea S. Gardner, Senior
Examination Specialist, Division of Supervision and Consumer
Protection, (202) 898-3640; or Mark G. Flanigan, Counsel, Legal
Division, (202) 898-7426.
Board: Barbara J. Bouchard, Associate Director, (202) 452-3072; or
Craig A. Luke, Supervisory Financial Analyst, Supervisory Guidance and
Procedures, (202) 452-6409. For users of Telecommunications Device for
the Deaf (``TDD'') only, contact (202) 263-4869.
OCC: Kerri R. Corn, Director, Market Risk, (202) 874-4364; or
Russell E. Marchand, Technical Lead Expert, Market Risk, (202) 874-
4456.
OTS: Lori J. Quigley, Managing Director, Supervision, (202) 906-
6265; or William J. Magrini, Senior Project Manager of Credit Policy,
(202) 906-5744.
SUPPLEMENTARY INFORMATION:
I. Background
The Agencies developed the CCR Guidance to outline supervisory
expectations for financial institutions\1\ to address correspondent
concentration risks and to perform appropriate due diligence on credit
exposures to and funding transactions with correspondents as part of
their prudent
[[Page 23765]]
risk management policies and procedures.\2\ Credit (asset) risk is the
potential that an obligation will not be paid in a timely manner or in
full. Credit concentration risk arises whenever an institution advances
or commits a significant volume of funds to a correspondent, as the
advancing institution's assets are at risk of loss if the correspondent
fails to repay.
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\1\ This guidance applies to all banks and their subsidiaries,
bank holding companies and their nonbank subsidiaries, savings
associations and their subsidiaries, and savings and loan holding
companies and their subsidiaries.
\2\ Unless otherwise indicated, references to ``correspondent''
include the correspondent's holding company, subsidiaries, and
affiliates.
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Funding (liability) concentration risk arises when an institution
depends heavily on the liquidity provided by one particular
correspondent or a limited number of correspondents to meet its funding
needs. Funding concentration risk can create an immediate threat to an
institution's viability if the advancing correspondent suddenly reduces
the institution's access to liquid funds. For example, a correspondent
might abruptly limit the availability of liquid funding sources as part
of a prudent program for limiting credit exposure to one institution or
organization or as required by regulation when the financial condition
of the institution declines rapidly. The Agencies realize some
concentrations arise from the need to meet certain business needs or
purposes, such as maintaining large due from balances with a
correspondent to facilitate account clearing activities. However,
correspondent concentrations represent a lack of diversification that
management should consider when formulating strategic plans and
internal risk limits.
The Agencies generally consider credit exposures arising from
direct and indirect obligations in an amount equal to or greater than
25 percent of total capital\3\ as concentrations. Depending on its size
and characteristics, a concentration of credit for a financial
institution may represent a funding exposure to the correspondent.
While the Agencies have not established a funding concentration
threshold, the Agencies have seen instances where funding exposures of
5 percent of an institution's total liabilities have posed an elevated
risk to the recipient, particularly when aggregated with other similar
sized funding concentrations. An example of how these interbank
correspondent risks can become concentrated is illustrated below:
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\3\ For purposes of this guidance, the term ``total capital''
means the total risk-based capital as reported for commercial banks
and thrifts in the Report of Condition and the Thrift Financial
Report, respectively.
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Respondent Institution (RI) has $400 million in total assets and is
well capitalized with $40 million (10 percent) of total capital. RI
maintains $10 million in its due from account held at Correspondent
Bank (CB) and sells $20 million in unsecured overnight Federal funds to
CB. These relationships collectively result in RI having an aggregate
risk exposure of 75 percent of its total capital to CB. CB, which has
$2 billion in total assets, $1.8 billion in total liabilities, and is
well capitalized with $200 million (10 percent) total capital, has a
total of 20 respondent banks (RB) with the same credit exposures to CB
as RI has to CB. The 20 RBs' $600 million aggregate relationship
represents one-third (33 percent) of CB's total liabilities. These
relationships create significant funding risk for CB if a few of the
RBs withdraw their funds in close proximity of each other.
