Banking Law Prof Blog

CRA Joint Final Rule Effective November 3, 2010

The Federal Banking Agencies (FDIC, OCC, FRB, and OTS) recently published a joint final rule which is effective November 3, 2010.  The final regulation has two main parts:

1. Implementing the requirement that low-cost education loans provided by a financial institution to low-income borrowers be considered when assessing an institution’s record of meeting community credit needs.
2. Allowing the agencies to consider capital investment, loan participation, and other ventures undertaken by nonminority- and nonwomen-owned financial institutions in cooperation with minority- and women-owned financial institutions and low-income credit unions as a factor when assessing an institution’s CRA record.

Link:  http://www.occ.gov/news-issuances/bulletins/2010/bulletin-2010-39.html

(ag) Oct. 31, 2010, in CRA

Financial Literacy: Don't Buy Stuff You Can't Afford

"The book is free, the advice is priceless."

One of my students sent me this video link:  http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/27169/

(ag) Oct. 30, 2010, in Consumer Protection

Innovative Community-Based Foreclosure Prevention

This week, the Federal Reserve announced publication of Addressing the Impact of the Foreclosure Crisis, describing the innovative, community-based foreclosure prevention and neighborhood stabilization activities sponsored by the Fed as part of its Mortgage Outreach and Research Efforts (MORE) initiative.

"Highlights of the MORE group's work include bringing together housing advocates, lenders, academics, and key government officials to discuss foreclosure issues and develop solutions; partnering with the U.S. Departments of Labor and Treasury and the HOPE NOW Unemployment Task Force to assist unemployed homeowners at risk of losing their homes to foreclosure; developing online Foreclosure Resource Centers at each Reserve Bank and the Board of Governors; and sponsoring and distributing research on the foreclosure crisis, including studies on financial literacy and foreclosure prevention."

Link:  http://www.federalreserve.gov/newsevents/press/other/20101025a.htm

(ag) Oct. 29, 2010, in Lending Issues

Elizabeth Warren Blogs About Consumer Financial Protection Bureau

 
Check out Elizabeth Warren's message today on the White House Blog.  She emphasizes the goal of the new Consumer Financial Protection Bureau:  "Level the playing field for American families and fix the broken consumer credit market—and do it as quickly and effectively as possible."

Technology will be an important tool for the new agency.  

• "First, information technology can help ensure that the new agency remains a steady and reliable voice for American families. The kinds of monitoring and transparency that technology make possible can help this agency ward off industry capture." 
• "Second, technology can be used to help the agency become an effective, high-performance institution that is able to update information, spot trends, and deliver government services twenty-four hours a day, seven days a week.  If we set it up right from the beginning, the agency can collect and analyze data faster and get on top of problems as they occur, not years later."
• "And third, technology can be used to expand publicly available data so that more people can analyze information, spot problems, and craft solutions."

Link:  http://www.whitehouse.gov/blog/2010/10/28/standing-consumer-financial-protection-bureau

(ag) Oct. 28, 2010, in Consumer Protection

RealtyTrac Foreclosure News

RealtyTrac reports that high numbers of foreclosures are spreading beyond the initial problem states.  Eleven out of the twenty largest U.S. metropolitan areas showed an increase in foreclosures in the third quarter of 2010.  Because of the backlog of foreclosed properties, home prices may remain stagnant until 2014.  Foreclosures in the current environment relate not only to bad loans and overpricing, but more significantly now are following expanding unemployment problems.

Link to story:  http://www.npr.org/templates/story/story.php?storyId=130881128&ft=1&f=1003

(ag) Oct. 28, 2010, in Lending Issues

FDIC Chairman Sheila Bair: "Mortgages and the Future of Housing Finance"

 
FDIC Chairman Sheila Bair gave the keynote address Monday to the Symposium on Mortgages and the Future of Housing Finance conducted jointly by the FDIC and the Federal Reserve in Washington this week.  Her remarks touched on the following issues:

• Financing the American Dream of Home Ownership
• Problems with the "Originate to Sell" lending model and issues with securitization
• The Robo-Signing controversy and the need to modify mortgages
• Reforming and Restarting Private Securitization
• Ending Implicit Forms of Government Support
• Covered Bonds in Receivership

Link:  http://www.fdic.gov/news/news/speeches/chairman/spoct2510.html

(ag) Oct. 27, 2010, in Lending Issues

Recent Money Laundering Enforcement Actions

HSBC and Royal Bank of Scotland top the 2010 list so far.

