Academic journal article Journal of Accountancy

House Banking Committee Evaluates Potential Risks of Structured Notes

Academic journal article Journal of Accountancy

House Banking Committee Evaluates Potential Risks of Structured Notes

Article excerpt

Henry B. Gonzalez (D-Tex.), chairman of the House Committee on Banking, Finance and Urban Affairs, asked regulators to estimate insured depository institutions' losses due to structured notes and to provide overviews of their transactions. Structured notes are a relatively new type of debt security with derivativelike characteristics issued by corporations and government-sponsored enterprises.

In letters addressed to Federal Reserve Chairman Alan Greenspan, acting Federal Deposit Insurance Corp. Chairman Andrew C. Hove, Jr., Comptroller of the Currency Eugene A. Ludwig and acting Office of Thrift Supervision (OTS) Director Jonathan Fiechter, Gonzalez said difficulties in evaluating cash flow characteristics and risks of structured notes were reasons to "ensure thrifts that purchase structured notes are capable of managing the risks they pose."

A spokesperson for the House committee said there was no full-fledged investigation of structured notes under way; however, the committee is gathering information as a part of its oversight responsibilities.

The OTS issued a bulletin in August urging savings associations to use caution when investing in structured notes. Thrift Bulletin no. 65 said although structured notes could be useful investments, their complexity made them inappropriate for unsophisticated investors. …

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