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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...

Online Courses starting May 2:  Asset Liability Management II, Fraud Identification Training, and Real Estate Appraisal Review.

CSBS State-Federal Supervisory Forum, May 15-18:  The Forum will be held at the Westin Seattle, 1900 Fifth Avenue, Seattle, WA 98101.  REGULATORS ONLY.

Online Courses starting May 31:  Managing the Investment Portfolio and Bank Financial Analysis.

Senior School, June 20-24, San Diego, CA:  Senior School is designed to meet the specific leadership training needs of state bank regulators who are rising into management positions within their departments or as an examiners-in-charge in the field.

Examiners Forum, June 27-29, Austin, TX:  The Examiners Forum is designed to bring together Senior Certified Examiners and other "seasoned" examiners to discuss current and emerging issues.

Deputy Seminar, August 1-3, Boulder CO:  The Deputy Seminar is an opportunity for key banking department officials to gather to learn about upcoming issues, share challenges, and learn potential solutions.

“’Issues’ may be abstractions, but when you ask people what concerns them, they tell you – in clear and often passionate voices.”  -- Journalist David Broder 

Broder’s family held a final memorial service for him this week at the National Press Club, and by all accounts it drew a VIP crowd. Throughout his long and remarkable career, he focused first and always on what local, grassroots people were thinking, not on the process-obsessed musings of the policy wonks. As a result, he became an early trend-spotter and a powerful prognosticator; his columns were syndicated to hundreds of publications, and of course he worked the talk shows. Right into his 81st year he kept talking about retiring but never got around to it. As one of his sons said, he saw life as a classroom, and he never stopped learning.


CSBS Chairman Testifies Before Congress; Says Viability of Community Bank Model has Systemic Consequences

John Ducrest, Commissioner of the Louisiana Office of Financial Institutions and Chairman of the Conference of State Bank Supervisors, testified on Wednesday on behalf of CSBS before the Financial Institutions and Consumer Protection Subcommittee of the Senate Committee on Banking, Housing and Urban Affairs on the state of community banking.

In his testimony, Ducrest focused on the essential role community banks play in economic development, addressed the current regulatory environment in which community banks operate, identified concerns about the impact of regulations and policies on community banks, and offered recommendations for policymakers aimed toward strengthening the community banking system. More specifically, Ducrest highlighted concerns that the cumulative effect of certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and additional regulatory initiatives undertaken by federal agencies may have the unintended consequence of placing excessive regulatory burden upon community banks across the country.  Ducrest also spoke in detail about the vital role community banks play in economic development and market stability.

To conclude his testimony, Ducrest provided the following recommendations to Members of Congress and the federal regulatory agencies: urging continued coordination and consultation between federal and state regulators to best understand how local and national economies will be impacted by new regulations; called for further analysis to fully understand and appreciate the valuable relationship between community banks and small business; and recommended investigation of ways to tailor regulatory requirements to institutions based upon their size, complexity, geographic location, management structure, and lines of business. 

Here is a complete copy of Ducrest’s testimony.  Read more


Alabama State Banking Department Celebrates 100 Years 

This week the Alabama State Banking Department celebrated the 100th anniversary of the founding of the Department at an event in Montgomery, AL. There were approximately 300 attendees at the celebration, including past and present Alabama Banking Board members, former Superintendents, current and retired department employees, representatives from the FDIC, the Federal Reserve Bank of Atlanta, John Ryan, the Executive Vice President of CSBS, and the Chairmen and CEOs of the 117 Alabama state-chartered banks.  Among the banks represented and recognized were the 20 banks which were established before or during 1911 and are still in existence today.  At the celebration, Governor Robert Bentley presented Superintendent of Banks John D. Harrison with an official proclamation honoring the department’s centennial (photo below.) 

In 1911, in his recommendation to the legislature to establish a state banking department, Gov. Emmet O’Neal said, “The growth of the banks of Alabama, both in numbers and in deposits, has more than kept pace with the expansion of the State in population and industrial development.  Unfortunately this growth has been marred in the recent past by some failures of a most inexcusable and disgraceful description, and through the shameless violation of the commonest rules of sound banking.  I am persuaded that these failures and all the harm to many hundreds of depositors, could have, and would have been prevented by a department of banking properly equipped and clothed with authority and charged with responsibility.”  “It is absolutely amazing how after 100 years, we find ourselves facing the very same environment that Governor Emmet O’Neal and the banks faced in 1911,” said John Harrison, current Superintendent of Banks for the Alabama State Banking Department.


WHF Holds Spring Symposium: Reider Norton Provide Insight as Key Panelists 

The Women in Housing and Finance (WHF) tackled many crucial issues of concern for the financial industry during its annual Spring Symposium held Wednesday. The symposium featured an impressive lineup, including opening remarks by Representative Shelley Moore Capito (R-WV), a keynote address from the FDIC’s Director of the Division of Depositor and Consumer Protection, Mark Pearce, and several panels that took on topics such as the future of mortgage servicing, charter options, and the future of the Consumer Financial Protection Bureau (CFPB). 

Executive Deputy Secretary of the Pennsylvania Department of Banking, Victoria Reider, represented state regulators on a panel on charter choice with the OCC. Reider touted the benefits of the state charter, including supervision that understands local communities and their needs, superior accessibility, and lower cost. Steve Antonakes, assistant director of Large Bank Supervision of the CFPB and Peggy Twohig, assistant director of Nonbank Supervision at the CFPB, provided a status update on their latest efforts, relaying that the CFPB expects to be fully functional by the July 21 transfer date.  

