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Current Events - 11/05/2001

CBAFDIC chairman says that banks can lead economic recovery

At a recent online convention for the American Bankers Association, FDIC chairman Don Powell indicated that banks are “well-positioned to be engines of recovery from last month’s terrorist attacks” and that the industry is as strong, or stronger than it has ever been.

Powell’s remarks are particularly welcome, as the country struggles to find indications that the American economy is healthy and strong. For those of you making presentations or speeches in the near future, Powell’s remarks may serve as a useful resource. To access Powell’s full remarks, visit www.abaconvention2001.com.

Senate hearing on expanded retirement account coverage

Last week, the Senate Financial Institutions Subcommittee held a hearing on the subject of expanded deposit insurance coverage on IRA and other retirement savings accounts. FDIC chairman Don Powell sent a signal to Congress two weeks ago when he indicated that he would support a significant increase (to at least $250,000) in the ceiling for retirement accounts. No other regulator or Bush administration official has supported any increase in the existing deposit insurance ceilings. It is likely that Powell is offering the retirement ceiling increase as a means of deflecting some of the pressure to increase all ceilings. (Powell favors indexation but no immediate increase for other accounts.) Powell’s desire to increase retirement ceilings are shared by the Subcommittee’s chair Tim Johnson (D-South Dakota), who is expected to take full advantage of Powell’s testimony to ensure the outcome he wants.

Financial institution fee survey from U.S. Public Interest Research Group

The following are excerpts from a Dow Jones News Service report on November 1 regarding a recent study by U.S. PIRG. This should serve as a reminder to us all about the challenges the banking industry faces in re-establishing and enhancing its public reputation.

“Consumers, who struggle to maintain minimum bank balances, pay an average of $228 a year in bank fees, according to a study on consumer bank fees released Thursday. Large bank customers are hit the hardest when their balances fall below the minimum required for regular checking accounts, paying around $266 in miscellaneous fees. Credit unions charges the least fees to those customers, averaging $101 a year, according to the study of 521 banks and 144 credit unions conducted by U.S. Public Interest Research Group or U.S. PIRG…

“‘When it comes to nickel-and-diming consumers with new fees for this and higher fees for that, big banks are leading the way,’ said Ed Mierzwinski, consumer advocate for U.S. PIRG. ‘Banks increase fees, they invent new fees, and they make it harder to avoid fees. In the end, consumers pay more and more.’”

For a full copy of this article, please contact Anissa Yates at 916/441-7377 ext. 214 or ayates@calbankers.com.

Ney may get letter from Ashcroft on privacy pre-emption

The banking industry would be a beneficiary of continuing efforts to fend off terrorism if Attorney General John Ashcroft recommends the pre-emption of state and local laws to expand customer privacy rights. Rep. Bob Ney (R-Ohio) has introduced HR 3068 to pre-empt states and municipalities from enacting privacy legislation acting beyond the Gramm-Leach-Bliley Act and has asked Ashcroft to weigh in with his opinion. Ney is hoping for an official letter from Ashcroft shortly. Even if a federal pre-emption is not secured, a letter from Ashcroft would be helpful in fighting the issue in states like California where information sharing has been a high profile issue with decision-makers.

OTS proposes expanded small business, agricultural loan limits

OTS director Ellen Seidman has proposed a doubling of limits applicable to small business borrowers from $1 million to $2 million. OTS also proposes an increase in the agricultural loan limit from $500,000 to $2 million. The proposal will be subject to a 30-day comment period. Seidman’s successor John Gilleran – whose appointment should be confirmed shortly – would ultimately approve the regulation.

The proposal would help thrifts that are approaching their qualified thrift lender (QTL) limits. While thrifts may not invest more than 10 percent of their assets in commercial loans, small business and agricultural loans are counted separately. Currently, commercial loans in excess of $1 million and agricultural loans in excess of $500,000 are considered to be business loans.

The OTS recently stated that individual institutions have considerable latitude in classifying loans to comply with various ceilings, allowing institutions to assign loans to different categories to fulfill different regulatory obligations.

Delays in terrorist insurance package

Because many casualty insurance companies have indicated that they will exclude acts of terrorism from policies issued or renewed after January 1, 2002, the government is looking for way to provide a federal “backstop” for the eventuality. But no one in Congress can agree on exactly what the solution should or will be.

The White House disagrees with Congress, the House disagrees with the Senate, and Democrats disagree with Republicans. Even various committees are duking it out, as is the case with the Senate Commerce Committee and the Senate Banking Committee. The Commerce Committee’s chair Fritz Hollings (D-South Carolina) decided to draft his own bill when he found out that Banking Committee members Dodd (D-Connecticut), Sarbanes (D-Maryland) and Gramm (R-Texas) were negotiating the terms of a federal backstop bill with the White House without his participation.

The differences center around the amount of the deductible (the precise level at which government would provide backup coverage), and whether it ought to be paid back over time. The Senate Banking Committee plan would provide federal back up at losses in excess of $10 billion, but would not necessarily require any sort of reimbursement. House leaders believe that a $10 billion threshold is too high, and would provide backup coverage at levels as low as $1 billion. However, House leaders Baker (R-Louisiana) and Oxley (R-Ohio) want assurances that government payments will be reimbursed if they become necessary. They would insist on a requirement that recipients of insurance claims pay surcharges in the case of very expensive disasters.

Ironically, many in the financial services industry, including some bankers, have been pushing for many years, for a federally-backstopped reinsurance program for natural disasters such as catastrophic earthquakes and hurricanes where adequate coverage has been virtually unobtainable for many years. The events of September 11 have convinced national leaders that the federal government must play a role if businesses and homeowners are to be protected against acts of terrorists.

Nonetheless, banks have a keen interest in the outcome. Business and home mortgage lenders would have considerable exposure if acts of terrorism were excluded from insurance coverage. Also, there is considerable difficulty defining what an act of terrorism is and banks’ risks could increase dramatically if this issue is not resolved.

Malaga Bank founder Eric Allan dies

Eric Allan, the founder of Malaga Bank in Palos Verdes Estates, died on October 17. Many of CBA’s members knew Eric and of his many contributions to the banking industry and his community. He will be remembered for his pioneering spirit, his commitment to excellence and his enthusiasm for all of his endeavors. In addition to founding Malaga Bank, Allan also founded the Palos Verdes Concours d’Elegance, a showcase for antique automobiles.

Memorial donations may be made to either the American Cancer Society or the Torrance Trinity Kids Care.