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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...

Bank Directors Seminar, September 26-28, 2010, Coeur d’Alene, ID:  The Graduate School of Banking at Colorado and the Conference of State Bank Supervisors join forces to deliver the best and most effective bank director training. This program gets to the point and delivers clear, effective tools to serve as a community bank director.

CSBS Banker Briefing:  Your State Banking Commissioner and the CSBS cordially invite you to a roundtable briefing and open discussion of financial regulatory reform and other timely issues.  Complimentary registration.
Problem Bank School, October 4-8, 2010, LaQuinta, CA:  This program takes an examiner from the “routine” to the complex and challenging world of problem banks. In this course, examiners will learn how to: identify red flags; risk focus the exam; identify and prevent fraud; draft enforcement actions; document to prevent or prepare for litigation.  APPROVED BY NASBA FOR 40.5 CPE hours.

Certified Operations Examiner School, October 4-8, 2010, LaQuinta, 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.

Examiner Education Forum, October 24-27, 2010, Orlando, FL:  A forum for banking department training directors to discuss trends and needs in examiner training.  CSBS is partnering with Masie Center in their Learning 2010 Conference.

CSBS Technology Seminar, November 8-10, 2010, Chicago, FL:  The Technology Seminar addresses the current technological issues affecting the financial industry, the banking departments and the regulatory process.

“Weather is uncontrollable. Only the Lord above can control the weather. Whatever we get, we have to work with.”  -- Maurice Greene. 

In a speech this week, FDIC Chairman Shelia Bair said no one knows whether recent economic trends are the start of a double-dip recession or just an early cycle slowdown. It reminded me of planning an outdoor event with the forecast of widely scattered showers. You check radar screens, look at cloud formations and even sniff the air, but there is just no way at 10 o’clock to know if your outdoor reception at 4 o’clock will require your guests to bring umbrellas and troop into that crowded room you hoped never to use. My own wedding reception was an outdoor affair, and I later learned that the caterer moved the location of the wedding cake three times based on her assessment of the cloud formations. So while no one can know the path of the U.S. economy at this juncture, bankers and their regulators are working through the problems they can see and prudently planning for what they can’t yet know. May the 10 o’clock clouds turn into 4 o’clock blue skies. -- TJD


Group Unveils New Global Capital Plan, U.S. Regulators Endorse It 

Large, internationally active banks’ minimum common equity requirements would rise to 7 percent by Jan. 1, 2019, according to a package of reforms adopted by the Group of Governors and Heads of Supervision, which is the oversight body of the Basel Committee on Banking Supervision.  The plan is expected to be approved by the G20 at its meeting in Seoul in November.  The Committee's package of reforms would increase the minimum common equity requirement from 2 percent to 4.5 percent. In addition, banks would be required to hold a capital conservation buffer of 2.5 percent to withstand future periods of stress, bringing the total common equity requirements to 7 percent.  The plan also would require a countercyclical buffer within a range of 0 percent to 2.5 percent of common equity or other fully loss-absorbing capital, which will be used according to national circumstances. The new numerical minimum requirements would be phased in over two years beginning on Jan. 1, 2013, with certain capital deductions and the phase-in of capital buffers occurring from Jan. 1, 2014, to no later than Jan. 1, 2019. Get a copy of the package 

The U.S. federal banking regulators issued a statement in support of the international banking capital reform package announced by the G-10 Governors and Heads of Supervision.  The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency said the “agreement represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses.” The regulatory agencies said the phase-in period for the standards will alleviate potential short-term pressures on the cost and availability of credit. Going forward, the agencies said they will be evaluating covered institutions’ capital adequacy as well as the strength of their plans to meet future standards as they go into effect. View the statement


Senate Passes Legislation to Fund Small Business Lending Through Community Banks 

By a vote of 61-38, the Senate passed legislation to create a $30-billion small-business lending fund and provide $12 billion in tax breaks for small firms. The $30 billion fund would be administered by the Treasury Department and would provide capital to qualified community banks with assets of less than $10 billion to stimulate lending to small businesses. Participating banks would initially pay a 5 percent dividend rate, but the rate could be reduced to as low as 1 percent if a bank demonstrates increased lending to small businesses. The program does not require warrants and does not have the executive compensation restrictions imposed by the Troubled Assets Relief Program. Other provisions in the bill would increase the Small Business Administration’s 7(a) loan limits to $5 million from $2 million, the 504 loans loan limits to $5.5 million from $1.5 million and the micro loan limits to $50,000 from $35,000. It would increase the government guarantee on 7(a) loans, while eliminating borrower fees on 7(a) and 504 loans through Dec. 31, 2010. The bill also would provide $1.5 billion in grants to states to support small-business lending programs. The bill is expected to be accepted by the House, which passed its own version of the legislation earlier. More information on the bill


