Monthly Archives: May 2014

Regulation F tutorial

All depository institutions insured by the FDIC are subject to Regulation F.  The FDIC’s Regulation F is a compliance measure created to ensure that banks do not concentrate too much risk with other financial institutions.  In plain English the regulation is meant to ensure that banks don’t build their business in a way that they are overly reliant on another financial institution, or that another financial institution is overly reliant on them.

The FDIC considers credit exposure of greater than 25% of total capital as a threshold for significant risk.  However, there is no threshold for risk, regulators have considered banks with just a 5% capital exposure to be at risk in certain circumstances.

Often times regulations are hard to understand, and their implications are even harder to understand.  I want to take a simple example to show how Regulation F might apply for a bank.

In our example let’s take a bank with $100m in total capital, and $25m in cash on deposit at other banks.  If the bank has $5m of their $25m in cash on deposit at a single bank their $5m deposit would be equivalent to 5% of their capital being at risk.

It’s not just cash (due from bank accounts) that Regulation F is concerned about, there are a number of other credit concentrations that need to be monitored as well including:

  • Federal funds sold on a principal basis
  • The over-collateralized amount on repurchase agreements
  • The under-collateralized portion of reverse repurchase agreements
  • Net current credit exposure on derivatives contracts
  • Unrealized gains on unsettled securities transactions
  • Direct or indirect loans to or for the benefit of the correspondent
  • Investments, such as trust preferred securities, subordinated debt, and stock purchases, in the correspondent.

To comply with Regulation F, banks are required to report on their correspondent relationships to their board of directors at least annually, and often quarterly.  Included in the report to the board are details on pertinent metrics including things such as the capital ratio, asset quality, levels of OREO, and other details as management desires.

It can be time consuming and labor intensive to gather details on correspondent relationships quarterly. can be used as a way to quickly gather details on correspondent banks and generate reports to be given to management.  Correspondent banking relationships can be saved in further reducing the time to gather details quarterly.

I want to walk through a simple tutorial showing how can be used to track correspondent bank relationships and quickly generate reports for Regulation F compliance.

The first step is generating a list of correspondent banks for monitoring.  We can use the Search function to find banks by a number of criteria including the FDIC RSSD, bank name, and state.

Screen Shot 2014-05-07 at 11.26.43 AM

Once we have a list of correspondent banks the first thing we want to do is save them to the My Banks page.  This is accomplished by clicking on a bank in the search results and selecting “Add to My Banks” as seen below:

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When banks are added to the My Banks page they are placed by default in the Uncategorized group.  We are going to create a new group for our Regulation F compliance and move the Uncategorized banks into that new group.

The banks in the initial Uncategorized group:

Screen Shot 2014-05-07 at 11.38.35 AM

A new group is created from the Actions menu at the top of the screen:

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When creating a new group a name is given:

Screen Shot 2014-05-07 at 11.39.18 AM

The Regulation F banks group has been created and is initially empty:

Screen Shot 2014-05-07 at 11.39.43 AM

We then select all of the banks in the Uncategorized group and move them to the Regulation F banks group at the same time.

Screen Shot 2014-05-07 at 11.39.58 AM

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All of the selected banks are now saved in the Regulation F banks group.

Screen Shot 2014-05-07 at 11.40.12 AM

The My Banks page allows users to save and group banks for later use.  Banks and groups on this page are persisted after a user logs out.

Once correspondent banks are saved in My Banks it’s simple to generate a report with relevant metrics.  The first step is to send the Regulation F banks group from My Banks to the Compare page:

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Upon selection all of the banks from the Regulation F banks group appear on the Compare page.

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The next step is adding the relevant metrics that we want to compare the correspondent banks across.  This is accomplished by selecting the Actions menu and choosing “Add Fields to Compare”.

Screen Shot 2014-05-07 at 11.55.38 AM

We are then presented with the dialog box shown below with common metrics.  If desired any of the 1,400 bank industry specific data points in the system can be used for the comparison report.  For our sample report we will select four common metrics.

Screen Shot 2014-05-07 at 11.58.33 AM

Upon selection of criteria the Compare page updates to reflect the values for the correspondent banks.  Now that we have the banks we want to compare, and the metrics we want to compare across all we need to do is select the Download Results link to save an Excel version of the custom comparison report onto a local hard drive.

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And that’s it!  Once a bank’s correspondent banking relationships are saved in My Banks creating a quarterly report is a simple task that shouldn’t take more than a few minutes.

If you are interested in learning more about how can help reduce your Regulation F reporting burden please contact us, or sign up for a free trial and see for yourself.