These relationships also could threaten the viability of the 20
RBs. The loss of all or a significant portion of the RBs' due from
balances and the unsecured Federal funds sold to CB could deplete a
significant portion of their capital bases, resulting in multiple
institution failures. The RBs' viability also could be jeopardized if
CB, in turn, had sold a significant portion of the Federal funds from
the RBs to another financial institution that abruptly fails. In
addition, the financial institutions that rely on CB for account
clearing services may find it difficult to quickly transfer processing
services to another provider.
Although these interbank exposures may comply with regulations
governing individual relationships, collectively they pose significant
correspondent concentration risks that need to be monitored and managed
consistent with the institutions' overall risk-management policies and
procedures. Therefore, the Agencies published the proposed
Correspondent Concentration Risks Guidance (Proposed Guidance) for
comment and are now issuing the final CCR Guidance after consideration
of the comments received on the Proposed Guidance.
II. Overview of Public Comments
The Agencies received 91 unique comments on the Proposed Guidance
primarily from financial institutions and industry trade groups. In
general, the commenters agreed with the fundamental principles
underlying the CCR Guidance, but some responses characterized the CCR
Guidance as excessive, unnecessarily complex, and burdensome. A number
of institutions and industry trade groups also voiced concern that the
credit and funding thresholds in the CCR Guidance would be applied as
``hard caps'' rather than as indicators of potentially heightened risk.
A few commenters noted that a 5 percent funding threshold was vague and
lacked sufficient discussion on relevant issues, such as the type, term
and nature of some funding sources. Other commenters raised concerns
the CCR Guidance would effectively amend the Board's Regulation F
(Regulation F).\4\
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\4\ 12 CFR part 206.
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The Agencies requested comment on all aspects of the Proposed
Guidance. The Agencies also specifically requested comment on:
The appropriateness of aggregating all credit and funding
exposures that an institution or its organization has advanced or
committed to another financial institution or its correspondents when
calculating concentrations, and whether some types of advances or
commitments should be excluded.
The types of factors institutions should consider when
assessing correspondents' financial condition.
The need to establish internal limits as well as ranges or
tolerances for each factor being monitored.
The types of actions that should be considered for
contingency planning and the timeframes for implementing those actions
to ensure concentrations that meet or exceed organizations' established
internal limits, ranges, or tolerances are reduced in an orderly
manner.
The operational issues the Agencies should consider when
issuing the final CCR Guidance, such as the single excess balance
account limitation.\5\
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\5\ An excess balance account (EBA) is an account held at a
Federal Reserve Bank that is established for purposes of maintaining
the excess balances of one or more eligible institutions through an
agent. Under the terms of an EBA agreement, an eligible institution
is permitted to participate in one EBA at a Federal Reserve Bank.
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In response to the Agencies' specific questions, many commenters
responded that the CCR Guidance needed to be flexible, providing
financial institutions latitude in establishing relationships with
correspondents that are appropriate with the institutions' individual
risk management practices and business needs. Almost all of the
commenters asked the Agencies to clarify the types of loan
participations to be included when calculating credit exposures.
Further, many commenters supported using Regulation F's specified
factors for assessing institutions' financial condition and timeframes
for contingency plans.
Several commenters also suggested that the Agencies should exclude
transactions from the credit and funding concentration calculations
when these
[[Page 23766]]
transactions would have a nominal effect on the calculations,
especially when the recordkeeping and cost of tracking complex
exposures outweighed the benefit of obtaining this information. Many
commenters also raised concerns that the calculation of credit and
funding exposures on both a gross and net basis created significant
additional burden on financial institutions. Some commenters suggested
that the Agencies should provide a detailed example of how to calculate
credit and funding exposures. Further, many commenters also strongly
supported the use of multiple excess balance accounts.
