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Inside Washington (08/23/2011)

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* WASHINGTON (8/24/11)--The Consumer Financial Protection Bureau (CFPB) has adopted a policy to disclose all correspondence with the public about pending rules, including communication made outside the comment-letter process. The policy is primarily applicable when the CFPB publishes an interim final rule with a request for comment. The primary way the bureau collects public input is through written comments posted on the public rulemaking docket. Members of the public may also provide oral or written comments directly to CFPB staff or CFPB staff may seek information directly from members of the public outside of the public-comment process. “The CFPB’s policy requires that these ex parte presentations be summarized and disclosed on the public docket,” wrote Leonard Kennedy, the bureau’s general counsel in a blog post Monday describing the new policy. “In this way, members of the public can be informed of the input CFPB is receiving” … * WASHINGTON (8/24/11)--New rules issued by the Federal Reserve would require more stringent disclosures from mutual holding companies (MHCs) wishing waive dividends. Critics say the new rules could hurt mutual companies’ ability to attract investors and raise capital (American Banker Aug. 23). Thrifts are regulated by either the Office of the Comptroller of the Currency or the states, but the Fed oversees their parent companies. Waiving dividends is one of the few attractions MHCs hold for investors, said Richard Lashley, a principal at PL Capital. The restriction mean that MHCs will hold less value for investors, said Eric Luse, a partner at Luse Gorman Pomerenk & Schick … * WASHINGTON (8/24/11)--Two economists being considered by the Obama administration as nominees for the Federal Reserve Board have publicly aired opinions on several financial services issues. Jeremy Stein, a Democrat, is a Harvard University finance professor. Richard Clarida, a Republican, teaches economics and international affairs at Columbia University and is an executive vice president at the money manager PIMCO. Both have held senior positions at the Treasury Department. Stein has been a critic of Basel capital rules, arguing that global regulators gave large banks too much time to comply with new capital and liquidity requirements written in response to the recent financial crisis. Writing with a colleague in a Financial Times op-ed piece, Stein argued banks should be forced to go to the market to raise capital. Stein wrote in a research paper earlier this year that regulators should make it standard practice to give banks incentives to raise incremental dollars of new capital. Clarida’s opinions have focused mainly on the struggling economy. He indicated his support for the Fed’s bond-buying policy known as “quantitative easing.” The Fed may need to purchase more assets if the second round--known as QE2--does not boost growth, Clarida said in a November 2010 Bloomberg News article … * WASHINGTON (8/24/11)--The Federal Reserve Board is proposing a two-year phase-in period for most savings and loan holding companies (SLHCs) to file regulatory reports with the board and an exemption for some SLHCs from initially filing reports (American Banker Aug. 23). Under the Dodd-Frank Act, supervisory and rulemaking authority for SLHCs and their nondepository subsidiaries transferred from the Office of Thrift Supervision to the board on July 21. On Feb. 3, the Federal Reserve Board sought comment its intent to require SLHCs to submit the same reports as bank holding companies, starting March 31, 2012. The Fed said it would take a phased-in approach to allow the SLHCs to develop reporting systems and reduce the risk of data quality concerns. Some thrift holding companies would not initially have to transition to the Fed’s reporting format. Companies with thrift subsidiaries holding less than 5% of a parent's assets and top-tier insurance companies that rely on a different format for submitting financial statements would be exempt …

FDIC-insured institutions earnings up for eighth straight quarter

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WASHINGTON (8/24/11)--The Federal Deposit Insurance Corp. (FDIC) reported Tuesday that earnings for its insured commercial banks and savings institutions for the second quarter of this year improved $7.9 billion from a year ago. The FDIC noted it is the eighth consecutive quarter that earnings registered a year-over-year increase. The FDIC also noted that lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings, as has been the case in each of the past seven quarters. FDIC acting Chairman Martin J. Gruenberg said in a release accompanying the agency’s “Quarterly Banking Profile,” "Banks have continued to make gradual but steady progress in recovering from the financial market turmoil and severe recession that unfolded from 2007 through 2009." The improvement trend, he added, has expanded to include a growing proportion of FDIC-insured institutions. The FDIC report quarterly also notes:
* A majority of FIDC-institutions (60%) reported improvements in their quarterly net income from a year ago. The share of institutions reporting net losses for the quarter fell to 15.2% down from 20.8% a year earlier. The average return on assets (ROA), generally regarded as a basic yardstick of profitability, rose to 0.85%, from 0.63% a year ago; * Second-quarter loss provisions totaled $19 billion, less than half the $40.4 billion that insured institutions set aside for losses in the second quarter of 2010. However, net operating revenue (net interest income plus total noninterest income) was $3 billion (1.8%) lower than a year earlier, and realized gains on securities declined by $1.3 billion (61.1%); and * Asset quality showed further improvement as noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a fifth consecutive quarter. Insured banks and thrifts charged off $28.8 billion in uncollectible loans during the quarter, down $20.9 billion (42.1%) from a year earlier.
Use the resource link below to read the FDIC's second-quarter 2011 Quarterly Banking Profile.

