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Advocacy Alert- 04/01/2002

New privacy legislation proposed by Assembly Member Nation

After weeks of waiting, Assembly Member Joe Nation finally released his proposed financial privacy legislation AB 1775. Though a better starting point than its predecessor SB 773 (Speier), Nation’s proposed legislation is not ideal and will require thorough amendments.

Proposed in Nation’s legislation is:

• An opt-out for the sharing of “sensitive” information between financial institutions – affiliates, non-affiliates and third party vendors – offering financial products or services;
• An opt-in for the sharing of “sensitive information between financial institutions – affiliates, non-affiliates and third party vendors – offering non-financial products or services; and
• A separate, California-only disclosure in addition to the disclosures already required under federal law.

CBA is now preparing its official comment on the legislation. Despite the many challenges AB 1775 presents, we are committed to working with both Assembly Member Nation and the Governor’s Office to develop a reasonable approach to California’s privacy concerns.

OTS, FDIC staff cuts rile unions

Federal employee unions are challenging deep RIFs that are being undertaken both at FDIC and OTS, but the downsizing is occurring rapidly. Carrying out a promise to bring agency costs in line with revenues, new OTS Director, John Gilleran is wasting little time reducing his work force, hoping to make good on a pledge that industry assessments will not be increased. One key victim of the downsizing at the San Francisco OTS office was Deputy Director, Richard Sanchez. More draconian was the elimination of the regional office in Chicago, reducing the number of regional offices in the country to just four. San Francisco is now responsible for four more states, the Dakotas, Colorado and New Mexico.

Powell opposes making loan loss reserves part of ratio

Not surprisingly, FDIC Chairman Don Powell has indicated the FDIC’s strong opposition to a provision in the House version of the FDIC reform bill which would require the Corporation to add specific loan loss reserves back into the general fund for purposes of calculating the fund’s ratio to total insured deposits. It is a big number, estimated now by FDIC to be about seven basis points. The combined BIF – SAIF ratio as of the end of 2001 was 1.3 percent, but it would be about 1.37 percent if $1.75 billion were added back into the fund for purposes of calculating the ratio. Several Democrats on the committee agree with Powell, as does the Treasury and the Fed.

Meanwhile, Senate Banking Committee Chairman Sarbanes has given the green light for hearings shortly after the end of the Easter recess. Deposit reform is on track for passage this year in the House, but the outlook is murkier in the Senate. Representatives of various large banks continue to speak critically of the bill, focusing mostly on the deposit insurance ceiling increases, and the degree of discretion the legislation would allow the FDIC in assessing premiums. They object to the imposition of any new premiums on Camel 1-and 2-rated banks. Large banks support merger of the two insurance funds and the elimination of the 1.25 percent cliff.

Bank victory at IRS on capitalization of intangibles

The banking industry announced in a Chief Counsel’s notice (CC-2202-021) that it will not assert that businesses must capitalize expenses for fixed overhead or other costs under $5000 per transaction pertaining to the creation or enhancement of intangible assets – a victory with the IRS. Bankers have long contended that certain costs, particularly loan origination costs should be deductible when paid — as ordinary business expenses. Until now, IRS has not agreed and has pursued litigation in this area to force banks to capitalize these expenses and other costs over of the loan. The service has now announced that until it finalizes further guidance, it will not continue to assert that these expenses must be capitalized. Further information is available from Mark Baran, Director of ABA’s Center for Community Bank Tax at (202) 663-5317.