A small number of commenters stressed that the Agencies need to
apply the CCR Guidance uniformly to all financial institutions engaged
in correspondent banking services to ensure that smaller scale
correspondents are not placed at a competitive disadvantage to large
institutions due to a perception of large institutions being ``too big
to fail'' or having government support. In addition, a few commenters
asked the Agencies to make the CCR Guidance effective 90 days after its
issuance to provide institutions with time to implement any additional
procedures that might be needed to ensure compliance. The following
discussion summarizes how the Agencies addressed these issues in the
CCR Guidance.
III. Revisions to the CCR Guidance
The Agencies made a number of changes to the Proposed Guidance to
respond to comments and to provide additional clarity in the CCR
Guidance.
Scope of the CCR Guidance
The Agencies revised the CCR Guidance to state that it does not
supplant or amend Regulation F, but provides supervisory guidance on
correspondent concentration risks. The CCR Guidance clarifies that
financial institutions should consider taking actions beyond the
minimum requirements established in Regulation F to identify, monitor,
and manage correspondent concentration risks in a safe and sound
manner, especially when there are rapid changes in market conditions or
in a correspondent's financial condition. The revised CCR Guidance also
specifies that the credit and funding thresholds are not ``hard caps''
or firm limits, but are indicators that a financial institution has
concentration risk with a correspondent. In addition, the Agencies
modified the credit concentration threshold calculation to reflect
positions as a percentage of total capital rather than tier 1 capital.
This revision provides consistency with Regulation F.
Identifying, Calculating, and Monitoring Correspondent Concentrations
The CCR Guidance clarifies that for risk management purposes,
institutions should identify correspondent credit and funding
concentrations to assist management in assessing how significant
economic events or abrupt deterioration in a correspondent's risk
profile might affect their financial condition.\6\ In responses to
commenters' concerns, the Agencies maintained supervisory flexibility,
as the CCR Guidance clarifies that each financial institution should
establish appropriate internal parameters (such as information, ratios,
trends or other factors) commensurate with the nature, size, and risk
characteristics of their correspondent concentrations. An institution's
internal parameters should:
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\6\ Financial institutions should identify and monitor all
direct or indirect relationships with their correspondents.
Institutions should take into account exposures of their affiliates
to correspondents, and how those relationships may affect the
institution's exposure. While each financial institution is
responsible for monitoring its own credit and funding exposures,
institution holding companies should manage the organization's
concentration risk on a consolidated basis.
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Detail the information, ratios, or trends that will be
reviewed for each correspondent on an ongoing basis,
Instruct management to conduct comprehensive assessments
of correspondent concentrations that consider its internal parameters,
and
Revise the frequency of correspondent concentration
reviews when appropriate.
The Agencies also clarified the types of loan participations to be
included when calculating credit exposures. The Agencies did not
exclude transactions that may have a nominal effect from either the
credit or funding concentration calculations to ensure consistency with
Regulation F.
The Agencies maintained their expectation that, as part of prudent
risk management, institutions should calculate their credit and funding
exposures with a correspondent on both a gross and net basis. While
institutions already calculate their exposures on a net basis, the
benefit of management being aware of the institution's overall risk
position with a correspondent on a gross basis outweighs the potential
burden of conducting a secondary set of calculations to ascertain the
institution's aggregate exposure. Further, the CCR Guidance includes
examples on the method for calculating credit and funding exposures on
a standalone and on an organization-wide basis for illustrative
purposes only in response to some commenters' requests for examples.
Other Commenter Issues
The Agencies appreciate the concern of commenters who remarked that
failure to apply the CCR Guidance uniformly to all financial
institutions engaged in correspondent banking services could cause
smaller scale correspondents to be placed at a competitive disadvantage
to large institutions due to a perception of large institutions being
``too big to fail'' or having government support. The Agencies are
working together to ensure that the CCR Guidance is applied uniformly
to all financial institutions engaged in correspondent banking
services. Further, since institutions already have policies and
procedures for identifying, monitoring, and managing credit and funding
concentrations on a net basis, the Agencies decided not to delay the
effective date of the CCR Guidance. In addition, when the Board
authorized Federal Reserve Banks to offer excess balance accounts, the
Board stated that it would re-evaluate the continuing need for those
accounts when more normal market functioning resumes. 74 FR 25,626 (May
29, 2009). The Board will consider these comments within the context of
such a re-evaluation.
