Contact:  Michael Stevens

July 2, 2009 FDIC Announces Settlement Over Convenience Check Program
FDIC on July 1 announced a $250,000 settlement with American Express Centurion Bank, Salt Lake City, for unfair practices concerning convenience checks. As part of the settlement, the bank and its affiliated thrift institution will reimburse more than 14,000 convenience check users for possible bounced check fees. FDIC said the bank’s policy of declining to pay some convenience checks sent to card members was not disclosed properly and caused consumers to be charged returned check fees. The settlement requires the bank to: adopt procedures for reviewing credit limits prior to marketing and issuing convenience checks; provide clear disclosure of a customer's established credit limit in convenience check offers and specific marketing materials; and adopt procedures proposed by the bank to give customers the option of obtaining preauthorization to use convenience checks for a specific dollar amount within a specified period of time. The bank agreed to: reimburse affected customers $160 per dishonored check; set up procedures to handle proven damage claims in excess of the reimbursement amount; and send a letter for customers to use with creditors to clear up any negative information reported to a check system or credit reporting agencies as a result of the dishonored checks. American Express Centurion Bank did not admit or deny any liability. "The settlement demonstrates the FDIC's commitment to protecting customers of insured depository institutions from unfair or deceptive practices," said FDIC Board member Thomas J. Curry.  The Office of Thrift Supervision took separate action against another subsidiary of American Express for the same unfair practices. More information
 
July 2, 2009 HUD Expands Loan Modification Program, Deploys Response Teams
Housing and Urban Development Secretary Shaun Donovan announced an expansion of the Obama Administration's Home Affordable Refinance Program to include participation by borrowers who are current, but up to 125 percent underwater on their mortgages. The Federal Housing Finance Agency also approved Fannie Mae and Freddie Mac to use the Home Affordable Refinance program for borrowers whose mortgages are currently owned or guaranteed by the companies. "This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market," said Treasury Secretary Tim Geithner.  Before the announcement, only those borrowers whose first mortgages did not exceed 105 percent of the current market value of the properties were eligible for the program. Donovan also announced plans to deploy HUD Foreclosure Rapid Response Teams to assess the areas hardest hit by foreclosure, starting in Las Vegas. The Las Vegas team will determine the needs in Nevada and in surrounding areas based on delinquency rate data and listening sessions with local stakeholders, such as housing counseling agencies, lenders, and members of the public. Based on the team's assessment, HUD will commit two full-time employees to implement their recommendations. Additionally, HUD plans to deploy two fair housing equal opportunity specialists to the Las Vegas HUD office to conduct outreach and education locally, receive discrimination complaints and aid investigations. More information 
 
July 2, 2009 Regulators Issue New Rules for Credit Data; Propose Expansion
Federal financial institution regulators issued final rules on July 1 governing the accuracy and integrity of the information about consumers that is provided to credit reporting agencies. The rules require those providing information to credit reporting agencies to establish reasonable policies and procedures for adopting the guidelines. The rules also cover  the circumstances under which a furnisher must reinvestigate disputes about the accuracy of information contained in a consumer report based on a direct request from a consumer. Under the rules, organizations that provide information to credit agencies generally must include a consumer’s credit limit. The rules take effect on July 1, 2010. The federal agencies also proposed for comment a plan to identify possible additions to the information furnishers must provide to consumer reporting agencies, such as the account opening date. The deadline for comments on the plan is Aug. 31. The agencies issuing the final rules and proposal are: the Federal Reserve, FDIC, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. More information 
 
July 2, 2009 FASB Adopts Codification for Accounting Standards
The Financial Accounting Standards Board on July 1 launched the FASB Accounting Standards CodificationTM as the single source of authoritative nongovernmental U.S. generally accepted accounting principles. The codification is effective for interim and annual periods ending after Sept. 15, 2009. All existing accounting standards documents are superseded. All other accounting literature not included in the codification will not be authoritative, FASB said. The codification reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. It also includes relevant Securities and Exchange Commission guidance that follows the same topical structure in separate sections in the codification. To prepare constituents for the change, FASB has provided a number of online tools and training resources. More information

