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Advocacy Alert- 05/12/2003

FDIC stands pat on premiums; BIF has unexpected gain

Somehow, the BIF ratio just refuses to cooperate with all the seers who have been predicting for many months its descent below 1.25 percent.  Of all things, it actually grew during the first quarter, aided once again by flat growth in insured deposits, a slight gain in its marked- to- market portfolio of assets, and a quarter with no major claims.  As a result, the FDIC board stood pat during the second half of 2003, and for the seventh straight year, there will be no deposit insurance premiums assessed on more than 90 percent of banks and thrifts. 

The only real controversy was generated by Comptroller Jerry Hawke who questioned whether or not it is appropriate to mark to market securities held in the fund which are held to maturity unless they are needed to pay claims.  Hawke pointed out that if rates do increase sharply, the excess over 1.25 percent could easily turn into a deficit that would by itself necessitate the need to assess premiums.  In the end, the board decided to refer the question to a consulting firm.  While final figures were not available, staff projected that the BIF was at 1.28 percent at the end of the first quarter, up from 1.27 percent at the end of 2002.  SAIF remained at 1.37 percent, well above the required minimum.

House panel begins FCRA hearings

A House subcommittee began the process that the industry hopes will result in an extension of the expiring pre-emption provisions of the Fair Credit Reporting Act.  The Financial Institutions Subcommittee chaired by Alabama Republican Spencer Bachus held a hearing titled “The Importance of the National Credit Reporting System to Consumers and the U.S. Economy.”  Assistant Treasury Secretary Wayne Abernathy was the principal witness.  Abernathy presented the views of the administration that uniform standards are essential in protecting privacy, guarding against identity theft, and in assuring the free flow of credit throughout the economy. 

Abernathy noted that since enactment of the FCRA, there has been marked growth in the availability of credit to all Americans.  During questioning, some members of the Subcommittee expressed a desire for stronger privacy protections and observed that the pre-emptions of FCRA have also aided and abetted the marketing of many products, financial and other.  There was also considerable concern expressed at the growth in identity theft.   Abernathy did not unveil the administration’s proposals for additional measures to combat identity theft, stating that the review was not yet complete.  But he did strongly endorse the extension of the seven pre-emption provisions contained in FCRA which expire at the end of this year.

The House hearing was the first of a series the subcommittee plans to hold over the next two months on the subject.  The Senate Banking Committee will consider FCRA in a hearing this week.

COLI/BOLI revision updage

With Republicans anxious to include some provisions cutting taxes on dividends, the Senate Finance Committee will have to consider revenue raisers in order to stay within the $350 billion parameter set by the Senate for any tax cuts.  Included in a list of possible offsets the committee is considering is a provision that would require corporations to treat as income the proceeds of any life insurance policy on an individual who had not been an employee in the year preceding death. Last week, the epublicans on the committee agreed to a limited tax break for corporate dividends – an exemption on the first $500 in dividends received, and an additional exemption on a small portion of remaining dividend income.   The House bill will provide much more generous relief on dividends and capital gains, but it will still be far short of the President’s proposal for a total exemption on dividends.  COLI (corporate- owned life insurance) and BOLI (bank- owned life insurance) have long been targeted by tax reformers.

Customer Identification Program rules issued

The USA PATRIOT Act Section 326 rules issued last week are not as onerous as they could have been, thanks to a high number of comments sent by the banking industry, including the CBA.  Banks are not required to keep copies of identification documents, just the information they contain.  Existing customers need not be re-identified in accordance with the new rules, and not all signatories to an account will be routinely required to be identified.  Compliance with the rule is mandatory as of October 1.  (CBA's analysis of the rule is enclosed.)

Local banking legislation still moving

The City of San Jose is the fifth major California city to consider enacting a predatory lending ordinance.  Two cities, Oakland and Los Angeles, have passed ordinances, while two others, San Francisco and Sacramento, ultimately did not go forward with full-blown legislation.  The ordinance being considered in San Jose, still in the drafting and review stage, features perhaps the lowest rates and fees thresholds ever considered in the nation, and includes restrictions on all mortgage lending in San Jose.  CBA has urged the city to consider the effect of such an ordinance on all mortgage lending in that city.  Meanwhile, other Bay Area municipalities, including Marin County, are considering financial consumer privacy legislation.  CBA continues to communicate its opposition to local privacy legislation.

From the Annual Meeting in Maui...

Among the issues discussed by the many directors in attendance at the Annual Meeting of Bank Officers & Directors was the need to designate which directors are considered "independent." Additionally, directors agreed that it is increasingly important to communicate the possibility of mandatory retirement for directors with an option of continuing without pay as an advisory director.  Boards were also encouraged to address succession issues and many directors indicated that their boards are adopting specific written charters for the audit committee.

A Commercial Lenders School is closer to reality as 10 banks decided at the CBA Annual Meeting of Bank Officers and Directors to pledge their support for the program. The members-only school will provide 32 days of extensive training over 10 months for new loan trainee recruits and those promoted to junior loan trainees. Announcement forms and pledge agreements will be forwarded this week to all members.

Privacy issue heard in Napa

Our thanks to Terry Robinson of North Bay Bancorp, who participated in a meeting with the editorial board of the Napa Register last week on the issue of privacy.  Terry provided some insight on some of the challenges community banks would face if the current privacy proposal (SB 1) were enacted.  It was particularly gratifying that Terry was able to participate because he did so despite the fact that he was holding his shareholder meeting only a few hours after the editorial board meeting – a great example of making time for important industry issues.

BankNews executive passes away

Many of our members and vendors work directly with BankNews, the publisher of California Banker and many other industry communications.  We are sad to report that Bill Baker, the creative force behind BankNews, passed away suddenly in early May.  Bill’s service was held in Kansas on May 7, but those wishing to send their remembrances can do so by sending donations to either the Leukemia & Lymphoma Society (6811 Shawnee Mission Parkway, Shawnee Mission, KS 66202) or the Johnson County Extension Master Gardeners (13480 South Arapahoe Drive, Olathe, KS 66062).  Though devastated over Bill’s passing, executives and staffers at BankNews have assured the CBA that it will continue to deliver the high-quality service and production that Bill took much pride in.