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Current Events - 08/14/2000

The Three Rules of Politics — Well, the Republicans have had their quadrennial public party and the Democrats are about to invite themselves into our living rooms for theirs.  The political and media ramifications of these events have clearly diminished over time, but I think the entertainment value for those who attend has gone up considerably.  I may have to get a ticket next time.  Better yet would be a ringside seat to that ultimate professional wrestling match, the Reform Party Convention!  Soon Congress and the Legislature will be out en masse for the campaign season.  In mind and spirit I wonder if they’re already there, bringing to mind the three age-old rules of politics: Rule 1 — Get elected.  Rule 2 — Get reelected.  Rule 3 — Let absolutely nothing interfere with Rules 1 and 2!  We’ll get to see all of these rules in practice in the coming months.  Brace yourselves.

Just Do It — That’s right, the Nike slogan.  This time it also refers to our unheeded pleas to the City of Santa Monica.  The judge ordered them on June 30 to repeal the private enforcement provisions of their ATM access-fee banning ordinance.  As you will recall, the matter was not even set for the public portion of their July 11 city council meeting.  We agreed to forego a contempt motion at that time because they said they would likely seek clarification from judge Walker on what he meant by directing them to “suspend” their ordinance.  Well, instead of seeking clarification they filed an appeal and then passed a resolution purporting to repeal the private enforcement provisions of their ordinance.  We had strongly urged them to pass an ordinance to do this.  You see, a resolution is just a ministerial act, while an ordinance is law.  It requires a greater degree of formality, publication, and signing than a mere resolution.  And the case law makes it clear that you cannot repeal an ordinance with a resolution.  Because of the history and delays behind all of this and because of the inadequacy of their actions, we have sought a contempt order against Santa Monica in federal court (August 17 hearing date) to force them to finally comply with the judge’s order.  Once they do that, banks will open up ATMs to all citizens and visitors to Santa Monica again.  But when you face damages of $250 per transaction (plus potential punitive damages of $5000) for charging a $1.50 access fee, the repeal had better be done correctly.  That’s all we ask.  Pass an ordinance to repeal an ordinance.  Just do it!

Internal Audits and the OCC — Comptroller John Hawke has emphasized the importance of audit and internal control programs for banks, pointing to some recent examinations finding deficiencies in these areas at many banks.  Hawke is on record saying the OCC is making effective internal controls in banks one of its top priorities for the year.  According to the OCC, the primary objectives of internal audits are to independently and objectively:
 

• evaluate accounting, operating, and administrative controls;

• ensure that internal controls result in accurate recording of transactions and proper safeguarding of assets; and

• determine whether the bank is complying with laws and regulations and adhering to bank policies.

The corresponding primary objectives of external audits are to provide the board of directors and management with:
 

• reasonable assurance about the effectiveness of internal controls over financial reporting, the accuracy and timeliness in recording transactions, and the accuracy and completeness of financial and regulatory reports;

• an independent, objective view of the bank’s activities; and

• information useful in maintaining a bank’s risk management process.

As they say, forewarned is forearmed.

Mea culpa — Last time I included a wonderful letter from Judy Reinartz at the Bank of Santa Clara as she retires from banking.  However, I mistakenly told you that her husband, Ron Reinartz, was retiring as well.  Nothing could be further from the truth and I apologize for printing the error which undoubtedly caused heartburn at the bank and resulted in panicked calls of alarm from his friends.  Sorry, Ron.

Finally, a bit of fun — it has been some time since we had a funny anecdote in this publication.  It’s about time for another one.  This is even more enjoyable because it is true!  Many thanks to Meg Troughton at Bank of America for passing this one along.  It is an amusing story of a loan application, illustrating why at least some regulators are unrealistic!  Enjoy!  Remember, this is an actual case.

A New Orleans lawyer sought an FHA loan for a client. He was told the loan would be granted if he could prove satisfactory title to a parcel of property being offered as collateral.  The title to the property dated back to 1803, which took the lawyer 3 months to track down. After sending the information to the FHA, he received the following reply (actual letter):
 

“Upon review of your letter adjoining your client’s loan application, we note that the request is supported by an Abstract of Title.  While we compliment the able manner in which you have prepared and presented an application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear title back to its origin.”

Annoyed, the lawyer responded as follows (again, this is the actual letter):
 

“Your letter regarding title in Case 189156 has been received. I note that you wish to have title extended further than the 194 years covered by the present application. I was unaware that any educated person in this country, particularly those working in the property area, would not know that Louisiana was purchased by the U.S. from France in 1803, the year of origin identified in our application. For the edification of uninformed FHA bureaucrats, the title to land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The land came into possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by then reigning monarch, Isabella. The good queen, being a pious woman and careful about titles, almost as much as the FHA, took the precaution of securing the blessing of the Pope before she sold  her jewels to fund Columbus’ expedition.  Now the Pope, as I’m sure you know, is the emissary of Jesus Christ, the Son of God. And God, it is commonly accepted, created this world. Therefore, I believe it is safe to presume that He also made that part of the world called Louisiana. He, therefore, would be the owner of origin. I hope to hell you find His original claim to be satisfactory. Now, may we have our damn loan?”
 

They got it.
 

Chris Chenoweth
CBA COO & General Counsel
On behalf of the entire staff
08/14/00