Banking Law Prof Blog

IndyMac - Second Largest Failure in FDIC History

Subprime lender IndyMac was closed by FDIC on Friday.  Check out my comments before and after the closing as quoted in Reuters News Service articles:

News story on July 9, 2008:  "IndyMac's Fate Could Test Banking Regulators" http://uk.reuters.com/article/ousiv/idUKN0932999520080710

News story on July 12, 2008:  "IndyMac Seized As Financial Troubles Spread"  http://news.yahoo.com/s/nm/20080713/bs_nm/indymac_dc

(ag) July 14, 2008, in FDIC

Two Major Concerns for Bankers

FDIC posted its Ombudsman's Report for the last six months of 2007, indicating that bankers are concerned about two main issues:
1.  The Subprime Mortgage Crisis & FDIC's proposals for dealing with it; and
2.  Bank Secrecy Act (BSA) - the cost and the impression that information submitted is not used.

In addition to reporting complaints in these two categories, the FDIC tries to explain why these should not be such cause for concern.

Link:  http://www.fdic.gov/regulations/resources/ombudsman/feedback/message0308.html
(ag) Mar. 10, 2008, in FDIC

Not a Pretty Picture for Banks

FDIC's Quarterly Banking Profile for the Fourth Quarter 2007 is a bit grim.

• Quarterly net income for FDIC-insured institutions declined to a 16-year low.
• Record high loan loss provisions, record losses in trading activities, and good will impairment expenses were significant negative factors.
• One in four large institutions lost money in the fourth quarter.
• Net interest margins continue to decline.
• Full-year earnings fell to a 5-year low.
• Net charge-offs rose to a 5-year high.
• Three FDIC-insured institutions failed in 2007.

There is some good news:

• Asset growth remains strong.
• Domestic deposits posted record growth.
• Trust income rose.

Link:  http://www2.fdic.gov/qbp/2007dec/qbp.pdf

(ag) Mar. 5, 2008, in FDIC.

Year End Financial Data for Banks

FDIC's Letter to Stakeholders highlights the following bank stats from year-end 2007:

     *  FDIC-insured commercial banks and savings institutions reported net income of $28.7 billion in the third quarter of 2007, a decline of $9.4 billion (24.7 percent) from the third quarter of 2006. The year-over-year decline is primarily attributable to increases in provisions for loan losses and a decline in non-interest income.

    * Estimated insured deposits increased by $9.7 billion in the third quarter of 2007.

Link:  http://www.fdic.gov/about/financial/letters/07Q4_stake.html

(ag) Feb. 19, 2008, in FDIC

Getting Back To That Community Bank Lending Perspective

FDIC kicks off its two-year pilot project to identify best practices in affordable small-dollar loan programs. Thirty banks, headquartered in 17 states and ranging in assets size from $20 Million to $10 Billion will participate.

Key characteristics of a small loan program under this program include:

• Loans under $1,000
• Installment payments
• Interest rate less than 36%
• Low or no origination fees
• No prepayment penalties
• May include an automatic savings component
• Streamlined applications
• Financial education

Here's a link to the list of participating banks: http://www.fdic.gov/news/news/press/2008/pr08010.html

(ag) Feb. 19, 2008, in FDIC/Lending Issues

Managing Risk

FDIC's Winter 2007 Supervisory Insights, published Monday, has good information on several current risk management issues, including:

• Liquidity Analysis
• Managing Commercial Real Estate Analysis
• Effective Suspicious Activity Reports
• HMDA Data:  Identifying & Analyzing Outliers
• Authentication in Internet Banking
• Community Bank Leverage Strategies

Link:  http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin07/index.html

(ag) Dec. 18, 2007, in FDIC

Third Quarter News for Banks is Gloomy as a Result of Mortgage Market Woes

FDIC reports that net income for insured commercial banks and savings institutions for the third quarter 2007 is down 24.7% compared to the third quarter 2006.  In other bad news, FDIC says provisions for loan losses rose sharply; asset quality indicators continue to deteriorate; noninterest income declined; and retail deposit growth lagged behind asset growth.  Commercial and industrial loan growth, however, remained strong. 

Looking on the bright side, FDIC Chairman Sheila Bair said, ""Because insured financial institutions entered this period of uncertainty with strong earnings and capital, they are in a better position both to absorb the current stresses and to provide much needed credit as other sources withdraw." 

