BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C.  20551
			DIVISION OF BANKING SUPERVISION AND REGULATION
			SR 01-4 (GEN) January 31, 2001

	TO THE  OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK AND TO EACH DOMESTIC BANKING ORGANIZATION SUPERVISED BY THE FEDERAL RESERVE SUBJECT:   Subprime Lending                      The Board of Governors of the Federal Reserve System, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (the Agencies), has developed expanded examination guidance on subprime lending.  (See the attached interagency statement.) The purpose of the expanded guidance is to strengthen the Agencies' supervision of institutions with subprime lending programs.  The guidance is directed primarily to those institutions that have subprime lending programs that equal or exceed 25 percent of tier 1 regulatory capital.                      The Agencies continue to believe that responsible subprime lending can expand credit access for consumers and offer attractive returns provided that institutions recognize and manage the unique risks associated with this activity.  This expanded guidance supplements the supervisory statement, Interagency Guidance on Subprime Lending (See SR letter 99-06) issued in March 1999.                      The guidance discusses a number of issues including: The characteristics of a subprime lending program. A set of specific borrower characteristics that may indicate an institution is involved in the subprime lending market. Analysis and documentation standards for the allowance for loan and lease losses (ALLL). Factors to be considered when determining the appropriate level of capital needed to support subprime lending. A discussion of examination procedures for assessing the quality of subprime loan portfolios. A list of potentially predatory or abusive lending practices that safety and soundness examiners would criticize.                      Reserve Banks are asked to distribute this SR letter and attached interagency guidance to regulated institutions in their districts and to their supervisory staff.  Any questions may be addressed to Arleen Lustig, Supervisory Financial Analyst, at (202) 452-2987 or Norah Barger, Deputy Assistant Director, at (202) 452-2402. Richard Spillenkothen Director Attachment (702 KB PDF) Cross Reference:  SR Letter 99-06
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