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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...

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.

Intermediate BSA Boot Camp, November 15-17, 2010, San Diego, CA:  APPROVED BY NASBA FOR 27 CPE HOURS.  Taught by a highly experienced team of BSA experts with senior level government and private experience.<p>Topics include: effective BSA/AML compliance programs; overview and review of essential BSA requirements; suspicious activity detection and monitoring; the significance of interagency enforcement guidelines; recent enforcement actions; and much more.

Advanced Residential Mortgage Examiner School, December 6-10, 2010, Olympia, WA:  The Advanced Residential Mortgage Examiner School is for mortgage regulatory staff that has participated on several mortgage lender examinations and is progressing toward being the Examiner-in-Charge (EIC) of an examination or has been the EIC on exams already.

Advanced Commercial Credit Analysis,
December 13-16, 2010, San Jose, CA and
January 24-27, 2011, Palm Desert, CA
APPROVED BY NASBA FOR 24 CPE HOURS.  This seminar is designed to provide a high level of skill development for rapidly and effectively evaluating the repayment ability of a commercial business.  It is not about assessing the quality of collateral that supports a loan, but about understanding the borrower's ability to repay a loan.

“Rule 1 of public speaking: Don’t insult your audience.”  -- CNN Ticker Producer Alexander Mooney. 

This rule certainly seems rational.  But in the case of Vice President Joe Biden during a speech before donors in Madison, WI on Thursday, that tactic may just have worked.  The Vice President was repeatedly attempting to rile the Wisconsin crowd in support of gubernatorial candidate Tom Barrett by listing a litany of Democratic accomplishments and warning Republican policies could put the economy back in a tailspin.  But the crowd’s polite applause was not the reaction Biden was hoping for.  “You’re the dullest audience I’ve ever spoken to!” Biden declared.  “Do you realize how many jobs Wisconsin lost? It’s staggering!”  The crowd appeared to make a more concerted effort to react during the remainder of the speech.


Oversight Council Begins Work 

The Financial Stability Oversight Council (FSOC) met for the first time October 1 and immediately issued a proposal seeking comments on how to limit bank trading and ownership of hedge funds and private equity firms.  The Dodd-Frank Act created the FSOC and also mandated that it conduct a study and make recommendations by Jan. 22, 2011 on the so-called “Volcker Rule” that would prohibit proprietary trading activities and certain private fund investments.  The proposal has a 30-day comment period.  The FSOC also issued an advance proposal seeking input on fulfilling the Dodd-Frank Act’s provisions that require the FSOC to establish a framework to designate systemically important nonbank financial firms for heightened supervision under the regulatory umbrella of the Federal Reserve.  The advance proposal also has a 30-day comment period.  Other actions taken by the FSOC included: adopting a plan for putting the requirements of the Dodd-Frank Act into effect; approving by-laws to govern the Council’s meetings; and approving a transparency policy for the meetings.  State banking regulators are represented on the FSOC by California Department of Financial Institutions Commissioner William Haraf, who is a non-voting member.  Read more


Foreclosure Controversy Continues 

The foreclosure scandal that began on Sept. 20 when Ally Financial announced a “procedural defect” had occurred in the way it handled foreclosures continues to have wide-ranging effects.  Employees at Ally Financial, JPMorgan Chase and Bank of America have all admitted to signing off on foreclosure affidavits without reviewing their contents or having them properly notarized in accordance with state law.  Consequently, B of A is placing a moratorium on all foreclosure proceedings and sales across the U.S.  The moratorium takes effect on Saturday.  Ally Financial and JPMorgan have ceased foreclosures in all states and Ally Financial and JPMorgan have ceased foreclosures in 23 states that require further judicial review.  In addition, at least 9 states—California, Connecticut, Illinois, Iowa, Maryland, Massachusetts, North Carolina, Ohio and Texas—have announced investigations into foreclosure documents that may have been improperly prepared or filed. 

In addition, the Office of the Comptroller of the Currency has ordered seven of the nation’s largest mortgage servicers to review their foreclosure processes.  Fannie Mae and Freddie Mac have also ordered mortgage servicers to immediately review their policies and procedures related to the execution of affidavits, verifications and other legal documents in the foreclosure process. 