Key Findings of the ICBA Community Bank Technology Survey 

Regulatory compliance is a top technology concern of community bankers, according to a survey published by the Independent Community Bankers of America.  Eighty-two percent of community banks cited regulatory compliance as a leading technology concern, and 60 percent said they planned to increase compliance spending over the next two years.  Another major concern was identity theft, and community banks expected to increase security spending by 50 percent and risk management expenditures by 49 percent. The top data security concerns by category were consumer identity theft at 72 percent, followed by virus attacks at 57 percent, phishing/pharming schemes at 53 percent, business identity theft at 46 percent, hacker attacks at 45 percent and business-account password compromise at 40 percent. Forty-three percent planned to increase their technology budgets, 39 percent expected to keep their technology budgets the same, and 12 percent planned to decrease their technology budgets.  The survey also found that community banks were ramping up for mobile banking deployment with 47 percent planning to offer the service in the next 24 months. The survey was based on responses from 895 banks.  More results


Massachusetts Division of Banks Receives Certificate of Accreditation 

CSBS announced this week that the Massachusetts Division of Banks has received a certificate of accreditation, certifying that the Division maintains the standards and practices in state banking supervision set by CSBS’s Accreditation Program. The Division traces its origins to Feb. 7, 1784 with the chartering of The Bank of Massachusetts through Chapter 25 of the Acts of 1783.  This Charter, signed by Governor John Hancock and Senate President Samuel Adams, includes one of the first known provisions to require bank examinations. Steven L. Antonakes has served as the Commissioner of Banks since December 2003 and was reappointed by Governor Deval Patrick in July 2007. In May 2010,  Antonakes was elected to serve as Vice Chairman of CSBS, having previously served as Secretary and Treasurer.  Antonakes also has served as a founding member of the Board of Managers of the State Regulatory Registry LLC, a wholly-owned subsidiary of CSBS, which is charged with developing and implementing the Nationwide Mortgage Licensing System. The Division oversees nearly 240 state-chartered banks and credit unions holding total combined assets of approximately $255 billion. The Division also is responsible for the licensing and examination of more than 800 non-bank financial entities and more than 3,800 individuals engaged in mortgage lending and brokering, as well as the licensing and supervision of an additional 3,500 non-bank financial entities. View the CSBS press release


Around the States 

Florida: The Florida Office of Financial Regulation closed Horizon Bank in Bradenton, bringing the total number of banks closed for the year to 119. FDIC entered into a purchase agreement with Bank of the Ozarks, Little Rock, Ark., to assume all of the deposits and assets of Horizon Bank. Horizon Bank had approximately $187.8 million in assets and $164.6 million in deposits. FDIC and Bank of the Ozarks entered into a loss-share transaction on $150.4 million of the failed bank's assets. FDIC estimated that the cost to the Deposit Insurance Fund would be $58.9 million.  

Connecticut: The Connecticut Department of Banking, the Connecticut Department of Consumer Protection and the Credit Union League of Connecticut joined the Consumer Federation of America in launching a new program to protect consumers and financial institutions from fake check scams. Connecticut is the first of several states in which CFA will launch this collaborative project. Banks and credit unions participating in the effort will hand out a brochure created by CFA to every consumer who comes in to deposit checks or money orders of $1,000 or more or to withdraw $1,000 or more. The program is aimed at scams where a consumer receives a fake check or money order that appears to be genuine and is asked to wire money somewhere in return. “These crooks take advantage of the trust that the financial system is built on,” said Banking Commissioner Howard F. Pitkin. “Consumers need to understand that they are responsible for the checks and money orders that they deposit or cash because they are in the best position to know if the people who gave them to them are trustworthy,” he said. CFA is providing the brochures to participating banks and credit unions at no cost except to cover shipping expenses.


Around the Agencies 

FDIC: To attract more bidders, FDIC announced plans to conduct auctions of smaller dollar pools of equity interest in the loans and assets of failed banks during the next several months. FDIC will limit the asset pools held in a limited liability company to $200 million or less and give them a geographic focus.  The asset pools in the limited liability companies may include commercial real estate loans, commercial acquisition, development and construction loans, residential acquisition, development and construction loans, commercial loans secured by assets other than real estate, or single family residential loans, and related assets, such as real property.  The agency explained that a prospective bidder in a structured sale must be prequalified to receive sale notices and outlined the qualification process. Details 