Link to Press Release:  http://www.fdic.gov/news/news/press/2007/pr07097.html

(ag) Dec. 4, in FDIC

Uninsured Depositors Out of Luck

Thanks to John C. Deal, Columbus, Ohio, banking lawyer and former FDIC Regional Counsel, for sending a copy of the Order filed Oct. 22, 2007, in Village of Oakwood v. The State Bank and Trust Company.  This decision, out of the U.S. District Court for the Northern District of Ohio, Western Division, holds that FDIC is not required to treat all depositors equally when it structures a purchase and assumption (P&A) transaction to resolve a bank failure.  In the instant case, uninsured deposits (over $100,000) were not assumed by the acquiring bank.  The uninsured depositors attempted to sue the acquiring bank, but were unsuccessful. 

(ag) Nov. 6, 2007, in FDIC

Another Failed Bank

FDIC announced that Miami Valley Bank, Lakeview, Ohio was closed by the Ohio Department of Commerce, Division of Financial Institutions on Oct. 4 and FDIC was appointed Receiver.  Insured deposits were assumed by Citizens Banking Company, Sandusky, Ohio.

Miami Valley Bank had only two offices, $86.7 million in total assets and $76 million in total deposits.  Miami Valley had $14 million in 269 deposit accounts that exceeded the federal deposit insurance limit.  The excess deposits were not assumed. 

Loss to the Federal Deposit Insurance Fund is approximately $3 million.

This is the third bank failure this year -- after no bank failures for more than 2 years. 

Link:  http://www.fdic.gov/news/news/press/2007/pr07083.html

(ag) Oct. 5, 2007, in FDIC 

What Have Bankers Been Griping to FDIC's Ombudsman About?

FDIC's Ombudsman Cottrell Webster reports that during the first half of 2007, the following regulatory topics generated the most banker complaints:  Bank Secrecy Act (BSA), FDIC deposit insurance assessments, the FDIC applications process and the FDIC Special Alerts system. 

BUT, "Problems with the FDIC examination process, especially the lack of communication with bankers, replaced burdensome regulations as the most frequently expressed concern".

Link to Report:  http://www.fdic.gov/regulations/resources/ombudsman/feedback/message0807.html

(ag) Oct. 2, 2007, in FDIC

Another One Bites the Dust - Bank Fails in Georgia

FDIC announced that NetBank, an Internet bank with no retail locations, headquartered in Alpharetta, Georgia, was closed today by the Office of Thrift Supervision (OTS).  As of June 30, 2007, NetBank had $2.5 billion in total assets and $2.3 billion in total deposits. 

Insured deposits of NetBank were assumed by ING Bank, fsb, Wilmington, Delaware.  NetBank had $744 million in brokered deposits that were not assumed by ING, but will be paid directly by FDIC up to the insured amount.  FDIC estimates the loss to the Federal Deposit Insurance fund at $110 Million.

This is the second bank to fail in 2007.

In addition to a press release, FDIC has posted information about how NetBank customers will be affected by the closing.

LInk:   http://www.fdic.gov/bank/individual/failed/NetBank.html#Press%20Release

(ag) Sept. 28, 2007, in FDIC

Oops! FDIC is Looking at Overdraft Protection Programs Again

Hidden in the middle of the FDIC testimony on Garnishment of Social Security Payments is the following comment: 

"Finally, the FDIC also is in the process of studying overdraft protection programs, including how non-sufficient funds (NSF) fees are applied. Specifically, we are conducting a survey as to how banks handle NSF items and how customers make use of overdraft protection. While this study does not extend to the garnishment process itself, we hope that the information gathered through the study will provide useful information that will contribute to our understanding of how banks manage accounts that receive Social Security benefits. The study is expected to be completed in 2008.

(ag) Sept. 24, 2007, in FDIC

FDIC Tells Congress: Garnishment of Consumer Bank Accounts Containing Social Security Funds Is A Problem

FDIC General Counsel Sara Kelsey addressed the Senate Finance Committee on "The Impact of Garnishment on Social Security Benefits."  FDIC recognizes that Federal benefit payments are an important -- and often the sole -- source of income for many Americans.  Actions that limit access to these funds can result in hardship and expense for the benefit recipients.  Banks usually freeze deposit accounts when they receive a garnishment order, even if the account contains Federal benefit payments.

Under federal law, the following types of federal benefit payments are protected from garnishment or attachment by creditors: Social Security benefits, Supplemental Social Security benefits, Veterans Administration (VA) benefits, civil service retirement benefits, military retirement annuities, and railroad retirement benefits.  Many state laws conflict with this protection.  Banks, out of caution, freeze the funds and wait for a hearing to sort out the legal status of the funds.

Most benefit payment recipients are unaware of this legal protection from garnishment.  FDIC is engaged in an awareness campaign on this issue. 