Here's a story about Britain's Financial Services Authority (FSA) fining Royal Bank of Scotland 5.6 Million Pounds for failing to adequately screen customers to prevent its banks from being used for money laundering or terrorist financing.  This is the largest fine ever assessed by FSA.

Link:  http://www.guardian.co.uk/business/2010/aug/03/royal-bank-of-scotland-fsa-biggest-fine

In the U.S., HSBC was recently the subject of enforcement actions by the OCC and the Federal Reserve for inadequate Bank Secrecy Act (BSA) compliance.

Link:  http://www.bankinfosecurity.com/articles.php?art_id=2994

(ag) Oct. 27, 2010, in BSA/AML

Evaluating the Crisis Measures by the Fed to Purchase Government-Backed securities in the Secondary Market

Now that we have some breathing room to evaluate many of the emergency measures adopted by the Federal Reserve and the Treasury to avert greater financial disaster, one of the more interesting studies considers the effects of large-scale purchases of U.S. Treasury coupon securities.

Federal Reserve economists Stefania D'Amico and Thomas B. King provide an insightful analysis:

"During the crisis of 2008, policymakers took a number of extraordinary steps to improve the functioning of financial markets and stimulate the economy. Among the most important of these measures, in terms of both scale and prominence, were the Federal Reserve's purchases of large quantities of government-backed securities in the secondary market, conventionally known as the Large Scale Asset Purchase--or "LSAP"--programs. The LSAPs included debt obligations of the government-sponsored housing agencies, mortgage-backed securities (MBS) issued by those agencies, and coupon securities issued by the U.S. Treasury, and they collectively amounted to $1.7 trillion over a period of about 15 months--the single largest government intervention in financial-market history."

Link to paper:  http://www.federalreserve.gov/pubs/feds/2010/201052/index.html

(ag) Oct. 27, 2010, in Economy

 

SEC Proposes Two Rules Under Dodd-Frank "Say on Pay"

On October 18, 2010, the SEC issued two proposed rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to: 

1. Shareholder approval of executive compensation and "golden parachute" arrangements; and
2. Disclosure by institutional investment managers of how they voted on executive compensation questions.

The New York-based law firm Stroock & Stroock & Lavan has prepared a bulletin summarizing key provisions of these two proposed rules and discussing possible implications.

Link to Bulletin:  http://www.stroock.com/SiteFiles/Pub999.PDF 

(ag) Oct. 25, 2010, in Executive Compensation

New Acting Comptroller Addresses the American Bankers Association

 
Acting Comptroller John Walsh gave his first public speech to the American Bankers Association Annual Convention this month in Boston.  After two months on the job, he had a lot to say about Dodd-Frank.  The OCC has at least 65 separate projects resulting from the financial reform legislation passed last summer.

Link to speech:  http://www.occ.gov/news-issuances/speeches/2010/pub-speech-2010-125.pdf

(ag) Oct.  25, 2010, in OCC, Financial Regulatory Reform

Currency Wars

G 20 Finance ministers and central bank governors met this weekend in South Korea. They reached agreement on a framework for containing large current account surpluses and deficits but were unable to agree on specific targets.  The U.S. has been pushing China to allow its currency to rise and reduce its huge trade surplus.

Link to story:  http://www.cnn.com/2010/BUSINESS/10/24/trade.balance.g20.ft/

(ag) Oct. 24, 2010, in Economy

Federal Reserve Beige Book

 
Each of the Federal Reserve Banks reports economic data from its district which is then compiled to present a picture of the current economy.  The Federal Reserve's Beige Book released Oct. 20, 2010, shows that "national economic activity continued to rise, albeit at a modest pace, during the reporting period from September to early October."  Lending activity remains stable, but at low levels.

See the full report:  http://www.federalreserve.gov/fomc/beigebook/2010/20101020/FullReport.htm

(ag) Oct. 23, 2010, in Economy

Water Cooler Finance Examines the Potential for Mortgage Foreclosure Problems to Derail Economic Recovery

Just how bad could the fallout from the mortgage foreclosure issues stemming from "robo-signed" documents be?  Both court-ordered and lender-initiated halts to further foreclosure sales -- and reluctance of title companies to issue title policies on foreclosed properties -- have slowed real estate sales.  The worst-case scenario could be a significantly delayed economic recovery.

Link to story:  http://financialedge.investopedia.com/financial-edge/1010/Water-Cooler-Finance-The-Beginning-Of-A-Foreclosure-Crisis.aspx?partner=basics10

(ag) Oct. 22, 2010, in Lending Issues, Economy

Dodd-Frank "Risk Retention" Requirements

One of the most concerning provisions of the Dodd-Frank financial reform legislation is the requirement for "risk retention" by mortgage originators and securitizers.  This requirement would represent a completely new approach to selling into the secondary market and creating mortgage-backed securities.