July 1, 2009 Obama Administration Offers Bill to Create New Consumer Agency
The Obama Administration on June 30 officially unveiled legislation to create the Consumer Protection Agency. The agency would have five members with four appointed by the president and confirmed by the Senate. One of the members would be the national bank supervisor. The agency would have broad authority to protect consumers of credit, savings, payment and other consumer financial products and services, and to regulate all providers of such products and services. The agency would have full authority to create consistent standards and enforcement for banks and nonbanks.  However, the agency’s rules would serve as a floor, not a ceiling with respect to state laws, and states would be able to enforce their rules. Some of the responsibilities of the agency would be: writing rules and implementing existing laws for consumer protection, including rules for unregulated and lightly regulated institutions; supervising and examining institutions to ensure compliance; enforcing compliance; and evaluating the costs and benefits of each newly enacted regulation no more than five years after the rule takes effect and making adjustments as necessary. In reaction to the announcement, House Financial Services Committee Chairman Barney Frank (D-Mass.) said his committee should be able to draft and approve a bill before the August recess. More information

July 1, 2009 OCC, OTS Report on Mortgage Delinquencies, Foreclosures
Delinquencies and foreclosures on first-lien mortgages continued to increase during the first quarter of this year, but significant loan modifications also increased, according to a report published on June 30 by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The report is based on data from loan servicing companies that manage 64 percent of all first-lien U.S. mortgages. The report said 185,156 new loan modifications were made in the first quarter, an increase of 55 percent from the previous quarter, and up 172 percent from the first quarter of 2008. More than half of the modifications in the first quarter resulted in lower monthly principal and interest payments as servicers focused on achieving more sustainable mortgage payments. The regulators said six months after modifications, only 24 percent of the mortgages that had monthly payments reduced by 20 percent or more were 60 or more days past due, compared with 54 percent of mortgages with monthly payments left unchanged, and 50 percent with higher monthly payments. Other statistics for the quarter included: seriously delinquent prime mortgages increased to 2.9 percent, a rise of more than 20 percent from the previous quarter; and 2.5 percent of the mortgages were in the foreclosure process, up 22 percent from the previous quarter. More information

July 1, 2009 BIS Seeks Financial System Reform to Promote Stable Growth
The Bank for International Settlements issued an annual report saying the repair of the financial system is essential. The report noted that a healthy financial system is a precondition for stable, long-term growth. The report called for policies that will: strike a balance between short-term stimulus and well articulated exit strategies that ensure long-term sustainability; allow the financial sector to shrink as borrowers reduce their leverage; and  promote a shift in production patterns away from export- and leverage-led growth models toward more balanced ones. In the financial sector, the report called for reform of financial instruments, markets and institutions. For instruments, the report said a mechanism needs to be created to rate their safety, limit their availability and provide warnings about their suitability and risks. For markets, the report called for encouraging trading and clearing through central counterparties and exchanges. For institutions, the report advocated enhanced prudential standards that integrate a system-wide perspective. The report urged regulators and supervisors to adopt a macroprudential orientation and focus on the stability of the system as a whole. More information

