District Circular Letters
March 17, 1999
BANKING SUPERVISION AND REGULATION:
SUBPRIME LENDING
To State Member Banks, Bank
Holding Companies, Edge Act Corporations,
U.S. Branches and Agencies of Foreign Banks,
and Others Concerned
in the Twelfth Federal Reserve District
Interagency Guidance Regarding Subprime Lending
Market events over the past year have underscored the risks associated with
the growing business of subprime lending. This has brought greater attention
to the supervisory issues related to financial institutions' involvement
in subprime lending and to concerns regarding whether institutions are adequately
prepared to manage the unique risks associated with this activity.
In response to this heightened concern, the Federal Reserve and the other
federal banking agencies have issued the enclosed Interagency
Guidance on Subprime Lending. The publication seeks to increase
awareness among examiners and financial institutions of the hazards of subprime
lending, and to provide general examination guidance on the topic.
Financial institutions engaged in subprime lending need strong risk-management
practices and internal controls, as well as board-approved policies and
procedures that identify, measure, monitor, and control all risks. Institutions
engaging in this type of lending, or considering doing so, should recognize
the additional risks involved and determine whether these risks are acceptable
and controllable. Factors to consider include an institution's staff, financial
condition, size, and level of capital support.
For Additional Information
For additional information regarding this publication, please contact our
Banking Supervision and Regulation Department, at (415) 974-2932.
FEDERAL RESERVE BANK OF SAN FRANCISCO
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