IV. Text of Final CCR Guidance and Illustrations in Appendix A and
Appendix B
The text of the final CCR Guidance and the illustrations in
Appendix A and Appendix B follows:
Correspondent Concentration Risks
A financial institution's \7\ relationship with a correspondent \8\
may result in credit (asset) and funding (liability) concentrations. On
the asset side, a credit concentration represents a significant volume
of credit exposure that a financial institution has advanced or
committed to a correspondent. On the liability side, a funding
concentration exists when an institution depends on one or a few
correspondents for a
[[Page 23767]]
disproportionate share of its total funding.
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\7\ This guidance applies to all banks and their subsidiaries,
bank holding companies and their nonbank subsidiaries, savings
associations and their subsidiaries, and savings and loan holding
companies and their subsidiaries.
\8\ Unless the context indicates otherwise, references to
``correspondent'' include the correspondent's holding company,
subsidiaries, and affiliates. A correspondent relationship results
when a financial organization provides another financial
organization a variety of deposit, lending, or other services.
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The Agencies \9\ realize some concentrations meet certain business
needs or purposes, such as a concentration arising from the need to
maintain large ``due from'' balances to facilitate account clearing
activities. However, correspondent concentrations represent a lack of
diversification, which adds a dimension of risk that management should
consider when formulating strategic plans and internal risk limits.
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\9\ The Agencies consist of the Federal Deposit Insurance
Corporation (FDIC), Board of Governors of the Federal Reserve System
(Board), Office of the Comptroller of the Currency, Treasury (OCC),
and Office of Thrift Supervision, Treasury (OTS) (collectively, the
Agencies).
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The Agencies have generally considered credit exposures greater
than 25 percent of total capital \10\ as concentrations. While the
Agencies have not established a liability concentration threshold, the
Agencies have seen instances where funding exposures as low as 5
percent of an institution's total liabilities have posed an elevated
liquidity risk to the recipient institution.
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\10\ For purposes of this guidance, the term ``total capital''
means the total risk-based capital as reported for commercial banks
and thrifts in the Report of Condition and the Thrift Financial
Report, respectively.
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These levels of credit and funding exposures are not firm limits,
but indicate an institution has concentration risk with a
correspondent. Such relationships warrant robust risk management
practices, particularly when aggregated with other similarly sized
funding concentrations, in addition to meeting the minimum regulatory
requirements specified in applicable regulations. Financial
institutions should identify, monitor, and manage both asset and
liability correspondent concentrations and implement procedures to
perform appropriate due diligence on all credit exposures to and
funding transactions with correspondents, as part of their overall risk
management policies and procedures.
This guidance does not supplant or amend applicable regulations
such as the Board's Limitations on Interbank Liabilities (Regulation
F).\11\ This guidance clarifies that financial institutions should
consider taking actions beyond the minimum requirements established in
Regulation F to identify, monitor, and manage correspondent
concentration risks, especially when there are rapid changes in market
conditions or in a correspondent's financial condition, in order to
maintain risk management practices consistent with safe and sound
operations.
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\11\ 12 CFR part 206. All depository institutions insured by the
FDIC are subject to Regulation F.
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Identifying Correspondent Concentrations
Institutions should implement procedures for identifying
correspondent concentrations. For prudent risk management purposes,
these procedures should encompass the totality of the institutions'
aggregate credit and funding concentrations to each correspondent on a
standalone basis, as well as taking into account exposures to each
correspondent organization as a whole.\12\ In addition, the institution
should be aware of exposures of its affiliates to the correspondent and
its affiliates.