June 30, 2009 U.S. Supreme Court Upholds State Enforcement of State Laws
The U.S. Supreme Court issued a 5-4 ruling on June 29 saying that the Office of the Comptroller of the Currency’s regulations on preemption of state laws went beyond legitimate interpretation in prohibiting ordinary enforcement of state laws for national banks. In the case, Cuomo vs. Clearing House, the New York Attorney General had sent letters to national banks requesting nonpublic information about their lending practices to enforce state fair lending laws. The attorney general was sued with the Office of the Comptroller of the Currency and banks arguing that the National Bank Act prohibited such state action against national banks. In an opinion written by Justice Antonin Scalia, a majority of the court found that while a state may not exercise visitation powers over a national bank, the state may conduct ordinary enforcement of laws that have not been preempted. “In sum, the unmistakable and utterly consistent teaching of our jurisprudence, both before and after enactment of the National Bank Act, is that a sovereign's ‘visitorial powers’ and its power to enforce the law are two different things. There is not a credible argument to the contrary. And contrary to what the Comptroller's regulation says, the National Bank Act preempts only the former,” the majority said. The court ruled that attorney general could not send letters with the threat of action for noncompliance, but could bring a law enforcement action. The Conference of State Bank Supervisors President and Chief Executive Officer Neil Milner praised that decision saying it acknowledged and endorsed the vital role states authorities have in providing financial consumer protection. “This decision will reverse OCC policies that threatened the dual banking system, negatively impacted consumers and homeowners, and had adverse consequences for local and regional communities, as well as the nation’s economy as a whole. Statements that state enforcement is an inconsistent ‘patchwork quilt’ are unfounded and were effectively deemed unconvincing by the court’s decision today,” Milner said. The dissenting opinion written by Justice Clarence Thomas said the meaning of “visitorial powers” was ambiguous in the law and OCC made a reasonable interpretation that should be given deference by the court. More information

June 30, 2009 Regulatory Agencies Publish Interstate Ratios for 2009
Three federal banking regulators issued host state loan-to-deposit ratios for 2009 on Monday that they will be used to determine compliance with provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act. The law prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. It also prohibits branches of banks controlled by out-of-state bank holding companies from operating primarily for the purpose of deposit production. The law provides a two-step process to test compliance that is used by FDIC, the Federal Reserve and the Office of the Comptroller of Currency. More information

June 30, 2009 GAO Finds Compliance Issues for Reverse Mortgages
The General Accountability Office told Congress in a report that federal regulators need to strengthen and enhance oversight of reverse mortgages. Reverse mortgages provide a source of income to older homeowners by allowing them to tap the equity in their homes without having to sell or move out of their homes. GAO said its review of marketing materials for reverse mortgages found claims that were potentially misleading because they were inaccurate, incomplete or employed questionable sales tactics. GAO also conducted an undercover review of 15 counseling sessions on the product and found that none of the sessions covered all the topics required by the Department of Housing and Urban Development. The report said the sessions generally conveyed accurate and useful information, but left some information out. For example, seven of the 15 counselors did not discuss required information on alternatives to the product. GAO suggested that the agencies might use the Federal Financial Institutions Examination Council to develop guidance for examiners on marketing issues for reverse mortgages. More information 

June 26, 2009 Federal Reserve Extends, Alters Liquidity Programs
The Federal Reserve on June 25 announced extensions of and modifications to a number of its liquidity programs to reflect market conditions. The Fed extended through Feb. 1, 2010, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The expiration date for the Term Asset-Backed Securities Loan Facility remains Dec. 31, 2009. The Term Auction Facility does not have a fixed expiration date, the agency said. The Fed also announced changes to certain liquidity programs in light of the improvement in financial conditions and reduction in use of some facilities. Specifically, the Fed trimmed the size of upcoming Term Auction Facility auctions because the amount of credit extended under that facility has been well below the offered amount. Due to weak demand, the Fed suspended Term Securities Lending Facility Schedule 1 auctions and TSLF Options Program auctions. The frequency of Schedule 2 TSLF auctions will be reduced to one every four weeks and the offered amount will be reduced. The Fed did not extend the authorization for the Money Market Investor Funding Facility, and the agency established additional administrative criterion for use of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The Fed reduced the amounts auctioned at the biweekly auctions of Term Auction Facility funds to $125 billion from $150 billion, effective with the July 13 auction. The Fed also extended the dollar liquidity swap arrangements through Feb. 1 with other central banks. More information
 
