Banking Law Prof Blog

BSA Update

What's hot in the Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) arena?

1.  When the USA PATRIOT Act Correspondent Account Rules don't apply:  FinCEN's Jan. 30, 2008 Guidance says that financial institutions don't have to worry about those rules if they process negotiable instruments drawn on foreign banks.  No matter how many checks drawn on a single foreign bank you (as a bank) may process for customers, that foreign bank is not your correspondent.  That is not a "formal relationship."

Good to know!  Here's the link:  http://www.fincen.gov/fin-2008-g001.html

2.  New Guidance about how to fill out a Currency Transaction Report (CTR) when there's a sole proprietor involved:  Previously, CTR instructions said to file two Section A's (Persons on whose behalf the  transaction is conducted) as if Multiple Persons are involved in the transaction.  This is still permissible, but the new instructions recognize that the individual is the sole proprietorship, calling for the completion of only one Section A which indicates the individual's name and places the sole proprietorship name in the DBA box.  Use the individual's address.

LInk to new CTR instructions:  http://www.fincen.gov/fin-2008-r001.html

3.  NOT A MONEY SERVICES BUSINESS (MSB): If a business cashes its own employees' payroll checks or cashes checks for customers and applies a portion of the check proceeds to obligations owed to the business it is not a "check casher" and is not required to register as an MSB with FinCEN.

Link to Letter Ruling:  http://www.fincen.gov/FIN-2007-R002.pdf

4.  We really mean it!  FinCEN assessed a $12 Million fine against Sigue Corporation and Sigue, LLC, money service businesses (MSBs) in San Fernando, California.  This civil money penalty was assessed pursuant to a consent order.  At the same time, the Justice Department hit Sigue with $15 Million forfeiture under a deferred prosecution agreement for failing to maintain an effective Anti-Money Laundering (AML) program.  FinCEN's $12 M is included in payment of $15M under the Justice Department forfeiture.

Link: http://www.fincen.gov/20080128.pdf

5.  The Federal Reserve Board and the Indiana Dept. of Financial Institutions announced Monday that they had entered into a Written Agreement with Salin Bank & Trust, Indianapolis, Indiana.  The Written Agreement requires Salin Bank & Trust to bring its BSA/AML Program up to standard.

Link:  http://www.federalreserve.gov/newsevents/press/enforcement/20080201a.htm

(ag) Feb. 5, 2008, in BSA/AML

5. 

The FOMC Cuts Again

On the heels of last week's interest rate interest rate reduction of .75%, which was a very substantial cut and one taken in an unscheduled FOMC meeting, the Federal Open Market Committee (FOMC) lowered the target federal funds rate another .5% to 3%.  Dallas Federal President Richard Fisher was the lone dissenter.

I can't resist:  The first cut may have been the deepest, but this one is not inconsequential.

Link to FOMC Statement:  http://www.federalreserve.gov/newsevents/press/monetary/20080130a.htm

(ag) Jan. 30, 2008, in 2008.

Wal-Mart in Mexico

Thanks to Bank Lawyer's Blog for this report on Wal-Mart's "micro-lending" operations in Mexico.  Can you say "blatant usury"?

http://www.banklawyersblog.com/3_bank_lawyers/2008/01/wal-mart-embrac.html

(ag) Monday, Jan. 28, 2008, in Usury

The First Bank Failure of 2008

On Friday, Jan. 25, 2008, the OCC closed Douglass National Bank, Kansas City, MO, a $53 Million bank.
http://www.occ.gov/ftp/release/2008-7.htm

FDIC is Receiver of this failed financial institution.  All deposit accounts have been transferred to Liberty Bank and Trust Company, New Orleans, LA.  Cost to the Deposit Insurance Fund is estimated to be approximately $5.6 Million.

(ag) Monday, Jan. 28, 2008, in OCC.