FASB:  The Financial Accounting Standards Board will sponsor five public roundtable meetings over three days on the proposed Accounting Standards Update for financial instruments. The first meeting in Norwalk, Conn., on Oct. 12 will cover concerns of private companies and not-for-profit entities on FASB’s Exposure Draft on Accounting for Financial Instruments. Two meetings also will be held on Oct. 18 in New York City and on Oct. 19 in Norwalk, Conn., to cover general concerns about FASB’s financial instrument exposure draft.  “Hosting a series of fall roundtables, in addition to the written comment period currently under way for this and other proposals, will help ensure that we receive the broad feedback we need on this and other projects from our diverse audience of constituents who share an interest in high-quality financial reporting,” said FASB member Leslie Seidman. Meeting registration information 

FDIC: The agency issued guidance to banks on the risk posed by sensitive information stored on certain electronic devices, such as photocopiers and fax machines. The agency said photocopiers, fax machines and printers may contain a hard drive or flash memory that stores digital images of documents that are copied, transmitted or printed by the devices. Banks should be aware that these digital images may contain sensitive and confidential information concerning bank customers. FDIC called on financial institutions to adopt written policies and procedures to ensure that a hard drive or flash memory containing sensitive information is erased, encrypted or destroyed prior to the device being returned to the leasing company, sold or otherwise disposed of. Read the guidance 

FHFA: The Acting Director of the Federal Housing Finance Agency told Congress about concerns over banks’ failure to respond to repurchase requests from Fannie Mae and Freddie Mac. Testifying before the House Financial Services’ Capital Markets Subcommittee, Edward J. DeMarco said that at the end of the second quarter 2010, Fannie Mae had $4.7 billion in outstanding repurchase requests and Freddie Mac had $6.4 billion in outstanding requests. More than one-third of these repurchase requests have been outstanding for more than 90 days, he said, and involve the largest U.S. financial institutions. “The delays by lenders in repurchasing these loans are a significant concern to FHFA,” he told lawmakers. DeMarco said there are ongoing discussions about the issue. He warned that if a workable solution is not found soon, the agency “may look to its supervisory and conservatorship authorities provided under the statute to resolve the situation.” On the issue of predicting continuing funding needs of Fannie Mae and Freddie Mac, DeMarco said the agency is in the process of working with the companies to develop a sample of forward-looking financial projections for public release. He said the model projections will be similar to the Supervisory Capital Assessment Program conducted by the federal banking agencies for banks last year. Read his testimony


Upcoming Events 

September 21: The Senate Banking Committee schedules a hearing on investing in infrastructure: creating jobs and growing the economy, 10 a.m., 538 Dirksen Senate Office Building.

 September 22 : The Senate Banking Committee schedules a hearing on the SEC Inspector General report on SEC’s response to concerns regarding Robert Allen Standford’s alleged ponzi scheme and improving SEC performance, 10 a.m., 538 Dirksen Senate Office Building. 

September 22: The House Financial Services Committee convenes a hearing on the Federal Housing Administration loan program, 10 a.m., 2128 Rayburn House Office Building. 

September 22: The House Financial Services Committee schedules a hearing on the state of the international financial system, 2 p.m., 2128 Rayburn House Office Building. 

September 22: The Senate Banking Committee schedules a hearing on reauthorization of the National Flood Insurance Program, 2 p.m., 538 Dirksen Senate Office Building. 

September 23: The House Financial Services’ Capital Markets Subcommittee convenes a hearing on assessing the limitations of the Securities Investor Protection Act, 10 a.m., 2128 Rayburn House Office Building. 

September 23: The House Financial Services’ Financial Institutions & Consumer Credit Subcommittee sponsors a hearing on the Equal Employment for All Act (H.R. 3149), 10 a.m., 2220 Rayburn House Office Building. 

September 23: The House Financial Services Committee schedules a hearing on perspectives on the Livable Communities Act of 2010, 2:30 p.m., 2128 Rayburn House Office Building. 

September 26 – September 28: Bank Directors Seminar in Coeur D’Alene, Idaho. The Graduate School of Banking at Colorado and CSBS join forces to deliver the best and most effective bank director training. 

September 28: NMLS Training Workshop—Managing Loan Officers.  The Nationwide Mortgage Licensing System is sponsoring this professionally-moderated conference call and webinar on managing loan officers in NMLS.


Closing Comment 

“Although this is not TARP, there is a legitimate concern that it could be perceived like TARP in the minds of the public.”  -  FRB Capital Markets analyst Edward Mills on banks’ concern over potential fallout from the Federal Reserve’s upcoming disclosure of institutions that have received assistance from credit facilities and other liquidity programs.

Catherine Woody, Editor
Teresa J. Dean, Contributing Writer

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