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Advocacy Alert- 04/29/2002

Financial privacy on hold with Assembly Judiciary

The financial privacy debate continues to center around AB 1775 (Nation), rather than SB 773, which the San Francisco Chronicle has described as being “on life support.” CBA’s efforts to defeat SB 773 (Speier), along with the efforts of other affected industries, continue to be successful.

AB 1775 was heard last week by the Assembly Judiciary Committee, which could not muster enough support from Democratic members of the committee to move the bill. AB 1775, therefore, is being held until May 7 for further consideration. CBA continues to discuss the issue of financial privacy with Assembly Member Joe Nation, though we remain opposed to his proposed legislation. It is important to note, however, that Nation’s proposal represents a substantially different approach to financial privacy than Speier’s approach.

Financial Services Committee passes deposit reform bill 52 – 2

By an unprecedented vote of 52 -2, the House Financial Services Committee passed H.R. 3717, the comprehensive Federal Deposit Reform Act which now heads for the House Floor and almost certain passage soon. Before passing the legislation, the committee strengthened free rider provisions, a subject heavily lobbied by CBA during its recent legislative conference, but it resisted efforts to reduce coverage levels. Credits and dividends will be tilted heavily toward banks which have paid premiums in the past. Another provision would peg the top assessment rate for the very highest rated banks at no more than 1 basis point provided the Designated Reserve Ratio is at or above 1.15 percent. Even banks that are not in the very highest category should benefit from the ceiling.

Senate Banking hearing on reform bill; Gramm cites FHLB borrowings

With action on deposit reform nearly completed in the House, attention shifts to the Senate, where the measure faces a much more difficult political hurdle. This week the Senate Banking Committee held a hearing at which all the regulators testified. The regulators, including OTS Director Gilleran — who previously supported an increase in ceilings — expressed support the legislation generally, but unanimously opposed an increase in insurance ceilings.

Whereas the House Republican leadership supported and drove the deposit reform effort, Sen. Phil Gramm, the Senate Committee’s ranking Republican opposes major provisions in the bill. He is adamantly opposed to any increase in deposit ceilings, and he also issued a statement expressing his concern about the debt that banks owe to the Federal Home Loan Bank System. Gramm cited the provision of law in which the Bank System has a (super lien) over the assets of failed banks. With roles reversed, it is Democrat Tim Johnson whose South Dakota seat has been targeted by the GOP who must drive the bill in the Senate. Republicans there are not keen on providing Johnson any legislative victories.

Bankruptcy Bill Springs to Life

With the Senate Democratic leadership clearly concerned about its vulnerability to GOP charges of obstructionism, one bill which may be benefiting by the effort to pass something is the long-stalled bankruptcy bill. A major hurdle was cleared this week when House and Senate negotiators agreed to a compromise preempting so-called homestead exemptions that are presently on the books in the politically critical states of Florida and Texas. The homestead exemptions have been cited as providing wealthy debtors unfair means of shielding assets from creditors. Under the compromise, the maximum exemption that homeowners who have purchased homes within 40 months of filing for bankruptcy could claim would be $125,000. The main remaining issue is a provision in the Senate bill that would disallow the discharge of any debt incurred through an act of violence against a health care facility.

O’Neill to Oxley: No action on real estate brokerage this year

Treasury Secretary O’Neill, in a letter to Financial Services Committee Chairman Oxley, has now confirmed, officially, that no action will be taken on a proposal to authorize national banks and financial holding companies to engage in real estate brokerage or management this year. The Secretary told Oxley that action, one way or the other, some time in 2003.

FHFB may reverse itself on activity-based capital requirements

It now appears that the Federal Housing Finance Board may reverse itself on its so-called “sufficiency test.” Several national and state trade groups, including the CBA, have supported mandatory activity-based capital requirements, arguing that it would be impossible to preserve the cooperative nature of the System without requiring those who use the system to capitalize their transactions.

San Francisco Bank president, Dean Schultz, testified before FHFB just a week ago that Gramm-Leach-Bliley mandates activity-based capital. When it approved the Seattle Bank’s plan just a few weeks ago, the FHFB required the bank to amend its plan to assure that users of its programs supply capital “sufficient” to capitalize their transactions and that excess bank capital could not be used to purchase any asset with a maturity of more than 90 days.

Indications now are that proponents of mortgage purchase programs operated by some of the banks have convinced the FHFB that their programs would not be competitive with Fannie Mae or Freddie Mac if they have to require users to capitalize their transactions. Next up on FHFB’s agenda is the plan submitted by the Pittsburgh Bank which does not require any user-based capital. It will be considered on May 8.