June 26, 2009 SEC Proposes New Regulations for Mutual Funds
The Securities and Exchange Commission issued proposed rules for comment on June 24 to strengthen the regulatory framework for money market funds, to increase their resilience to economic stresses and to reduce the risks of runs on the funds. The proposal would require money market funds to maintain a portion of their portfolios in highly liquid investments, reduce their exposure to long-term debt, and limit their investments to only the highest quality portfolio securities. The proposals also would require the monthly reporting of portfolio holdings, and allow the suspension of redemptions if a fund "breaks the buck" so that its net asset value falls below $1 per share. Some of the changes include: shortening the weighted average maturity limits for money market fund portfolios to 60 days from 90 days; requiring funds to stress test fund portfolios periodically to determine whether the funds can withstand market turbulence, and requiring money market funds to have certain minimum percentages of their assets in cash or securities that may be readily converted to cash, to pay redeeming investors. SEC also is seeking comments on other issues, such as the role of credit rating agencies in money market fund regulation. The proposal has a 60-day comment period. More information

June 25, 2009 House Panel Considers Oversight of Consumer Financial Products
Investors and consumers have been harmed when the states have been preempted from protecting their interests, Massachusetts Secretary William F. Galvin told the House Financial Services Committee on June 24. Galvin was one of 13 people appearing at the hearing on the regulation of consumer financial products.  He told the lawmakers that the areas where state laws have been preempted have been the focus points of the current financial crisis. Speaking on his role as the regulator of securities for the state, Galvin said “states remain the regulators that are closest to the investing public and they have demonstrated they can respond quickly and effectively to help investors.” He also noted that the states have a good track record of coordinating effectively with the Securities and Exchange Commission and other regulators. While supporting the idea of a consumer protection agency, Galvin said states should not be subject to it or any federal body. While many witnesses supported the idea of a separate consumer protection agency, objections also were raised. American Bankers Association President and CEO Edward L. Yingling said it would be a “mistake to separate the regulation of an institution from the regulation of its products.” He said that separating consumer protection from safety and soundness would lead to conflicts, duplication and inconsistent rules. Former Office of Thrift Supervision Director Ellen Seidman told the lawmakers that federal and state banking regulatory agencies should retain primary supervisory responsibility for consumer protection as well as safety and soundness. More information 

June 24, 2009 FDIC Offers 2 Alternative Endings for Deposit Guarantee Program
FDIC on June 23 proposed two alternative ways to end the Transaction Account Guarantee program. The program provides for an unlimited FDIC guarantee for deposits in qualifying noninterest-bearing transaction accounts maintained at insured depository institutions participating in the program. Under the first proposal, FDIC's guarantee would expire on Dec. 31, 2009, as currently scheduled. There would be no increase in fees for this coverage. Under the second plan, the program would be extended until June 30, 2010, with an increase in annual fees from 10 basis points to 25 basis points during the proposed extension period. The second plan also would provide participating banks with a one-time opportunity to opt out of the extended guarantee program on or before Oct. 31, 2009. Banks that choose not to continue in the program would be required to notify their customers that, beginning on Jan. 1, 2010, deposits in qualifying noninterest-bearing transaction accounts would not be covered by FDIC beyond standard deposit insurance limits. FDIC said banks that remain in the program might need to modify their disclosures to alert depositors of the extended expiration date. The plan was issued for a 30-day comment period. More information 
 
June 24, 2009 FDIC Adopts New Rules for Independent Audits
FDIC adopted new rules for annual independent audit and reporting requirements that apply to insured institutions with assets of $500 million or more on June 23. The agency said the revisions reflect changes in the industry; certain audit, reporting, and audit committee practices incorporated in the Sarbanes-Oxley Act of 2002; and FDIC’s experience in administering the requirement. The new rules require disclosure of the internal control framework and identified material weaknesses; provide relief from reporting for certain merged institutions; provide relief from reporting on internal control for acquired businesses; require management’s assessment of compliance with laws and regulations to disclose any noncompliance; and provide illustrative management reports. The rules clarify the independence standards for accountants; require certain communications to audit committees; and establish a uniform retention requirement for audit working papers. The rules also specify audit committee’s duties regarding the independent public accountant; require audit committees to ensure that audit engagement letters do not contain unsafe and unsound limitation of liability provisions; and require boards of directors to develop and apply written criteria for evaluating audit committee members’ independence. The rules take effect 30 days after publication in the Federal Register. More information 
 
