CSBS Examiner - October 25, 2002
In this issue

CSBS Hosts Foreign Bankers For Annual Dialogue Day
Treasury Cites Problems With Identification Of Foreign Nationals Holding U.S. Bank Accounts
Around the States
Around the Agencies



October 25, 2002

?What?s it like to be kissed by a vampire? It?s a pain in the neck.? ? Halloween Jokes by BrainCandy

It was a dark and stormy night. A full moon ascended, casting its pale light over the neighborhood, turning the landscape into shades of gray and black, sparked only by the flicker of flashlights and the orange glow of jack-o?lanterns on every front porch. We waited with excitement for sundown, wearing our homemade outfits, stitched together on our mothers? sewing machines out of old rags. We plopped mops on our heads and raided our mothers? makeup cases to color our faces with eyebrow pencil and blood-red lipstick. Or we became satin-caped fairies wearing tiaras and carrying magic wands crafted out of aluminum foil. Some of us took the easy route and became ghosts in white bed sheets with eyeholes cut out so we could see our way up the street. We knew which houses gave out full-size candy bars (yeah!) and we knew the one that always gave apples. If no one was home, we whisked out a bar of soap and scrawled something mean on the storm door window. Such fun! So tell the truth: Is there an adult among us who doesn?t want to disguise his/her age and identity for one night a year to collect a grocery bag full of glorious candy to dump out on the living room floor and sort into good, better and best? And finally go to bed with our stomachs churning with chocolate consumed along the way? Trick or treat, Halloween is the sweetest holiday of all.


The Conference of State Bank Supervisors hosted some 40 foreign bankers and their state regulatory counterparts this week for our annual International Dialogue Day. This year?s program, held here in Washington, D.C., was combined with a 1½-day foreign bank executive orientation program, with educational sessions on the USA PATRIOT Act, other major banking laws, and an overview of U.S. labor laws.

Most Americans probably are not aware of the important role foreign banks play in our nation?s economic underpinnings. For foreign companies doing business in the U.S., from large international corporations to small businesses, it?s critical to have a foreign bank office or branch of a home country bank to work with. Most of these foreign bank offices are state-licensed. They are most active in New York, California, Florida, Illinois, Connecticut, and Georgia, but also maintain operations in Texas, Washington, and a handful of other states. These banking offices generate a huge volume of small business loans and play a critical role in the economy and the U.S. banking systems. As of December 31, 2001, state-licensed foreign banks held $1.255 trillion in assets, accounting for 83.9 percent of all foreign bank assets in the United States.

CSBS Senior Vice President Tim Bergan noted that this year?s event was a resounding success, based on comments from the participants, who found the educational sessions to be most helpful. Of special interest were the sessions dealing with compliance with the USA PATRIOT Act, and compliance in general along with sessions dealing with what?s covered in an examination and how to prepare for the exam. Bank examiners from New York, Florida, Connecticut and Illinois gave excellent presentations and responded to numerous questions from foreign bankers. The program provided an excellent forum for examiners and bankers to develop effective working relationships.

The program also included a dialogue with Federal Reserve Chairman Alan Greenspan, presentations by key staff from the Senate Banking Committee and House Financial Services Committee, a presentation by Wayne Abernathy, minority staff director for the Senate Banking committee, who has been nominated by President Bush to become Assistant Secretary of the Treasury for Domestic Finance, and a review of current critical issues by Juan Zarate, Deputy Assistant Secretary of Treasury for Terrorism and Violent Crime.

This year?s International Dialogue Day was co-chaired by Fernando Capablanca, president and CEO of Banco de Credito Inversiones, Miami FL, and Don Meyer, Commissioner, California Department of Financial Institutions, who also co-chair the CSBS International Bankers Advisory Board.


The Treasury Department acknowledged the difficulty in writing rules for banks to verify the identity of foreign nationals who open an account, in a report delivered to Congress on Tuesday. Because there is no reliable and standardized system for identifying foreign nationals, Treasury said financial institutions will have to make reasonable efforts to verify identity using available identifying information and documents. The report recommended that a study be conducted on establishing a verification system for foreign nationals as part of an overall assessment of national immigration controls and national security interests.

?The absence of available government databases containing complete information about foreign nationals in the United States means that domestic financial institutions cannot be reasonably expected to accurately verify the identity of foreign nationals,? Treasury stated. For more information about the report, go to the Treasury Department?s Web site.


Illinois/Indiana/Ohio: The Federal Trade Commission announced Wednesday that approximately 1,800 Illinois, Indiana and Ohio consumers will receive letters notifying them they may qualify to receive redress under the provisions of the FTC?s settlement with Mercantile Mortgage Company. The FTC alleged that Mercantile misrepresented terms of mortgage loans to consumers and that the firm violated certain credit statutes. Information on who is covered under the agreement and how to initiate a claim is posted on the FTC?s Web site.

