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Current Events - 03/11/2002

Industry Brief

• As a result of GLB, the Securities and Exchange Commission is required to issue rules about what kinds of securities activities banks can engage in. The only problem is, the SEC still hasn’t released these rules, making it impossible for banks to comply.  So, the SEC extended its compliance date to May 12, and told banks they would not be penalized for not complying in the immediate term.

• A J.P. Morgan securities analyst has recommended that investors give bank shares “market weight,” an upgrade from “modest underweight.”  This is a signal to many that the banking industry is indeed, on the mend.

• Household International released additions to its Best Practices Initiatives for lending.  These additions come on the heels of litigation accusing Household of predatory lending practices.

• Plumas Bank released its annual “Business Survey” which surveys hundreds of business in Northeastern California.  Among the findings: More than 85 percent of respondents believed they would meet or exceed their sales goals and nearly 50 percent included “customer service” as a priority in the coming year.  (For more information on the survey, contact Peter Walker at 530/283-7320.)

• Westamerica Bancorp announced its acquisition of Kerman State Bank.

• A recent study by the National Community Reinvestment Coalition shows that 35 percent of respondents believe banks deny loans to applicants based on their race, religion, ethnicity or marital status.

• Bank of Agriculture & Commerce announced the acquisition of two branches, located in Antioch and Concord, from City National Bank.

Regulators’ Top 10 Regulatory Concerns

Industry regulators, including the Federal Reserve, FDIC and OTS, outlined their regulatory concerns at CBA’s E-Commerce Security Conferences February 26-27. More than 200 California bankers attended the conferences.
The group of regulators agreed that the following were their regulatory priorities and concerns:

10. Risk assessment
9. Fraud
8. IT audits
7. Internet and e-commerce issues
6. Training
5. Vendor management
4. Bank management awareness and support
3. Business Continuity
2. Privacy/GLB 501(b) issues
1. Networking and information security

CBA’s E-Commerce Security Conferences focused exclusively on e-commerce security issues and fielded an impressive group of experts with backgrounds in security and technology systems.

CBA in the Courts

CBA had previously reported on its success in having two devastating Unfair Competition Law cases (Business & Professions Code Section 17200, which attaches liability to any practice that is “unfair” even if perfectly legal) reviewed by the California Supreme Court. One case would virtually invalidate arbitration provisions in Section 17200 actions and the other would substantially increase damages. Financial institutions, which are favorite targets of Section 17200 actions, are likely to be sued even more if either of these cases is left to stand.

Last month, CBA helped convince the Supreme Court to review another case, Department of Health Services v. Superior Court, which would make employers absolutely liable for claims of sexual harassment by a supervisor, even if the employer has adopted sexual harassment prevention and investigation policies and procedures and had abided by them following a claim. CBA argued that this ruling would not only place California businesses at risk of significant financial losses even where they take every precaution to prevent and investigate harassment, but would also place them at a competitive disadvantage with respect to large multi-state employers operating in this state who can avail themselves of more favorable and reasonable federal judicial rules. CBA’s brief was prepared by Patricia Gillette of the law firm of Heller Ehrman.

CBA will also submit a brief to the California Supreme Court urging a reversal of Balser v. Wells Fargo, a case which will decide whether banks and other entities have an absolute or qualified privilege to report crimes. In this case, involving the arrest of a check casher who turned out to be innocent, the appellate court held that the bank could avail itself of the reporting privilege under Civil Code Section 47(b) only if it acted in good faith. Since good faith is a question of fact, banks would be routinely subject to challenges for making police and other reports unless the wrongdoing was obvious and unmistakable. CBA will argue that banks are under increased pressures to cooperate with law enforcement on matters ranging from money laundering to elder abuse prevention, and such a ruling would place banks in an impossible situation. CBA’s brief is being prepared internally by Leland Chan.

Clarification: Thrift Charter Committee Vote

In the February 26 edition of Current Events it was incorrectly reported that the Thrift Committee had voted to oppose increases in the conforming loan ceiling. The Thrift Committee voted to oppose realtor sponsored legislation that would establish separate, high cost ceilings (50 percent higher than the current conforming loan ceiling) in high cost areas of California and a few other states. The Committee did not vote to oppose future adjustments in the conforming loan ceiling that are determined in accordance with current law.