FDIC also suggests that Congress might address this problem by amending the Social Security Act to spell out the extent to which protections for federal benefit payments extend to freezes as well as garnishment, and whether these protections operate as a bar to banks or merely a defense for benefit recipients. Congress could also address the problems that arise from commingling federal benefit payments with other funds.

Link to Testimony:  http://www.fdic.gov/news/news/speeches/chairman/spsept2007.html

(ag) Sept. 24, 2007, in Consumer Protection, Deposit Regulation, FDIC

FDIC's Letter to Stakeholders

FDIC issued a report today on its activities and accomplishments during the second quarter of 2007.  Reported net income for insured financial institutions is excellent ($36 Billion in the 1st Q of '07 - the fourth highest quarterly figure ever reported).  Insured deposits increased by $84.4 Billion - the second largest quarterly increase in the last 5 years.  Basel II, subprime lending, and affordable consumer credit were key issues for FDIC.

Going forward, FDIC's top three priorities are: 

1.  Monitoring the troubled mortgage market and mitigating potential negative repercussions for borrowers & insured institutions;

2.  Assisting the unbanked to join the financial mainstream; and

3.  Developing joint federal banking agency final banking rules to implement Basel II.

Link:  http://www.fdic.gov/about/financial/letters/07Q2_stake.html

(ag) Aug. 7, 2007, in Federal Banking Agencies/FDIC

Explaining How FDIC Uses HMDA Data as a Fair Lending Enforcement Tool

Congress definitely has an interest in fair lending and consumer protection.  The federal banking agencies have an interest in explaining how they're right on top of the predatory lending problems.  Here's a link to FDIC's Director of Consumer Protection Sandra Thompson's Congressional testimony:  http://www.fdic.gov/news/news/speeches/chairman/spjul2507.html

(ag) July 31, 2007, in FDIC/Lending Issues

Neighborworks Center for Foreclosure Prevention

The federal banking agencies are talking more about helping borrowers facing mortgage delinquencies.  This is new territory for bank regulators, necessitated by the real estate downturn and the staggering repricing problems with adjustable rate mortgages.  Check out this week's press release from FDIC following Monday's meeting of the Alliance for Economic Inclusion.  The press release discusses a new entity called Neighborworks Center for Foreclosure Prevention.

Link:  http://www.fdic.gov/news/news/press/2007/pr07059.html

(ag) July 17, 2007, in FDIC/Subprime Lending

FDIC Supervisory Insights - Summer 2007

FDIC has released the Summer 2007 Issue of Supervisory Insights.  Key articles discuss:

1. Third Party Arrangements.  Community banks frequently contract third parties to provide products and services.  FDIC provides practical guidance about addressing the attendant heightened risks.  Since this is the first topic discussed, it's a sure bet FDIC Examiners will be focused on this.
2. Mortgage Fraud.  Examiners discuss how to mitigate this widespread problem in the home lending industry.
3. Wind Hazard Insurance.  Commentary explicitly describes this a "no longer just a technical exception."
4. The e-Exam.  As the banking agencies place more and more emphasis on improving examination efficiency through the electronic exchange of information, it's important to know as much as possible about their plans and views.

Link:  http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum07/index.html

(ag) June 25, 2007, in Federal Banking Agencies/FDIC

FDIC's Latest Quarterly Banking Profile

FDIC has just posted its most recent Quarterly Banking Profile, with enough statistics to satisfy any bank geek.  The posting also includes a feature article on Individual Development Accounts (IDAs), a new type of savings account designed for the previously unbanked.

Link:  http://www.fdic.gov/bank/analytical/quarterly/index.html

(ag) June 20, 2007, in Federal Banking Agencies/FDIC

A Potential Fourth Wave of Regulatory Reform

FDIC Chairman Sheila Bair discussed a potential fourth wave of regulatory reform with respect to the interface of banking and commerce.  In case you're wondering, the first reform was interest rates in the '70s, the second was branching in the '80s, the third was product deregulation in the '90s, and discussion today was prompted by the ILC debate.  But Chairman Bair points out that today's debate is about more than just ILCs.   

Check out this thoughtful discussion:  http://www.fdic.gov/news/news/press/2007/pr07041.html

(ag) May 31, 2007, in General Banking Law

FDIC's Letter to Stakeholders

FDIC Chairman Sheila Bair released the first "Letter to Stakeholders" for her tenure.  The Letter highlights FDIC actions, including: 

1.  An announcement about deposit insurance assessments.  FDIC will make invoices for the first quarter 2007 available by June 15, 2007. Assessment rates vary between 5 and 7 basis points annually. Many institutions will have enough assessment credits to offset all of their deposit insurance bills for 2007.