Shot in the Arm or Shot in the Head? The President's Stimulus Proposal and the Fed's Dramatic Interest Rate Cut

This morning, for the first time in memory, the Federal Reserve's Federal Open Market Committee (FOMC) reduced the target federal funds rate 75 basis points in an action taken outside its regularly scheduled meeting.  After this dramatic cut, the fed funds rate is at 3 1/2%.   The FOMC also cut the discount rate 75 basis points to 4%.  FOMC member and President of the St. Louis Federal Reserve Bank Bill Poole voted against this rate cut because he would have waited to consider this action at the regular FOMC meeting next week.

The Federal Reserve is clearly more concerned with economic stimulus than with the possibility of inflation -- although there are inflationary indicators as well.  Lowering interest rates exacerbates inflationary conditions.

Link to Federal Reserve statement:  http://www.federalreserve.gov/newsevents/press/monetary/20080122b.htm

As foreign stock indexes showed sharp declines last week and yesterday in response to fears the the U.S. subprime meltdown will lead to a U.S. recession with global impact, the Federal Reserve obviously intended to demonstrate that it will act decisively and in a substantial way to rescue the U.S. economy.  But will this action achieve its intended result?  This abrupt action could signal that the situation is worse than previously perceived and it could signal that the Fed is reacting in a panic rather than in a measured way.

On  Friday, President  Bush weighed in on the state of the U.S. economy with a call for immediate economic stimulus through a sizeable tax cut package that would take effect quickly.  Foreign markets were not soothed by this plan.

The question of the day is whether these extraordinary measures by the Federal Reserve and the President will save the U.S. from recession -- or simply indicate panic and trigger inflation.

Link to White House statement:  http://www.whitehouse.gov/news/releases/2008/01/20080118-1.html

(ag) Jan. 22, 2008, in Economy/Interest Rates

Comparing U.S. Interest Rate Adjustment Policies with those in the U.K. and the E.U.

Here is a fascinating article comparing the Federal Reserve Board's Federal Open Market Committee (FOMC) response to the now-global crisis stemming from the U.S. mortgage meltdown with the response of the Bank of England (BOE) and the European Central Bank (ECB).  The ECB may be considering raising interest rates to combat the potential for inflation.

Link:  http://archive.constantcontact.com/fs018/1101875042839/archive/1101934910245.html

(ag) Jan. 14, 2008, in Economy/Interest Rates

The R Word?

If it declines, it headlines!  (My economy-related version of "If it bleeds, it leads.")

Goldman Sachs suggested on Wednesday that the U.S. could be headed down Recession Road:

Link:  http://www.kansascity.com/business/story/437955.html

Now, AP is singing that same tune.  The stock market finished down today & fears about the continuing fallout from the subprime mortgage meltdown are blamed.

LInk:  http://biz.yahoo.com/ap/080111/wall_street.html

(ag) Jan. 11, 2009, in Economy

Mayor of Baltimore Sues Wells Fargo

Here's a novel approach:  The Mayor and City Council of Baltimore filed suit in the U.S. District Court for the District of Maryland, Baltimore Division, against Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc., claiming that "reverse redlining" that targeted Baltimore's underserved and vulnerable, primarily African-American, neighorhoods has resulted in a foreclosure crisis and substantial and irreparable damage to the neighborhoods and to the City of Baltimore.  The suit is brought under the Fair Housing Act

Link to Complaint for Declaratory and Injunctive Relief and Damages:  http://www.aba.com/aba/documents/GeneralCounsel/BankingDocket/Baltimore.pdf

(ag) Jan. 9, 2008, in Predatory Lending

Sheila Bair Makes the Case for Loan Modification

FDIC Chairman Sheila is no free-market advocate when it comes to consumer issues, so it comes as no surprise that she makes the case for loan modification for borrowers who are at risk of default as a result of rate resets and other problems related to the current mortgage industry crisis.

Here's a link to her article, which appears in the FDIC's Quarterly Banking Profile for the third quarter 2007, posted to the FDIC website on Jan. 9, 2008:

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

(ag) Jan. 10, 2008

What They Were Thinking: FOMC Minutes

Minutes of the Federal Open Market Committee (FOMC) on Dec. 11, 2007, and a telephone meeting on Dec. 6, 2007, are available on the Federal Reserve website.  On Dec. 11th, the FOMC lowered the target federal funds rate to 4 1/4%, with one dissenting vote. The minutes reflect considerable discussion about housing market issues, financial markets, banking industry issues relating to credit risk, and projected inflation.