June 24, 2009 FDIC Approves 3 Joint Actions on CRA, Capital, Liquidity Risks
At a board meeting on June 23, FDIC approved three joint regulatory plans to amend the Community Reinvestment Act rules, to set interagency interim rules on the capital risk weight of modified mortgage loans, and to provide guidance on liquidity risk management. Under the CRA plan, banks would be given CRA credit for providing low-cost education loans to low-income borrowers. Another change would give banks CRA credit for their activities in support of minority- and women-owned financial institutions and low-income credit unions in such areas loan participations, investments and other ventures. For loan modifications made under the Treasury Department’s Making Home Affordable program, the interim rules would retain the risk weight assigned to the loans before the modifications, if the loans continue to meet other criteria. The liquidity risk management guidance reflects the liquidity risk management and supervision principles adopted by the Basel Committee on Banking Supervision. While the Basel document focused on large, internationally activity financial institutions, the joint U.S. guidance would apply to financial institutions of all sizes, including credit unions. The guidance has a 60-day comment period and also must be approved by the Conference of State Bank Supervisors, the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration. The other two joint actions will have 30-day comment periods. More information

June 23, 2009 Lender Pays $9 Million in Multi-State Settlement
The Massachusetts Division of Banks announced a $9 million multi-state settlement with Taylor, Bean & Whitaker Mortgage Corp. over its mortgage lending practices for “nontraditional” loans made in 2006.  In addition to the $9 million to assist 14 jurisdictions in their oversight of mortgage origination practices, the agreement calls for the firm to do a detailed review of nontraditional loans and adopt the federal loan modification program. A coordinated state examination of the company found that many of these nontraditional products violated TBW’s underwriting standards, compliance and risk management practices, and internal control procedures. Some of the alleged practices included the multiple submissions of loan applications by third-party originators through automated underwriting programs resulting in altered income and asset information for prospective borrowers to qualify applicants for mortgage loans.  Concern over these practices led TBW to stop offering nontraditional mortgages in early 2007 and to make other changes to its internal control processes. Half of the $9 million payment will be apportioned equally to the 14 jurisdictions that completed the multi-state examination. The remaining monies will be dedicated to the ongoing development and maintenance costs of the Nationwide Mortgage Licensing System.  State banking and mortgage regulators developed the NMLS to create greater transparency and protection for consumers, detect and reduce mortgage fraud, and streamline licensing requirements for regulators and the mortgage industry. The mortgage regulators included in the settlement were from: Arizona, the District of Columbia, Florida, Georgia, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, North Carolina, Pennsylvania and Vermont. More information
 
June 23, 2009 CSBS Seeks Extension of Guarantee Program for Transaction Accounts
The Conference of State Bank Supervisors on June 21 called on FDIC and others to extend the Temporary Liquidity Guarantee Program that provides coverage for non-interest bearing transaction accounts. In a letter to FDIC Chairman Sheila C. Bair, Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, CSBS President and CEO Neil Milner said the program has done more to stabilize the banking industry and enhance public confidence than any other program. "This has been particularly important for community and regional banks, which may not have as many capital and liquidity options as the nation’s largest institutions and have not been deemed systemically important to warrant extraordinary public assistance," Milner said. While the financial system appears to be stabilizing, banks and the markets are still vulnerable and the program is critical to maintaining public confidence during this period of continued uncertainty, he said. The program was launched in November 2008, following a determination of systemic risk by Treasury based on a recommendation from FDIC and the Federal Reserve. CSBS encouraged Treasury and the agencies to act on the extension well before the current expiration date of Dec. 21, 2009. More information

