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Current Events - 10/29/2001

CBA Predatory Lending Update

Governor Davis signed two predatory lending bills that will become effective on July 1, 2002. The good news is that the bill has been scaled down considerably from its initial form. It no longer includes million dollar fines and criminal liability, and it applies only to real property secured home loans exceeding specified rates and fees. The bad news is that it does not explicitly preempt local ordinances, and thus will not necessarily curb the passing of local predatory lending ordinances such as the City of Oakland ordinance.

Most commercial depository financial institutions not offering sub-prime consumer loans will not be affected by the new laws. However, banks should be wary of certain provisions that could inadvertently bring them perilously close to the 6% points and fees triggers.

A complete summary of the bills will be available on CBA’s Web site (www.calbankers.com) in the next few weeks.

Washington D.C. Update

Powell Outlines FDIC Position in Brief Hearing — FDIC chairman Donald Powell provided the Corporation’s views to the members of the House Financial Institutions Subcommittee this week. There were no surprises, and the hearing was sparsely attended, in large measure because the money laundering bill was on the House floor at the same time. But the process was also cut short because of the general nervousness that pervaded Capitol Hill in light of the discovery of anthrax, in at least one Senate office building. Other witnesses appearing were not even questioned by subcommittee members.

Powell verified the proposal that was reported in Current Events last week. The reform package would provide an immediate BIF – SAIF merger, authority for FDIC to set the designated reserve ratio, (thus eliminating the 1.25% cliff), resumption of risk–based premium assessments, and indexation of (but no immediate increase to) the basic $100,000 deposit ceiling. Powell did recommend a very large ceiling increase for retirement accounts.

In questioning, Powell said there was precedent for a retirement account ceiling of at least 2.5 times the regular ceiling ($250,000), and he even tossed out the number of $500,000. Subcommittee members, including Chairman Spencer Bachus (R - AL) were disappointed Powell did not recommend higher ceilings for municipal deposits and there were strong hints of an effort to raise these ceilings as well as the legislative process unfolds

FDIC Warns BIG Could Drop Below 1.25% — If there is consternation in the industry over a resumption of premiums, there was none expressed by members of the subcommittee. Powell outlined his proposal that credits for premiums paid by institutions prior to October 1, 1996 could be applied to new premium assessments. Powell said that risk–based premiums were likely to result only in “minor adjustments” to the current system. But, said Powell, no institution is entirely risk free, and all should pay some risk-based premium. Powell and other regulators are expected to testify in the next few weeks in the Senate. The confirmation hearing for Jim Gilleran, the nominee to become Director of OTS was rescheduled for October 23.

A week after new FDIC Chairman Don Powell revealed his position on FDIC restructuring, the FDIC staff helped make his case even stronger by setting forth plausible scenarios under which the BIF ratio could drop to under 1.25% by June 30, 2002. The reason the scenarios are plausible is that there have been heavy inflows in BIF-insured banks all year, and overall deposits have risen at BIF-insured banks by nearly 6.5% in the twelve months that ended June 30, 2001. FDIC says if deposits grow by 7.68% during the next twelve months, the ratio would slip below the 1.25% designated reserve ratio. There are reports of very heavy inflows since the bombing attack on September 11. FDIC does not foresee the SAIF dropping below 1.25% next year, but it could drop below 1.30%.

These forecasts could cause the industry to rally behind Powell’s proposal, which would call for a resumption of risk-based premiums but eliminate the 1.25% “cliff” that currently mandates premiums of at least 23 basis points if the DRR is under 1.25% for at least one year. Powell is not able to control deposit flows, but the facts are clearly breaking in his favor. FDIC made no change in the current premium structure, but the warning that premiums could be resumed in the near future will be heard in the industry.