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\12\ Financial institutions should identify and monitor all
direct or indirect relationships with their correspondents.
Institutions should take into account exposures of their affiliates
to correspondents, and how those relationships may affect the
institution's exposure. While each financial institution is
responsible for monitoring its own credit and funding exposures,
institution holding companies, if any, should manage the
organization's concentration risk on a consolidated basis.
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Credit Concentrations
Credit concentrations can arise from a variety of assets and
activities. For example, an institution could have due from bank
accounts, Federal funds sold on a principal basis, and direct or
indirect loans to or investments in a correspondent. In identifying
credit concentrations for risk management purposes, institutions should
aggregate all exposures, including, but not limited to:
Due from bank accounts (demand deposit accounts (DDA) and
certificates of deposit (CD)),
Federal funds sold on a principal basis,
The over-collateralized amount on repurchase agreements,
The under-collateralized portion of reverse repurchase
agreements,
Net current credit exposure on derivatives contracts,
Unrealized gains on unsettled securities transactions,
Direct or indirect loans to or for the benefit of the
correspondent,\13\ and
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\13\ Exclude loan participations purchased without recourse from
a correspondent, its holding company, or an affiliate.
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Investments, such as trust preferred securities,
subordinated debt, and stock purchases, in the correspondent.
Funding Concentrations
Depending on its size and characteristics, a concentration of
credit for a financial institution may be a funding exposure for the
correspondent. The primary risk of a funding concentration is that an
institution will have to replace those advances on short notice. This
risk may be more pronounced if the funds are credit sensitive, or if
the financial condition of the party advancing the funds has
deteriorated.
The percentage of liabilities or other measurements that may
constitute a concentration of funding is likely to vary depending on
the type and maturity of the funding, and the structure of the
recipient's sources of funds. For example, a concentration in overnight
unsecured funding from one source might raise different concentration
issues and concerns than unsecured term funding, assuming compliance
with covenants and diversification with short and long-term maturities.
Similarly, concerns arising from concentrations in long-term unsecured
funding typically increase as these instruments near maturity.
Calculating Credit and Funding Concentrations
When identifying credit and funding concentrations for risk
management purposes, institutions should calculate both gross and net
exposures to the correspondent on a standalone basis and on a
correspondent organization-wide basis as part of their prudent risk
management practices. Exposures are reduced to net positions to the
extent that the transactions are secured by the net realizable proceeds
from readily marketable collateral or are covered by valid and
enforceable netting agreements. Appendix A, Calculating Correspondent
Exposures, contains examples, which are provided for illustrative
purposes only.
Monitoring Correspondent Relationships
Prudent management of correspondent concentration risks includes
establishing and maintaining written policies and procedures to prevent
excessive exposure to any correspondent in relation to the
correspondent's financial condition. For risk management purposes,
institutions' procedures and frequency for monitoring correspondent
relationships may be more or less aggressive depending on the nature,
size, and risk of the exposure.
In monitoring correspondent relationships for risk-management
purposes, institutions should specify internal parameters relative to
what information, ratios, or trends will be reviewed for each
correspondent on an ongoing basis. In addition to a
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correspondent's capital, level of problem loans, and earnings,
institutions may want to monitor other factors, which could include,
but are not limited to:
Deteriorating trends in capital or asset quality.
Reaching certain target ratios established by management,
e.g., aggregate of nonaccrual and past due loans and leases as a
percentage of gross loans and leases.
Increasing level of other real estate owned.
Attaining internally specified levels of volatile funding
sources such as large CDs or brokered deposits.
Experiencing a downgrade in its credit rating, if publicly
traded.
Being placed under a public enforcement action.
For prudent risk management purposes, institutions should implement
procedures that ensure ongoing, timely reviews of correspondent
relationships. Institutions should use these reviews to conduct
comprehensive assessments that consider their internal parameters and
are commensurate with the nature, size, and risk of their exposure.
