Magazine article American Banker

The Fed Adds Its Voice to Calls for Contingency Plans on Funds

Magazine article American Banker

The Fed Adds Its Voice to Calls for Contingency Plans on Funds

Article excerpt

The Federal Reserve Board has directed its examiners to check whether banks that sell and manage mutual funds are prepared to cope with a sudden market downturn.

Echoing a concern raised by another banking agency, the Fed said a market drop could trigger "a heavy volume of customer inquiries, complaints, and redemptions."

The Fed aired the issue in a lengthy document describing broad new examination procedures for retail sales of nondeposit investment products.

Questions about whether banks are equipped to deal with a flood of redemptions have been mounting since this winter, when the stock and bond markets took a tumble.

As reported earlier this week, examiners from the Office of the Comptroller of the Currency have begun asking banks that manage mutual funds to make sure they have prepared for a possible wave of losses or redemptions.

The OCC is said to be concerned because of reports that a large bank had to cover losses on a money market mutual fund it manages. The bank, whose identity could not be learned, is expected to report the losses next month.

The Fed document, dated May 31, was sent to supervision chiefs in the central bank's 12 districts.

It is intended to guide Fed examiners on how to police banks' compliance with investment sales guidelines that were issued Feb.15 by the Fed and three other federal financial regulatory agencies.

The emphasis on contingency planning is one of the few new wrinkles in the exam guidelines, which cover such topics as program management, disclosures and advertising, the setting and circumstances of sales, training and supervision of sales personnel, and investment suitability.

"A major element of any contingency plan should be the provision of customer access to information pertaining to their investments," the Fed said. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.