2.  A summary of FDIC actions taken with respect to Subprime Lending.  FDIC joined the other federal banking agencies in a Statement on Subprime Lending to clarify the agencies' expectations on underwriting and marketing subprime mortgage products, especially subprime hybrid ARMS. FDIC testified before Congress twice about problems in this industry. [Editor's comment:  This problem industry clearly needs more than statements.]

3.  Industrial Loan Companies:  FDIC extended a moratorium on insurance applications from non-financial companies that propose to own banks.  The debate over separation between banking and commerce continues.

4.  FDIC issued a special edition of FDIC Consumer News -"Be Prepared, Be Informed, Be in Charge" - with simple strategies for managing money.

5.  The FDIC's Quarterly Banking Profile  reported net income of $145.7 billion for the banking industry in 2006, exceeding the 2005 net income of $133.9 billion. This is the sixth consecutive year of record earnings.

6.  FDIC was appointed receiver of Metropolitan Savings Bank, Pittsburgh, Pennsylvania, on February 2, 2007 -- the first FDIC- insured institution failure since June 25, 2004.

Link:  http://www.fdic.gov/about/financial/letters/07Q1_stake.html

(ag) May 7, 2007, in Federal Banking Agencies/FDIC

So What Are Bankers Complaining About?

FDIC's Ombudsman has recently published a report outlining requests for assistance, comments, suggestions, and questions received during the last half of 2006.  Here are the key areas of concern:

1.  Regulatory Burden, especially arising because of the Bank Secrecy Act, the USA PATRIOT Act, and HMDA.  This is the biggest gripe, and understandably so:  Bankers want to focus on the business of banking rather than meaningless paperwork.

2.  BSA/AML.  Substantive compliance requirements have been made easier to understand because of the newly issued Bank Secrecy Act and Anti-Money Laundering Examination Manual -- BUT bankers say it's hard to hire good BSA Compliance Officers because of the harsh penalties for BSA violations.

3.  USA PATRIOT Act, especially the Customer Identification Program (CIP) requirements.  Bankers say these requirements are burdensome, chill participation by immigrants in the regulated financial institution system, and infringe privacy rights of customers.

4.  HMDA - Described by bankers as "onerous, excessive and frustrating, requiring large amounts of time and money to ensure compliance, while offering few benefits to the public."

Link:  http://www.fdic.gov/regulations/resources/ombudsman/feedback/message0307.html

(ag) April 16, 2007, in Federal Banking Agencies/FDIC

Top Banking Law Issues

New FDIC General Counsel Sara Kelsey addressed the Texas Bankers Association's 33rd Annual Legal Conference in a far-ranging luncheon disscussion of key issues facing the banking industry today.  With the standard disclaimer that the views expressed are not necessarily those of the agency, Ms. Kelsey asked the group of approximately 100 bankers and bank lawyers what issues they would like to discuss with her.  Here's the list, in no particular order:

1. Industrial Loan Companies
2. Federal Preemption
3. Commercial Real Estate Lending Guidance
4. Subprime Residential Mortgage Lending
5. Loans to the Military (DOD & Talent/Nelson Amendment)
6. BSA/AML, especially MSBs and Immigrants
7. FDIC Pilot small loan program announced last week
8. Unfair practices - HOEPA and UDAP
9. FDIC Enforcement Actions

The top issue, not surprisingly, is Subprime Lending.  Ms. Kelsey had some very interesting things to say about the current focus at FDIC.  She said that the current FDIC chairman's view seems to emphasize BOTH consumer issues AND safety and soundness.  It is appropriate to be very interested in consumer issues and consumer law has been deemphasized while safety and soundness has been king.  Ms. Kelsey emphasized the need for better regulatory balance.  She said, "If you harm your customers, you will harm the bank."

. . .This comment will continue tomorrow.

(ag) in Federal Banking Agencies/FDIC

Sixth Circuit Rules on FDIC's Attempted Removal to Federal Court

Thanks to John C. Deal, formerly one of my fellow FDIC Regional Counsels (and neither of us will say how long ago that was!), for sending me a hot-off-the-press opinion filed March 22, 2007, in the case Village of Oakwood v. State Bank and Trust Company.  In this case, John Deal represents the appellants:  Village of Oakwood and others.

In this intriguing opinion, the Sixth Circuit rejected FDIC's attempt to remove the case to federal court, citing "the longstanding rule that intervention requires an existing claim within the court's jurisdiction and hold[ing] that FDIC's intervention cannot create jurisdiction where none existed."