June 22, 2009 FDIC Issues Warning About Third Party CDs
FDIC warned banks on June 19 about receiving unsolicited deposits through third-party referrals promising above market rates on certificates of deposits. FDIC said certain insurance companies and other financial services firms are advertising above-market CDs to attract customers. When a customer buys the advertised CD, the customer is referred to the Web site of an FDIC-insured institution with the third party "making up" the difference between the insured institution's actual rate and the advertised above-market rate. FDIC warned that this practice may cause a contradiction with the terms in the insured institution's Truth-in-Savings disclosures. In some cases, these third parties have used the FDIC official sign, seal, logo, or similar representations in connection with these offers. The regulator said banks should have controls in place to flag unusual deposit activity, such as receiving two checks for the purchase of a single CD. FDIC said even though the bank has not solicited the funds they must be treated as brokered funds. Banks also must consider the reputation risks associated with the funds. “Insured institutions are responsible for managing third-party relationships, regardless of the existence of a formal agreement,” the agency said. More information

June 19, 2009 FinCEN Issues Advisory on North Korean Financial Activities
The Financial Crimes Enforcement Network issued an advisory on June 18 asking financial institutions to take risk mitigation measures for financial transactions involving government agencies and front companies of the Democratic People's Republic of Korea. FinCEN issued the advisory after the U.N. Security Council adopted a resolution calling for enhanced monitoring of financial transactions to prevent the financing of North Korea's nuclear, ballistic missile and other weapons of mass destruction programs or activities. FinCEN said the Treasury Department has had long-standing concerns regarding North Korea's involvement, through government agencies and associated front companies, in financing such activities as currency counterfeiting, drug trafficking and engaging in deceptive financial practices to move money. FinCEN said that there is an increased likelihood that correspondent accounts held for North Korean financial institutions, as well as their foreign branches and subsidiaries, may be used to hide illicit conduct and related financial proceeds in an attempt to circumvent sanctions. Financial institutions were told to apply enhanced scrutiny and monitoring to any correspondent accounts they maintain and to ensure that they are not providing financial services for North Korea's procurement of luxury goods. Treasury also is concerned about North Korean counterfeiting of U.S. currency. More information  
 
June 19, 2009 Disclosures for Sweep Accounts Start in July
An FDIC rule requiring all banks to provide notices to sweep account holders will go into effect on July 1, 2009, the Office of the Comptroller Currency reminded bankers in a bulletin. The rule requires each depository institution to disclose prominently in writing whether customers’ swept funds are “deposits,” and, if not, the status of such funds in the event of the institution’s failure. Starting on July 1, the notice must be included in all new sweep account contracts and in all sweep account contract renewals. For existing sweep accounts, the disclosures must be made within 60 days after July 1, and at least annually thereafter. If there is a possibility that an account’s sweep transaction may not be completed on the day of a bank’s failure, the bank must disclose this possibility along with the resulting status of the funds. The disclosure requirements do not apply to sweep accounts in which the transfers are within a single account or sub-account, or to sweep arrangements involving a deposit account-to-deposit account arrangements in which the sweep does not affect the customer’s insurance coverage, the bulletin said. More information  