On Capitol Hill, politicians on both sides of the aisle are calling for investigations.  Senators Robert Menendez (D-NJ) and Al Franken (D-MN) have requested a full investigation by the Government Accountability Office to determine “whether shortcomings in federal regulators’ oversight had any role in allowing flawed foreclosure processes to occur.”  House Speaker Nancy Pelosi (D-CA) and a number of her fellow California Democrats called for the Justice Department to investigate “possible violations of law or regulations by the financial institutions in their handling of delinquent mortgages, mortgage modifications, and foreclosures.”  Senator Richard Shelby (R-AL) called for federal regulators to review the activities of Ally Financial, JPMorgan Chase and Bank of America and said, “I am highly troubled that once again our federal regulators appear to be asleep at the switch.”  Senate Majority Leader Harry Reid (D-NV) called for Ally Financial, JPMorgan Chase, Wells Fargo, Citigroup, and B of A to suspend foreclosures in Nevada. 

Yesterday, President Obama announced he would veto a little-known bill that some worried would make it more difficult for homeowners to challenge improper foreclosure attempts.  The bill, the Interstate Recognition of Notarizations Act, was drafted to remove impediments to interstate commerce.  President Obama indicated support for the intent of the bill, but “we need to think through the intended and unintended consequences of this bill on consumer protections, especially in light of the recent developments with mortgage processors.”  Read more


Sarah Bloom Raskin Sworn in as Federal Reserve Board Governor, Mark Kaufman Named Maryland Commissioner  

Former Commissioner of Maryland Office of Financial Regulation Sarah Bloom Raskin was sworn in as Federal Reserve Board Governor on Monday, and Maryland Governor Martin O’Malley nominated Mark Kaufman to replace Raskin as the Maryland Commissioner of Financial Regulation.  Raskin’s term on the board will expire on Jan. 31, 2016.  Governor O’Malley congratulated Raskin on her appointment and nominated Deputy Commissioner Kaufman to fill her position.  Kaufman was appointed deputy commissioner in April 2008.  He previously served as a managing director in investment banking with CIBC World Markets in Baltimore and was co-head of the firm’s business services practice.  In addition, he was a member of the investment banking division of Alex Brown & Sons/Deutsche Bank from 1995 to 2002, as well as an associate at JPMorgan.  Kaufman also served on the staff of the U.S. Senate Banking Committee from 1992 to 1994.  He holds an MBA in finance and accounting and an MPA in Urban Development from Columbia University.  Read more about Sarah Bloom Raskin’s swearing in.  Read more about Kaufman’s nomination.


Rules Expected for Breaking up Banks 

Federal financial regulators are expected to propose a rule for seizing and dismantling a large, systemic financial firm as early as today.  The recently enacted Dodd-Frank Act granted the FDIC resolution authority over systemic financial firms in an attempt to end the existence of institutions considered “too big to fail.”  In a statement released last week, FDIC Chairman Sheila Bair indicated “the proposed rule is intended to provide greater clarity and certainty about how certain key components of the resolution authority will be implemented and to ensure that the liquidation process … reflects the Dodd Frank Act’s mandate of transparency.  With the U.S. financial system now stable and healing, it is important to move ahead with rules to make clear how the orderly liquidation process would be implemented to restore greater market discipline and promote clear understanding among shareholders and unsecured creditors that they, not taxpayers, are at risk.”  Read more 


Around the States 

MasterCard and Visa have agreed to settle a credit card antitrust lawsuit brought by attorneys general in Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio, Texas and the U.S. Justice Department.  The lawsuit also included American Express and challenged the companies’ rules that prevent merchants from offering consumers discounts, rewards and information about card costs.  “The proposed settlement with MasterCard and Visa is an important step in bringing more credit card competition to the point of sale.  The department’s lawsuit against American Express will continue and, if successful, allow merchants more freedom to benefit their customers,” Justice said in a statement.  Read more 

Arizona Attorney General Terry Goddard announced Oct. 7 a $772 million multi-state agreement with Wells Fargo over allegedly deceptive marketing of payment option adjustable-rate mortgages by two companies it acquired: Wachovia Corp. and Golden West Corp.  Overall, loan modifications will be offered to 8,715 of at-risk consumers with some combination of rate reductions, loan-term extensions and principal reductions in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas, and Washington.  Read more 

