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CSBS Examiner

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


 In This Issue...

 Upcoming Events...

DFA Derivative Lending Limits Training Course, March 5-6, Washington, DC:  Under the Dodd Frank Act, states need to provide for derivative exposures in their legal lending limit. As the states have sought solutions, this has raised many questions about the type and level of activity of state banks and the appropriate valuation methods to determine exposure. 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.

CSBS BSA & AML Examiners Course, March 5-9, New York City:  Click the link for minimum requirements for attendance and pre-course assignments. 

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

Certified Operations Examiner School, May 7-11, San Diego, CA:  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. APPROVED BY NASBA FOR 40.5 CPE HOURS. 

Credit Evaluation School, May 7-11, San Diego, CA:   The Credit Evaluation School follows a blended learning model similar to our Certified Operations Examiner School. 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. APPROVED BY NASBA FOR 40.5 CPE HOURS. 

CSBS State-Federal Supervisory Forum, May 21-23, Savannah, GA:  The State Federal Supervisory Forum is an annual gathering of senior executives in key leadership positions with state and federal regulatory agencies. 


“True, a little learning is a dangerous thing, but it still beats total ignorance." – Abigail Van Buren

Programs like Jump$tart, which are supported by a wide range of businesses, associations, and government officials, aim to instill the basics of financial literacy for those who need it most.  With the basics behind them, folks can presumably continue their learning path, having learned enough at least to ask the right questions.  While we certainly buy into the adage about a little learning, sometimes it can be a good thing.

Joe Smith Resigns as N.C. Commissioner

Joseph A. Smith, Jr. stepped down Thursday as commissioner of the North Carolina Office of Commissioner of Banks, ending almost 12 years as the state’s top banking regulator.

Smith announced his intention to resign Tuesday in order to assume his new role as monitor of the multi-state and federal servicing settlement with the five largest mortgage servicers — Bank of America Corp., JP Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., and Ally Financial Inc.  In a letter sent out to banking CEOs, Smith stated “I have enjoyed my tenure as commissioner of banks and have done my best to promote the strength and fairness of North Carolina’s financial markets.  I hope my efforts as monitor will contribute to the recovery of the mortgage market and the health of our economy.”

Smith served as chairman of the Conference of State Bank Supervisors (CSBS) from 2009-2010 and has served as chair of both CSBS's legislative and regulatory committees.  John W. Ryan, CSBS President and CEO, released a statement last week congratulating Smith for being asked to serve as the monitor.  “Joe is the right person to ensure implementation of the settlement is fair and realizes its full potential,” Ryan said.  “Joe’s leadership and knowledge of mortgage finance issues make him the ideal person to lead this effort.”
In his statement, Ryan described Smith as “a wise counselor to me and many of his state colleagues.”  “We will greatly miss having Joe as part of the state regulatory system, but know that his service in this new role will be to the benefit of the country and consumers,” Ryan said.

Ray Grace, the agency’s chief deputy bank commissioner, will serve as acting commissioner until the North Carolina Governor Beverly Perdue nominates a successor, which requires confirmation by the state House and Senate.

John Ryan’s full statement is available here.

FDIC Holds Community Banking Conference; Regulators Stress Importance of Small Banks

The Federal Deposit Insurance Corporation (FDIC) hosted a one-day conference Thursday on “The Future of Community Banking” where community bankers and federal regulators discussed the unique role community banks play in the country’s economy and the challenges small financial institutions face in today’s environment.  The conference featured remarks by Federal Reserve Board Chairman Ben S. Bernanke, Rep. Shelley Moore Capito, FDIC Director Thomas J. Curry, and Martin J. Gruenberg, acting chairman of the FDIC.

During the conference, federal regulators stressed the contributions community banks make to the national and local economies and expressed interest in helping small banks in this regulatory environment. Federal Reserve Board Chairman Ben Bernanke said the Federal Reserve and the other banking agencies are acutely interested in the long-term strength and viability of community banks.  FDIC Chairman Martin Gruenberg called for more robust research to understand the scope and condition of community banks.  He also said the agency would make a significant effort to prevent new rules from unduly hurting smaller banks.  Bank executives spoke about the importance of community banks in the financial system, shared their views on regulatory burdens affecting small banks, and called upon regulators to join them in convincing lawmakers to ease these burdens.

