“In order to be irreplaceable one must always be different." – Coco Chanel

If all 50 states and the U.S. territories were cookie-cutter copies, they would amount to little more than administrative units.  Instead, the states vary widely, reflecting their size, geography, economies, and local needs.  In the realm of bank regulation, the states do share a bedrock commitment to safety and soundness, as well as other basic priorities.  From there, the banking departments have evolved their own specialties, appropriately addressing local needs and concerns.  It’s part of what makes the states irreplaceable.
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Federal Regulators Provide Progress Report on Dodd-Frank Implementation, Economy
 
Federal banking regulators testified Wednesday during a Senate Banking Committee hearing on Wall Street reform implementation.  During the hearing, the panel of regulators gave senators progress reports on their individual and coordinated efforts to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), as well as an update on the recently reported trading loss by JPMorgan.
 
The panel of witnesses included: U.S. Department of the Treasury Deputy Secretary Neal S. Wolin; Federal Reserve Board (FRB) Governor Daniel K. Tarullo; Comptroller of the Office of the Comptroller of the Currency (OCC) Tom Curry; Federal Deposit Insurance Corporation (FDIC) Acting Chairman Martin J. Gruenberg; and Consumer Financial Protection Bureau (CFPB) Director Richard Cordray.
 
In his first public testimony as Comptroller, Curry discussed the status of several rulemakings implementing key provisions of Dodd-Frank and also summarized steps the OCC is taking to supervise community banks.  In his prepared testimony, Curry indicated the OCC is committed to supervising community banks in a way that is “consistent, balanced and reflective of the risks these banks face, as well as the compliance challenges they experience when new rules or policies are introduced.” 

When taking questions from Committee members during the hearing, however, the focus was squarely on the OCC’s supervision of JPMorgan.  Curry received questions from essentially every senator on the Committee regarding the OCC’s knowledge of JPMorgan’s trading positions, its supervisory strategy toward the institution before and after the massive loss, and its plan for addressing a possible lapse in oversight. JP Morgan Chief, Jamie Dimon, will testify before the committee on Wednesday, June 13.
  
Testimony for Cordray, Curry, Gruenberg, Tarullo and Wolin is available here.

In a separate hearing held on Thursday by the Joint Economic Committee, Federal Reserve Chairman Ben Bernanke gave lawmakers an economic outlook on the U.S. economy, maintaining that economic growth remains moderate so far this year and will continue at a moderate pace over the coming quarters.  He said banking and financial conditions in the U.S. have improved “significantly” since the financial crisis, but also shared concerns about sovereign debt and the health of banks in a number of euro-area countries that continue to create strains in global financial markets.
 
Chairman Bernanke’s prepared statement is available here.
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Fed’s Beige Book Signals Relatively Stronger Loan Demand

The FRB Wednesday released its June issue of the Beige Book, which points to moderate economic growth in the U.S. and slightly stronger loan demand.

“Activity in the New York, Cleveland, Atlanta, Chicago, Kansas City, Dallas, and San Francisco districts was characterized as growing at a moderate pace, while the Richmond, St. Louis, and Minneapolis Districts noted modest growth,” the FRB stated.  “Boston reported steady growth, and the Philadelphia District indicated that the pace of expansion had slowed slightly since the previous Beige Book.”

Reports from the 12 Federal Reserve districts suggest that lenders have seen an improvement in loan demand and credit conditions.  Most of the districts said loan demand was “steady or slightly stronger” than the previous period and was driven by energy, healthcare, and commercial real estate industries seeking capital spending loans.

Activity in residential real estate markets also improved in most districts since the previous report.  Several districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile, and home sales were above year-ago levels in most areas of the country.

The FRB’s Beige Book is available here.
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FDIC:  Simple Approaches to Credit-Risk Stress Testing Possible for Community Banks

In the FDIC’s summer 2012 edition of Supervisory Insights, the agency addresses stress testing credit risk at community banks and seeks to answer the many questions community banks have regarding the issue. Recognizing that stress testing has been more targeted at large banks, the article states that “stress testing expectations for community banks are more discrete and limited.” The article describes the stress testing process, explains how community bank boards can use this process to better manage risks and provides approaches to credit-risk stress testing that the FDIC says can be more easily implemented by community banks.

The article makes clear there is no substitute for strong loan underwriting, credit administration, and risk limits, but emphasizes that stress testing can help institutions evaluate lending risks and capital adequacy under plausible stressed scenarios. The article includes two examples to assist community banks in visualizing how stress testing can be structured and how the results can be utilized by management and the board of directors.

The FDIC’s Supervisory Insights journal is available here.

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Around the States

CT:  The Office of Connecticut Attorney General George Jepsen reports housing programs created as a result of the $25 billion mortgage foreclosure servicing settlement are moving forward in Connecticut, including $119 million in loan modifications and $36 million in refinancing relief.  The five largest loan servicing companies that were parties to the settlement are alerting mortgage customers to the new programs and the criteria they will use to determine if the customers qualify for changes to their mortgage loans.  “We are seeing real progress by the banks in rolling out these programs,” Attorney General Jepsen said.  “While many borrowers are expected to benefit, unfortunately, not everyone will qualify,” he said.  Offers for principal reduction loan modifications have been made to some customers of the five banks and other offers are anticipated over the next year.  The mortgage servicers are required to complete 75 percent of their consumer relief obligations within two years and 100 percent within three years.  Read more.

