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Current Events - 11/12/2001

CBA and members participate in Governor Davis’ Economic Summit

In an effort to stimulate California’s flagging economy, Governor Gray Davis invited 40 of the state’s most powerful business leaders to “Partnering for California’s Future: An Economic Summit,” a meeting on November 2 to identify and strategize ways in which California’s businesses could work together to encourage economic growth.

CBA president Gary Gertz attended the meeting and three of CBA’s members were asked to participate in these discussions with the governor: CBA Board Member Robert Flowers, chairman of Washington Mutual; CBA Board Member Kaoru Hayama, chairman of Union Bank of California; and CBA Board Member Russell Goldsmith, chairman of City National Bank. Also asked to participate was Dominic Ng of East West Bank Corp.

House Financial Services clears Internet Gambling Bill

The House Financial Services Committee has approved, for the second time, an Internet-gambling bill that proponents say is necessary to stop terrorists and others from laundering money by means of Internet gambling operations. The legislation was approved first as part of the anti-terrorism bill that has since been passed and sent to the White House. The provision was stripped from the bill before it went to the House floor for final passage. The new bill, which cleared by a vote of 34 – 18 (probably not enough to gain consideration by the full House any time soon), would make it illegal to pay gambling debts by means of a check, credit card or electronic funds transfer. Banks and credit card companies would generally be immune from liability under the bill they would be prohibited from engaging in any financial transactions with individuals or firms if they have actual knowledge that the customer is engaging in prohibited Internet-gambling transactions.

Ginnie Mae securitization of conventional loans introduced in Congress

Hoping to promote additional competition in the secondary market, legislation has been introduced in the House by Rep. Marge Roukema, (R-New Jersey), chairman of the House Housing Subcommittee and in the Senate by Sen. Wayne Allard (R-Colorado), the ranking member of the Senate Housing Subcommittee. Both bills would authorize Ginnie Mae to provide full faith and credit guarantees to mortgage securities backed by conventional, privately insured mortgages. The Senate bill makes loans up to the Fannie – Freddie ceiling with loan to value ratios of between 80 percent and 97 percent eligible for securitization, and all of the mortgage insurance – up to 45 percent of the amount of the mortgage would be underwritten by private mortgage insurers. Under the House version, FHA would provide supplemental insurance of up to 10 percent of the mortgage insurance with private mortgage insurers covering the first trance, up to 35 percent. Otherwise, the two bills are virtually the same.

Ginnie Mae has never suffered a credit loss. Up to now it has guaranteed government-backed mortgages and it receives a 6 bp fee. Its fee could be as high as 8 bp under the legislation, but Ginnie could be exposed to some minimal, if highly improbable, credit losses under the conventional program the legislation would authorize. Obviously, the private mortgage insurance industry strongly supports the legislation, as do major Ginnie Mae originators who see the possibility of much better executions than Fannie and Freddie offer today.

Latest Wal-Mart bid to enter banking business might be rebuffed

ITS appears to be on the verge of denying an application to team Canada’s Toronto-Dominion Bank with Wal-Mart to offer banking products in Wal-Mart facilities throughout the U.S. The problem: Wal-Mart employees would staff the bank. OTS indicated this week that this would be an unlawful combination of banking and commerce under the Gramm-Leach-Bliley Act, which forbids commercial companies from becoming savings and loan holding companies. OTS found that Wal-Mart, not the Toronto-Dominion subsidiary, would control the branches because their employees would man the branches and because of other plans disclosed in the application. However, OTS Director Ellen Seidman appeared to backtrack slightly at a press conference following her appearance at the ACB convention this week when she reportedly indicated the application could be “fixed.” Nevertheless, Gilleran, and not Seidman, would likely be in office if the application is “fixed,” and Democratic Senators questioning Gilleran at his confirmation hearing 10 days ago made no secret of their distaste for the Wal-Mart application. Gilleran, reportedly, assured Chairman Sarbanes and others that he would consult with the Senate committee before taking any affirmative action on the application.

U.S. Appeals Court upholds comptroller in Ohio insurance case

The U.S. Court of Appeals for the Sixth Circuit in Cincinnati has upheld an OCC position that the state of Ohio may not prevent national banks from offering title insurance products and may not require that half the sales of other insurance products be to non-depositors. The decision is a major victory for the banking industry and is the most recent of a series of court victories upholding OCC positions on insurance issues under Gramm Leach Bliley. The Sixth Circuit held squarely that the state of Ohio had no authority to exclude national banks as eligible sellers of title insurance, or to impose barriers on who may be the purchaser of an insurance product offered by a national bank. The Ohio case should send a message to other states contemplating limitations on national banks which wish to offer insurance products.

Bankruptcy conferees to meet next week

In another sign that Congress will not complete its business by Thanksgiving, conferees on the long-stalled bankruptcy bill will meet on November 14, the first meeting of the full conference committee since conferees were appointed. Conference committee chairman James Sensenbrenner scheduled the meeting, but few who follow the issue are optimistic that there will be any breakthroughs this year. The measure has many critics who feel the bill goes too far in protecting the interests of creditors and not far enough in protecting consumers. It has been pending in the Congress for nearly two years. Both the House and the Senate passed bankruptcy legislation in 2000, but differences could not be ironed out then. It was re-passed by the House and Senate again this year, but there are still major differences between the bills. Those differences are not likely to be resolved until next year.

FDIC examiners report increased risk in bank loan portfolios

Every six months, FDIC publishes, on the basis of examiners’ reports, a “Report on Underwriting Practices.” The latest report, covering the period ending September 30, indicates slightly increased risks in several categories, with the largest increases appearing in agricultural lending. Some of the findings in the latest report:

• 6% of supervised banks had high credit risk in their overall loan portfolios, up from 4% six months ago.
• 34% of supervised banks had medium risk in the risk associated with loan administration (the supervision and management of the loan process) up from 31% in the previous period.
• 5% had high risk in current underwriting practices, up from 4%.
• 15% of supervised banks active in agricultural lending either “frequently enough to warrant notice” or “commonly” made agricultural loans on the basis of land values that cannot be supported by farming, up from 10% previously.
• 15% either “frequently” or “commonly” made agricultural loans on the basis of unrealistic cash flow projections, up from 11%.
• 23% of the active farm lenders showed a moderate or sharp increase in the bank’s level of “carryover debt” — that is loans not paid off at the end of the growing season – up from 21% in the preceding period.

FDIC reported slight decreases or no change in other categories – construction lenders “frequently or commonly” making speculative construction loans, commercial real estate lenders “frequently or commonly” making short-term commercial loans with minimal amortization terms and large balloon payments and consumer lenders “commonly or frequently” making loans to borrowers lacking a demonstrable ability to repay.

Mail handling suggestions

For those of you concerned about handling mail safely, the United States Postal Service offers the following guidelines:

What should make me suspect a piece of mail?

• It’s unexpected or from someone you don’t know.
  
• It’s addressed to someone no longer at your address.
  
• It’s handwritten and has no return address or bears one that you can’t confirm is legitimate.
  
• It’s lopsided or lumpy in appearance.
  
• It’s sealed with excessive amounts of tape.
  
• It’s marked with restrictive endorsements such as “personal” or “confidential.”
  
• It has excessive postage.

What should I do with a suspicious piece of mail?

• Don’t handle a letter or package you suspect is contaminated.
  
• Don’t shake it, bump it, or sniff it.
  
• Wash your hands thoroughly with soap and water.
  
• Notify local law enforcement authorities.