FDIC also released its long awaited recourse capital rule which had been expected in light of the Superior Bank failure. The complicated rule, which runs more than 100 pages, establishes new requirements on residual interests retained by the issuers of asset backed securities, requiring dollar for dollar capital against so-called interest only strip residuals, which are very common in the case of mortgage backed securities. Interest only strips were considered prime causes of the Superior, Keystone and Pacific Thrift and Loan failures. The final rule goes well beyond residuals, also covering recourse obligations and other forms of derivative securities. All federal regulators are expected to follow suit within the next few days.

Gilleran Nomination Hearing — Former California Bank Superintendent, Jim Gilleran was rescheduled to testify on his OTS Director nomination hearing on October 22, but the Senate Office Building housing the Banking Committee was still closed as a result of the anthrax attack that has hampered Congressional operations for more than a week now. After announcing that the hearing would be postponed again, it was decided to have it in a small hearing room in the Capitol Building itself, one of the buildings that did open again this week. Hardly anyone knew – not even all the Members were notified (because they were difficult to reach with no phone systems operatin) – and the proceedings were perfunctory at best.

Gilleran was asked a few questions by Chairman Sarbanes on the Superior Bank closing and the alleged cost advantage state-chartered banks and thrifts enjoy because they do not pay for their federal examinations (he ducked). He said he needed more information on the question of higher deposit ceilings, but was generally supportive of the FDIC reform package. He was not asked a question about his views on merging OTS with OTC, something that would set off shock waves, at least in the thrift industry.

In another development, the White House has formally nominated Democrats Allan Mendelowitz and Franz Leichter to become full members of the Federal Housing Finance Board. The two are interim FHFB members now, but their terms expire with the adjournment of this session of Congress. These nominations plus the nominations of two Republicans, Shirlee Bowne, a Florida Realtor, and John Korsmo, a North Dakota businessman would bring the FHFB a full slate of board members. By law, two of the five must be members of the minority party. The fifth is the HUD Secretary or his designee. The four nominations are expected to be taken up by the Senate as a package. There is no controversy with respect to any of the nominees.

CBA in the News

The following is a press release distributed by CBA on October 18 addressing the Financial Anti-Terrorism Act of 2001. The distribution of press releases gives CBA visibility with the general and trade press and also keeps our members informed of the many issues CBA is pursuing. If you have any questions about this press release or other media relations activities, please contact Anissa Yates, VP of Communications and Public Relations at 916/441-7377 ext. 214.

California Bankers Applaud Passage of Financial Anti-Terrorism Act
Federal law combats money laundering by terrorists

SACRAMENTO – October 18, 2001 – The California Bankers Association (CBA) today announced its enthusiastic support of Congress’ many actions to deter terrorism, including the Financial Anti-Terrorism Act of 2001, which draws on the many resources of the country’s financial institutions to track the assets of known and suspected terrorists and put an end to their money laundering.

“The actions that Congress is taking to put an end to terrorism are important ones,” said Gary Gertz, president of CBA. “California’s banking industry agrees that financial measures are a critical part of the strategy to end terrorism in this country and around the world. ”

California’s banks are among those working diligently with the federal government to identify the financial accounts of known or suspected terrorists and their supporters and freeze their financial assets upon direction of the federal government.

Information about CBA

Established more than 110 years ago, the California Bankers Association (CBA) is one of the largest state banking trade associations in the country. CBA leads the way in developing relevant educational and legislative solutions to some of California’s more pressing financial and banking issues, including financial privacy, predatory lending, usage fees, and financial elder abuse. CBA’s membership includes more than 300 of California’s commercial, industrial and community banks, and savings associations representing nearly all of California’s FDIC-insured financial institutions.

For further information, visit www.calbankers.com or contact Anissa Yates at 916/441-7377.

