Darryl E. Getter
Specialist in Financial Economics
The Basel III international regulatory framework, which was produced in 2010 by
the Basel Committee on Banking Supervision at the Bank for International
Settlements, is the latest in a series of evolving agreements among
central banks and bank supervisory authorities to standardize bank capital
requirements, among other measures. Capital serves as a cushion against unanticipated
financial shocks (such as a sudden, unusually high occurrence of loan
defaults), which can otherwise lead to insolvency. The Basel III
regulatory reform package revises the definition of regulatory capital and
increases capital holding requirements for banking organizations. The
quantitative requirements and phase-in schedules for Basel III were approved by
the 27 member jurisdictions and 44 central banks and supervisory authorities on
September 12, 2010, and endorsed by the G20 leaders on November 12, 2010.
Basel III recommends that banks fully satisfy these enhanced requirements
by 2019. The Basel agreements are not treaties; individual countries can
make modifications to suit their specific needs and priorities when implementing
national bank capital requirements.
In the United States, Congress mandated enhanced bank capital requirements as
part of financialsector reform in the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203, 124
Stat.1376). Specifically, the Collins Amendment to Dodd- Frank amends the
definition of capital and establishes minimum capital and leverage requirements
for banking subsidiaries, bank holding companies, and systemically important
nonbank financial companies. In addition, Dodd-Frank removes a requirement
that credit ratings be referenced when evaluating the creditworthiness of
financial securities. Instead, the U.S. federal banking regulators (i.e.,
the Federal Reserve, the Office of the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation) are required to find other appropriate
standards by which to determine the financial risks of bank portfolio
holdings when enforcing the mandatory capital requirements.
This report summarizes the higher capital requirements for U.S. banks regulated
for safety and soundness. The U.S. federal banking regulators announced
the final rules for implementation of Basel II.5 on June 7, 2012, and for
the implementation of Basel III on July 9, 2013. Although higher capital
requirements for most U.S. banking firms may reduce the insolvency risk of the deposit
insurance fund, which is maintained by the Federal Deposit Insurance
Corporation, it arguably could translate into more expensive or less
available bank credit for borrowers. Whether higher capital requirements
would result in a reduction of overall lending or systemic risk remains unclear.
Prior to the financial crisis, banks maintained capital levels that exceeded
the minimum regulatory requirements, yet the economy still saw widespread
lending. Bank capital reserves also may have limited effectiveness as a
systemic risk mitigation tool if a significant amount of lending occurs
outside of the regulated banking system. For an introduction to some of the
topics covered in this report, see CRS Report R43002, Financial
Condition of Depository Banks, by Darryl E. Getter.
Date of Report: September 16, 2013
Number of Pages: 25
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Katie Jones
Analyst in Housing Policy
The Federal Housing
Administration (FHA) insures home mortgages made by private
lenders against the possibility that the borrower will default, or not
repay the mortgage as promised. If the borrower defaults, FHA pays the
lender the remaining principal amount owed. By insuring lenders against
the possibility of borrower default, FHA is intended to expand access to
mortgage credit to households who might not otherwise be able to obtain a
mortgage at an affordable interest rate or at all, such as those with
smaller downpayments or weaker credit histories. FHA also traditionally
plays a countercyclical role in the mortgage market. That is, it generally insures
more mortgages during periods when lenders and private mortgage insurers
tighten their lending standards and reduce activity in response to market
conditions, and it generally insures fewer mortgages at times when lenders
and private mortgage insurers make mortgage credit more easily
available.
When an FHA-insured mortgage goes to foreclosure, the lender files a claim with
FHA for the remaining amount owed on the mortgage. Claims on FHA-insured
loans are paid out of the Mutual Mortgage Insurance Fund (MMI Fund), which
is funded through fees paid by borrowers, rather than through
appropriations. However, if FHA were ever unable to pay claims that it
owed, it can draw on permanent and indefinite budget authority with the
U.S. Treasury to pay those claims without additional congressional
action.
