• Office of the Comptroller of the Currency Hosts Workshop in Nebraska
  The Office of the Comptroller of the Currency will host a workshop for directors of nationally chartered community banks and federal savings associations in Omaha, Nebraska, at the Embassy Suites Omaha, July 23-25, 2012.
• OCC Deputy Comptroller Remarks at Risk Conference
  Deputy Comptroller for Credit and Market Risk Martin Pfinsgraff today discussed the value of effective bank supervision at the Credit Risk Conference in New York.
• OCC Appoints Receiver for Alabama Trust Bank N.A.
  The Office of the Comptroller of the Currency (OCC) today appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for Alabama Trust Bank N.A., Sylacauga, Alabama.
• OCC Enforcement Actions
  The Office of the Comptroller of the Currency (OCC) today released new enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with national banks and federal savings associations.
• OCC Deputy Chief Counsel Testifies on Agency Enforcement Powers
  Deputy Chief Counsel Daniel P. Stipano today testified before the Committee on Financial Services of the U.S. House of Representatives regarding enforcement authority at the Office of the Comptroller of the Currency.
• Comptroller Curry Discusses Operational Risk in the Banking System
  Comptroller of the Currency Thomas J. Curry today discussed operational risk facing national banks and federal savings associations during his speech to the Exchequer Club in Washington, D.C.
• Agencies Clarify Supervisory Expectations for Stress Testing by Community Banks
  Three federal banking agencies Monday issued a joint statement to clarify expectations for stress testing by community banks—banks, savings associations, and bank and savings and loan holding companies with $10 billion or less in total assets.
• Agencies Finalize Large Bank Stress Testing Guidance
  The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on Monday issued final supervisory guidance regarding stress-testing practices at banking organizations with total consolidated assets of more than $10 billion.
• OCC Statement: Cessation of Activities by Allonhill as an Independent Consultant Under the Independent Foreclosure Review
  As a result of information provided to the Office of Comptroller of the Currency (OCC) by Allonhill, the OCC has directed Allonhill to cease reviewing files related to the Independent Foreclosure Review as a primary independent consultant or subcontracted consultant.
• Paul Nash Named Senior Deputy Comptroller and Chief of Staff at the OCC
  Comptroller of the Currency Thomas J. Curry announced today that Paul Nash will succeed John Walsh as Senior Deputy Comptroller and Chief of Staff. Mr. Walsh has announced that he is retiring this summer.

Read the full article at GetOutOfDebt.org, click here: Office of the Comptroller of the Currency News Alerts