WI:  The Wisconsin Department of Financial Institutions (DFI) and the Wisconsin Housing and Economic Development Authority announced a $1 million program to help eliminate blighted housing in Wisconsin communities.  “Vacant, abandoned houses are having an adverse impact on property values in many communities across Wisconsin,” DFI Secretary Peter Bildsten said.  “These funds will provide assistance to local municipalities looking to eliminate distressed properties, improve property values or make neighborhoods safer.”  Read more.
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Around the Agencies

FINCEN:  The Financial Crimes Enforcement Network (FinCEN) released a new rule Monday, requiring clerks of court to file currency reports with FinCEN under the authority of Title 31 of the U.S. code.  Large currency transactions involving clerks of court, such as payments to make bail, can be indicative of money laundering and other underlying criminal activity, the release stated.  The rule applies to federal and state clerks of court as well as to the branches of the courts authorized to receive bail.  Read more.

FRB: FRB:  The FRB released three proposed rules on Thursday to begin the process of implementing Basel III domestically.  Among various provisions included in the proposed rules are minimum regulatory capital ratio requirements, revisions to the definition of capital, and asset risk-weighting adjustments.  The FRB also approved a final rule to implement changes to the market risk capital rule, which requires banking organizations with significant trading activities to adjust their capital requirements to better account for the market risks of those activities. Read more about the proposals here.  Read more about the final rule here.    

FRB:  The FRB on Monday announced that it has restructured the G.19 statistical release, Consumer Credit, to reflect regulatory filing changes for U.S.-chartered depository institutions and, in addition to the data currently reported on level of credit outstanding, the release will now report data on the flow of credit.  The revised data were made available with the release of the April report on Thursday, June 7.  Read more.

HUD:  The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury released the May edition of the Obama Administration's Housing Scorecard – a comprehensive report on the nation’s housing market.  Data in the May Housing Scorecard indicates continued signs of stability, though officials caution that the overall outlook remains mixed.  Sales of existing homes rose 2.4 percent in April, increasing in every region of the U.S.  Read more.

HUD:  The quarterly number of loans refinanced through the Home Affordable Refinance Program (HARP) has nearly doubled since HARP 2.0 was rolled out in January, according to the Federal Housing Finance Agency’s March 2012 Refinance Report.  HARP refinances topped 180,000 in the first quarter of this year compared to approximately 93,000 in the fourth quarter of 2011.  Read more. 

INTERAGENCY:  Five federal supervisory agencies released a Memorandum of Understanding (MOU) that clarifies how the agencies will coordinate their supervisory activities, consistent with Dodd-Frank.  Section 1025 of the Dodd-Frank requires that the CFPB and the prudential regulators — the FRB, the FDIC, the National Credit Union Administration, and the OCC — coordinate important aspects of their supervision of insured depository institutions with more than $10 billion in assets and their affiliates.  Such coordination includes scheduling examinations, conducting simultaneous examinations of covered depository institutions unless an institution requests separate examinations, and sharing draft reports of examination for comment.  Read more.
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Around D.C.

CSBS:  The Conference of State Bank Supervisors (CSBS) released its 2012 first quarter reports on state-licensed mortgage companies, branches, and individual mortgage loan originators (MLOs) in the Nationwide Mortgage Licensing System and Registry (NMLS) and on registered institutions and MLOs in the NMLS Federal Registry.  Together the two reports provide for the first time a comprehensive tally of all individuals, residential mortgage companies, and depository institutions authorized under the SAFE Act to originate mortgages in the U.S.  Read more.

FANNIE MAE:  Fannie Mae announced that its board of directors has appointed Timothy J. Mayopoulos as president and chief executive officer and a member of the board effective June 18, 2012.  Mayopoulos, who currently serves as executive vice president, chief administrative officer, and general counsel, leads key corporate functions and the company’s business transformation program.  Read more.

ICBA:  The Independent Community Bankers of America (ICBA) announced that 32 state community banking associations joined the call for Congress to extend full coverage of noninterest-bearing transaction accounts before it expires at year-end.  In a joint letter to members of the House and Senate, the community banking organizations wrote that failing to extend full FDIC transaction-account coverage, commonly known as the TAG program, would harm small businesses and disrupt the nation’s financial and economic recovery.  Read more.
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Upcoming Events

June 12:  The FDIC’s Board of Directors will meet in open session at 10:00 a.m. on Tuesday, June 12 to discuss a final rule regarding market risk amendment, a notice of proposed rulemaking regarding Basel III general approaches rule, a notice of proposed rulemaking regarding Basel III advanced approaches rule, and a notice of proposed rulemaking regarding standardized approaches rule.  Read more.

June 13:  The Senate Banking Committee will hold a hearing titled, “A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?” at the Dirksen Senate Office Building at 10 a.m.  Read more.
 
June 18-19:  SourceMedia will host the 3rd Annual Buying & Selling Distressed Mortgage Portfolios Forum at the Crowne Plaza Times Square in New York, NY.  The forum is an opportunity to network with bank/mortgage lenders considering distressed asset sales and the investor/buyer considering distressed asset purchases.  Read more.
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Closing Comment

“European policymakers have taken a number of actions to address the crisis, but more will likely be needed to stabilize euro-area banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area, and lay the foundations for long-term economic growth.”

– Federal Reserve Chairman Benjamin S. Bernanke, in prepared testimony for the Joint Economic Committee hearing Thursday.
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Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor