January 12, 2009
Authored by: Robert Klingler
The FDIC has apparently decided not to wait to see if Congressman Frank’s TARP Reform and Accountability Act becomes law, and has published a one page Financial Institution Letter on January 12, 2009 calling for state nonmember banks to monitor their use of capital injections, liquidity support and/or financing guarantees obtained through the recent government financial stability programs.
The FDIC notes that in exchange for government funds, capital and guarantees being used to support banking institutions, “banks are expected to document how they are continuing to meet the credit needs of creditworthy borrowers,” and reference the Interagency Statement on Responsible Lending. (As a reminder, the Interagency Statement applies to all financial institutions, and not just those that have participated in the government financial stability programs.) The FDIC expects that state nonmember banks will deploy any funding received from these programs to “prudently support credit needs in their market and strengthen bank capital.”
Potentially in response to the political and public criticism of whether the government financial stability programs are working, the FDIC calls for state nonmember banks to: (a) implement a process to document how these funds were used; and (b) to describe their utilization during bank examinations. Moreover, banks are encouraged to summarize such information in published annual reports and financial statements in order to “provide important information for shareholder and public evaluation of participation in these programs.”