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Fed Cuts Rates to Historic Lows
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The Federal Open Market Committee voted unanimously to reduce
the target federal funds rate from 1 percent to a range of zero to 0.25
percent, an all-time low. The discount rate was reduced 75 basis points
to 0.5 percent.
The committee said current conditions will likely warrant low rates
"for some time" and the Fed's focus will now be on purchasing
large quantities of agency debt and mortgage-backed securities to
support the mortgage and housing markets. It said the economic outlook
has weakened since its last meeting and inflation concerns have been replaced
by plummeting prices. The Labor Department announced earlier the
consumer price index continued its decline, falling 1.7 percent in
November.
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Obama Picks Vilsack for Ag Secretary
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President-elect Barack Obama picked former Iowa Gov. Tom
Vilsack for the Agriculture Department secretary post. Vilsack has been
a vocal supporter of the farm bill and renewable sources of
energy.
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Bair: Mortgage Modifications a
Must
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FDIC Chairman Sheila Bair said the United States cannot
end the housing crisis without modifying troubled mortgages. In a speech on low-income
homeownership, she again touted her $24 billion plan to prevent an
estimated 1.5 million foreclosures and challenged a recent Office of
the Comptroller and the Office of Thrift Supervision report showing
high redefaults on modifications. Bair also reiterated previous
statements that the Community Reinvestment Act did not lead to the
current housing crisis.
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ICBA Comments on Credit Card Regulations
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ICBA gave mixed reviews to final credit card regulations
approved by the Federal Reserve Board,
National Credit Union Administration and Office of Thrift Supervision.
The association said disclosure modifications will help consumers and
highlight the benefits of community bank credit card programs. New
credit-risk-pricing restrictions, however, could become a costly
barrier to serving and protecting customers, ICBA warned.
"The disclosure modifications will highlight that community banks
are straightforward, trustworthy lenders that offer credit cards with
lower rates, lower fees and fewer penalties and junk fees," said
Karen Thomas, executive vice president of government relations.
The rules restrict most interest rate changes, prescribe
payment-allocation methods for accounts with multiple balances and
APRs, prohibit double-cycle billing, define a reasonable time for
payments to be considered timely, and limit subprime credit card fees
and security deposits. The Federal Reserve also changed format, timing
and content requirements for credit card applications, solicitations
and disclosures and adopted overdraft fee disclosure requirements under
Regulation DD (Truth in Savings).
The final rules take effect July 1, 2010. Additional requirements and
details of the regulation are available in the ICBA summary. The Fed also
provided a comprehensive outline of the new rules. Read ICBA Statement.
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ICBA Disappointed with Premium Increases
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ICBA expressed disappointment with the FDIC's approval of its final rule
increasing deposit insurance premiums seven basis points for the first
quarter of 2009. Premiums for Risk Category 1 banks will increase from
the current five to seven basis points to 12 to 14 basis points.
The FDIC
addressed ICBA's requests to implement a more
modest increase and an extension of the five-year time frame to restore
the Deposit Insurance Fund reserve ratio, saying the agency will
continue reviewing assessment rates and the restoration plan to make
adjustments as needed. Officials also said they wish to strengthen
reserves during periods of economic strength to avoid raising rates
during downturns, but there wasn't enough time since reforms were enacted
in 2006 to build a cushion before the current crisis began.
The FDIC noted
the reserve ratio is projected to fall to 0.61 percent by the end of
this year before growing to an estimated 1.21 percent by the end of
2013, and rates are lower than the 23 basis points banks would have
faced before the 2006 reforms were approved. Read ICBA Statement.
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