Banking Law Prof Blog

What FDIC Will Do and How They'll Do It

FDIC's recently released Performance Plan for 2009 sets out goals in three areas:  Insurance, Supervision, and Receivership Management.  The report also provides a brief recap of 2008 from FDIC's perspective.

In the alphabet soup world of financial crisis programs, FDIC's short description of the TLGP, CPP, and LLP for involving PPIFs, are particularly helpful. (That's Temporary Liquidity Guarantee Program, Capital Purchase Program, and Legacy Loans Program - involving Public-Private Investment Funds!)

Link:  http://www.fdic.gov/about/strategic/performance/2009/2009annualplan.pdf

(ag) May 7, 2009, in Economy, Federal Banking Agencies/FDIC

FDIC's New General Counsel

FDIC has a new General Counsel, appointed this week fully six months after Sara Kelsey's retirement on October 31, 2008.  New GC Michael Bradfield brings Washington regulatory experience from the last big banking downturn which may stand him and the agency in good stead. 

Michael Bradfield, named as FDIC's General Counsel on May 4, 2009, formerly served as General Counsel to the Federal Reserve from 1981 to 1989.  He comes to FDIC from the Washington law firm of Jones Day.

Link to FDIC's Press Release:  http://www.fdic.gov/news/news/press/2009/pr09064.html

(ag) May 7, 2009, in Federal Banking Agencies/FDIC

How to Get Out of TARP

It's not just a matter of giving back funds received from the Troubled Asset Relief Program (TARP).  Banks that want to exit the TARP program must also demonstrate ability to raise private funds without a guarantee from the FDIC.  The FDIC guarantee has allowed banks to issue debt securities with a lower interest rate, providing a lower cost of funds.  Without that government backing, a bank's ability to raise funds in the private sector is entirely dependent on the public perception of that institution's financial soundness.

Here's a link to today's Wall Street Journal online article by Deborah Solomon and Damian Paletta, "Condition is Set for Banks' TARP Exit":  http://online.wsj.com/article/SB124156005555589031.html

(ag) May 6, 2009, in Capital, Economy, Federal Banking Regulators

Bank Stress Test Results Tomorrow

Watch this space for the Federal Reserve's Stress Test Results for the 19 largest banks, expected to be released tomorrow!

Mortgage Metrics

The OTS and the OCC have jointly published a "Mortgage Metric Report" with data from the fourth quarter of 2008 and for the full year 2008.  See what national banks and thrifts were doing in graphic format.  The Report includes information about credit quality, defaults, loan modifications, and foreclosures.

Link:  http://www.occ.treas.gov/ftp/release/2009-37a.pdf

(ag) May 6, 2009, in Lending Issues

Foreclosure Rescue Scams

Not surprisingly, scammers are taking advantage of the current economic crisis to bilk the unsuspecting.  Have they no shame?  Apparently not!

The Financial Crimes Enforcement Network (FinCEN) is instructing banks to file Suspicious Activity Reports (SARs) about any such activity they discover and to use the term "Foreclosure Rescue Scam" in the SAR filing.

FinCEN also provides a list of "red flags" that may indicate a foreclosure rescue scam, including:

• Homeowners who have been tricked into making payments to an entity other than the mortgage holder;
• Unscrupulous ploys to convince a homeowner to sign a quitclaim deed in return for mortgage help;
• Third party "foreclosure specialists" who:
  •  chargeup-front fees,
  • accept payment only in cash or by cashier's check or wire transfer,
  •  pressure homeowners to sign documents they don't understand, 
  • charge homeowners to get help from a federal affordable housing program,
  • offer to buy the house and rent it back to the homeowner,
  • guarantee that they can stop foreclosure,
  • falsely claim to be affiliated with the government, or
  • instruct the homeowner not to contact the lender, a lawyer or a financial counselor.
• Homeowners who appear to be committing fraud, for example, by claiming that they do not have to repay a loan because the loan contract is invalid.

Link to FinCEN Advisory 2009-A001 (April 6, 2009), Guidance to Financial Institutions on Filing Suspicious Activity Reports regarding Loan Modification/Foreclosure Rescue Scams:  http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.html

(ag) April 6, 2009, in BSA/AML, Lending Issues

Whither Preemption?