This week, the Federal Reserve issued a report to Congress, as required by the Dodd-Frank bill, assessing the potential impact of credit risk retention requirements on securitization markets.  The reform legislation also requires the federal banking agencies to implement the risk retention provisions, so in many respects, the real impact of the risk retention provisions will not be known until regulations are issued.  

For now, the Report to Congress is somewhat encouraging because it highlights significant differences in market practices and performance across securitizations backed by different types of assets. The report recommends that the agencies take these differences into account when developing risk retention requirements to achieve the objectives of the Dodd-Frank Act without unnecessarily impeding the availability of credit.

Link to Federal Reserve Press Release about the Report to Congress:  http://www.federalreserve.gov/newsevents/press/other/20101019a.htm 

(ag) Oct. 22, 2010, in Financial Regulatory Reform

Mortgages and the Future of Housing Finance

FDIC and the Federal Reserve are hosting a Symposium on Mortgages and the Future of Housing Finance. Federal Reserve Chairman Ben Bernanke will deliver opening remarks, and FDIC Chairman Sheila Bair will be the keynote luncheon speaker.

Chairman Bernanke's opening remarks and Chairman Bair's luncheon address will be webcast on Monday, October 25 beginning at 8:30 a.m. EDT through the luncheon keynote. You can view the webcast at http://www.vodium.com/MediapodLibrary/index.asp?library=pn100472_fdic_housingfinance.

(ag) Oct. 21, in Lending Issues

Credit Reports and Job Applications

Employers do run credit checks on job applicants -- but should they?  Is credit score tied in any meaningful way to ability to perform the work required?  Obviously, the answer is yes, if the job is with a financial institution or involves handling money -- as a troubled financial history could present temptation to embezzle.  Some states are passing laws to limit the practice of using credit reports as part of the job application evaluation process. 

See Wall Street Journal story:   

http://online.wsj.com/article/SB10001424052702304741404575564502442371086.html

(ag) Oct. 21, 2010, in Consumer Protection

Government Making Money on the Bailout

Bloomberg reports today:  "Wall Street Bailout Returns 8.2% Profit Beating Treasury Bonds:" 

"The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30- year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades."

Link to story:  http://www.bloomberg.com/news/2010-10-20/bailout-of-wall-street-returns-8-2-profit-to-taxpayers-beating-treasuries.html

(ag) Oct. 20, 2010, in Economy

"Rangers, Yankees and Federal Open Market Committee" -- Richard Fisher

 
President of the Dallas Federal Reserve Bank, Richard Fisher, gave another intriguing speech yesterday at the New York Association for Business Economics:  "Rangers, Yankees and Federal Open Market Committee:  One Game at a Time."

After noting economist Kenneth Galbraith's remark that  “economic forecasting was invented to make astrology look respectable,"  Fisher presented his views on the U.S. economy.

Link to speech:  http://www.dallasfed.org/news/speeches/fisher/2010/fs101019.cfm

(ag) Oct. 20, 2010, in Economy 

Addressing the Real Estate Crisis: "Take a Bath and Move On"

A very interesting article on today's Brookings website, "Pretend and Extend:  Our Mortgage Crisis Fantasy," posits that much of the reason we are experiencing difficulty recovering from the economic crisis is due to overinvestment in undesirable geographic locations that will never rebound to pre-crisis prices.  The theory is that we cannot recover until we rebalance population and investment into metropolitan areas with good future job prospects.

An intriguing excerpt from the article: 

The major problems caused by the constipation in the housing market are keeping people anchored to locations where they cannot find work and in a financial strait-jacket that does not allow them to rebuild their lives. [Quoting Bill Frey], “Interstate migration remains flat at a post World War II low, about half of its rate in the late 1990s.” He concludes that the “country appears to be stuck in place.” This has led to record long-term unemployment, a trend highlighted by the Atlantic Monthly’s Don Peck in his March, 2010 cover story. As Peck says, “The Great Recession may be over, but this era of high joblessness is probably just beginning. It is likely to warp our politics, our culture, and the character of our society for years to come”.

 (ag) Oct. 19, 2010, in Economy

 

Comparing Canadian & U.S. Financial Systems

My article, "Lessons from Canada:  Crisis-Proofing a National Financial System," has just been posted on SSRN.

View my research on my SSRN Author page:
http://ssrn.com/author=391481

(ag) Oct. 19, 2010, in Financial Regulatory Reform