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Current Events - 12/10/2001

Senate confirms Gilleran, Kroszner

On November 28, the Senate confirmed James Gilleran to be the Director of the Office of Thrift Supervision for the remainder of the term expiring October 23, 2002. The Senate also confirmed Randall Kroszner to be a member of the Council of Economic Advisors.

Credit union PAC contributions top ABA’s for the first time in history

The Credit Union National Association said its political action committee had its second busiest month ever in October, making a total of $213,339 in campaign expenditures. The monthly figure, second only to the pre-election September 2000 total, put CUNA over the $1 million in campaign contributions for the first 10 months of the two-year election cycle and pushed it ahead of their arch-rival American Bankers Association for the first time. The bankers’ BankPAC, which regularly outspends the credit union’s leading PAC, reporting just under $800,000 in contributions through the first 10 months.

Privacy not a top issue for consumers according to Public Policy Institute of California

The Public Policy Institute of California (PPIC) has released a special edition of the its Statewide Survey that features a slowing economy and growing personal security fears as the top priorities facing the state. According to the survey, Californians currently rate the economy as the most important California issue (18%), followed by terrorism and security issues (14%), the electricity crisis (13%) and education (12%). A similar study held in July, 2001, recorded only five percent of respondents rating the economy as the most pressing problem, while electricity received 56 percent and education 9 percent.

More credit unions abandon federal charters for state charters

According to credit union industry publications, 11 credit unions have applied to convert from a federal charter to a state charter this year. In the past six years, 67 credit unions have applied to “convert” – 58 had their applications approved. The state charter is much less restrictive and allows state-chartered credit unions to offer more services than federally-chartered ones, and also has fewer compliance regulations than the federal charter.

Senator urges increased contact with elected officials

Twenty-one bank CEOs and executives met November 26 and 27 with Sen. Mike Machado (D-Linden), chairman of the State Senate Committee on Banking, Commerce and International Trade. CBA arranged these meetings with Sen. Machado to give bankers an opportunity to discuss legislative issues and the state’s economy with one of the key policy makers in the California State Legislature. Among the issues discussed with the senator were credit union expansion, privacy and the predatory lending legislation that Gov. Davis recently signed into law.

Sen. Machado encouraged CBA members to become more active on the privacy issue, suggesting that members contact their elected officials and engage them in the privacy debate. That Machado would make such a recommendation should serve as a heady reminder since the Speier bill (SB 773) will be taken up again this year.

On the issue of predatory lending, many bankers voiced their concern that, as a result of the legislation just signed into law by Gov. Davis, the use of in-house appraisers could impact the APR calculations for banks. This, in turn, may force some banks into non-compliance with the legislation. The senator stated that the California Legislature did not intend to turn lenders into “predators” because they use in-house appraisers. (Banks with in-house appraisers should check their parameters to confirm that their practices are in compliance with the law, as recommended in our Regulatory Compliance Bulletin.)

Terrorist insurance package approved by House

The Senate is struggling to reach a compromise on legislation that would allow the federal government to back stop losses that are beyond the capacity of the insurance industry. Several different senators have introduced bills, and Majority Leader Daschle is said to be brokering a compromise between them, under which he would draft legislation which would go straight to the Senate Floor.

The House passed a Terrorist Insurance bill last week that would require the industry to pay back, over time, any losses absorbed by the government. But the legislation would also severely limit the extent to which tort claims could be brought against property owners or employers for alleged acts of negligence or insufficient procedures for mitigation of damages in the case of terrorist attacks. The Senate version is likely to permit private actions and it is also likely not to require repayment of claims paid by the government.

The tort reform issue is the most contentious issue in the bill, although both parties say an agreement will be reached before Congress breaks for the Christmas holidays. The stakes are very high because there is increasing concern that there will be disruptions in coverage for acts of terrorism. Banking groups, including the CBA are strongly supporting legislation but are steering clear of the highly partisan squabbles on the tort reform issue

Fallout from Enron?

There will inevitably be political fallout from the Enron debacle. Workers have lost entire retirement savings plans, investors suffered unprecedented losses and energy markets were thrown into turmoil. Two House financial services subcommittees have already scheduled a joint hearing on December 12. SEC Chairman Harvey Pitt will be a witness and he will doubtless be asked many questions, including some concerning the role played by Enron’s accountants and auditors.

What does not appear likely though, despite some reports from Washington insiders, is any re-examination of the Gramm-Leach-Bliley Act that authorizes affiliation between commercial and investment banking firms. Fingers have been pointed that two large New York City money center banks would have had lead roles in the ill-fated Dynergy - Enron merger, because of their willingness to make loans to a cash-starved Enron. One major investment firm without a banking affiliation was reported to have been miffed that it had no chance at obtaining the investment banking business. Despite the speculation, there is no sign that Congress, or its committees with financial institutions jurisdiction, have any plans to revisit the issue.