On April 28, the U.S. Supreme Court heard oral argument in Cuomo v. Clearing House Association, an appeal from the Second Circuit decision barring the New York Attorney General's investigation into apparent racial discrimination in lending decisions by national banks in New York demonstrated by HMDA data.  The Second Circuit, in an opinion joined by two judges out of a three-judge panel -- with a vigorous dissent by the third judge, held that the investigation was barred by federal preemption, even though the state anti-discrimination laws themselves were not preempted.

Here's a link to a short, even-handed article I wrote for the American Bar Association's Preview of U.S. Supreme Court Cases.  My article, written before the oral argument, appears at page 435:  Download ABA_Preview7_2009[1]

Another link -- to the transcript of the oral argument before the Supreme Court:  http://www.supremecourtus.gov/oral_arguments/argument_transcripts/08-453.pdf

And here's what I had to say about the case in a radio interview:    http://www.fsrn.org/audio/supreme-court-round/4614

(ag) April 29, 2009, in Federal Preemption.

Bank Bailout, Executive Bonuses and Bank of America

University of Chicago Law Faculty Blogger Bernard Harcourt says Bank of America should immediately write the U.S. Treasury a check for $4 Billion -- the amount Merrill Lynch (acquired by Bank of America) paid out in year-end 2008 executive bonuses after B of A received $25 Billion in TARP money in Oct. 2008, followed by an additional $20 Billion in Jan. 2009.

Link to University of Chicago Law School - The Faculty Blog:  http://uchicagolaw.typepad.com/faculty/2009/01/geithner-needs-to-tell-bank-of-america-to-cut-a-4-billion-check-to-the-us-treasury-now.html

Link to: Financial Times article "explaining" that technically, Merrill Lynch was still a separate company until Jan. 1, 2009, and accelerated its bonus payments so that they were made in Dec. 2008 -- three days before the sale to B of A actually closed.

http://www.ft.com/cms/s/0/378a38d4-e814-11dd-b2a5-0000779fd2ac.html?nclick_check=1

Okay, I feel much better about this, don't you?

(ag) Jan. 29, 2009, in Economy

Eric Holder and Attorney Client Privilege

Now that it seems assured that Eric Holder will be Attorney General, I reflect back on DOJ's use of privilege waiver as an indicator of cooperation with government investigations that may be a mitigating factor under Principles of Federal Prosecution of Business Organizations.  Of course, the "Holder Memorandum" (June 16, 1999) has been supplanted by the "Thompson Memo" and then by the "McNulty Memo". 

The question of whether and under what circumstances the Justice Department should "strongly encourage" a corporation to waive attorney-client privilege to avoid being charged with a crime is a very serious one.  It's worth watching what DOJ does under a new AG (especially one who has considered this issue before).

Link to a Texas Lawyer article I wrote about this time last year discussing the McNulty Memo and concerns about attorney-client privilege:

http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1202469642951

(ag) Jan. 29, 2009, in General Issues

Committee on Capital Markets: How to Reorganize the U.S. Financial Regulatory Structure

The Committee on Capital Markets Regulation has released its "Recommendations for Reorganizing the U.S. Financial Regulatory Structure."

The key point is that there should be only two (or at most three) independent regulators for the U.S. financial system:  1.  The Federal Reserve;  2.  A newly-created independent U.S. Financial Services Authority; and  3.  "Possibly another new independent investor/consumer protection agency.

Some concerns about these recommendations:

1.  Britain's FSA demonstrates that this model has its own problems.

2.  What about FDIC?

3.  What about the states' role in chartering and regulating half of the dual banking system and what about the states' role in consumer protection?

We can expect the issue of regulatory restructuring to come before Congress sometime this spring.  This report and the Treasury's Blueprint for a Modernized Regulatory Structure highlight the need for more extensive input on the issue. 

Link:  http://www.capmktsreg.org/press.html

(ag) Wednesday, January 28, 2009, in Federal Banking Agencies

Fannie & Freddie in Conservatorship - Another Sunday Announcement Intended to Stabilize the U.S. Housing Mortgage Market and Reassure U.S. & Global Financial Markets

The Perils of Fannie and Freddie (playing out somewhat like that old cliff-hanger series, "The Perils of Pauline") have kept financial commentators on the edge of their seats all summer.  Today, regulators made another Sunday announcement of actions taken to address the severe capital problems facing these two secondary mortgage market giants.

Treasury Secretary Henry Paulson's statement represents the most concise summary of today's government action:

1.  Jim Lockhart, Director of the newly created Federal Housing Finance Agency (FHFA), placed both Fannie Mae and Freddie Mac into conservatorship.