Link:  http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20071211.pdf

The delay between the FOMC meetings and the posting of minutes is likely meant to minimize the risk of an unintended Wall Street reaction to interest rate adjustments.  On Jan. 5, 2008, Federal Reserve Governor Donald L. Kohn discussed the communication issues surrounding Federal Reserve actions.

Link to speech:  http://www.federalreserve.gov/newsevents/speech/kohn20080105a.htm

(ag) Jan. 9, 2009, in Economy/Interest Rates

Fed Continues Liquidity Support

It's a new year, but the effects of last year's mortgage meltdown linger.  The Federal Reserve is continuing to provide special liquidity support, with the promise of "biweekly TAF auctions for as long as necessary to address elevated pressures in short-term funding markets."  The Term Auction Facility (TAF) is for 28 day credit.  The first two auctions, totaling $30B each, will be conducted Jan. 14 and Jan. 28.  No doubt this action will provide both real and psychological benefits.

Link to announcement:  http://www.federalreserve.gov/newsevents/press/monetary/20080104a.htm

(ag) Jan. 9, 2008, in FRB

A New Year!

Today is the first day of class for the spring semester here at Texas Tech University School of Law!  I'm excited about my classes:  Corporate Governance and Commercial Law, plus supervising several students whose schedule would not permit them to take my Business Analysis for Lawyers class last fall.  Business Analysis, a course I designed based on my view that "You can't be a good lawyer unless you understand your client's business", is a required course for Texas Tech's new Business Law Certificate.  The great thing about academia is that each semester is a chance to renew enthusiasm and to meet a whole new group of students.  Who could ask for better?

The AALS Conference in New York, Jan. 2-6, was a great experience.  I came back with many ideas to explore -- and you'll hear about them.  Feel free to comment.

Professor Pat McCoy from the University of Connecticut School of Law has forwarded a Junior Scholars Call for Papers to be presented at a Banking Law Symposium at U. Conn. May 28 and 29, 2008.  Papers must be submitted for selection by Feb. 29, 2008.

Download junior_scholars_workshopcall_for_papers.pdf

(ag) Jan. 9, 2008 in General Info

The Fed's New HOEPA Regs Are Out for Comment

The Federal Reserve Board today announced that the long-awaited regulations Congress has pushed for to address predatory lending are out for public comment.  The proposed regulations will amend Regulation Z (Truth in Lending) for the purpose of protecting consumers from unfair or deceptive home mortgage lending and advertising practices.

I'll have more to say about this tomorrow after I've had a chance to look at the proposed regulations in  greater detail.

LInk:  http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm

(ag) Dec. 18, 2007, in FRB, Predatory Lending

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

The Federal Reserve Board & the Mortgage Crisis: Using All the Tools in the Box

Last week the Federal Reserve Board pulled out all the stops to address the impact of the subprime mortgage meltdown on the financial markets and the economy.  While the Federal Open Market Committee (FOMC) lowered the target federal funds rate only 25 basis points to 4.25% rather than the more substantial cut Wall Street wanted, the Federal Reserve also lowered the discount rate from 5% to 4.75% and, on Friday, made the announcement that today (Monday, Dec. 17, 2007) it would address liquidity problems by offering $20 billion in 28-day credit through its Term Auction Facility.  This mechanism is not well known, nor is it frequently employed.  Check out the Federal Reserve Board's explanation of how financial institutions can bid for Federal Reserve advances.

Link to Dec. 11, 2007, announcement of FOMC interest rate cut:  http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm 

Links to announcements of discount rate reductions:  http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm

http://www.federalreserve.gov/newsevents/press/monetary/20071212b.htm

http://www.federalreserve.gov/newsevents/press/monetary/20071213a.htm

Link to announcement of new liquidity provision: http://www.federalreserve.gov/newsevents/press/monetary/20071214a.htm

(ag) Dec. 17, 2007, in FRB/Economy/Interest Rates