• 2012-36: Is the Consumer Expenditure Survey Representative by Income?
  John Sabelhaus, David Johnson, Stephen Ash, Thesia Garner, John Greenlees, Steve Henderson, and David Swanson. Aggregate under-reporting of household spending in the Consumer Expenditure Survey (CE) can result from two fundamental types of measurement errors: higher-income households (who presumably spend more than average) are under-represented in the CE estimation sample, or there is systematic under-reporting of spending by at least some CE survey respondents. Using a new data set linking CE units to zip-code level average Adjusted Gross Income (AGI), we show that the very highest-income households are less likely to respond to the survey when they are sampled, but unit non-response rates are not associated with income over most of the income distribution. Although increasing representation at the high end of the income distribution could in principle significantly raise aggregate CE spending, the low reported average propensity to spend for higher-income respondent households could account for at least as much of the aggregate shortfall in total spending.
• 2012-35: Using the "Chandrasekhar Recursions" for Likelihood Evaluation of DSGE Models
  Edward P. Herbst. In likelihood-based estimation of linearized Dynamic Stochastic General Equilibrium (DSGE) models, the evaluation of the Kalman Filter dominates the running time of the entire algorithm. In this paper, we revisit a set of simple recursions known as the “Chandrasekhar Recursions" developed by Morf (1974) and Morf, Sidhu, and Kalaith (1974) for evaluating the likelihood of a Linear Gaussian State Space System. We show that DSGE models are ideally suited for the use of these recursions, which work best when the number of states is much greater than the number of observables. In several examples, we show that there are substantial benefits to using the recursions, with likelihood evaluation up to five times faster. This gain is especially pronounced in light of the trivial implementation costs–no model modification is required. Moreover, the algorithm is complementary with other approaches.
• 2012-34: Time-to-Plan Lags for Commercial Construction Projects
  Jonathan N. Millar, Stephen D. Oliner, and Daniel E. Sichel. We use a large project-level dataset to estimate the length of the planning period for commercial construction projects in the United States. We find that these time-to-plan lags are long, averaging about 17 months when we aggregate the projects without regard to size and more than 28 months when we weight the projects by their construction cost. The full distribution of time-to-plan lags is very wide, and we relate this variation to the characteristics of the project and its location. In addition, we show that time-to-plan lags lengthened by 3 to 4 months, on average, over our sample period (1999 to 2010). Regulatory factors help explain the variation in planning lags across locations, and we present anecdotal evidence that links at least some of the lengthening over time to heightened regulatory scrutiny.
• 2012-33: The Influence of Fannie and Freddie on Mortgage Loan Terms
  Alex Kaufman. This paper uses a novel instrumental variables approach to quantify the effect that GSE purchase eligibility had on equilibrium mortgage loan terms in the period from 2003 to 2007. The technique is designed to eliminate sources of bias that may have affected previous studies. GSE eligibility appears to have lowered interest rates by about 10 basis points, encouraged fixed-rate loans over ARMs, and discouraged low-documentation and brokered loans. There is no measurable effect on loan performance or on the prevalence of certain types of "exotic" mortgages. The overall picture suggests that GSE purchases had only a modest impact on loan terms during this period.
• 2012-32: A Dynamic Factor Model of the Yield Curve as a Predictor of the Economy
  Marcelle Chauvet and Zeynep Senyuz. In this paper, we propose an econometric model of the joint dynamic relationship between the yield curve and the economy to predict business cycles. We examine the predictive value of the yield curve to forecast future economic growth as well as the beginning and end of economic recessions at the monthly frequency. The proposed nonlinear multivariate dynamic factor model takes into account not only the popular term spread but also information extracted from the level and curvature of the yield curve and from macroeconomic variables. The nonlinear model is used to investigate the interrelationship between the phases of the bond market and of the business cycle. The results indicate a strong interrelation between these two sectors. The proposed factor model of the yield curve exhibits substantial incremental predictive value compared to several alternative specifications. This result holds in-sample and out-of-sample, using revised or real time unrevised data.
• 2012-31: The Prolonged Resolution of Troubled Real Estate Lenders During the 1930s
