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CSBS Examiner

A weekly report of events affecting the state banking system from the Conference of State Bank Supervisors

3/2/2012 

 In This Issue...

 Upcoming Events...

Derivatives & Legal Lending Limits Training Program: Washington, DC, March 5:This program will seek to bridge the information gap and provide an opportunity for state officials to explore solutions to meet the requirements of the Act. The program is targeted for legal counsels and senior examiners with responsibilities for institutions which engage in derivatives. 

Washington Fly-In: Washington, DC, March 20-21:Join your fellow state banking regulators in meetings with congressional and regulatory leaders. 

Oklahoma Day with the Commissioner: Oklahoma City, April 16:This forum will evaluate the challenges and opportunities with stress testing for community banks.The session will include demonstrations of two models specifically developed for community banks.  These scenarios will serve to further the discussion of the value and limitations of stress testing. 

Credit Evaluation School: San Diego, May 7-11:The Credit Evaluation School follows a blended learning model. It is delivered over a 5-month period utilizing the most effective and efficient delivery channels. Over this period, the examiner will receive all of the required training and experience necessary to review and evaluate credit. The program follows a "dance card" concept utilized by many states. In addition, the examiner will have the benefit of the instructor serving as a "coach" throughout the program. 

Certified Operations Examiner School: San Diego, May 7-11:The full program is delivered over a 7 to 9 month period utilizing all of the EFSBS delivery channels. Over this period the examiner will receive all of the required training and experience necessary to be in charge of an operations examination. 

State-Federal Supervisory Forum: Savannah, GA, May 21-23:The State Federal Supervisory Forum is an annual gathering of senior executives in key leadership positions with state and federal regulatory agencies. Participants will discuss current and emerging policy and operational issues affecting state financial regulation and the state/federal regulatory partnership. The program will include formal presentations on a variety of important topics, open forum Q&A sessions, as well networking opportunities. 

“Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold.”  – Leo Tolstoy

As Sherlock Holmes said, when the other possibilities have been excluded, whatever remains is probably the solution, no matter how unlikely.  In this political season, the news media are having great fun running fact-checking columns – which candidate made what claim and the extent to which he or she was fibbing.  Our preference is to filter campaign claims through a pretty fine sieve of bipartisan skepticism.  After all, all that glitters is not gold.
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North Carolina Governor Nominates Ray Grace to Head N.C. Banking Department

Ray Grace, Acting Commissioner of the North Carolina Office of the Commissioner of Banks (NCCOB), was nominated Tuesday by Governor Beverly Perdue to serve as commissioner of the department.  If confirmed by the state legislature, Grace will complete the remainder of former Commissioner of Banks Joseph A. Smith, Jr.’s term, which runs through March 31, 2015.

"Ray has helped guide the state’s financial system through the toughest economic times that many of us have ever seen," Gov. Perdue said in a press release announcing the nomination.  "With more than 35 years of experience at the Office of the Commissioner of Banks, he comes to this job uniquely qualified and able to seamlessly step into this critical role."
 
Grace joined NCCOB in 1974 as an examiner trainee and served in various roles, including as a consumer finance examiner, commercial bank examiner, special supervisory examiner responsible for overseeing troubled bank supervision and as director of bank applications. 

In 2009, he was named deputy commissioner, in charge of supervision of banks and savings banks.  He was appointed chief deputy commissioner of banks in 2010, overseeing all supervision of depository institutions, mortgage lending, consumer finance lending, and other non-depository entities.  As commissioner of banks, Grace would oversee the regulation of banks, savings and loans, trust companies, mortgage lenders, consumer finance lenders, and other non-bank lenders in the state.

Grace joined the U.S. Marine Corps in 1966, served in Vietnam from 1967 to 1968, and was honorably discharged in 1969.  He is a graduate of Niagara University, Niagara Falls, New York, and has a Bachelor of Science degree in Commerce.