Institutions should increase the frequency of their internal reviews
when appropriate, as even well capitalized institutions can experience
rapid deterioration in their financial condition, especially in
economic downturns.
Institutions' procedures also should establish documentation
requirements for the reviews conducted. In addition, the procedures
should specify when relationships that meet or exceed internal criteria
are to be brought to the attention of the board of directors or the
appropriate management committee.
Managing Correspondent Concentrations
Institutions should establish prudent internal concentration
limits, as well as ranges or tolerances for each factor being monitored
for each correspondent. Institutions should develop plans for managing
risk when these internal limits, ranges or tolerances are met or
exceeded, either on an individual or collective basis. Contingency
plans should provide a variety of actions that can be considered
relative to changes in the correspondent's financial condition.
However, contingency plans should not rely on temporary deposit
insurance programs for mitigating concentration risk.
Prudent risk management of correspondent concentration risks should
include procedures that provide for orderly reductions of correspondent
concentrations that exceed internal parameters over a reasonable
timeframe that is commensurate with the size, type, and volatility of
the risk in the exposure. Such actions could include, but are not
limited to:
Reducing the volume of uncollateralized/uninsured funds.
Transferring excess funds to other correspondents after
conducting appropriate reviews of their financial condition.
Requiring the correspondent to serve as agent rather than
as principal for Federal funds sold.
Establishing limits on asset and liability purchases from
and investments in correspondents.
Specifying reasonable timeframes to meet targeted
reduction goals for different types of exposures.
Examiners will review correspondent relationships during
examinations to ascertain whether an institution's policies and
procedures appropriately identify and monitor correspondent
concentrations. Examiners also will review the adequacy and
reasonableness of institutions' contingency plans to manage
correspondent concentrations.
Performing Appropriate Due Diligence
Financial institutions that maintain credit exposures in or provide
funding to other financial institutions should have effective risk
management programs for these activities. For this purpose, credit or
funding exposures may include, but are not limited to, due from bank
accounts, Federal funds sold as principal, direct or indirect loans
(including participations and syndications), and trust preferred
securities, subordinated debt, and stock purchases of the
correspondent.
An institution that maintains or contemplates entering into any
credit or funding transactions with another financial institution
should have written investment, lending, and funding policies and
procedures, including appropriate limits, that govern these activities.
In addition, these procedures should ensure the institution conducts an
independent analysis of credit transactions prior to committing to
engage in the transactions. The terms for all such credit and funding
transactions should strictly be on an arm's length basis, conform to
sound investment, lending, and funding practices, and avoid potential
conflicts of interest.
Appendix A
Calculating Respondent Credit Exposures on an Organization-Wide Basis
Respondent Bank's Gross Credit Exposure to a Correspondent, its Holding
Company and Affiliates
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50,000,000 Due from DDA with correspondent.
1,000,000 Due from DDA with correspondent's two affiliated insured
depository institutions (IDIs).
1,000,000 CDs issued by correspondent bank.
500,000 CDs issued by one of correspondent's two affiliated
IDIs.
51,500,000 Federal funds sold to correspondent on a principal
basis.
2,500,000 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
3,750,000 Reverse Repurchase agreements.
250,000 Net current credit exposure on derivatives.\1\
4,500,000 Direct and indirect loans to or for benefit of a
correspondent, its holding company, or affiliates.
2,500,000 Investments in the correspondent, its holding company,
or affiliates
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117,500,000 Gross Credit Exposure.
100,000,000 Total Capital.
118% Gross Credit Concentration.
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Respondent Bank's Net Credit Exposure to a Correspondent, its Holding
Company and Affiliates
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17,850,000 Due from DDA (less checks/cash not available for
withdrawal & federal deposit insurance (FDI)).\2\
500,000 Due from DDA with correspondent's two affiliated IDIs
(less FDI).\2\
750,000 CDs issued by correspondent bank (less FDI).
250,000 CDs issued by one of correspondent's two affiliated IDIs
(less FDI).
[[Page 23769]]
51,500,000 Federal funds sold on a principal basis.
