Recent Interagency Expanded Guidance On Subprime Lending

Co-written by Lawrence Fruchtman

On January 31, 2001 the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (the "Agencies") expanded previously issued examiner guidelines¹ for supervising subprime lending activities by certain insured depository institutions and their subsidiaries (the "Guidelines"). In a departure from the more generalized approach taken by the Agencies in the March 1999 Guidelines, the current Guidelines provide a definition of "subprime" and specify a range of capital over and above the minimum capital requirements as a starting point in determining the amount of capital needed to support the risks associated with subprime lending, including the retention of subordinated interests in securitized pools of subprime loans.