The press release announcing Gov. Perdue’s nomination is available here.
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FDIC Q4 Report Shows Continued Healing

Commercial banks and savings institutions earned an overall profit of $26.3 billion in the fourth quarter of 2011, according to the Federal Deposit Insurance Corporation’s (FDIC) fourth-quarter earnings report released Tuesday.  This is a $4.9 billion increase from the fourth quarter of 2010.

The report also revealed an increase of $130 billion in loan portfolios, the third quarterly increase in a row.  Loans to commercial and industrial borrowers increased by $62.8 billion, residential mortgage loan balances rose by $26.0 billion, and credit card balances grew by $21.3 billion.  “Prudent loan growth is a necessary condition for a stronger economy,” FDIC Acting Chairman Martin Gruenberg told the American Banker.  “That is why we view the fourth quarter growth in the industry's loan portfolio as a hopeful sign."

Additional highlights of the report include:

  • An increase of deposits in domestic offices by $249.7 billion during the quarter, with more than three-quarters of this increase ($191.2 billion or 76.6 percent) consisting of balances in large noninterest-bearing transaction accounts that have temporary unlimited deposit insurance coverage.
  • A decline in the number of institutions on the FDIC's "problem list" from 844 to 813.
  • An increase in the Deposit Insurance Fund balance to $9.2 billion at December 31 from $7.8 billion at September 30.

The complete Quarterly Banking Profile is available here.
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FinCEN Gives Financial Institutions 30 Days to Contest E-Filing Mandate

The Financial Crimes Enforcement Network (FinCEN) will require financial institutions to file reports to the agency electronically starting July 1, 2012 in an effort to improve efficiency, reduce government and industry costs and to enhance timely access to certain financial information. Financial institutions looking to be exempt from this deadline, however, have less than 30 days to submit a request.

The proposal, announced in September 2011, will require FinCEN reports required under the Bank Secrecy Act be filed electronically.  This includes Suspicious Activity Reports and Currency Transaction Reports (CTRs), which are the most commonly filed reports. However some extensions and exemptions will be allowed.

For instance, the Currency and Monetary Instrument Report, which is most often completed by individuals upon physically crossing the border into the United States, is not included in the mandate. FinCEN Form 8300, the report of cash payments over $10,000 received in a trade or business, may also continue to be filed on paper.

FinCEN issued a notice on its website detailing three categories for possible exemption, these include some money services businesses and small credit unions that may lack internet access and file a limited number of FinCEN reports; some financial institutions who file a large number of CTRs may need time to adapt their systems; and “other extraordinary circumstances.” 

FinCEN announced Feb. 24 that financial institutions had 30 days to submit an exemption request or they would be subject to e-filing when the rule goes into effect.

To assist filers with the new requirements FinCEN has recorded an introduction to the e-filing system which is available here.

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Lawmakers Evaluate Effects of Regulation Q Repeal

The House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing Thursday on understanding the effects of a provision repealed last year that prohibited interest on business checking accounts.  During the hearing lawmakers heard from two witnesses, Cliff McCauley, senior executive vice president of Frost Bank, who gave testimony on behalf of the Independent Bankers Association of Texas, and Alex Pollock, resident fellow at the American Enterprise Institute.

McCauley told lawmakers that the repeal of Regulation Q has made the community bank business model vulnerable.  In his written testimony, McCauley wrote that enhanced competition from “too big to fail” institutions and credit unions, along with increasing levels of regulatory and compliance costs, will further strain community bank profitability.  “I believe this 11th hour amendment to a several thousand page bill represents a ’sea change’ in the fundamental business model of the vast majority of community banks, and will have dramatic and lasting unintended consequences not only on our industry, but will negatively impact the very customers we seek to serve.”

Pollock, a supporter of the Regulation Q repeal, characterized the rule as one that opposes competitive economic principles.  “Customers are better served by encouraging competition than by suppressing it,” Pollock said.  He went on to say the provision encouraged complex and implied pricing arrangements instead of clear explicit pricing.

Representative Francisco "Quico" Canseco (R-TX) told witnesses that it was important to hear merits of both sides of the argument.  Canseco further stated “while we in Congress should take measures that responsibly lift the burdens off of community banks, we must also make sure that we foster a competitive market place that takes into account the capability of banks of every size as well as small businesses.”

Regulation Q was passed by Congress as part of the Glass-Steagall Act in 1933 during the Great Depression.  The goal was to help spur economic growth. Throughout the 1980s much of Regulation Q was repealed by Congress, but one vestige of the law remained: the provision that prohibited interest on commercial checking accounts.  This long-standing provision was reversed with the passage of the Dodd-Frank Act and took effect in July 2011.

Written testimony by McCauley and Pollock is available here.
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Around the States

MA: The Massachusetts Division of Banks (the Division) announced that starting April 2012 the Division will expand its use of the Nationwide Mortgage Licensing System and Registry (NMLS) to include other non-depository financial services industries, including consumer lending, money services businesses and debt collection.  “The Division of Banks is proud to expand its use of NMLS,” Commissioner of Banks David J. Cotney said.  “This system has proven to be an effective tool in mortgage supervision by streamlining the regulatory process and enhancing consumer protection.  The expansion of NMLS will now bring the efficiencies and improved oversight to additional financial services industries.” 

WA: The Washington Department of Financial Institutions (DFI) announced that it will also expand use of NMLS to include two additional financial services industries.  DFI’s expansion will take place in two stages and will be on a voluntary basis for companies.  The first stage begins April 16 and will involve money transmitters and currency exchangers.  The second stage starts in July and involves check cashers and payday lenders.  “The Department is proud to expand its use of NMLS,” DFI Director Scott Jarvis said.  “This expansion brings the efficiencies and improved oversight of NMLS to more of the financial services industries doing business in Washington State.” Read more.
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Around the Agencies

FHFA: The Federal Housing Finance Agency (FHFA) reported that the national average contract mortgage rate for the purchase of previously occupied homes by combined lenders, used as an index in some ARM contracts, was 4.25 percent based on loans closed in January.  This is an increase of 0.10 percent from the previous month.  Read more.

FINCEN: The Financial Crimes Enforcement Network (FinCEN) issued an advance notice of proposed rulemaking to solicit public comment on a wide range of questions pertaining to the possible application of an explicit customer due diligence obligation on financial institutions, including a requirement for financial institutions to identify beneficial ownership of their accountholders.  Read more.

OCC: The Office of the Comptroller of the Currency (OCC) released a list of Community Reinvestment Act performance evaluations that became public during the period of July 15, 2011 through Aug. 14, 2011.  The list contains only national banks, federal savings associations, and insured federal branches of foreign banks that have received ratings.  Of the 36 evaluations made public this month, two were rated outstanding, 34 were rated satisfactory, none were rated needs to improve, and none were rated substantial noncompliance.  Read more.

SEC: The Securities and Exchange Commission announced a proposed rule to help protect investors from identity theft by ensuring that broker-dealers, mutual funds, and other SEC-regulated entities create programs to detect and respond appropriately to red flags.  Read more.
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Around D.C.

ICBA: The Independent Community Bankers of America said that new figures from the Quarterly Banking Profile released by the FDIC demonstrate the critical importance of extending full FDIC deposit insurance coverage for noninterest-bearing transaction accounts (TAG).  According to 4th quarter FDIC Quarterly Banking Profile, TAG deposits now total $1.4 trillion.  Notably, the amount of TAG insured deposits increased by 15.2 percent, or $185.1 billion, during the fourth quarter.  Read more.

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Upcoming Events

March 5-6: The CSBS Education Foundation will host a Derivatives and Legal Lending Limits Training Program in Washington, D.C.  The program is for legal counsels and senior examiners with responsibilities for institutions that engage in derivatives.  Read more.

March 5-9: The CSBS Bank Secrecy Act & Anti-Money Laundering Examiners Course is being held at the New York State Department of Financial Services.  Read more.
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Closing Comment

“The Department is proud to expand its use of NMLS. This expansion brings the efficiencies and improved oversight of NMLS to more of the financial services industries doing business in Washington State.”

–Scott Jarvis, Director of Financial Institutions of the Washington Department of Financial Institutions, in a press release announcing the expansion of NMLS.
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Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor

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