Alert January 27, 2009

FDIC, Treasury Expand Banking Institutions’ Reporting Requirements Regarding Their Use of Federal Funding

FDIC-FIL-1-09.  The FDIC issued a financial institution letter (“FIL-1-09”) in which it directed state nonmember banks (“Banks”) to monitor and document their use of capital injections, liquidity support and/or financing guarantees the Bank may have obtained through the financial stability programs recently established by the Department of the Treasury, the FRB and the FDIC.  FIL-1-09 says that Banks are expected to document how they are continuing to meet the credit needs of creditworthy borrowers and how the Bank (or its parent company) will use these federal funds “to prudently support credit needs in their market and strengthen bank capital.”  The FDIC stated that it will be assessing how the Bank’s participation in the federal funding programs has helped the Bank support lending and support efforts to “avoid unnecessary foreclosures.”  Furthermore, FIL-1-09 states that Banks should describe their utilization of the federal funding during their bank regulatory examinations and “are encouraged” to summarize the information in published financial reports and  financial statements.

FDIC-FIL-2-09.  Separately, the FDIC issued a financial institution letter, “FIL-2-09”, in which it provided guidance concerning reporting obligations of banks that participate in the FDIC’s program under which it guarantees certain banks’, thrifts’ and holding companies’ (collectively, “Entities’”) newly issued senior unsecured debt (the “Debt Guarantee Program”).  All Entities that participate in the Debt Guarantee Program must report to the FDIC their outstanding debt balances within 30 calendar days after the last day of the month.  Reports to the FDIC must be provided by each participating Entity, i.e., affiliated banks within a banking organization should provide separate not combined reports.  Each Entity must also report whether it has issued any non-guaranteed debt during the reporting period and must certify that all reported information is accurate.  These reporting requirements are in addition to the FDIC’s requirements under FIL-139-2008, that any participating Entity in the Debt Guarantee Program register with the FDIC any individual FDIC guaranteed debt issued after December 5, 2008, within five calendar days of issuance.

Treasury Reporting Requirement.  Partially in response to Congressional criticism that the terms of Capital Purchase Program grants to banking institutions did not require that the recipient use the proceeds of the federal capital injection to make loans, the Department of the Treasury sent letters to 20 of the largest U.S. banking institutions seeking monthly reports on their levels of business loans and of consumer loans.  The Treasury’s letter also sought information from the banking institutions concerning their purchases of mortgage-backed and asset-backed securities.

Treasury’s Special Inspector General for TARP to Seek Information on Use of TARP Funds.   The Department of the Treasury’s  Special Inspector General for the Troubled Asset Relief Program (“TARP”) plans to ask all TARP fund recipients to provide a detailed description of their use of TARP funds.  Within 30 days of receiving the information request, participants in the Capital Purchase Program will be required to provide: (a) a narrative response outlining their use or expected use of TARP funds, (b) copies of pertinent documentation (financial or otherwise) supporting their response, (c) a description of their plans for complying with applicable executive compensation restrictions; and (d) a certification by a duly authorized senior executive officer as to the accuracy of all statements, representations, and supporting information provided.