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Advocacy Alert- 05/13/2002

The AB 1775 and SB 773 - The financial privacy fight continues

Early last week, AB 1775 (Nation) was before the Assembly Judiciary Committee. Because consumer groups are anxious to breathe life back into SB 773, they are working diligently to get AB 1775 defeated. A recent editorial in the San Francisco Chronicle urged legislators to give SB 773 another chance, thereby giving them a reason to refuse to vote for AB 1775. Because Assembly Member Nation knew he did not have enough votes to get his bill out of committee, he had the committee "hold" the bill rather than force a vote.

It is also important to note that the financial institutions affected by AB 1775 were asked to further compromise on the affiliate issue by the chair of the Assembly Judiciary Committee -- a compromise CBA does not intend to make. Though CBA has always been willing to negotiate with both the author and consumer groups, we will not move so far away from our core principles as to give up the affiliate issue.

If you have questions about AB 1775, SB 773 or CBA's work on the financial privacy issues, please contact James Clark, VP/Federal Government Relations at 916/441-7377 ext. 209.

Conformity bills signed by Governor Davis

Governor Davis signed AB 1122 (Corbett) and SB 657 (Scott) into law last week conforming California law to federal law on IRAs and 401Ks. SB 657 is chapter number 34, while AB 1122 is chapter number 35. Since the two bills were identical and AB 1122 was chaptered last, it is the effective bill because it "chaptered out" the provisions of SB 657 .

Credit scoring bill pulled by author

AB 2498 (Jackson), which would have forced credit grantors to ignore the inquiries made on a potential customer's credit report, has been pulled by the author, Hannah-Beth Jackson. Jackson indicated that the bill could not be amended in a way that would have satisfied consumer groups and the industry.

This should be considered a win for the industry, as this bill would have limited the view credit grantors would have had when faced with a determining the risk of a potential customer. This bill would have gone beyond the federal Fair Credit Reporting Act, which, as bankers well know, is a slippery slope with the California Legislature.

Wilhelm named Legislative Strategist for CBA

CBA announced at the Annual Conference in Dana Point, that Greg Wilhelm will continue on in his role of CBA's lead legislative strategist, while Jamie Clark and Maurine Padden will take on additional responsibilities for the Government Relations department based in Sacramento.

As of May 1, 2002, Jamie Clark will assume responsibility for CBA's federal government relations activities, in addition to continuing his work lobbying in Sacramento on various issues. Maurine Padden will assume responsibility for CBA's state federal government relations activities, and will also continue to lobby on the industry's behalf in Sacramento.

As many of you know, Greg Wilhelm was diagnosed more than a year ago with ALS, commonly known as Lou Gehrig's Disease. This shifting of responsibilities ensures that CBA takes greater advantage of both Maurine's and Jamie's areas of expertise, while allowing Greg to provide the legislative strategy that has served our industry so well for so many years.

We are confident that the combination of Jamie's and Maurine's acumen in Sacramento and Greg's strategic counsel in San Francisco will give CBA's members the best possible representation in Sacramento and Washington, D.C.

Funds availability update

CBA wishes to acknowledge the generous contribution of time and effort made by Bob Mulford, formerly with the San Francisco Federal Reserve Board and currently in private practice with the law firm of Friedemann, O'Brien, Goldberg & Zarian, LLP, who appeared as an expert witness in opposition to SB 1277(Murray) which was heard last week in Senate Banking Committee. SB 1277 eliminated the exception in current law for making funds available from a cashier's check, teller's check or certified check on the next business day. Due in large part to Mr. Mulford's testimony regarding check clearing processes, check fraud and the preemptive nature of federal law, the Senate Banking Committee refused passage of the measure.

Best practices loans seminars a success

Many thanks to Martha Opich of Livingston and Mattesich her significant donation of time and expertise in presenting commercial best practices during the CBA seminar "Keeping Loans Current" which was held for CBA members in Sacramento, Orange County and Santa Rosa.

