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CONFERENCE OF STATE BANK SUPERVISORS
July 16, 2004
Jennifer J. Johnson
Secretary of the Board
Board of Governors of the Federal Reserve System
20th Street & Constitution Avenue, NW
Washington, DC 20551
Robert E. Feldman
Executive Secretary, Attention: Comments
Federal Deposit Insurance Corporation
55 17th Street, NW
Washington, DC 20429
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Docket No. 04-12
Communications Division
Public Information Room, Mail Stop 1-5
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
RE: Proposed Statement on Complex Structured Transaction
Activities
Dear Ladies and Gentlemen:
The Conference of State Bank Supervisors (CSBS)1 is
pleased to have the opportunity to comment on the interagency statement
(Statement) describing internal controls and risk management procedures
that will assist financial institutions that engage in complex
structured finance activities to identify and address the risks
associated with such transactions.
The Statement focuses on the critical role of a financial
institution’s board of directors (BOD). As these highly complex
transactions can present substantial legal, reputational and other
risks, CSBS fully agrees with the federal agencies that a participating
financial institution should establish a board-approved, clear process
for identifying the standards which define these complex structured
transactions that involve heightened risks. The BOD is responsible for
establishing the institution’s risk tolerances for these complex
structured transactions and ensuring that a strong risk control
framework is in place to guide the actions of the financial
institution’s personnel. If heightened risk is identified by bank
personnel, the institution’s procedures should ensure these transactions
receive an elevated and thorough review. In addition, as part of the
financial institution’s elevated review procedures of high risk
transactions, it may be appropriate for the financial institution to
either decline participation in the transaction or condition its
participation upon the customer making express and accurate disclosures
regarding the nature and financial impact of the transaction on the
customer’s financial condition. Continual review of both the actual
products and their approval process by senior bank management and the
BOD is also prudent.
The agencies note that the Statement would only apply to those
institutions that advise, arrange or actively participate in these
complex structured transactions. In that regard, currently only about 25
state chartered institutions were identified as entities that would be
covered by this Statement. However, with the proliferation of structured
finance transactions and a growing number of banks, both large and
small, that are beginning to participate in more complex financial
products, this Statement reiterates that a financial institution’s BOD
must play the key role in understanding the complexity of and risks
associated with these products prior to any involvement. This Statement
is generated from a basic risk-focused safety and soundness standard.
Conclusion
We would welcome opportunities to work with the Federal regulatory
agencies to develop joint examination procedures and further guidance in
this area. Thank you for your consideration, and we invite you to call
on us if we can provide additional information on any of the state
initiatives noted in our letter.
Best Personal Regards,
Neil Milner
President and CEO
Conference of State Bank Supervisors
1155 Connecticut Ave., NW
Washington, DC 20036
1 CSBS is the national organization of state officials
responsible for chartering, regulating and supervising the nation’s
6,500 state chartered commercial and savings banks and over 400
state-licensed branches and agencies of foreign banks.
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