Magazine article American Banker

Bank Board Limits Use of Certificates Linked to Assets

Magazine article American Banker

Bank Board Limits Use of Certificates Linked to Assets

Article excerpt

WASHINGTON -- The Federal Home Loan Bank Board proposed restrictions Monday on a new type of certificate of deposit that allows a thrift institution's depositors to share in the returns from particular investments.

The agency said the accounts are gaining popularity among thrifts as a tool to attract longer-term deposits and thus help align the maturities of the assets and liabilities on their balance sheets. But, according to an agency staffer, the Bank Board is concerned that associations may over-use the account, or not use it wisely.

In a separate action, the agency decided to limit the investment powers of that are covered by federal deposit insurance.

The three-member board adopted the previously announced insurance proposal virtually unchanged. The rule is intended to protect the Federal Savings and Loan Insurance Corp. from what the regulators consider excessive risk by state associations that have broad investment powers.

Similar concerns surround the use of the new certificates whose returns are based on the earnings of specific assets.

Christopher Bolle, a Bank Board attorney, said Monday that the board acknowledges the new deposit plan as a potentially valuable tool for attracting longer-term deposits.

But, he said, the agency is concerned by some of the accounths features.

Under the proposal the board would define " earnings-based accounts" to include any account that provides for the payment of interest to be determined by reference to an index based on the profitability of certain assets.

Although the Ban Board said the accounts are increasingly popular, the only example of such accounts cited by the agency was offered briefly by Murray Savings Association of Dallas. The offer was halted by order of the Bank Board.

That program featured a 12-year certificate with a guaranteed 10% simple annual interest. …

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