June 18, 2009 Obama Administration Releases Plan to Restructure Financial Regulation
The Obama Administration unveiled its plan to restructure the oversight of the financial services industry on June 17 with the creation of new regulatory authorities, new responsibilities for current regulators, the elimination of the thrift charter and the continuation of the dual banking system. However, the Office of the Comptroller of the Currency and the Office of Thrift Supervision would be replaced by a new regulator responsible for banks with national charters. The plan creates a new Consumer Financial Protection Agency that would have broad authority to regulate all providers of credit, savings, payment and other consumer financial products and services. The new agency would write rules for banks and nonbanks, supervise and examine institutions for compliance, and impose fines and penalties. The agency’s rules would serve as a floor with states allowed to adopt and enforce stronger rules. The plan would create a new class of financial institutions for companies that are large and interconnected called a Tier 1 financial holding company. The Federal Reserve would be given authority over these firms, which would have more stringent capital, activities and liquidity standards and more exacting prudential supervision. In the event of a failure of one of these firms, FDIC or the Securities and Exchange Commission would be appointed as a receiver or conservator. Some of the other features of the plan include: the creation of a Financial Services Oversight Council with responsibility for regulatory coordination; a reassessment of the design and structure of existing regulatory capital requirements; new standards for executive compensation; a review of accounting standards; new rules for securitized loans; new regulatory oversight of credit default swaps market and over the counter derivatives; new authority for the Federal Reserve to oversee systemically important payment, clearing and settlement system; and revised Basel II capital rules. More information 
 
June 18, 2009 CSBS Offers Praise, Concerns on Regulatory Restructuring Plan
Conference of State Bank Supervisors President and Chief Executive Officer Neil Milner praised the Obama Administration’s strong endorsement of the value of the dual-banking system.  “Preserving the role of state authorities as a check to federal authority will prevent industry consolidation into a handful of megabanks that are too big to regulate and too big to fail,” Milner said in reaction to the regulatory reform plan released by the Administration on June 17.  He also expressed appreciation that the plan protects the long-standing coordination with the Federal Reserve and FDIC in supervising state-chartered banks. However, Milner voiced concern about the creation of a new Consumer Financial Protection Agency due to its independence from prudential regulators. Instead of separation, Milner said enhanced coordination is needed among regulatory agencies to maximize the expertise, resources, and differing perspectives offered by multiple regulators.  Coordination “is the formula for providing strong consumer protection standards and ensuring a healthy and vibrant financial system,” he said. Milner pledged to work with the Administration and Congress to provide a coordinated and effective structure for consumer protection. More information 

June 17, 2009 FinCEN Clarifies Safe Harbor for Sharing Suspicious Activities
The Financial Crimes Enforcement Network  issued guidance on June 16 to clarify the safe harbor provisions of the USA PATRIOT Act that allows information sharing between financial institutions. The safe harbor from civil liability allows information sharing by participating financial institutions in identifying and reporting such suspected activities as mortgage fraud, terrorist activity and money laundering. FinCEN noted that sharing such information helps protect the integrity of the financial system and also aids law enforcement. The guidance calls for institutions that voluntarily participate in the program to ensure the privacy and security of the shared information. More information
 
June 17, 2009 OTS to Issue Concentration Risk Guidance
The Office of Thrift Supervision will provide more guidance on concentration risks as a result of the failure of Downey Savings and Loan Association. The recommendation was part of a Treasury Department Inspector General report on the handling of the institution’s failure. OTS said it will provide further guidance to the thrift industry and OTS staff on asset and liability concentration issues by the third quarter of 2009. The Inspector General report found the primary causes of Downey’s failure was high concentrations in single-family, residential loans, which included concentrations in option adjustable-rate mortgages, reduced documentation loans, subprime loans and loans with layered risk. The report also noted that the institution had inadequate risk monitoring systems and high turnover in management. The Inspector General called for OTS examiners to provide “a more forceful regulatory response” when thrifts have concentrations of higher-risk, nontraditional mortgage products. As recommended, OTS said the guidance will establish expectations that concentration measurements and limits be set as a percent of capital, not just as a percent of total assets or loans. The guidance also will cover the need for a sound internal risk management system with stress tests, periodic monitoring and other tools. Downey was closed in November 2008 and had $12.8 billion in assets. More information 
 