New York:  The New York State Banking Department reported that 90-day pre-foreclosure notices were sent to more than 76,744 New York homeowners who have fallen behind on their mortgage payments since May 31, 2010.  “The information that we gather from the pre-foreclosure notices allows the Banking Department and the counseling agencies that we work with to better identify and target areas of at-risk homeowners before they fall into the foreclosure process,” said Superintendent of Banks Richard H. Neiman.  Read more


Around the Agencies 

FBI:  The FBI and international law enforcement announced the disruption of a large-scale, international cybercrime operation that attempted to steal $220 million and resulted in losses of $70 million from victims’ bank accounts.  The cyber thieves targeted small- to medium-sized companies, municipalities, churches and individuals, infecting their computers to capture passwords, account numbers and other data used to log into online banking accounts.  Read more 

Fed:  The Federal Reserve announced the formation of an advisory council representing a variety of community institutions, include those with state charters.  The Community Depository Institutions Advisory Council will provide input to the Fed Board on the economy, lending conditions and other issues.  Members will be selected from representatives of banks, thrifts, and credit unions serving on newly created local advisory councils at the 12 Federal Reserve Banks.  Read more 

Fed and OCC:  HSBC Bank USA and its holding company have agreed to improve the bank’s compliance program for the Bank Secrecy Act after cease-and-desist orders were issued by the Office of the Comptroller of the Currency and the Federal Reserve.  HSBC said it “has cooperated fully with its regulators in reaching these agreements and continues to cooperate fully with them in implementing the agreement terms, and with other government agency investigations.”  Read more 

FTC:  The Federal Trade Commission is seeking public comments on a proposed policy statement clarifying when the agency will take action against companies trying to collect the debts of deceased consumers.  In collecting these debts, the federal law generally allows collectors to contact only the decedent’s spouse, or the executor or administrator of the estate.  FTC noted that some state probate laws have expanded the types of people who are authorized to pay a decedent’s debts.  Read more 

FinCEN:  Check fraud remains common and produces staggering losses for the banking industry, Director James Freis said in a recent speech.  Freis said banks lost an estimated $1.024 billion in check fraud in 2008, and check fraud is the second most common suspected crime for banks when they file suspicious activity reports.  Read more 

SEC:  The Securities and Exchange Commission published a proposal to require issuers of asset-backed securities—and credit rating agencies that rate the securities—to provide investors with new disclosures about representations, warranties and enforcement mechanisms.  The new disclosures are required by the Dodd-Frank Act.  The deadline for comments is Nov. 15.  Read more 

Treasury:  The Treasury Department’s latest estimate for the cost of TARP is about $50 billion.  Treasury said the estimate reflected the latest restructuring announcement of AIG.  Read more


Upcoming Events 

October 21 – October 22:  CSBS District II Fall Meeting.  The CSBS District II meeting will be held at the Crowne Plaza-The Campbell House, 1375 South Broadway, Lexington, KY, 40504. 

October 21:  Credit Reports Webinar.  The Nationwide Mortgage Licensing System (NMLS) will conduct a professionally moderated information session to provide an overview of the credit report functionality in NMLS.  Industry users should attend this session to hear about the changes in NMLS that will affect mortgage loan originators (MLOs), what information will be available to state regulators and how state regulators might use this information in determining an MLO’s financial responsibility as mandated under the SAFE Act.  A Q&A session will round out this event. 

October 24 – October 27:  Examiner Education Forum.  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.


Closing Comment 

“Perhaps my greatest concern is the FASB’s complete failure to comprehend the role traditional banks play in our economy.  In general, community banks rely upon relationship lending to extend credit to individuals and businesses. … The FASB proposal, however, would force banks to alter their business models to accommodate these accounting standards.  I fear the proposal may force banks to curtail the extension of credit to individuals and businesses, thereby stifling economic development and threatening economic stability.”  

John P. Ducrest, Commissioner of the Louisiana Office of Financial Institutions in an op-ed opposing FASB’s fair-value accounting proposal.  The op-ed was published in the American Banker on Wednesday, Oct. 6.

Catherine Woody, Editor
Teresa Dean, Contributing Writer

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