2,500,000 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
100,000 Under-collateralized amount on reverse repurchase
agreements (less the current market value of government
securities or readily marketable collateral
pledged).\3\
50,000 Uncollateralized net current derivative position.\1\
4,500,000 Direct and indirect loans to or for benefit of a
correspondent, its holding company, or affiliates.
2,500,000 Investments in the correspondent, its holding company,
or affiliates.
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80,500,000 Net Credit Exposure.
100,000,000 Total Capital.
81% Net Credit Concentration.
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Note: Respondent Bank has $1 billion in Total Assets, 10% Total Capital,
and 90% Total Liabilities and Correspondent Bank has $1.5 billion in
Total Assets, 10% Total Capital, and 90% Total Liabilities.
Calculating Correspondent Funding Exposures on an Organization-Wide
Basis
Correspondent Bank's Gross Funding Exposure to a Respondent Bank
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50,000,000 Due to DDA with respondent.
1,000,000 Correspondent's two affiliated IDIs' Due to DDA with
respondent.
1,000,000 CDs sold to respondent bank.
500,000 CDs sold to respondent from one of correspondent's two
affiliated IDIs.
51,500,000 Federal funds purchased from respondent on a principal
basis.
2,500,000 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
1,000,000 Repurchase Agreements.
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107,500,000 Gross Funding Exposure.
1,350,000,000 Total Liabilities.
7.96% Gross Funding Concentration.
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Correspondent Bank's Net Funding Exposure to a Respondent, its Holding
Company and Affiliates
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17,850,000 Due to DDA with respondent (less checks and cash not
available for withdrawal and FDI).\2\
500,000 Correspondent's two affiliated IDIs' Due to DDA with
respondent (less FDI).\2\
750,000 CDs sold to correspondent (less FDI).
250,000 One of correspondent's two affiliated IDIs' CDs sold to
respondent (less FDI).\2\
51,500,000 Federal funds purchased from respondent on a principal
basis.
2,500,000 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
150,000 Under-collateralized amount of repurchase agreements
relative to the current market value of government
securities or readily marketable collateral pledged.\3\
---------------
73,500,000 Net Funding Exposure.
1,350,000,000 Total Liabilities.
5.44% Net Funding Concentration.
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\1\ There are 5 derivative contracts with a mark-to-market fair value
position as follows: Contract 1 (100), Contract 2 +400, Contract 3
(50), Contract 4 +150, and Contract 5 (150). Collateral is 200,
resulting in an uncollateralized position of 50.
\2\ While temporary deposit insurance programs may provide certain
transaction accounts higher levels of federal deposit insurance
coverage, institutions should not rely on such programs for mitigating
concentration risk.
\3\ Government securities means obligations of, or obligations fully
guaranteed as to principal and interest by, the U.S. government or any
department, agency, bureau, board, commission, or establishment of the
United States, or any corporation wholly owned, directly or
indirectly, by the United States.
Appendix B
Calculating Respondent Credit Exposures on a Correspondent Only Basis
Respondent Bank's Gross Credit Exposure to a Correspondent
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50,000,000 Due from DDA with correspondent.
0 Due from DDA with correspondent's two affiliated insured
depository institutions (IDIs).
1,000,000 CDs issued by correspondent bank.
0 CDs issued by one of correspondent's two affiliated
IDIs.
51,500,000 Federal funds sold to correspondent on a principal
basis.
0 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
3,750,000 Reverse Repurchase agreements.
[[Page 23770]]
250,000 Net current credit exposure on derivatives.\1\
4,500,000 Direct and indirect loans to or for benefit of a
correspondent, its holding company, or affiliates.
2,500,000 Investments in the correspondent, its holding company,
or affiliates.
---------------
113,500,000 Gross Credit Exposure.
100,000,000 Total Capital.
114% Gross Credit Concentration.