District meetings with legislators

The following meetings have been scheduled between CBA members and their elected officials. If you would like more information on these meetings, or would like to participate in any of these meetings, please contact Mary Maybie at 916/441-7377 ext. 207.

FDIC holds lines of BIF premiums, assessment likely in 2003

Surprising some Washington pundits, the FDIC board did not assess a BIF premium for the second half of 2002, but there were indications that it may be forced to do so beginning in 2003. Board members were irritated that they did not have current deposit data available, but under present law, they must act on premiums for the second half of the year no later than May 15.

Data from first quarter call reports are not available yet, but by October 15, both first and second quarter data will be available, and FDIC staff believes these numbers may show a BIF ratio of less than 1.25 percent as of June 30. FDIC has one year to correct any deficiency, after it is discovered, or a 23 bp premium becomes mandatory.

SAIF remains comfortably above 1.25 percent, and is projected to remain so throughout 2002. FDIC staff projected a range of possible ratios for BIF by December 31, 2002. The worst case scenario (high deposit growth and a large number of failures) would have the BIF ratio at 1.08 percent at year's end. The best case scenario (low growth and few failures) would have BIF remaining above the critical number at 1.28 percent. The corresponding SAIF projection was 1.21 percent to 1.38 percent. If the ratio of either fund falls to 1.25 percent or below during the first half of 2002, FDIC would have to act in October to assess a premium for the first half of 2003 for the fund that is deficient.

House panel approves reg relief, credit union provisions draw ABA fire

Credit union provisions have made a regulatory relief package being put together in the House Financial Services Committee controversial. ABA informed the leadership of the financial institutions subcommittee, which passed the measure on May 8, that it could not support the bill because of these provisions.

There are several provisions in the bill which generally expand credit union powers and the ability of large credit unions to merge with other large institutions. Another would authorize credit unions to loan to faith-based groups without having those loans count against limits for business lending. Still another authorizes non-federally insured institutions to join Home Loan Banks. The legislation, which will be considered by the full committee next week, also contains a number of provisions that will benefit thrift institutions. Business and automobile lending would be substantially liberalized, and thrifts would gain parity with banks under Securities and Investment Company Acts. The major plum for commercial banks is a provision substantially liberalizing interstate branching options. Still, the credit union provisions are drawing the attention of both banking and thrift groups. The legislation is likely to pass the House this year, but is not expected to progress in the Senate.

FHFB approves two more capital plans

The Federal Housing Finance Board, which regulates the twelve Regional Banks that comprise the Home Loan Bank System, approved two more capital plans this week - the submissions of the Boston and Pittsburgh banks. The actions of the Board lend further credence to the prospect that that user of the programs offered by the Banks will not be required to capitalize their transactions, and this issue divides Republican and Democratic Board members.

A great many institutions that belong to the System and the San Francisco Bank itself are concerned that unless activity-based capital is required, the System will inevitably lose its cooperative structure, much as Freddie Mac did when it was taken public in the 1970s. Proponents of mortgage purchase plans offered by some of the Banks argue that if users are required to capitalize their transactions, the Home Loan Bank System will be unable to compete with Freddie and Fannie. The issue will come to a head in July when the Chicago plan is considered. Chicago operates the largest mortgage purchase program and it is arguing against mandatory activity-based capital. For the moment, Chicago seems to have won the day.

Oxley tells CBA that merger of regulators "inevitable" after merger of funds

Michael Oxley, chairman of the House Financial Institutions Committee, told delegates at CBA's Annual Conference in early May that it was his view that a merger of the BIF and SAIF would likely lead to regulatory consolidation as well, though he provided no time table. Oxley delivered this message in response to a question he was asked following his formal remarks. Oxley will serve four more years as committee chairman, assuming Republicans maintain control of the House, and he may have been signaling his agenda several years down the road.