The federal banking and thrift supervisory agencies issued a
policy statement today alerting financial institutions to the safety and
soundness and legal issues involved in providing financial support to
investment funds advised by the institution or its subsidiaries or affiliates.
Today’s policy statement is prompted by recent market
developments, including market volatility, the continued low interest rate
environment, and operational and corporate governance weaknesses. It warns that investment advisory services
can pose material risks to a financial institution’s liquidity, earnings,
capital and reputation and can harm investors, if the associated risks are not
effectively controlled.
To ensure safe and sound banking practices, today’s policy
statement makes clear that a financial institution should not inappropriately
place its resources and reputation at risk for the benefit of the fund’s
investors and creditors. In addition,
financial institutions should not violate the limits and requirements contained
in applicable legal requirements or in any supervisory conditions imposed by
the agencies, and should not create an expectation that they will prop up an
advised fund.
The statement sets forth the agencies’ expectations
regarding the nature of controls that financial institutions should have in place
over investment advisory activities and further provides that financial
institutions should notify and consult with their primary federal regulator
prior to, or in the event of an emergency, immediately after, providing
financial support to an advised fund.
Media Contacts:
OCC:
Robert Garsson 202
874-5770
Federal Reserve: Andrew Williams 202
452-2955
FDIC:
David Barr 202
898-6992
OTS: Chris
Smith 202
906-6677
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