Improvements to the Community Reinvestment Act

On October 17, CBA submitted to each of the federal regulatory agencies a comment letter on ways to improve the Community Reinvestment Act. Earlier this year, the agencies issued an advance notice of proposed rulemaking soliciting ideas from the industry. CBA’s comments centered on three main ideas: the need to focus on banks’ actual performance in meeting the credit needs of their communities (rather than on process, reporting, and data collection), to promote consistency in examinations, and to eliminate unnecessary burdens. More specifically, the CBA:

• Reaffirmed the value of the streamlined CRA process for banks with less than $250 million in assets, and requested that the agencies seriously consider increasing the threshold to $1 billion;
• Requested a reassessment of the large bank data collection and reporting requirements to ensure that CRA officers spend most of their time taking actions beneficial to their banks’ local communities rather than preparing for examinations;
• Urged the agencies to broaden the types of investments that would qualify under the investment test, and clarify the investment test guidelines; and
• Recommended that the agencies conduct examiner training and amend the examination guidelines as necessary to make CRA examinations more consistent from one examination to the next, and also among different agencies.

You may view or download CBA’s letter from www.calbankers.com.

Members’ Relief Efforts

In past issues of Current Events, we have invited our members to share with us their efforts to contribute to the relief efforts in New York and Washington, D.C. The contributions of the many members we heard from in the past month are being highlighted in the upcoming issue of California Banker. In addition to those banks included in the California Banker story, CBA would like to recognize both Washington Mutual and Pacific Crest Bank for their efforts. Washington Mutual made a donation of $250,000 to the American Red Cross on the day of the attacks. Also, Pacific Crest Bank and its 75 employees donated more than $15,000 to relief efforts.

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.

Tsy’s Dam:‘Significant’ Strides In Fincl War On Terrorism

10/23/2001
Capital Markets Report
Copyright (c) 2001, Dow Jones & Company, Inc.
by Deborah Laagomarsino

WASHINGTON -(Dow Jones)- U.S. Deputy Treasury Secretary Kenneth Dam said Monday the administration has made “significant progress” to limit Osama bin Laden and the al-Qaida network’s ability to finance terrorism.

Since the Sept. 11 terrorist attacks, 144 countries have joined the effort to disrupt terrorist assets and 70 countries have put blocking orders in place, Dam said in prepared remarks to the Woodrow Wilson International Center for Scholars in Washington.

“This worldwide effort has an important deterrent effect,” Dam said.

Further, since President George W. Bush’s Sept. 24 executive order to block the U.S. assets of 27 individuals and organizations seen as affiliated with the Sept. 11 attacks, another 39 have been added to the list, bringing the total to 66, Dam said.

“As our global investigation continues to unfold, I am confident that more names will be added and more assets will be blocked,” he said.

Dam highlighted several initiatives that the administration is pursuing in its financial war on terrorism.

Since mid-September, a task force comprised of the Treasury’s enforcement and international affairs’ components, the Central Intelligence Agency, the Departments of State and Justice, the Federal Bureau of Investigation, and the National Security Council has been working to identify potential intermediaries of suspected terrorists and their associates, Dam said.

A new Financial Terrorist Asset Tracking Center also is looking at all terrorist organizations worldwide to create a profile of the financial infrastructure of these terrorist groups, he said.

Further, the 31-member Financial Action Task Force, or FATF, has taken a lead in the global fight against money-laundering, and later this month plans to establish international standards for financial institutions on practices associated with financing terrorism, Dam said.

The task force is developing a process, similar to their money-laundering “name and shame” approach, for identifying countries helping to facilitate terrorist financing, he said.

“This will step up global pressure being put on countries who fail to crack down on terrorist financing within their borders,” Dam said.

He added that Congress this week is expected to pass amendments to the Bank Secrecy Act, the Fair Credit Reporting Act and the Right to Financial Privacy Act that allow the broad sharing of terrorist-related information among Treasury’s Financial Crimes Enforcement Network, or FinCen, and U.S. foreign intelligence agencies.

Dam acknowledged that carrying out Bush’s objective to starve the terrorists of funding will be challenging.