When the case was filed in state court, FDIC filed a motion to intervene. Before the state court could rule on that motion, however, FDIC removed the case to federal court.  Thus, FDIC was never a party to the state court action -- and it is on this ground that the Sixth Circuit found that the federal courts lacked jurisdiction.  Even if FDIC's motion to intervene had been granted, its status as an intervenor might still have raised questions about whether federal jurisdiction could have been sustained.  But, as we discuss below, the FDIC may have had other options to become a party and thus remove the case.

This case arose out of a bank failure in which FDIC arranged a Purchase and Assumption transaction.  The plaintiffs in the original lawsuit were uninsured depositors who sued not FDIC but the assuming bank. 

The state law allegations were:  1.  successor liability of the assuming bank as successor to the failed bank; 2. aiding and abetting the FDIC's breach of its fiduciary duty, arising out of alleged irregularities in the P&A transaction that resulted in these uninsured depositors not being fully covered in the acquisition, whereas some "off-the-main-bank's books" depositors were covered; 3.  equitable constructive trust; and 4. "contract".

The Sixth Circuit says that this opinion conflicts with the Fifth Circuit opinion in Heaton v. Monogram Credit Card Bank, 297 F.3d 416 (5th Cir. 2002).  But does it?  Will the FDIC seek certiorari on the basis of conflict between the circuits?

Or, will the FDIC pass up the Supreme Court possibility and simply pursue its interests back in state court on remand?  At that point, State Bank could implead FDIC as a third party defendant.  Then, the FDIC would be a party presumably capable of removing the case to federal court.

Another possibility at the state court level:  The Sixth Circuit expresses "skepticism that the uninsured depositors' claims can survive FIRREA's bar against courts adjudicating 'any claim relating to any act or omission of . . . the Corporation as receiver'."

The plaintiffs' view is that FDIC wrongfully failed to cover these particular uninsured depositors in full by not including them in the package transferred to State Bank (in accordance with reasoning articulated in First Empire Bank v. FDIC, 572 F. 2d 1361 (9th Cir. 1978). But will they get a chance to go there?

Here's the opinion: 

Download 20070322_6th_circuit_decision.pdf

Your views and comments are welcome!

(ag) March 23, 2007, in Federal Banking Agencies - FDIC

FDIC Chairman Talks to ICBA's Annual Convention

FDIC Chairman Sheila Bair addressed the Independent Bankers Association of America's Annual Convention in Hawaii today.  Chairman Bair highlighted the following issues:

1. 1.  Competition and a persistent flat-to-inverted yield curve have reduced net interest margins to an 18-year low.
2. 2.  Commercial Real Estate (CRE) lending must be prudently underwritten and well-managed.  FDIC is concerned with appropriate risk management in this portfolio.
3. Weaknesses in the Residential Mortgage Lending area are troubling.  In particular, high levels of charge-offs in subprime mortgages call for attention. 
4. Chairman Bair recognized and tried to soothe community banker concerns about regulatory burden in the anti-money laundering area. 
5. In conclusion, Chairman Bair urged community banks to provide alternatives to payday loans.

Link:  http://www.fdic.gov/news/news/speeches/chairman/spmar0707.html

(ag) Mar. 7, 2007, in Federal Banking Agencies - FDIC

What the 4th Quarter 2006 Numbers Tell Us about the U.S. Banking Industry

FDIC's Quarterly Bank Report for 4th Quarter 2006 is now available on the FDIC website.  Here are the highlights:

1. Really great news:  The U.S. Banking industry reported its sixth consecutive record earnings year -- quite a roll!
2. Some bad news:  Margins are getting slimmer.  Margin erosion was widespread during the last quarter of 2006.
3. Some more bad news:  Profitability declined at smaller institutions.
4. Even worse news, but no surprise:  Mortgage loan portfolios showed rising delinquencies and charge-offs.
5. Mixed news, depending on your viewpoint:  Deposit growth surged in the 4th quarter -- at least at large banks.
6. One-time effects:  Corporate restructurings had an effect on the 4th quarter numbers -- but those extraodinary items should be identified in the report.

Link:  http://www2.fdic.gov/qbp/2006dec/qbpall.html

(ag) Feb. 22, 2007, in Economy, Federal Banking Agencies/FDIC

Bet You Didn't Know It's National Consumer Protection Week

National Consumer Protection Week is Feb. 4-10.  The Winter 2006/07 issue of FDIC Consumer News covers consumer tips in four areas:

1. Assuring financial fitness;
2. Avoiding bad deals and scams, including fake checks;
3. Protecting deposits with FDIC insurance;
4. Complaining effectively and getting results.