June 17, 2009 FDIC Publication Outlines Possible Changes in Bank Supervision
The latest edition of FDIC’s “Supervisory Insight” publication looks back at 2008 and provides analysis on how these events may influence regulatory oversight of the industry going forward. For example, in the area of consumer protection, FDIC said it will work with other federal and state regulatory agencies to identify and address consumer abuses in a unified and robust manner. In the area of emerging risks, the agency said supervisors will need to “look at where the line should be drawn between guidance and informal supervisory expectations on the one hand, and more tangible requirements on the other.” Other issues covered in the publication include: changes to Regulation Z and the Home Ownership Equity Protection Act; and appropriate risk management strategies for remote deposit capture technology. The journal is available on FDIC's Web site. More information

June 16, 2009 Tarullo Outlines Supervisory Focus for Small Banks
Federal Reserve Governor Daniel K. Tarullo told community banks to adapt their risk-management practices to the new competitive and economic conditions. Speaking at a meeting of the North Carolina Bankers Association, Tarullo said Federal Reserve examiners are encouraging community banks to focus on maintaining sound loan quality and strong credit administration practices, and to ensure that they maintain appropriate capital planning and liquidity management policies. He urged small banks to assess the risk posed by concentrations in specific portfolios of loans or other assets, and to have appropriate buffers to offset potential losses. The Fed governor also noted that fund management is a renewed supervisory focus for banks of all sizes. “As depositors and other funds providers have become more sensitive to bank risk, many banks have reinforced their contingency funding plans and developed sophisticated systems to more closely track their sources and uses of funds.  These steps are particularly important for banks facing weaker asset quality,” Tarullo said. He also outlined supervisory concerns for large banks. More information  
 
June 16, 2009 Joint Forum Paper Examines Credit Rating Issues
The Basel Committee on Banking Supervision’s Joint Forum issued a paper on June 15 on the use of credit ratings. The paper outlines the uses of external credit ratings by its member regulatory authorities in the banking, securities and insurance sectors. Regulators were asked to provide answers on questions about the use of credit ratings in legislation, regulations, and/or supervisory policies. The report also covered regulators’ assessments about the impact of their use of credit ratings. A slight majority indicated tht use of credit ratings has had the effect of implying an endorsement of such ratings. The Joint Forum is chaired by Comptroller of the Currency John C. Dugan. He said the paper will be useful as a reference tool for policymakers and others when “considering the extent to which credit ratings should be relied on in regulation and supervision going forward." More information 

June 15, 2009 FASB Issues New Standards for Securitizations, Special Entities
The Financial Accounting Standards Board issued new standards on June 12 that will change the way that organizations account for securitizations and special-purpose entities.  FASB said the standards will alter financial institutions’ balance sheets starting in 2010 and were part of the calculations used by federal banking regulators during the recent stress tests on the top 19 bank holding companies. The standards – Financial Accounting Statement No. 166 – Accounting for Transfers of Financial Assets, and No. 167 – Amendments to FASB Interpretation No. 46 -- are available on FASB’s Web site along with a briefing document. Statement No. 166 will require more information about transfers of financial assets, including securitization transactions. It eliminates the concept of a “qualifying special purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. Statement No. 167 changes how a company determines when an entity should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. Both Statements 166 and 167 will be effective at the start of a company’s first fiscal year beginning after Nov. 15, 2009, or Jan. 1, 2010, for companies reporting earnings on a calendar-year basis. More information

June 15, 2009 Federal Reserve Conducts Review of Capital Rules
The Federal Reserve announced on June 12 that is reviewing regulatory capital requirements associated with the adoption of the new accounting standards for securitizations and special-purpose entities. The Fed said Financial Accounting Standards No. 166 and 167 will have a material effect on banking organizations' accounting for off-balance sheet vehicles. In conducting the capital review, the Fed said it will consider a broad range of factors, including the maintenance of prudent capital levels, the record of recent bank experiences with off-balance sheet vehicles, and the results of the recent Supervisory Capital Assessment Program. The Fed said “banking organizations should take into account in their internal capital planning processes the full impact of FAS 166 and 167 and assess whether additional capital may be necessary to support the risks associated with vehicles affected by the new accounting standards.” More information