  Jonathan D. Rose. This paper studies how building and loan associations (B&Ls) slowly unwound their obligations following a set of financial shocks during the Great Depression, with a special focus on a group of particularly troubled B&Ls in Newark, NJ. Investors in B&Ls disagreed over whether to realize losses on foreclosed real estate holdings, and those investors favoring liquidation were unable to force action after legal developments nullified statutory withdrawal privileges. In the medium run, a market-based resolution mechanism developed in the form of a secondary market for B&L liabilities. Liability holders barred from withdrawal incurred large losses while liquidating their investments on this market. At the same time, B&Ls used the market to avoid realizing some losses by exchanging foreclosed real estate for their second-hand share liabilities. More formal resolution ultimately took place from 1938 to 1943, first consisting heavily of closures, and then of reorganizations. Reorganizations were spurred by a large scale federal intervention arranging for the creation of bad banks, liquidity injections, and liability insurance.
• 2012-30: The Response of Capital Goods Shipments to Demand over the Business Cycle
  Jeremy J. Nalewaik and Eugenio P. Pinto. This paper studies the behavior of producers of capital goods, examining how they set shipments in response to fluctuations in new orders. The paper establishes a stylized fact: the response of shipments to orders is more pronounced when the level of new orders is low relative to the level of shipments, usually after orders plunge in recessions. This cyclical change in firm behavior is quantitatively important, accounting for a large portion of the steep decline in equipment investment in the 2001 and 2007–9 recessions. We examine economic interpretations of this stylized fact using a model where firms smooth production with a target delivery lag for new orders. Heightened persistence in orders growth may explain part of the greater responsiveness of shipments to orders, as may increases in firms' target buffer stocks of unfilled orders relative to shipments.
• 2012-29: The Correlation between Money and Output in the United Kingdom: Resolution of a Puzzle
  Edward Nelson. Friedman and Schwartz (1982) and Goodhart (1982) report a zero correlation between money growth and output growth in U.K. historical data. This finding is puzzling, as there is wide agreement that changes in monetary policy are frequently nonneutral in the short run and that the U.K. experience, in particular, is replete with instances of real effects of monetary policy actions. This paper proposes a resolution to the puzzle. An analysis conducted on subperiods shows that a positive money growth/output growth correlation is indeed recoverable from U.K. historical data. Strike activity in the 1970s and shifts in the terms of trade during the interwar period are the two factors primarily responsible for obscuring the positive correlation between money and output in the United Kingdom.
• 2012-28: An Extensive Look at Taxes: How does endogenous retirement affect optimal taxation?
  William B. Peterman. This paper considers the impact on optimal tax policy of including endogenously determined retirement in a life cycle model. Allowing individuals to determine when they retire causes the optimal tax on capital to increase by 75% because of two implicit changes in the aggregate labor supply elasticity. First, including endogenous retirement causes an increase in the overall aggregate labor supply elasticity since agents can change their labor supply on both the intensive and extensive margins. In response, the government limits the distortions from the tax policy by lowering the tax on labor and increases the tax on capital. Second, given that the choice to retire is more relevant for older individuals, endogenous retirement disproportionately increases older agent's elasticity compared to younger individuals. Ideally, the government would decrease the relative labor income tax on individuals when they are older and supply labor more elastically. However, in the absence of age-dependent taxes, the government mimics such a tax policy by further increasing the tax on capital. I find that the welfare lost from not accounting for endogenous retirement when solving for the optimal tax policy is equivalent to approximately one percent of lifetime consumption.
• 2012-27: Credit Line Use and Availability in the Financial Crisis: The Importance of Hedging
  Jose M. Berrospide, Ralf R. Meisenzahl, and Briana D. Sullivan. What determined the corporate use of credit lines in the recent financial crisis? To address this question we hand-collect data on credit lines and interest rate hedging for a random sample of 600 COMPUSTAT firms. We document that drawdowns of credit lines had already increased in 2007, earlier than what previous work has found. The surge in drawdowns occurred precisely when disruptions in bank funding markets began. In addition, we distinguish unused and available portions of credit lines, which we then use to disentangle credit supply and credit demand effects. On the supply side, we find covenant-induced reduction of credit supply to be small, and almost no evidence of credit line cancellations. On the demand side, our results confirm that while smaller and lower-rated firms use their credit lines more intensively in general, larger and higher-rated firms were more likely to draw on their credit lines during the crisis. We find that firms that use interest rate swaps to hedge the interest rate risk associated with their credit lines draw down significantly more from those lines than non-hedged firms.