Link:  http://www.fdic.gov/news/news/press/2007/pr07011.html

(ag) Feb. 6, 2007, in Federal Banking Agencies/FDIC

FDIC Chairman Calls 2006 a Whirlwind

FDIC Chairman Sheila C. Bair addressed the California Bank Presidents Seminar for her first speaking engagement of 2007.  Her remarks highlighted key initiatives for 2006 and significant issues on her agency's agenda for 2007. 

Hot Topics Addressed in 2006 included:

1. Deposit Insurance Reform - with FDIC's final regulations to implement the Deposit Insurance Reform Act completed by Nov. 2, 2006.  These major new provisions included merging the bank and thrift insurance funds, increasing deposit insurance coverage for retirement accounts, awarding $4.7 billion in assessment credits, and establishing new risk-based deposit insurance premiums.

2.  Capital Reform - Proposed Regulations relating to Basel II and Basel 1-A are open for public comment until March 26, 2007.

3.  Affordable Small Dollar Lending - Guidelines are open for public comment until Feb. 2, 2007.

4.  Economic Inclusion - FDIC established a new Advisory Council for Economic Inclusion, which will be chaired by New York Banking Dept. Supervisor Diana Taylor.

Two important areas for 2007 are:  NonTraditional Mortgages and Commercial Real Estate.

Link:  http://www.fdic.gov/news/news/speeches/chairman/spjan1107.html

(ag) Jan. 21, 2007, in Federal Banking Agencies/FDIC

Get the Current Financial Scoop on Individual Banks & Thrifts

FDIC has just posted Quarterly Call Report ("Report of Income & Condition") Information as of Dec. 31, 2006, for insured banks and Thrift Financial Reports for insured thrifts. 

FDIC maintains "a searchable database of public financial data for all FDIC insured institutions which is required to be filed quarterly."  This information source will get even better. 

Here's the advance news from FDIC: 

"NEW DEVELOPMENT - Early next year, several new features will be introduced for Call Reports. They will include earlier data availability, streamlined downloading, more search parameters, improved formatting, and a direct connection to the FFIEC Central Data Repository. Please stay tuned."

Link:  http://www2.fdic.gov/Call_TFR_Rpts/ 

(ag) Jan. 9, 2007, in Federal Banking Agencies/FDIC

Congratulations to Sara Kelsey, New FDIC General Counsel

FDIC Chairman Sheila Bair today announced the appointment of Sara A. Kelsey as the new General Counsel for FDIC.  Ms. Kelsey was Deputy Superintendent and General Counsel to the New York State Banking Department.   

Link to Announcement:  http://www.fdic.gov/news/news/press/2007/pr07002.html

(ag) Jan. 3, 2007, in Federal Banking Agencies/FDIC

FDIC Uses HMDA Data to Identify Likely Discrimination

Striking information about potential illegal discrimination in lending is contained in a recently issued report by FDIC's Office of Inspector General.  This internal audit investigated FDIC Bank Examiner Use of HMDA Data to Identify Potential Discrimination.  Standing alone, HMDA data does not establish discrimination.  FDIC uses HMDA reports to prepare for compliance examinations, identifying what they call "outliers" -- banks with the highest loan pricing for racial, ethnic, or gender groups.

Here's the disturbing news:  FDIC identified 47 "outliers", based on 2004 HMDA data.  To provide a breakdown by region, Atlanta had 16 of these "outliers"; Dallas had 20;  Kansas City had 1; Chicago had 6; New York had 4.  After further investigation by examiners as of July 25, 2006, 23 of these instances had been resolved.  For 18 of the 23, no violations were found.  Regarding the remaining 5 of 23, these had merged or changed charters without FDIC review -- although their new primary regulators were advised of the investigation.  Nine reviews were in progress as of the end of July and the rest will be initiated by year end.  Of the reviews in progress, two banks out of the Atlanta Region and three out of the Dallas Region have been identified as having potential discrimination violations.

Link to Audit Report:  http://www.fdicig.gov/reports06/06-023.pdf

(ag) Nov. 15, 2006, in Federal Banking Agencies - FDIC, Lending Issues, Predatory Lending

FDIC's Chairman Sheila Bair "On an Outward Bound Survival Course"

FDIC Chairman Sheila C. Bair delivered remarks to the American Bar Association Banking Law Committee on Nov. 3, 2006, describing her first 100 days at the agency as "more like an Outward Bound survival course".  During that time, FDIC has confronted serious issues, including capital reform, deposit insurance reform, and industrial loan companies (ILCs).