Michigan: The Michigan Office of Financial and Insurance Services (OFIC) has issued a bulletin outlining the regulatory status of viatical investments as securities. ?Viatical investments are legitimate products but greater protection for consumers is needed,? said OFIC Commissioner Frank M. Fitzgerald. Fitzgerald noted that Michigan securities laws will regulate this product in the state.

OFIS offers an information brochure on viaticals, entitled ?Viatical Settlements: The Undisclosed Risks; What Every Investor Must Know? available on the OFIS Web site.


FED: Most Federal Reserve Districts reported that economic activity remained sluggish in September and early October, according to the Beige Book report released by the Federal Reserve on Wednesday. Retail sales were weak across the nation, including some declines in car sales from their previously high levels. Manufacturing activity declined or grew at slower pace in most districts, but home building and the residential market were generally upbeat. On the agricultural front the news was mixed, with drought conditions hurting some areas, while other regions reported good harvests. There was strong demand for consumer loans and weak commercial lending activity in most districts. Some districts reported a slight decline in credit quality. Read more...

FRB: The Federal Reserve Board and Federal Reserve Banks of Chicago, Minneapolis, Kansas City, and San Francisco are sponsoring a conference on Nov. 18-20 in Scottsdale, Ariz., to explore ways to encourage banking opportunities in tribal communities. The Fed said that the conference is designed for bankers, tribal leaders, tribal economic and housing development specialists, attorneys, and resource staff for community development. Some of the speakers include Federal Reserve Board Governor Mark Olson and Mary S. Gabler, vice president and community development manager for Wells Fargo.

FDIC: The Federal Deposit Insurance Corporation (FDIC) today announced that the Bank Insurance Fund (BIF) showed comprehensive income of $944 million for the nine months ending September 30, 2002, compared to $859 million for the same period last year. As of September 30, 2002, the fund balance was $31.4 billion, up from $30.4 billion at year-end 2001. BIF's reserve ratio increased from 1.23 percent at March 31, 2002, to 1.26 percent at June 30, 2002, just slightly above the statutorily mandated designated reserve ratio of 1.25 percent. The Savings Association Insurance Fund (SAIF) reported comprehensive income of $651 million compared to $56 million for the same period last year. The increase in comprehensive income over the prior period was primarily due to SAIF experiencing higher estimated losses in 2001 for actual and expected thrift failures. The SAIF had a fund balance of $11.6 billion as of September 30, 2002, up from $10.9 billion at year-end 2001. Eight BIF-insured banks failed during the first nine months of 2002 with total assets at failure of $2.4 billion. One SAIF-insured thrift failed during the same period with total assets at failure of $50 million. The figures the FDIC reported are unaudited.

NCUA: The National Credit Union Administration issued a cease and desist order on Monday against Korean American Catholics Federal Credit Union, New York, N.Y., for violations of the Bank Secrecy Act. The credit union, with about $30.3 million in assets and 4,203 members, was cited for failure to complete Currency Transaction Reports and Suspicious Activity Reports on numerous member account transactions that involved cash structuring activity. NCUA chartered Korean American Catholics Federal Credit Union in 1979 to serve Korean American Catholics residing in New York and New Jersey. The credit union has approximately $30.3 million in assets and serves 4,203 members. Read more...

FTC: The Federal Trade Commission charged a Toronto-based company with operating a fraudulent advance-fee credit card business. FTC alleged that First Capital Consumers Group told consumers that they would receive a pre-approved MasterCard or Visa credit card with low interest rates, credit limits of $2,000 or $2,500, and no annual fees. Consumers paid the defendants an advance fee of between $189 to $219, but never received the cards. Some of the consumers received nothing, others received packages of information on buying miscellaneous products or services, or "stored value" cards that they could only use if they deposited money into an account. FTC's complaint said the company targeted U.S. consumers who have poor credit histories. For more information, go to the FTC?s Web site.


October 29
The Securities and Exchange Commission will hold the first in a series of hearings to discuss key issues related to the structure of the U.S. equity securities markets. ? SEC Headquarters, 450 Fifth Street, Washington, D.C.

October 31
The Board of Governors of the Federal Reserve System will meet in regular session. Matters to be considered include final amendments to Regulation B (Equal Credit Opportunity); final amendments to Regulation A (Extensions of Credit by Federal Reserve Banks) and Regulation D (Reserve Requirements for Depository Institutions; Proposals regarding sections 23A and 23B of the Federal Reserve Act; proposed 2003 fees for priced services and electronic connections. ? 10 a.m., Federal Reserve Board, Marriner S. Eccles Building, Washington, D.C.

October 31
The Senate will convene for pro forma session only. - 10:30 a.m.


?Any of you who have studied economic history know there is nothing truly unprecedented in today?s trials and hearings, or the images of shamed ex-executives led off in chains. Those infatuated with greed eventually get their due, in every generation. Our economic system has the flexibility to absorb these shocks, adjust, and recover.? ? Treasury Secretary Paul O?Neill, speaking Tuesday at the University of Chicago Graduate School of Business.


CSBS Examiner
Mary White, Editor
Teresa Dean, Contributing Writer