February 6, 2004

"Music makes one feel so romantic - at least it always gets on one's nerves - which is the same thing nowadays." - Oscar Wilde

When we want to get into a real debate, we bring up the question of who's the best rock 'n roll band of the 20th century. People seem to fall into either the Beatles' camp or the Rolling Stones' corner. The debates can become heated. But there's no debate about which group had the most impact on those of us who were 13 when John, Paul, George and Ringo arrived on the scene. Digging back into some of our sleepiest brain cells, we remember all the guys in our junior high school, growing their bangs and splashing themselves between classes with English Leather cologne that they kept in their lockers. Now we know why the teachers kept the classroom windows open -- they would have suffocated otherwise. Radio announcers remind us that it was 40 years ago this week when we were glued to the TV screen on Feb. 9, 1964, squealing when Ed Sullivan introduced the Fab Four. We baby boomers know how lucky we are to have been a part of music history, even if we were mere squealers.

CSBS OBJECTS TO FCA PLANS

In a January 30 letter to the Farm Credit Administration, the Conference of State Bank Supervisors stated its belief that it is inappropriate for Farm Credit System institutions to provide farm management and trust services. CSBS said such services "require a high level of specialty knowledge, not only in agriculture, but also in business management and trust services" and are tightly regulated and supervised on both the state and federal levels.

CSBS told the FCA that 'it would not be prudent to merely allow FCS institutions to begin conducting such activity without strict controls, regulations, and consumer protection guidelines." The letter said there is no need for a government-sponsored enterprise to provide services that are already being provided by regulated and supervised financial institutions.

CSBS also expressed concern about the recent promotion of the "Farm Cash Management Program," which reportedly utilizes an interest-bearing "AgriBank Money Market Investment Account." CSBS expressed concern that such accounts are being promoted as an alternative to financial institution deposit accounts and could mislead consumers to believe that the program constitutes a traditional bank-type interest bearing deposit account.

CSBS noted that many state-chartered banks are heavily involved in agricultural lending, and that increased competition from government-sponsored entities could put pressure on ag bank earnings, creating a safety and soundness issue for these banks.

The comment letter was prompted by requests from several state bank commissioners who are concerned about Farm Credit System's expansion of services.

HELEN HOWELL REPLACES CURRY ON FFIEC STATE LIAISON COMMITTEE

Washington Department of Financial Institutions Director Helen Howell will serve on the State Liaison Committee of the Federal Financial Institutions Examination Council. FFIEC announced on Wednesday that Howell replaced former Massachusetts Commissioner of Banks Thomas Curry, who resigned as commissioner on Dec. 31, 2003, to serve as member of the FDIC board. Howell's term will continue until Jan. 15, 2005. CSBS Chairman-elect John Allison, Mississippi Commissioner of Banking and Consumer Finance, chairs the FFIEC State Liaison Committee.

Howell was appointed by Governor Gary Locke as director of the Washington State Department of Financial Institutions and a member of his executive cabinet in July 2002. The department regulates Washington financial service providers, including banks, credit unions, mortgage brokers, consumer loan companies, and securities issuers and salespeople.

CSBS REACCREDITS MICHIGAN, TEXAS, NORTH DAKOTA & TENNESSEE BANKING DEPTS

The Conference of State Bank Supervisors is pleased to announce the recent reaccreditations of four state banking departments: the Michigan Office of Financial and Insurance Services, the Texas Department of Banking, the North Dakota Department of Financial Institutions and the Tennessee Department of Financial Institutions.

The Michigan Office of Financial and Insurance Services' bank regulatory program received its fourth certificate of accreditation from CSBS on December 31, certifying that the department maintains the highest standards and practices in state banking supervision. The Office was first accredited in 1986 and as of September 30, 2003 supervised 134 commercial banks, four non-deposit trust companies and five savings banks with total commercial bank assets of $120.1 billion. Linda A. Watters serves as Commissioner of the Michigan Office of Financial and Insurance Services.

The Texas Department of Banking received its third certificate of accreditation from CSBS on December 31. The Department was first accredited in 1993 and as of September 30, 2003 supervised 336 commercial banks, 65 non-deposit trust companies and 27 foreign bank agencies and representative offices with total commercial bank assets of $60.8 billion. Randall S. James is the Texas Commissioner of Banking.

The North Dakota Department of Financial Institutions received its third certificate of accreditation from CSBS on December 31. The Department was first accredited in 1992, and as of September 30, 2003 supervised 88 commercial banks, three non-deposit trust companies and one state-run bank with total commercial bank assets of $7.1 billion. Timothy J. Karsky CEM, is Commissioner in North Dakota.

The Tennessee Department of Financial Institutions received its fourth certificate of accreditation from CSBS on December 31. The Department was first accredited in 1987, and as of September 30, 2003 supervised 158 commercial banks, 10 non-deposit trust companies and one savings bank, with total commercial bank assets of $25.1 billion. Kevin P. Lavender serves as Tennessee Commissioner of Financial Institutions.

CSBS President and CEO Neil Milner congratulated the four departments. "Accreditation is an ongoing process that requires constant review of all department functions. These banking departments have demonstrated their ability to meet the challenges of the constantly changing banking industry," he said.