Link:  http://www.fdic.gov/news/news/speeches/chairman/spnov0306.html

(ag) Nov. 9, 2006, in Federal Banking Agencies - FDIC

Data, Data, Data!

Do you need to know the number of FDIC-insured institutions from 1992 to present?  How about the number of offices of FDIC-insured institutions?  Total Assets?  Total Deposits?  Total Number of Interstate Branches?  It's all here . . . and more!  Check out the FDIC's Summary of Deposits, last updated in October 2006, complete with charts, graphs, and tables. 

Link:  http://www2.fdic.gov/sod/

(ag) Nov. 7, 2006, in Federal Banking Agencies - FDIC 

Action Item Report from the FDIC Board

On Nov. 2, 2006, FDIC's Board of Directors met and acted on the following items:

1.  The Designated Reserve Ratio remains at 1.25%.  The Final Rule Setting the DRR, as required by the Federal Deposit Insurance Reform Act of 2005 was adopted and will be published in the Federal Register.  FDIC's Board was charged with setting the DRR for the Deposit Insurance Fund (DIF) within a range between 1.15% and 1.50%.  The DRR will be set and published annually.  In setting this rate, FDIC considered:  1. risk of losses to the DIF;  2.  economic conditions affecting FDIC insured institutions; and 3.  the need to prevent sharp swings in assessment rates.

2.  Final Rule Part 327 - Operational Processes Governing the FDIC's Insurance Assessment System - was adopted & will be effective Jan. 1, 2007.

3.  Risk Based Assessments were revised pursuant to the FDI Reform Act.  This Final Rule sets new assessment rates, effective Jan. 1, 2007.  The existing 9 risk categories have been condensed into four.  The concept continues to be one of pricing deposit insurance assessments consistent with risk to the FDI Fund.

4.  The Final Rule establishing the new FDIC sign and logo, as well as new advertising rules, was adopted and will become effective one year from Federal Register Publication.

5.  FDIC's Board established a new Advisory Committee on Economic Inclusion.  This group of advisors to the FDIC Chairman on banking services for the underserved will have a chartered existence of two years, unless extended.

Link to FDIC Board Meeting Announcement:  http://www.fdic.gov/news/board/noticenov22006.html

(ag) Nov. 3, 2006, in Federal Banking Agencies - FDIC

For Those Who Cannot Remember the Past (with apologies to George Santayana)

My law students were babies when bank failures were big news.  Nevertheless, this "old news" has relevance for today as we note declining standards for loan underwriting, regulatory concern about CRE concentrations, the prospect that the hot housing market could cool (or crash), rising interest rates which make consumer loan defaults more likely, . . Well, you get the drift.  None of us are nostalgic for this segment of the past -- and we certainly don't want to repeat it.

FDIC has a whole page indexing articles about the financial crisis in the 1980s:  http://www.fdic.gov/bank/historical/govstudy/index.html

The best of the bunch is:  "History of the Eighties - Lessons for the Future":  http://www.fdic.gov/bank/historical/history/index.html

(ag) Oct. 28, 2006, in Federal Banking Agencies - FDIC

Nov. 2 Will Be a Busy Day for the FDIC Board

The FDIC has posted its agenda for the Nov. 2, 2006, Board Meeting.  The following final rules are on the Discussion Agenda:

1. Final Rule Setting the Designated Reserve Ratio
2. Final Part 327 - Operational Processes Governing the FDIC's Deposit Insurance Assessment System
3. Final Rule on Risk Based Assessments
4. Final Rule on the FDIC Sign and Advertising FDIC Membership
5. Final Rule Establishing the FDIC Advisory Committee on Economic Inclusion

Link:  http://www.fdic.gov/news/board/noticenov22006.html

(ag) Oct. 28, 2006, in Federal Banking Agencies-FDIC

How Bad Are the Bad Boys Or Girls? (no gender bias implied)

FDIC has posted an analysis of 84 Enforcement Actions Against Individuals in 2005.  The article recognizes that the motives for fraud include:  securing personal gain, concealing the deteriorating condition of a borrower, protecting position and employment.  Board oversight of senior management is critical.  Fraud by senior management accounts for 80% of the total fraud losses.

Link:  http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum06/article03_enforcement.html

(ag) Oct. 26, 2006, in Federal Banking Agencies-FDIC/Enforcement

He Said, She Said -- FDIC and OTS Differ on CRE Guidance?

Last week, agency heads for both OTS and FDIC addressed America's Community Bankers.  Commercial Real Estate (CRE) issues are important to both agencies, although they appear to have a somewhat different take on the January 2006 Proposed Joint Agency Guidance on Commercial Real Estate.

