"Nothing is so permanent as a temporary government program." - Milton Friedman

It’s been another incredibly busy week in Washington as we continue to deal with the current economic woes. One thing’s for sure. If things don’t start to turn up soon, it won’t be for lack of trying. This week brought us announcements of another $30 billion in assistance to American International Group, details of the Administration’s new Mortgage Affordability Program, the launch of the new Term Asset-Backed Securities Loan Facility (TALF), House passage of the mortgage “cramdown” measure, along with several Congressional oversight hearings on financial matters, and the announcement of legislation to be introduced by Senate Banking Committee Chairman Chris Dodd to raise FDIC’s borrowing authority so as to backstop the Deposit Insurance Fund. We find ourselves waking up and wishing to be transported to Lake Woebegon or at least having something approximating a “slow news week” for a change. But it looks like we will have to wait a while longer. At least spring is around the corner, so maybe it will bring a thaw in the recession along with some jonquils.

The FDIC may lower the amount of the special assessment on insured institutions from 20 basis points to 10 basis points, the American Bankers Association said in a statement on Thursday. The association said the agency would take the action in conjunction with a legislative initiative of Senate Banking Committee Chairman Christopher Dodd (D-Conn.) to raise FDIC’s borrowing authority with the Treasury Department. Under an interim rule adopted on Feb. 27, FDIC decided to impose a 20 basis point emergency special assessment on the industry on June 30, 2009. The assessment is to be collected on Sept. 30, 2009. The interim rule also would permit FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance. The agency also changed the assessment restoration plan requiring banks to pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1, 2009. FDIC added a calculator to its Web site to help banks estimate their new deposit insurance assessment rates for April. More Information

This Sunday, CBS "60 Minutes" will feature a segment about how the Federal Deposit Insurance Corporation handles a bank closing. The focus of the piece is FDIC’s closing process and what happens over the closing weekend. The CBS crew filmed FDIC employees working during the recent closure of Heritage Community Bank, Glenwood, Ill., which was closed by the Illinois Department of Financial Professional Regulation on February 27.  60 Minutes’ correspondent Scott Pelley will moderate the program. More Information

A combination of regulation by a state banking department and the Federal Reserve “is a viable model to be considered by a range of financial institutions, both wholesale and retail,” said New York Superintendent of Banks Richard H. Neiman at a meeting on Monday of The Institute of International Bankers. Neiman said the conversion of investment banks to bank holding companies may be seen as a market-based reform to improve confidence. He noted that the conversion of Goldman Sachs to a state-chartered bank supervised by his department and the Federal Reserve Bank of New York will provide a regulatory regime with higher capital requirements, lower leverage, and continual on-site supervision. The state regulator also noted that the department has recently licensed three banks from mainland China. He said the action “reflects confidence in the New York charter, and confirms New York as the global financial center.”  More Information

The Treasury Department on Friday conditionally agreed to convert up to $25 billion of preferred stock issued under the Capital Purchase Program to Citigroup to common equity. Treasury said it would participate in Citigroup’s stock conversion plan if other preferred holders also agreed and other conditions were met. Some of the conditions included: requiring a match dollar for dollar for the private preferred exchanges; requiring the remaining Treasury and FDIC preferred issued under the Targeted Investment Program and Asset Guarantee Program to be converted into a trust preferred security of greater structural seniority that would carry the same 8 percent cash dividend rate as the existing issue; and receiving the most favorable terms and prices offered to any other preferred holder through the exchange. Separately, the Citigroup chairman announced that the board will be altered so that a majority of members are new independent directors. Citigroup will be one of the banks facing a supervisory assessment under Treasury’s Capital Assistance Program. Under the program, Citigroup will be allowed to apply for additional mandatory convertible preferred securities or request conversion of the remaining preferred held by Treasury into these securities, consistent with the terms of the program. More Information

The Conference of State Bank Supervisors this week announced the recent reaccreditation of the Florida Office of Financial Regulation, certifying that the department maintains the highest standards and practices in state banking supervision.

"In the current economic environment, it is extremely important to have a strong, effective banking department.  I am extremely proud that our bank regulatory program has met the highest professional regulatory standards for the last 22 years,” said Acting Commissioner Alex Hager.

Daniel K. Tarullo officially became a member of the Federal Reserve Board in a ceremony on Feb. 27. The Senate approved Tarullo on Jan. 27 to serve a term that will expire on Jan. 31, 2022. Prior to his appointment to the Fed, Tarullo was a law professor at Georgetown University Law Center, where he taught courses in international financial regulation, international law and banking law.  Prior to joining the Georgetown faculty, Tarullo held several senior positions in the Clinton Administration. From 1993 to 1998, Tarullo served, successively, as assistant secretary of State for Economic and Business Affairs, deputy assistant to the president for Economic Policy, and assistant to the president for International Economic Policy.  He also served as a principal on both the National Economic Council and the National Security Council. Before joining the Clinton Administration, he served as chief counsel for Employment Policy on the staff of Sen. Edward M. Kennedy (D-Mass.), and practiced law in Washington, D.C. More Information