------------------------------------------------------------------------
Respondent Bank's Net Credit Exposure to a Correspondent
------------------------------------------------------------------------
17,850,000 Due from DDA (less checks/cash not available for
withdrawal and federal deposit insurance (FDI)).\2\
0 Due from DDA with correspondent's two affiliated IDIs
(less FDI).\2\
750,000 CDs issued by correspondent bank (less FDI).
0 CDs issued by one of correspondent's two affiliated IDIs
(less FDI).
51,500,000 Federal funds sold on a principal basis.
0 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
100,000 Under-collateralized amount on reverse repurchase
agreements (less the current market value of government
securities or readily marketable collateral
pledged).\3\
50,000 Uncollateralized net current derivative position.\1\
4,500,000 Direct and indirect loans to or for benefit of a
correspondent, its holding company, or affiliates.
2,500,000 Investments in the correspondent, its holding company,
or affiliates.
---------------
77,250,000 Net Credit Exposure.
100,000,000 Total Capital.
77% Net Credit Concentration.
------------------------------------------------------------------------
Note: Respondent Bank has $1 billion in Total Assets, 10% Total
Capital, and 90% Total Liabilities and Correspondent Bank has $1.5
billion in Total Assets, 10% Total Capital, and 90% Total
Liabilities.
Calculating Respondent Funding Exposures on a Correspondent Only Basis
Correspondent Bank's Gross Funding Exposure to a Respondent
------------------------------------------------------------------------
50,000,000 Due to DDA with respondent.
0 Correspondent's two affiliated IDIs' Due to DDA with
respondent.
1,000,000 CDs sold to respondent bank.
0 CDs sold to respondent from one of correspondent's two
affiliated IDIs.
51,500,000 Federal funds purchased from respondent on a principal
basis.
0 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
1,000,000 Repurchase agreements.
---------------
103,500,000 Gross Funding Exposure.
1,350,000,000 Total Liabilities.
7.67% Gross Funding Concentration.
------------------------------------------------------------------------
Correspondent Bank's Net Funding Exposure to a Respondent
------------------------------------------------------------------------
17,850,000 Due to DDA with respondent (less checks and cash not
available for withdrawal and FDI).\2\
0 Correspondent's two affiliated IDIs' Due to DDA with
respondent (less FDI).\2\
750,000 CDs sold to correspondent (less FDI).
0 One of correspondent's two affiliated IDIs' CDs sold to
respondent (less FDI).\2\
51,500,000 Federal funds purchased from respondent on a principal
basis.
0 Federal funds sold to correspondent's affiliated IDIs on
a principal basis.
100,000 Under-collateralized amount on repurchase agreements
(less the current market value of government securities
or readily marketable collateral pledged).\3\
---------------
70,200,000 Net Funding Exposure.
1,350,000,000 Total Liabilities.
5.20% Net Funding Concentration.
------------------------------------------------------------------------
\1\ There are 5 derivative contracts with a mark-to-market fair value
position as follows: Contract 1 (100), Contract 2 +400, Contract 3
(50), Contract 4 +150, and Contract 5 (150). Collateral is 200,
resulting in an uncollateralized position of 50.
\2\ While temporary deposit insurance programs may provide certain
transaction accounts higher levels of federal deposit insurance
coverage, institutions should not rely on such programs for mitigating
concentration risk.
\3\ Government securities means obligations of, or obligations fully
guaranteed as to principal and interest by, the U.S. government or any
department, agency, bureau, board, commission, or establishment of the
United States, or any corporation wholly owned, directly or
indirectly, by the United States.
[[Page 23771]]
Dated at Washington, DC, the 27th day of April 2010.
By order of the Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
By order of the Board of Governors of the Federal Reserve
System.
Jennifer J. Johnson,
Secretary of the Board.
John C. Dugan,
Comptroller of the Currency.
Dated: April 9, 2010.
By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
[FR Doc. 2010-10382 Filed 5-3-10; 8:45 am]
BILLING CODE 6714-01-P, 6210-01-P, 4810-33-P, 6720-01-P