Deputy Commissioner of the Maryland Office of the Commissioner of Financial Regulation, Anne Balcer Norton, finished up the day deliberating the future of the fledgling CFPB. Norton commented on the speculation surrounding the CFPB and asserted that the situation is still unfolding.  When asked by a symposium attendee about CFPB priorities, Norton responded that the main priorities of the CFPB should center around leveraging existing resources, establishing an effective structure, and enhancing stability.

Read more


NAMB and NAIHP Motions Denied: LO Compensation Rule Now in Effect 

Despite industry efforts to stop its implementation, the Federal Reserve Board’s loan officer compensation rule is now in effect. The final rule, which was issued in August 2010, prohibits a loan originator from: receiving compensation based on the interest rate or other loan terms and conditions; receiving compensation directly from the consumer while also receiving compensation from the lender or another party; and directing or steering a consumer towards a mortgage loan that is not in the consumer’s best interest in order to increase the originator’s compensation. While this prevents loan originators from increasing their own compensation by raising the consumers’ loan costs, loan originators are still permitted to receive compensation based on a percentage of the loan amount.

The rule, originally scheduled to take effect on April 1, 2011, was put on hold the day prior by the US Court of Appeals to give the court an opportunity to consider the emergency relief motions brought forth by the National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP). After further evaluation, three circuit-court judges denied the motions on the grounds that NAMB and the NAIHP did not satisfy "the stringent standards required for a stay pending appeal." The appeals court panel also denied an emergency motion to delay implementation of the rule pending appeal and denied a motion for expedited relief that sought to accelerate the appeal process. Therefore, as of April 6th, the Federal Reserve's final rule on loan originator compensation is now in effect.  A copy of the final rule is available.


Around the States 

NC: North Carolina’s General Assembly confirmed Joseph Smith Jr. as North Carolina’s banking commissioner Monday night. Both chambers unanimously agreed with Gov. Beverly Perdue's decision to have Smith remain serving as commissioner for the next four years. Smith has served as North Carolina's banking commissioner since 2002. 

DE: This week, the Delaware Senate confirmed Gov. Jack Markell’s reappointment of Robert Glen to the Delaware Office of the State Bank Commissioner, for another four-year term as commissioner. This is Glen’s third reappointment, a title he’s held since 1999.


Around the Agencies 

FASB: The Financial Accounting Standards Board (FASB) issued an update to financial reporting this week meant to improve the consistency in the way Generally Accepted Accounting Principles are applied to various types of debt restructuring.  The revision is intended to aid creditors in determining whether a modification of the terms of the receivables meets the criteria to be deemed a troubled debt restructuring, for the purposes of recording an impairment loss and for disclosure of the troubled debt restructuring.  Read more  

FRB: On Wednesday, the Federal Reserve Board began soliciting comment on a proposal to repeal Regulation Q, which prohibits the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System.  The Board is seeking comment on whether or not the repeal of Regulation Q is presumed to have implications for balance sheets and income of depository institutions, short-term funding markets such as overnight federal funds market, the demand for interest-bearing demand deposits, and competitive burden on smaller depository institutions. Comments on the proposal are due within 30 days of publication in the Federal Register.  Read more  

FTC: Last Friday, the Federal Trade Commission issued its 2011 Annual Report, which emphasized the agency’s continued efforts to promote healthy competition and protect financially troubled consumers.  Read more 

INTERAGENCY: The Office of the Comptroller of Currency (OCC) and the Federal Reserve Board (FRB) issued a clear account of expectations for banks that use quantitative models for any form of business. The supervisory guidance provided by the two agencies tackles the issue of model risk, which is the possibility of damage when models play a significant role in a bank’s decision making. The guidance illustrates several different risk management techniques to manage model risk such as “effective challenge” of models through model validation, strong governance, internal audit coverage, and clear internal policies and documentation.  Read more


Upcoming Events 

Apr. 12: The Senate Banking Committee is holding a hearing on the creation of the new derivatives regulatory framework at 2:45 pm EST in room 538 of the Dirksen Senate Office Building. The hearing will feature testimony from witnesses Mary Schapiro, chairwoman of the SEC, and Gary Gensler, chairman of the CFTC. Read more  

Apr. 14: The Capital Markets & Government Sponsored Enterprises Subcommittee of the House Financial Services Committee is holding a hearing titled “Understanding the Implications and Consequences of the Proposed Rule on Risk Retention at 2 pm EST in room 2128 of the Rayburn House Office Building. Read more  

Apr. 14: The House Committee on Oversight & Government Reform will hold a full-committee hearing entitled “State and Municipal Debt: Tough Choices Ahead” at 9:30 am EST in room 2154 of the Rayburn House Office Building. Read more  

Apr. 14: The Oversight and Investigations Subcommittee of the House Financial Services Committee is scheduled to hold a hearing on oversight of the Financial Stability Oversight Council at 10 am EST in room 2128 of the Rayburn House Office Building. Read more  

Apr. 15 and May 1: CSBS will host two separate online model examination schools designed to assist mortgage regulators and mortgage industry compliance personnel in implementation of examination procedures for the Guidance on Nontraditional Mortgage Product Risks and the Statement on Subprime Mortgage Lending. For more information or to register.


Closing Comment 

“It is critical that policies and decisions made in Washington, D.C. carefully consider the impact on smaller banks and the communities they serve. Put simply, how community banks are impacted by Dodd-Frank and other regulatory measures is too important not to understand.”  

-- John Ducrest, Commissioner of the Louisiana Office of Financial Institutions and CSBS Chairman in his testimony before the Financial Institutions and Consumer Protection Subcommittee of the Senate Committee on Banking, Housing and Urban Affairs on the state of community banking


Catherine Woody, Editor
Edward Smith, Contributing Editor
Andrea Corson, Contributing Writer

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