Since the mid-90s, bin Laden and al-Qaida have gone to great lengths to transfer and hide their finances in a way that avoids detection, he said.

Front companies are used to transfer funds and some banks help to obscure terrorist money by allowing the transfer of funds from donor to destination, Dam said.

“These illegal and unconventional methods complicate our tracking efforts,” he said.

Even so, the administration’s efforts to date have succeeded in putting terrorists and those who financially support them on notice that “their activities are being scrutinized by investigators in just about everywhere in the world,” Dam said.

Bankers Systems Joins CBA’s Endorsed Vendor Program

CBA members are now eligible to receive exclusive benefits from Bankers Systems, a leading provider of compliance resource solutions for financial institutions and their legal counsel. As a result of this new partnership with Bankers Systems, CBA members will receive special discounts on software license fees, professional services, and technical services.

Designed to assist member banks deal more effectively with various regulatory and compliance tasks, Bankers Systems’ customized package for CBA includes Rembrandt Lending System and TSoft’s FormMaster+ software for loans. Both are guaranteed by the Small Business Adminstration.

These solutions were selected based on their ability to meet or exceed the CBA’s high expectations for quality and service. Before being endorsed, they were thoroughly reviewed and measured against criteria established by the CBA and Bankers Benefits (a division of the CBA).

Through our research, we have determined that Rembrandt Lending is one of the most powerful, full-featured lending systems available for all types of loans, including commercial, consumer and agricultural. Additionally, FormMaster+ is used by 18 out of the top 20 SBA lenders in the U.S., a testimonial to its effectiveness.

Bankers Systems and the CBA will jointly market the solutions to CBA members through newsletters, tradeshows, and promotional materials. CBA members can look for more information in future CBA newsletters or contact Bruce Hagberg, Director of Bankers Systems at (800) 397-2341, ext. 5414 or E-mail bruce.hagberg@bankerssystems.com. or visit www.bankerssystem.com.

First Regional Bank Profiled in ABA’s Bankers News

The following article appeared in the American Bankers Association’s Bankers News. A profile on one of CBA’s members, First Regional Bank in Los Angeles, this is an excellent example of community programs our members are undertaking to benefit not only their customers, but their neighbors in general.

Speaking the Language of Banking
By Susan Cole
Copyright Bankers News 2001

Two banks on opposite sides of the United States are helping new neighbors through consumer education.

First Regional Bank, based in Los Angeles and with assets of $330 million, offers two-hour workshops as part of English as a second language and citizenship classes. Now their fifth year, the workshops are held in conjunction with the Los Angeles Unified School District and are taught by bank employees.

“The program is an overview of the American financial system and explains topics we as citizens take for granted, but new arrivals may not,” said Thomas McCullough, executive vice president and COO. “We go over things such as budgeting, savings, credit reports, types of accounts and how to open a bank account.”

Students receive a binder filled with worksheets, tip sheets and handouts on other subjects such as avoiding identity theft, protecting themselves from predatory lenders and recognizing counterfeit currency. New resident, McCullough explained, are often the targets of counterfeiters, because they are not accustomed to our currency.

While the workshops are taught in English, the bank translates its handouts into several different languages – including Vietnamese, Korean, French, Chinese, Russian, Spanish and Cambodian.

“This isn’t a marketing tool for us, because we’re a business bank,” said McCullough. “We believe that all of us have a responsibility to our community, and we want to make a difference.”

In Newark, Del., Travelers Bank & Trust is also putting out a welcome mat. When the bank realized that the dream of home-ownership was eluding Latino residents because of the language barrier, the bank produced a series of specialized financial education presentations iin Spanish by harnessing the time and talents of bilingual bank employees from Cuba, Mexico, Colombia and Puerto Rico.

The presentations cover topics such as applying for credit, understanding a credit report and emergency savings. The program has been successful and has made many homeownership dreams come true.

Our industry is in a unique position to reach out to all customers and make new neighbors feel right at home.