Demonstrating progress on the research front, Rich Brown, the FDIC’s chief economist, presented an overview of the FDIC’s research on historical changes in the composition of the industry and balance sheet structure.  Research shows the United States had more than 18,000 charters in 1985, and just fewer than 7,700 at the end of 2010.  Nearly all of the consolidation was from banks with assets less than 100 million.  While the composition of community banks as a percentage of the total industry has declined slightly from 97 percent to 94 percent, the total assets of non-community banks have grown exponentially. Understanding all the factors driving these changes and the long-term implications are important goals for this year long project. 

The conference was the first in a series of community banking initiatives that the FDIC is undertaking this year.   The event will be followed by a roundtable discussion in each of the FDIC’s six regions.  Thursday’s event can be viewed here.

President Obama’s 2013 Budget Proposes $61 Billion Bank Fee

On Monday, President Obama released his $3.8 trillion budget proposal for fiscal year 2013.  In the proposal, the President calls for a $61 billion bank fee on the largest U.S. banks, a 2.7 percent reduction in the Treasury Department's budget, and an increase in funding for the Securities and Exchange Commission (SEC), and the Consumer Financial Protection Bureau (CFPB).

The President’s proposed bank fee would require banks with assets of $50 billion or more to pay $61 billion over a 10-year period, starting in 2013, to pay for their role in the financial crisis.  According to the proposal, the bank fee would “compensate the American people for the extraordinary assistance they provided to Wall Street, as well as to discourage excessive risk-taking.”  The bank fee would also offset the cost of the President’s latest mortgage refinancing program proposal that helps underwater borrowers refinance into cheaper loans.
The American Banker reports that the fee would be based on covered liabilities of each firm.  The publication also reports that Treasury would charge firms 17 basis points but provide a 50 percent discount to apply to more stable sources of funding, including long-term liabilities.

The President’s proposal also requests $14 billion for the Treasury Department’s budget, a 2.7 percent decrease from 2012 levels when Internal Revenue Service funds are excluded.  The SEC, the CFTC and the CFPB, however, would all see an increase in funding under Obama’s budget.  The administration has proposed an 11 percent increase in funding for the SEC’s 2013 budget at $1.57 billion, up from $1.41 billion in 2012.  CFTC funding would remain the same from 2012 levels at $308 million.  The CFPB’s budget would jump 32 percent in fiscal year 2013 to $448 million according to budget documents. The Bureau’s budget more than doubled in fiscal 2012, from $162 million to $340 million, as the new regulator built up infrastructure, hired staff and began its bank supervision program. As an independent bureau in the Federal Reserve System, funding for the CFPB comes from mandatory transfers from the Federal Reserve. The CFPB has the ability to request up to $597.6 million in 2013, and may request up to $200 million more in discretionary appropriations from Congress until 2014.

The President’s 2013 budget proposal is available here.

HUD Withdraws Proposal Allowing Farm Credit Banks to Participate in FHA Loans

The Department of Housing and Urban Development (HUD) has withdrawn a proposed rule to amend HUD’s regulations to allow Farm Credit System banks to participate in the Federal Housing Administration’s (FHA) mortgage loan guarantee program as mortgagees and lenders.
The proposed rule was published in August 2011 and drew several comments in support of and in opposition to the proposal.  CSBS submitted a comment letter to the agency opposing the proposed rule on the grounds of insufficient evidence for its justification, safety and soundness issues it could pose for banks, and unnecessary use of government guarantees.  “The proposed rule does not include sufficient evidence to demonstrate the banks operating in these markets are not meeting legitimate credit needs,” the CSBS letter stated.  “We firmly believe HUD’s proposal to provide additional guarantees to the [Farm Credit System banks] in the mortgage finance area will create safety and soundness issues by harming FDIC-insured institutions who are actively lending in local markets.”

A notice to withdraw the proposal was published in Monday’s Federal Register.  In the notice, HUD acknowledged the position of commenters’ that banks are meeting existing mortgage credit needs in rural areas and also concluded that the proposal to let Farm Credit lenders offer loans backed by the FHA would conflict with efforts to reduce the government's involvement in the mortgage finance market.

“While HUD seeks to ensure the availability of mortgage financing for qualified borrowers nationwide – and particularly in underserved areas – HUD and the Administration remain committed to reducing the FHA’s market share and facilitating the return of private capital to the housing finance market,”  HUD said.

The CSBS comment letter is available here.

Around the States

LA: Governor Bobby Jindal has announced the reappointment of John Ducrest as the Louisiana commissioner of financial institutions.  Ducrest has served as the Louisiana commissioner of the Office of Financial Institutions (OFI) since 2004, and served as the deputy chief examiner of OFI from 1994 to 2004, overseeing the corporate applications section of the depository division, including the chartering of new banks, bank mergers and bank branching.  Ducrest has also served as a financial examiner at OFI from 1985 to 1994.  He is also currently serving as the chairman of CSBS. Read more.

