OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
SUPERVISION AND REGULATION
March 5, 1999
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OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 |
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| DIVISION OF BANKING SUPERVISION AND REGULATION |
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| SR 99-6 (GEN) March 5, 1999 |
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TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK AND TO EACH DOMESTIC BANKING ORGANIZATION SUPERVISED BY THE FEDERAL RESERVE
Market events over the past year have reiterated some of the risks associated with the growing business of subprime lending. This has brought greater attention to the supervisory issues related to banks' involvement in subprime lending and how well these institutions are prepared to manage the unique risks associated with this activity. Institutions engaged in subprime lending need strong risk management practices and internal controls as well as board-approved policies and procedures that appropriately identify, measure, monitor, and control all risks in this activity. Institutions considering or engaging in this type of lending should recognize the additional risks inherent in this activity and determine if these risks are acceptable and controllable, given the institution's staff, financial condition, size, and level of capital support.
In response to this heightened concern, the federal banking agencies developed the attached supervisory statement on subprime lending, entitled "Interagency Guidance on Subprime Lending" (Attachment 1 33 KB PDF). The statement seeks to increase awareness among examiners and financial institutions of some of the pitfalls and hazards of this type of lending and to provide general examination guidance on the topic. The statement should be sent by your Reserve Bank to all domestic banking organizations in your district supervised by the Federal Reserve. A suggested transmittal letter is provided in Attachment 2.
Should your staff have any questions, please have them contact Bill Coen, Supervisory Financial Analyst, at (202) 452-5219 or Norah Barger, Assistant Director, at (202) 452-2402.
Director
Attachment 2 - Suggested transmittal letter
Market events over the past year have reiterated some of the risks associated with the growing business of subprime lending. This has brought greater attention to the supervisory issues related to banks' involvement in subprime lending and how well these institutions are prepared to manage the unique risks associated with this activity. Institutions engaged in subprime lending need strong risk management practices and internal controls as well as board-approved policies and procedures that appropriately identify, measure, monitor, and control all risks in this activity. Institutions considering or engaging in this type of lending should recognize the additional risks inherent in this activity and determine if these risks are acceptable and controllable, given the institution's staff, financial condition, size, and level of capital support. In response to this heightened concern, on March 1, 1999, the Federal Reserve System and the other federal banking agencies issued Interagency Guidance on Subprime Lending (Attachment 1). The statement seeks to increase awareness among examiners and financial institutions of some of the pitfalls and hazards of this type of lending and to provide general examination guidance on the topic. Should you have any questions, please contact me at [insert name of Reserve Bank contact].
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SR letters | 1999
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