Read the full article at GetOutOfDebt.org, click here: Federal Reserve Bank – Economic Working Papers

• Agencies finalize large bank stress testing guidance
  Agencies finalize large bank stress testing guidance
• Agencies clarify supervisory expectations for stress testing by community banks
  Agencies clarify supervisory expectations for stress testing by community banks
• Federal Reserve Board publishes comparative information on average debit card interchange fees
  Federal Reserve Board publishes comparative information on average debit card interchange fees
• Federal Reserve Board announces the formation of the Model Validation Council
  Federal Reserve Board announces the formation of the Model Validation Council
• Agencies clarify Volcker Rule conformance period
  Agencies clarify Volcker Rule conformance period
• Federal Reserve Board issues policy statement regarding rental of residential properties acquired in foreclosure
  Federal Reserve Board issues policy statement regarding rental of residential properties acquired in foreclosure
• Federal Reserve seeks comment on proposed rulemaking to establish requirements for determining whether a company is predominantly engaged in financial activities
  Federal Reserve seeks comment on proposed rulemaking to establish requirements for determining whether a company is predominantly engaged in financial activities
• Agencies clarify effective date for Section 716 of the Dodd-Frank Act
  Agencies clarify effective date for Section 716 of the Dodd-Frank Act
• Agencies propose revisions to leveraged finance guidance
  Agencies propose revisions to leveraged finance guidance
• Federal Reserve announces summary results of latest round of bank stress tests
  Federal Reserve announces summary results of latest round of bank stress tests

Read the full article at GetOutOfDebt.org, click here: Federal Reserve Bank – Banking and Consumer Regulation News Alerts

• Administrative Law Judge Upholds FTC's Complaint that POM Deceptively Advertised Its Products as Treating, Preventing, or Reducing the Risk of Heart Disease, Prostate Cancer, and Erectile Dysfunction
  ALJ Ruling: Some Health Claims for Pomegranate Products Were False and Not Supported by Scientific Evidence
• Consumers Who Bought Two Oreck Products Will Receive FTC Refunds
  Company Made Unfounded Claims that Vacuum Cleaner and Air Filters Could Prevent Illness, FTC Alleged
• FTC Announces Final Agenda and Panelists for Workshop about Advertising and Privacy Disclosures in Online and Mobile Media
  The Federal Trade Commission will host a one-day public workshop on Wednesday, May 30, 2012 to consider the need for new guidance concerning advertising and privacy disclosures in today's online and mobile environments.
• FTC Approves Final Orders Settling Charges that Window Marketers Made Deceptive Energy Efficiency and Cost Savings Claims
  Following a public comment period, the Federal Trade Commission has approved final orders settling charges that five companies that make and sell replacement windows made deceptive energy efficiency and cost savings claims.
• Skechers Will Pay $40 Million to Settle FTC Charges That It Deceived Consumers with Ads for "Toning Shoes"
  Consumers Who Bought Shape-ups, Other Toning Shoes Will Be Eligible for Refunds
• Debt Collectors Settle with FTC, Agree to Stop Deceiving and Abusing Consumers
  Consumers Were Subjected to Collection Efforts for Magazine Subscription Debts They Did Not Owe, FTC Alleges
• FTC Approves Final Settlement with CVS Caremark
  Following a public comment period, the FTC has accepted as final an order with CVS Caremark settling charges that it misrepresented the prices of certain Medicare Part D prescription drugs, including drugs used to treat breast cancer symptoms and epilepsy, at CVS and Walgreens pharmacies.
• FTC Announces Action Against Major Marketer of Consumer Goods
  Alleges Overhyped Advertising Claims; Consumers to Receive Millions in Refunds in Settlement
• FTC To Host Workshop on Drip Pricing
  The Federal Trade Commission will host a workshop on May 21 on drip pricing, a pricing technique in which firms advertise only part of a product's price up-front, and then reveal additional charges later as the consumer goes through the buying process.
• FTC Approves Final Order Settling Charges that Star Pipe Products, Ltd. Acted Anticompetitively in Market for Municipal Water System Iron Pipe Fittings; FTC Approves Final Orders Settling Charges that Auto Dealers Falsely Promised to Pay Off Consumers' Trade-ins, No Matter What They Owed
  Following a public comment period, the Federal Trade Commission has approved a final order settling charges that Star Pipe Products, Ltd. engaged in illegal anticompetitive practices to protect its share of the market for ductile iron pipe fittings used in municipal water systems nationwide. Following a public comment period, the Federal Trade Commission has approved final orders settling charges that five automobile dealers made deceptive claims that they would pay off the remaining balance on consumers' trade-ins, no matter what they owed.

Read the full article at GetOutOfDebt.org, click here: Federal Trade Commission – Consumer Protection News Alerts