Benchmarks on small, large banks to start

• The Federal Reserve, the Comptroller of the Currency and the Federal Deposit Insurance Corporation are releasing new benchmarks for what constitutes small to large financial entities, set to become effective at the beginning of the year.

The Community Reinvestment Act, which was passed to protect low-income families and individuals from discriminatory credit practices and encourage homeownership, requires the presiding agencies to set capital requirements for financial institutions.

The different capital requirements at each step determine how heavily the three agencies regulate the financial institutions that fall under each category. Changes each year are based on the Consumer Price Index.

The first tier, a small bank or savings association, had less than $296 million in assets as of Dec. 31 of both of the prior two calendar years.

The second tier, an intermediate small bank or intermediate small savings association, had at least $296 million in assets from the last two years, but less than $1.186 billion in either 2012 or 2011.

A large institution has assets of at least $1.186 billion on its books from the last two years.
• The Commodity Futures Trading Commission (CFTC) is pushing for greater transparency in financial markets where complex financial instruments are bought and sold.

The final rule, which becomes effective Feb. 21, 2013, requires large buyers and sellers registered with the CFTC to keep a record of all conversations — including telephone, voice mail and mobile or digital methods — that result in the sale of a financial product known as a “commodity interest” for one year. Smaller intermediaries are not exempt from the recording requirements, but are instead expected to keep a written log of various stages of the transaction process.

Also known as a “future,” a commodity interest is a financial contract to buy or sell a commodity — such as soybeans, coffee, metals, cotton or corn — at a specific price on a specific date. Most often, the actual physical products are not delivered, but are rather exchanged continuously through financial transactions.

The regulation was required under the Dodd-Frank financial reform law. The CFTC says more documentation is necessary to protect consumers from the “technological advances [that] have contributed to a tremendous growth in trading volume as well as the number and type of market participants.”

Many companies, including Land O’Lakes, commented on the proposal and claimed the recording requirement, as written, would place too large of a burden on both sides of the transaction. The agency responded by eliminating the need for recording conversations that involved the delivery of “cash commodities,” or the actual products involved in the future contract.