In recent years, increased foreclosure rates, as well as economic factors such
as falling house prices, have contributed to an increase in expected
losses on FHA-insured loans. This increase in expected losses has put
pressure on the MMI Fund and reduced the amount of resources that FHA has
on hand to pay for additional, unexpected future losses. This has led to
concern that FHA may need to draw on its permanent and indefinite budget
authority for funds from Treasury to hold in reserve to pay for these
higher expected future losses, or, eventually, to pay insurance claims.
An annual actuarial review of the MMI Fund released in November 2012 showed
that, according to current estimates, FHA does not currently have enough
funds on hand to cover all of its expected future losses on the loans that
it currently insures. The results of this actuarial review heightened
concerns that FHA could need funds from Treasury. However, whether FHA actually needs
to draw funds from Treasury is determined by the annual budget process, not by
the actuarial review. The President’s FY2014 budget request included $943
million for the MMI Fund, which would mark the first time that FHA has
needed funds from Treasury for its singlefamily programs. FHA has until
the end of FY2013 to draw the funds, and the final amount needed could be
impacted by changes during the fiscal year.
FHA faces an inherent tension between protecting its financial health and
fulfilling its mission of facilitating access to mortgages. FHA has
recently proposed or implemented a number of changes to its single-family
mortgage insurance program that are intended to minimize risk to the
MMI Fund while still allowing FHA to support the mortgage market and
ensure access to affordable mortgages. These changes have included
increasing the fees that it charges to borrowers for insurance, modifying
its underwriting criteria, and taking steps to increase oversight of
lenders who make FHA-insured loans. While many of these changes were made
administratively by FHA, some involved congressional action. Congress has
also considered, and continues to consider, additional legislation aimed
at protecting the financial health of the MMI Fund. .
Date of Report: September 9, 2013
Number of Pages: 47
Order Number: R42875
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Julie M. Whittaker
Specialist in Income Security
Katelin P. Isaacs
Analyst in Income Security
The 113th Congress may face a
number of issues related to currently available unemployment insurance
programs: Unemployment Compensation (UC), temporary Emergency Unemployment Compensation
(EUC08), and Extended Benefits (EB). With the national unemployment rate decreasing
but still high, the weekly demand for extended unemployment benefits continues
at elevated levels. Congress deliberated multiple times on whether to
extend the authorization for several key temporary unemployment insurance
provisions in the 112th Congress and may do so again in the 113th Congress. The signing
of P.L. 112-240 on January 2, 2013, now means that the EUC08 program
expires the week ending on or before January 1, 2014. The 100% federal financing
of the EB program expires on December 31, 2013. In addition, the option for
states to use three-year EB trigger lookbacks (the period of time
considered in determining an active EB program within a state) expires the
week ending on or before December 31, 2013.
The 113th Congress will face these expirations as well as likely
unemployment insurance policy issues, including unemployment insurance
financing, integrity measures, and the appropriate length and availability
of unemployment benefits.
This report provides a brief overview of the three unemployment insurance
programs—UC, EUC08, and EB—that may currently pay benefits to eligible
unemployed workers. This report contains a brief explanation of how the
EUC08 program, as well as some other UC-related payments, began to
experience reductions in benefits as a result of the sequester order contained within
the Budget Control Act of 2011 (P.L. 112-25).
This report also includes descriptions of the unemployment insurance provisions
within H.R. 51, H.R. 188, H.R. 1172, H.R. 1229, H.R. 1277, H.R. 1502, H.R.
1530, H.R. 1617, H.R. 2177, H.R. 2448, H.R. 2821, H.R. 2826, H.R. 2889, S.
18, S. 803, and S. 1099, as well as the President’s Budget Proposal for
FY2014.
Date of Report: September 5, 2013
Number of Pages: 24
Order Number: R42936
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Craig K. Elwell
Specialist in Macroeconomic Policy
The Fair Labor Standards Act (FLSA) of 1938 established the hourly minimum
wage rate at 25 cents for covered workers.1 Since then, it has been raised 22 separate times, in part to keep
up with rising prices. Most recently, in July 2009, it was increased to $7.25
an hour. Because there have been some extended periods between these
adjustments while inflation generally has increased, the real value
(purchasing power) of the minimum wage has decreased substantially over
time.
Date of Report: September 12, 2013
Number of Pages: 4
Order Number: R42973
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