Meeting in Washington last weekend, the National Conference of Insurance Legislators (NCOIL) voiced  support of CSBS's model legislation to implement the S.A.F.E. Mortgage Licensing Act. The group discussed financial services regulatory reform and the future of state insurance oversight during a  roundtable discussion convened to advance NCOIL’s ongoing efforts to achieve appropriate financial reform pre- and post-financial crisis.  Participants included National Association of Insurance Commissioners Chief Executive Officer Dr. Terri Vaughan, Robert Gordon of the Property Casualty Insurers Association of America, Gary Hughes of the American Council of Life Insurers, and J. Robert Hunter of the Consumer Federation of America. Gordon noted that “While top Congressional leaders now recognize that our industry was not the root cause of the crisis, House and Senate staff told us there is no interest in exempting out our industry from reform.” While panelists generally agreed with long-standing NCOIL beliefs that state regulation has served insurers well, common threads in their perspectives included:  the likelihood that Congress will authorize a systemic regulator to coordinate financial services sectors; the federal government’s bank-centric approach; the probability that any proposed federal insurance charter would not be optional; the fact that the crisis has accelerated the need for reform. The group agreed that insurance regulators are closer to consumers and that state regulation provides a system of checks and balances that allows for “lots of eyes” on any problem.

FDIC was named the receiver of two banks on Friday -- Security Savings Bank, Henderson, Nev., and Heritage Community Bank, Glenwood, Ill. FDIC entered into a purchase and assumption agreement with Bank of Nevada, Las Vegas, to assume all of the deposits of Security Savings Bank and purchase $111.3 million in assets. Security Savings had total assets of $238.3 million and total deposits of $175.2 million. FDIC estimated the transaction would cost the Deposit Insurance Fund $59.1 million. For Heritage Community Bank, FDIC entered into a purchase and assumption agreement with MB Financial Bank, N.A., Chicago, to assume all of the deposits of Heritage Community Bank and purchase $230.5 million in assets at a discount of $14.5 million.  Heritage Community Bank had total assets of $232.9 million and total deposits of $218.6 million. FDIC and MB Financial Bank entered into a loss-share transaction where MB Financial Bank will share in the losses on approximately $181 million in assets covered under the agreement. FDIC estimated that the cost to the Deposit Insurance Fund would be $41.6 million. So far in 2009, 16 banks have closed. More Information

California: The California Senate Rules Committee on Wednesday voted 5-0 to confirm the appointment of William S. Haraf as Commissioner of the Department of Financial Institutions. Haraf has been serving as Acting Commissioner since his appointment by Governor Schwarzenegger on March 10, 2008. The full Senate is expected to act on the confirmation within two weeks.

Washington: On Tuesday, FDIC and the Washington State Department of Financial Institutions executed an information-sharing agreement allowing for the exchange of information on the supervision of money services businesses. This agreement will provide for a formal information-sharing process and is designed to enhance the ongoing working relationship between the two regulators. The information will be used to streamline the Bank Secrecy Act/Anti-Money Laundering examination process for financial institutions serving the money services businesses industry. The agreement should eliminate regulatory redundancies and promote opportunities to learn from the other’s industry expertise, FDIC said.

FDIC: The FDIC this week outlined actions directors and officers of weak financial institutions should take in ensuring their institutions operate in a safe and sound manner. FDIC said an institution that has a supervisory rating of 3, 4 or 5 should limit balance sheet growth and take actions to improve its risk profile, while working to remedy problems. The agency warned that weak institutions that engage in growth strategies, especially those that are funded with volatile liabilities or temporarily expanded FDIC insurance or liability guarantees, will be subject to heightened supervisory review and enforcement. However, FDIC said the continuation of prudent lending practices generally would not be considered as increasing the institution’s risk profile. In some cases, banks may have to notify their regional directors before undertaking asset growth or material changes in asset or liability composition. More Information

March 10 - The Senate Banking Committee has scheduled a hearing on investor protection and the regulation of securities markets. - 10:30 a.m., 538 Dirksen Senate Office Building.

March 11 - The Nationwide Mortgage Licensing System has scheduled two webinars, as follows: "Company Basics: Effectively Transition or Apply for a New License using NMLS" - 12 noon-1:30 p.m., and "Managing Companies' Loan Officers' Licenses through NMLS"- 2-3:30 p.m.

March 12 - The House Financial Services' Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold a hearing on mark-to-market accounting practices and implications." - 10 a.m., 2128 Rayburn House Office Building.

March 15-May 31 - The Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators will hold a web-based Model Examination Guidelines School. The program is designed to assist mortgage regulators and mortgage compliance personnel with implementing the examination procedures for the Guidance on Nontraditional Mortgage Product Risks and the Statement on Subprime Mortgage Lending. 

March 17, 20, 24, 26 – The House Financial Services Committee is planning a series of hearings on financial regulatory reform.

“You can imagine if you’re one of two million bank employees around the country that work for thousand of banks, and you never made one subprime loan, you weren’t overleveraged, you’re well-capitalized, you’re lending in your community and you hear this broad brush [terminology] from the president that talks about banks and bankers as the problem.” - American Bankers Association President Ed Yingling, speaking Tuesday on Fox News.