ME: Superintendent Lloyd P. LaFountain III announced that Robert B. Studley has been promoted to the position of deputy superintendent of examination and supervision for the Maine Bureau of Financial Institutions.  Bob has been with the Bureau since 1989 and was formally a national bank examiner with the Office of the Comptroller of the Currency (OCC). 

Around the Agencies

AGENCIES:  Consumers seeking a review of their mortgage foreclosures under the federal banking agencies' Independent Foreclosure Review now have until July 31, 2012, to submit their requests.  The OCC and the Board of Governors of the Federal Reserve System (Federal Reserve) announced the new deadline provides an additional three months for borrowers to request a review if they believe they suffered financial injury as a result of errors in foreclosure actions on their homes in 2009 or 2010 by one of the servicers covered by enforcement actions issued in April 2011.  Read more

AGENCIES:  The Consumer Protection Working Group, formed under President Obama’s Financial Fraud Enforcement Task Force, convened its first meeting Friday to address consumer fraud, which can financially cripple households and can cause extensive losses to our economy.  The newly-created group will work across federal law enforcement and regulatory agencies, and with state and local partners, to strengthen efforts to address consumer-related fraud.  Read more.

CFPB:  Following the announcement of the state-federal mortgage servicing settlement last week, Holly Petraeus, assistant director for the CFPB’s Office of Servicemember Affairs, applauded the protections included in the settlement for military homeowners.  “On my travels to military communities across the country during the past year I have repeatedly heard about the devastating impact of the housing crisis on military homeowners,” Petraeus said.  “I have spoken out about the unique challenges to servicemembers caught in this current housing crisis, and I am pleased that this settlement addresses those challenges.”  Read more.

CFPB:  The CFPB is seeking public input on a draft monthly mortgage statement that is designed to make it easier for homeowners to understand their loans and avoid unnecessary costs and fees.  “This draft statement shows consumers the breakdown of their mortgage payments – what money goes to the loan principal, interest, and fees,” said CFPB Director Richard Cordray.  “This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up.  Given the widespread mortgage servicing problems we’ve seen over the past few years, consumers need clear disclosures they can count on.”  Read more

FINCEN:  Financial Crimes Enforcement Network (FinCEN) Director James H. Freis, Jr. has named Peter S. Alvarado as FinCEN's new deputy director.  Alvarado comes to FinCEN from the Internal Revenue Service Criminal Investigations Division (IRS-CI) where he served for 27 years, most recently as the deputy director of strategy.  "Peter brings with him extensive experience as an investigator, working closely with local, State and Federal law enforcement on a wide range of financial crimes as well as strong leadership in strategic planning, policy management, and international operations," said Freis.  "I'm extremely pleased to welcome Peter to FinCEN and look forward to the benefits of his continuing commitment to public service."  Read more

FTC:  At the request of the Federal Trade Commission, a U.S. district court put the mortgage relief business permanently off limits to marketers who allegedly charged thousands of consumers up to $2,600 each, based on bogus promises to provide loan modifications that would make mortgages much more affordable.  Read more

OCC:  The OCC promoted awareness of consumer protection resources during a National Consumer Protection Week event on Capitol Hill.  “Consumers need timely, useful information to make sound financial decisions and protect themselves from unfair, deceptive, and fraudulent practices,” Acting Comptroller of the Currency John Walsh said.  “National Consumer Protection Week highlights important sources of information and resources that consumers can use every day.”  Read more.


Upcoming Events

February 29:  Join National Journal as key policy makers and experts discuss principal reduction initiatives, foreclosure prevention programs, and other strategies to address high foreclosure rates and restore the health of the housing markets during the “Underwater: Washington’s Role in Keeping American Homeowners Afloat” discussion panel at the Newseum.  Read more.

March 5-6: The CSBS Education Foundation will host a Derivatives and Legal Lending Limits Training Program 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.

Closing Comment

“At the end of the day, the Wall Street model that we saw for the last 20 years was a mirage.  There are no economies of scale in banking.  You either know your customer or you don’t.  When you have large banks that rely on credit scoring and statistics to make credit decisions, you know that eventually when the boom is over that they are going to be in trouble….  The FICO scores will turn to dust in their hands.”

– Christopher Whalen, Senior Managing Director, Tangent Capital Partners, at the FDIC conference on the future of community banking.

Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor

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