On Oct. 15, 2006, OTS Director John Reich noted that the January 2006 Guidance was developed in response to the dramatic increase in CRE lending by banks between $100M and $10B, which he termed small-to-mid-sized community and regional financial institutions.  Acknowledging industry complaints about regulatory burden and the perception of "hard limits" on CRE loans, Reich said that, in his view, the Interagency Guidance is only a "reference" for financial institutions and examiners, not a limit or threshold above which CRE lending is "suspect or barred".  He further said that he "remains uncomfortable with the particular numerical thresholds set forth in the proposed guidance".

On Oct. 17, 2006, FDIC Chairman Sheila Bair also acknowledged that the Interagency Guidance contains "benchmarks, not caps".  However, her remarks focused more sharply on CRE as a lending area that warrants examiner scrutiny.  She said, " Portfolio concentrations in CRE assets have been increasing.  At the end of June, over 1,700 insured banks and thrifts -- almost 20 percent of the industry -- reported both construction and development loans that exceeded their roral capital and commercial real estate loans that exceeded 300 percent of total capital. Construction loan growth has been very high, almost 32 percent over the past year.  These trends have caused the regulators to take a close look at risk management practices in this type of lending."

From these speeches, it appears that the Federal Banking Agencies have a ways to go before they achieve agreement sufficient to issue the Final CRE Guidance.

Link to Reich Speech:  www.ots.treas.gov/docs/8/87125.pdf

Link to Bair Speech:  www.fdic.gov/news/news/speeches/chairman/spoct1706.html

Link to Proposed Interagency CRE Guidance:  http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-340.pdf

(ag) Oct. 23, 2006, in Lending Issues/Federal Banking Agencies/FDIC/OTS

FDIC & the ILC Applications: Decision by January?

FDIC Chairman Sheila Bair indicated in response to questions at Monday's ABA Convention that she hopes to have a decision on the pending Industrial Loan Company applications by the time FDIC's six-month moratorium expires in January 2007.  FDIC continues to be beseiged by comments.  The WalMart application in particular has generated strong opinions.

So, which way is the wind blowing?  The October 2006 issue of Independent Banker, ICBA's monthly magazine, carries an extensive interview of FDIC Chairman Sheila Bair by ICBA's Kelly Pike.  In a wide-ranging discussion of the issues facing FDIC and the banking industry, Chairman Bair identified the ILC applications as one of the most controversial issues her agency faces.  About the pending ILC applications, she said, "I can't guarantee what that decision will be.  It may be a decision they don't like, but we need to move forward and make it."

In the same article, Chairman Bair discussed Deposit Insurance Reform, Regulatory Burden, and Basel II.

Link to a report about Bair's Oct. 16, 2006, remarks:  http://www.nafcu.org/Template.cfm?Section=News&template=/contentManagement/contentDisplay.cfm&contentID=21643

Link to Independent Banker article:  www.icba.org/files/ICBASites/PDFs/coverstory1006.pdf

(ag) Oct. 19, 2006, in Industrial Loan Companies, Deposit Insurance, Basel II, Federal Banking Agencies - FDIC

FDIC Chairman's Current Issues: Deposit Insurance Reform, Capital Reform, and Economic Inclusion

FDIC Chairman Sheila C. Bair gave two speeches this week that merit attention.  Chairman Bair addressed the American Bankers Association Convention on Oct. 16, 2006, and America's Community Bankers Convention on Oct. 17, 2006.

In her recent remarks, Chairman Bair highlights the following topics of current focus:  1.  Deposit Insurance Reform, including merger of the BIF and SAIF funds, the one-time assessment credit, and the new proposed assessment rate structure (to be set in early November -- check out the rate calculator on FDIC's website for a preliminary idea of what this could mean for your bank); 2.  Capital Reform, meaning Basel II -- although Chairman Bair indicates that this is not just a big bank issue.  FDIC supports a capital structure that does not place community banks at a disadvantage; and 3.  Economic Inclusion.  Providing financial services to the unbanked is a key issue for this new Chairman.

In the speech to America's Community Bankers, Chairman Bair covered the topics discussed above and added discussion about Commercial Real Estate.  She also discussed the role of Community Banks. 

Link to ABA Speech:  http://www.fdic.gov/news/news/speeches/chairman/spoct1606.html

Link to ACB Speech:  http://www.fdic.gov/news/news/speeches/chairman/spoct1706.html

(ag) Oct. 18, 2006, in Federal Banking Agencies - FDIC/Capital/Basel II/Deposit Insurance