THRESHOLD FOR FDIC'S MERIT EXAMS UP TO $1 BILLION

FDIC announced on Wednesday that is expanding the use of its risk-focused, streamlined examination process, known as MERIT. When the FDIC started using the program in April 2002, it used the exam procedures only on eligible banks with satisfactory regulatory ratings with assets of $250 million or less. FDIC has decided to expand the program to well-rated eligible banks with assets of $1 billion or less. The MERIT exam focuses on determining the adequacy of an institution's internal controls and concentrates on internal and external audit programs. Loan portfolios are still tested, but if an institution maintains an effective internal asset review program, examiners will significantly reduce the time spent reviewing individual credits. More information may be found here.

AROUND THE STATES

Georgia: The Georgia legislature's House Banking Committee voted this week to regulate payday lenders under the Georgia Industrial Loan Act. If the bill becomes law, payday lenders will be required to obtain a state license to do business and comply with a cap on interest rates of 60 percent. The bill also seeks to prevent payday lenders from specifically targeting military personnel. The bill the House Banking Committee passed is a Substitute bill to the Senate Bill (157) passed in the Senate in 2003 session and a carryover to 2004 session. Georgia Industrial Loan Act is the small loan act under the supervision of the Industrial Loan Division of the Insurance Commissioner's Office.

Kentucky: The Kentucky House of Representatives on Monday advanced a banking reciprocity bill. The bill, HB 319 provides that "if the laws of the home state of the out-of-state bank place more restrictive terms or conditions on Kentucky banks seeking to acquire or merge with a bank in the home state of the out-of-state bank, the interstate merger may be allowed in Kentucky only under substantially the same terms and conditions as applicable to Kentucky state banks in the home state of the out-of-state bank." The vote on the bill was 92-0.

AROUND THE AGENCIES

FinCEN: The Financial Crimes Enforcement Network issued an alert on Tuesday about a letter sent to bank customers that says they must pay $25,000 for the issuance of an anti-terrorist certificate before transactions may continued to be conducted. The bogus letter appears to come from FinCEN. FinCEN said other bogus letters claim that the FinCEN is freezing assets and endorsing investment schemes. For information, click here.

FRB: The Federal Reserve Board has established a private-sector working group to develop the idea of establishing a back up dormant bank that could be used when necessary to clear and settle U.S. government securities. The Fed established the Working Group on NewBank Implementation on Jan. 30. The group is chaired by Michael Urkowitz, senior adviser to Deloitte Consulting. Other members of the group include senior representatives of the two major clearing banks -- J.P. Morgan Chase and The Bank of New York -- the Fixed Income Clearing Corporation, State Street Bank & Trust Co., UBS Investment Bank, Fidelity Investments and Morgan Stanley & Co. The New York State Banking Department and other federal regulators will participate as observers and technical advisers. The announcement is posted here.

FTC: The Federal Trade Commission's settlement with First Alliance Mortgage, headquartered in Irvine, Cal., will provide nearly 20,000 borrowers with a second compensation check, the agency said on Monday. Borrowers previously received compensation for the loan origination fees the company deceptively charged them in December 2002. FTC said the total amount given to consumers will be $65 million. First Alliance targeted the subprime market and made loans in 18 states and the District of Columbia. More information is available here.

NCUA: The National Credit Union Administration issued three opinion letters on Jan. 28 about the application of state laws on federal credit unions. The first letter preempts the New Jersey Homeownership Security Act of 2002 for federal credit unions. NCUA said the law was "preempted because it purports to limit or affect the rates, terms of repayment and other conditions of loans and lines of credit that [federal credit unions] may offer to their members." The New Jersey law was designed to curb predatory lending and requires the New Jersey Department of Banking to conduct examinations of creditors and enforce the law. NCUA said it has sole authority to take enforcement actions against federal credit unions. In the second opinion letter, NCUA preempted all state laws that attempt to limit or prohibit charges related to debt cancellation or suspension agreements that federal credit unions offer to their members. NCUA said state laws that "prohibit or limit creditors from charging [debt cancellation agreement] fees essentially bar them from entering into DCAs with borrowers." In the third letter, NCUA said a federal credit union does not need to obtain a state insurance license to offer debt cancellation agreements because they are loan-related products that have been specifically pre-approved as an exercise of a federal credit union's incidental powers. For more information, go to http://www.ncua.gov.

THE WEEK AHEAD

(Note: The Feb. 5 Senate Banking Committee hearing on the OCC's preemption and visitorial powers rule was postponed due to the discovery of Ricin in the Senate Dirksen Building. It has not yet been rescheduled.)

February 9-10
The Conference of State Bank Supervisors hosts an orientation meeting for new state banking commissioners.

February 11
The Senate Banking Subcommittee on International Trade and Finance holds a hearing on economic reconstruction in Iraq. - 1 p.m., 538 Dirksen Building.

February 11
The House Committee on Financial Services convenes for a hearing to receive the testimony of the Chairman of the Federal Reserve Board of Governors on monetary policy and the state of the economy, - 10 a.m., 2128 Rayburn Building.

February 12
The House Financial Services Subcommittee on Housing and Community Opportunity holds a hearing on housing-related agency budgets for FY 2005. - 10 a.m., 2128 Rayburn Building.

CLOSING COMMENTS. . .

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." -- Former President Ronald Reagan quipped in 1986. (Today marks Mr. Reagan's 93rd birthday.)

CSBS EXAMINER
Mary White, Editor
Teresa Dean, Contributing Writer