2. Treasury will initially be issued $1 Billion in senior preferred stock in each of the two entities (Fannie & Freddie), with the likelihood of more infusions of Treasury investments as needed.  the aim is to reassure the markets and avoid moving from conservatorship to receivership (total insolvency and liquidation).  Treasury will also be granted warrants assuring 79.9% ownership control.  Common stockholders will not immediately be completely wiped out, but the value of their holdings is now in the "junk bond" range.

3.  Treasury has established a new secured lending facility available to Fannie, Freddie, and the Federal Home Loan Banks to assure continued liquidity in the mortgage market.

4.  Treasury is also initiating a temporary program to purchase Mortgage Backed Securities (MSBs) from Fannie and Freddie -- again more liquidity.

5.  Fannie and Freddie will "modestly" increase their mortgage-backed securities portfolios through 2009 and then begin gradually decreasing their portfolios at 10% per year.  Obviously, there is a need to increase the number of players in the secondary mortgage market to avoid the current situation in which problems with these two giant GSEs have such overwhelming market impact.

Paulson reiterated three goals:  Providing stability to the financial markets; Supporting the availability of mortgage finance; and Protecting taxpayers.  Both Fannie and Freddie have experienced major stock price drops and increasing lack of confidence from the financial markets.  The U.S. housing market depends on these two Government Sponsored Entities (GSEs) for continued operation of the secondary mortgage market and the liquidity our banking system needs to continue making home mortgages.  Taking action now is intended to stop the financial bleeding and limit the inevitable bailout pricetag. 

Paulson and the Federal Banking Agencies reassured the public and the markets that these actions with respect to Fannie and Freddie should not undermine confidence in other financial institutions.  These two GSEs are different because their portfolios are limited to mortgages, whereas other financials are better diversified.  In addition, the federal banking agencies noted that they would work with financial institutions holding investments in preferred or common stock in Fannie or Freddie as these other affected financial institutions develop capital restoration plans.

This is not an outright nationalization of Fannie and Freddie -- although that issue is clearly on the table.  Paulson did say that the GSEs had been operating under a business model that created an unacceptable conflict between the interests of shareholders and the public interest in stable housing finance.  In addition, the current rescue plan was necessitated because of ambiguity over the nature of government backing for Fannie and Freddie as GSEs.

We can certainly expect debate and clarification over the next few days -- and more permanent restructuring after the November election, regardless of which party controls the White House.

Link to Paulson statement:  http://www.treas.gov/press/releases/hp1129.htm

(ag) Sept. 7, 2008, in Economy

New Federal Reserve Governor Sworn In Today

Elizabeth Duke joins the Board of Governors of the Federal Reserve System today, beginning a term that lasts until Jan. 31, 2012.  Ms. Duke is a career banker, having worked for both a community bank in Virginia (Towne Bank) and for Wachovia Bank.  She is a former Chairman of the American Bankers Association and a graduate of the Stonier Graduate School of Banking.

Link:  https://www.federalreserve.gov/newsevents/press/other/20080804a.htm

(ag) Aug. 5, 2008, in FRB

Federal Reserve Extends Extraodinary Liquidity Measures

As we all know, this economic "downturn" is not over.  The Federal Reserve has been very innovative in developing new tools to enhance liquidity in the U.S. financial system.  Check out the Fed's recent press release which lists and explains some of these new tools -- but also notes that they are still needed and their authorization is being extended.

Link to FRB Press Release:  https://www.federalreserve.gov/newsevents/press/monetary/20080730a.htm

(ag) Aug. 5, 2008, in FRB

Oxford Roundtable Working Paper: NAFTA, 9/11, and the Subprime Mortgage Meltdown-A Disastrous Combination from a Human Rights Perspective

My powerpoint and working paper as presented to Oxford Roundtable, Aug. 3-8, 2008.

Link to powerpoint:  Download OxfordRoundtable.ppt

Link to working paper: Download oxford_roundtable_working_paper.doc

CRA: It's Not Just for Low to Moderate Income Anymore

Comptroller of the Currency John Dugan emphasized the new housing legislation's expansion of focus, encouraging national banks to lend to middle income areas in addition to low and moderate income. 

Link: http://www.occ.gov/ftp/release/2008-92.htm

(ag) July 31, 2008, in CRA/Lending Issues