Contact:  Michael Stevens

February 4, 2010 Obama Administration Publishes Rules for CDFI Investments
The Obama Administration released details of a program to use $1 billion in Troubled Asset Relief Program funds to invest in Community Development Financial Institutions that target more than 60 percent of their small business lending and other economic development activities to underserved communities. Under the program, these CDFIs could receive capital investments at a dividend rate of 2 percent, compared to the 5 percent rate that was offered under the Capital Purchase Program. They may apply to Treasury for investments of up to 5 percent of risk-weighted assets. For CDFIs that might not otherwise be recommended for participation by their regulators, Treasury will offer matching capital investments, up to 5 percent of risk-weighted assets, against private investments on a dollar-for-dollar basis, provided that the combined amount would return the institution to a viable position. CDFIs that participated in the Capital Purchase Program will be eligible to transfer those investments into the new program. More information  
 
February 4, 2010 Boston Federal Reserve Paper Examines Fair Value Accounting
A research paper published by the Federal Reserve Bank of Boston found fair value accounting was not a significant trigger for the financial crisis. The paper by Sanders Shaffer analyzed a sample of large banks to try to measure the strength of the link between fair value accounting, regulatory capital rules, pro-cyclicality and the financial crisis. Shaffer concluded that fair value was not a clear link for most banks in the sample with other factors playing a greater role in putting stress on the banks’ regulatory capital. All banks in the sample were well above the capital adequacy thresholds at the start of the market crisis and the use of fair value accounting did not push any of the banks out of the well capitalized designation. The paper found that provisioning for loan losses was clearly the most significant source of capital depletion for the sample banks in 2008. More information  
 
February 4, 2010 Governor Warsh Outlines Regulatory Reform Priorities
Substantial expanding regulatory oversight of the largest and most systemically significant financial institutions will not be enough to prevent another crisis, said Federal Reserve Governor Kevin Warsh. Speaking to the New York Association for Business Economics, Warsh said previous public policy failures need to be recognized and addressed.  For example, he said, Fannie Mae and Freddie Mac were given license and direction to take excessive risks, were given conflicting missions and governed by competing masters. Warsh also called on policy makers to focus more on “what constitutes effective prudential supervision, rather than be diverted to the less consequential discussion as to who should perform it.” He called for a new resolution authority to include well understood bankruptcy protocols as much as possible. “A system must be designed so that market discipline works -- not to the exclusion of regulatory discipline -- but in support of it,” Warsh said.  He said such a system will require more financial disclosures with greater understanding of asset quality and funding sources; will need to encourage robust competition and avoid giving select incumbents permanent funding advantages; and will need to mandate stronger capital and liquidity buffers, more effective boards and more rigorous risk-management practices. More information 

February 2, 2010 Federal Reserve Creates Web Site for Bank Director Education
The Federal Reserve launched a Web site to help new bank directors learn how they may work to ensure the safety and soundness of their institutions. The Web site -- BankDirectorsDesktop.org -- also provides a refresher course for experienced board members.  The Fed designed the Web site for directors of community banks. It features online training and other resources to help directors better understand the issues and challenges associated with serving on a bank's board. "Many people who are asked to serve on bank boards have little training or experience to prepare them for their new roles," said Patrick M. Parkinson, director of the Federal Reserve's Division of Banking Supervision and Regulation. "This Web site has been developed with new directors in mind, but there is plenty of useful information for those who have already spent time on bank boards." More information