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Current Events - 09/30/2001

New Advocacy Resources from The Merger

As a result of the merger between CBA and the Western League of Savings Institutions (WLSI), CBA has added two veteran lobbyists to its existing group housed in Sacramento. Ed Levy, who ran the statewide lobbying efforts on behalf of WLSI will be joining the CBA team in Sacramento. Lou Nevins, who led WLSI’s federal lobbying efforts, will become CBA’s federal lobbyist and the organization’s “eyes and ears” in Washington, D.C.

The following story from Lou Nevins, is the first of many submissions we expect to see from both Ed and Lou. Though keenly familiar with our business and the issues we have historically pursued, Ed and Lou are not as familiar with our members. If you get a chance, please pick up the phone and make an introductory call. (Commencing November 1st, Ed can be reached at 916/441-7377 and Lou can currently be reached at 202/737-5113).

FHFB to take Comment on Multiple Membership

The Federal Housing Finance Board (FHFB) this week voted without dissent to solicit comments on the question of multiple Federal Home Loan Bank Memberships, an issue that board member Franz Leichter called, “the most significant remaining issue which the System needs to address.” Once the proposal appears in the Federal Register, commentators will have 90 days in which to respond. Presiding as chairman for the first time during his long FHFB tenure, Tim O’Neill suggested that additional steps in the process could be taken early in 2002. “This (soliciting comment) is the first step in the right direction,” he said. Discussion seemed to indicate that the Board is favorably disposed to allowing multiple membership on some basis, but it also underscored just how complicated, and controversial the issue is. There is no clear-cut statutory authorization for multiple memberships although the Federal Home Loan Bank Act does permit institutions to join a Bank in an “adjoining district, if demanded by convenience.”

The issue was brought to a head when WAMU of California acquired Bank United, the largest member of the Dallas Bank. Bank United will become a branch (series of branches) of the California bank, and is not, therefore, a separate bank headquartered in the Dallas district. The Dallas bank approved WAMU’s application to join the Dallas bank, but it needs the approval of the FHFB. There is no statutory reference to membership in non-adjoining districts, an issue raised by WAMU’s acquisition of Dime Savings of New York. So far, the New York bank has not filed for FHFB approval, but there are two other applications on file. During discussion, Chairman O’Neill indicated the Board could take action on one or more of the applications even before the process on developing a coherent policy and specific regulations had run its course.

There are other problems too. If the Board were to authorize multiple memberships in adjoining districts, the fact is that some large members in the Midwest serve several “adjoining” districts. There could easily be adjoining districts in every direction. Conversely, large institutions operating in one corner or another of the country might be limited to a single adjoining district. Simple geography could cause inequities. The Board indicated it would consider limiting how many district banks a single institution could join. Going a step further, if the Board were inclined to allow memberships in non-adjoining districts to accommodate the acquisition of an institution in a non-adjoining district (like the Dime), what should be the policy with respect to institutions, which establish de novo, branches in non-adjoining districts rather than make acquisitions?

Leichter is right that this is the major policy question left for resolution. It has emerged over a long period of time. As the Board’s staff discussion points out, it is a natural outgrowth of the Reigle Neal Act (authorizing interstate branching) and GLB. It is also a question posed by the sheer size of larger members (occasioned by the massive consolidation which the industry has experienced), and the extent to which their own borrowings constitute huge percentages of System borrowings overall. Those advocating multiple memberships argue that limiting very large borrowers and users to a single Bank concentrates too much risk in one Bank and that it would be better to spread the risk around the System. Opponents say that multiple memberships will inevitably lead to unhealthy competition (on advance rates, dividends or even the amount of mandatory capital) between the Banks that could lead to serious structural problems, especially in an environment where no two Banks will have precisely identical capital requirements for members. Opponents say that large banks will have too much influence over the System if they are able to join more than one bank, even if their voting rights are substantially limited.

The Board has posed a series of questions on which it would like comment. They deal with a number of these issues. They are broken into various categories – those that deal with the current structure of the System and the impact of consolidation, and those that deal with multiple memberships. In all, the Board poses some 17 specific questions. It will keep those interested in the system busy for a while.

Meanwhile, the White House has announced its intention to nominate Shirlee Bowne to become the third Republican member of the FHFB. The President has also stated he wants Bowne to chair the Board. Indications are that the White House, which is seeking full Democratic cooperation with everything it does now, will nominate interim Board members, Alan Mendelowitz and Franz Leichter for full terms, and thereby provide for a full five person Board for the first time in many years.

Bowne, a Floridian, was formerly the Vice-Chairman of the National Credit Union Administration, a position to which the president’s father appointed her. She has been the president of a Tallahassee housing consulting firm since 1997. The Senate would confirm Bowne, along with John Korsmo, Leichter and Mendelowitz, quite likely as a package, later this year. The Senate does not consider separately the question of the chairmanship. The president simply names the Chairman. If all of this does transpire, it would appear that the highly personable Tim O’Neill, the current Chairman, would be the odd man out. O’Neill could well be in line for a Federal job elsewhere.

Members’ Relief Efforts

In the last issue of Current Events, we invited our members to share with us their efforts to contribute to the relief efforts in New York and Washington, D.C. We are pleased to recognize both Cathay Bank and First Credit Bank (West Hollywood) for their contributions.

Cathay Bank has donated $250,000 to the establishment of the “911 Healing Hands” relief fund. In an effort to encourage other members of the Asian-American community to contribute to relief efforts, Cathay has not only established this fund, it is publicizing the fund on a separate Internet site. Contributors to the 911 Healing Hands fund will be able to designate how much of their contribution should be sent to charities hand-picked by Cathay Bank: American Red Cross, Salvation Army, Save the Children and others.

First Credit Bank also made a donation of $1,000 to the American Red Cross in support of its relief efforts in New York and Washington, D.C.

If your bank is involved in these relief efforts, or other community activities, please contact Anissa Yates at 916/441-7377 ext. 214 so that these efforts can be communicated to the rest of the membership.

ABA Urges Creation of Task Force on Financial System Security

ABA’s Executive Vice President Don Ogilvie sent a letter to Treasury Secretary O’Neill urging the creation of a public-private sector task force on the security of the financial system. The letter reads as follows:

“President Bush and the entire Bush Administration deserve great credit for your thoughtful response to the terrorist attacks. The Treasury Department, under your leadership, has done a tremendous job of addressing the critical economic issues resulting from the attacks. ABA has also been working with your team on issues relating to money laundering by terrorists and their supporters. Please know that the ABA and the banking industry stand ready to help in any way in responding to this tragedy.

“In that regard, actions to disrupt the financial system could be a future strategy of the terrorists. The security of the financial system will take on even greater importance at Treasury going forward. The financial industry has taken steps to protect itself and to be able to respond to all types of contingencies – as is shown by the response to the destruction in New York.

“I urge you to consider creating a special public-private sector task force on the security of the financial system, broadly defined…The ABA stands ready to work with the Administration in creating such a task force or any other review of security issues…ABA membership includes 90 percent of the assets in commercial banking and many of the major securities and insurance firms. We could also involve the Financial Services Coordinating Council, which includes all the major associations representing securities and insurance.”

**Please see the insert for information on the freezing of terrorists’ assets as a result of an Executive Order issues by President Bush.**