Section 7 of the Federal Deposit Insurance Act requires the FDIC to establish a risk-based assessment system that incorporates statutory and other factors relevant in assessing the probability that the Deposit Insurance Fund (DIF) will incur a loss from the failure of an insured institution. In accordance with this mandate, the FDIC is exploring whether and, if so, how to incorporate employee compensation criteria into the risk-based assessment system. The proposal says the FDIC is not seeking to limit the amount of compensation, but is focused on adjusting risk-based deposit insurance assessment rates (risk-based assessment rates) to adequately compensate the DIF for the risks inherent in the design of certain compensation programs.
“The recent crisis has shown that compensation practices that encourage excessive risk can create significant losses in the financial system and the deposit insurance fund,” FDIC Chairman Sheila Bair said.
The ANPR includes a broad set of questions designed to solicit information on the types of structures that should be encouraged and on whether and how employee compensation should be factored into the risk-based pricing system. The proposal is available at tinyurl.com/ye4x56x. The comment period closed Feb. 18.
The federal banking and thrift regulatory agencies released the final risk-based capital rule related to FASB’s adoption of Statement no. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140, and Statement no. 167, Amendments to FASB Interpretation No. 46(R). These standards made substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from these organizations’ balance sheets.
Banking organizations affected by the new standards generally will be subject to higher risk-based regulatory capital requirements. The rule better aligns risk-based capital requirements with the actual risks of certain exposures. It also provides an optional phase-in for four quarters of the impact on risk-weighted assets and tier 2 capital resulting from a banking organization’s implementation of the new standards.
The final rule, issued by the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, takes effect March 29. Banking organizations may elect to comply with the rule for the first annual reporting period that begins after Nov. 15, 2009. The rule is available at tinyurl.com/y89gkzp.