Visa begins circulating debit interchange fee structure

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WASHINGTON (8/24/11)--After teaming up Friday for a conference call with the Credit Union National Association (CUNA) on debit card interchange fee issues concerning credit unions--and announcing its new rates for institutions with under $10 billion in assets would soon be released--Visa began sending--to credit unions at least--its new debit card fee structure. Earlier last week, MasterCard participated in a CUNA call with credit unions and reiterated its pledge to implement a two-tiered debit interchange fee structure, and added the company currently plans to keep its existing market-based rate structure in place for credit unions and other financial institutions with under $10 billion in assets. Visa appears also to have created a two-tiered system, although some changes have been made to the Visa rates. Credit unions within the Visa network who have not yet received rate information should contact their Visa representative. As background, the Dodd-Frank Wall Street Reform and Consumer Protection Act required the Federal Reserve Board to cap debit interchange fees for issuers with assets of $10 billion or more. The Fed final rule set a cap of 21 cents, and allows an additional five basis points of the value of the transaction to cover fraud losses. An extra penny may be charged by financial institutions that are in compliance with Fed-established fraud prevention standards. Credit unions and other institutions with under $10 billion in assets are exempt from the rule.

Rulemaking transparency via websites needs improvement says study

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WASHIINGTON (8/24/11)--Eighty-nine federal agency websites, including that of the National Credit Union Administration (NCUA), were recently ranked in a study of how effective the sponsoring agency is in their efforts to use electronic media, such as websites and social media, to provide information on their rulemaking processes. “Federal Agency Use of Electronic Media in the Rulemaking Process,” by Cary Coglianese of the University of Pennsylvania, was commissioned by the Administrative Conference of the U.S. (ACUS). In a nutshell, the study found that many agencies are missing the mark when it comes to effective electronic communications. For instance, the study found that a mere 14% of the most frequent rule-writing agencies host a Web page that displays all the rules that currently are open for public comment. Only 30%, the study found, contain a link dedicated to soliciting public comments. Also notable according to the study report was that agency websites had infrequent links to, the government-sponsored online source for regulations from nearly 300 federal agencies, or to other regulatory information. This finding, the report said, shows virtually no improvement from results of an earlier study executed in 2005. Under Coglianese’s ranking system, a federal agency’s electronic media use could earn a maximum score of 49 points across three categories: general characteristics (up to 11 points), specific features related to rulemaking (up to 25 points), and visible use of social media (up to 13 points). A study disclaimer notes: (A) higher score does not necessarily mean a website is “better” in some absolute sense, as some of the coded features may not serve all agencies’ purposes equally well. The U.S. Food and Drug Administration came in with the highest cumulative score with a 27. The NCUA placed seven spots below with a 20. The Credit Union National Association (CUNA) works to recommend best practices to federal agencies regarding their websites on rulemaking. CUNA has recommended, for instance, that the NCUA work to improve access to regulatory information on its website. In a 2011 Regulatory Review comment letter, CUNA noted that “the notice for the Regulatory Review is difficult to find on NCUA's website. As a result, we are not certain whether very many credit unions are aware that the Regulatory Review is underway and that they can comment.” CUNA said it would be beneficial to credit unions if NCUA provided a report on its website each year on how it plans to address the recommendations it receives through this regulatory review comment process and a summary of the recommendations it did not pursue.” The study recommends certain best practices regarding agency websites on rulemaking. Administrative agencies should:
* Manage their use of the Internet with rulemaking participation by the general public in mind; * Provide a one-stop location on their home pages for all rulemakings currently open for comment; * Consider, in appropriate rulemakings, retaining facilitator services to manage discussion with respect to the rulemaking on social media sites; * Strive further to improve the accessibility of their websites to all members of the public (including non-English, low bandwidth, and disability access); * Display comment policies in accessible locations or provide links to the comment policy in multiple, accessible locations, especially on webpages that elicit comments from the public; * Develop systematic protocols for the retrieval of old material online; and, * Conduct ongoing evaluations of their use of the Internet against the goals of e-rulemaking.
Use the resource link below for more on the University of Pennsylvania study.

Faulty controlsindependent testing cited in banks 10M BSA penalty

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WASHINGTON (8/24/11)--The alleged failure of a Miami bank to implement effective Bank Secrecy Act/anti-money laundering (BSA/AML) with internal controls “reasonably designed to detect and report money laundering and other suspicious activity in a timely manner” has, in part, spurred a walloping $10.9 million civil money penalty for violations of federal and state BSA and AML laws and regulations. The Florida bank involved, Ocean Bank, without admitting or denying the allegations, consented to payment of the penalties, which the bank satisfied with a single payment to the U.S. government. The Federal Deposit Insurance Corporation (FDIC), the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN), and the State of Florida Office of Financial Regulation (OFR)--the agencies making the charges against Ocean--said the bank failed to conduct adequate independent testing, particularly with respect to suspicious activity reporting requirements. In addition, the agencies alleged, the bank failed to sufficiently staff the BSA compliance function with appropriately trained staff to ensure compliance with BSA requirements. "Effective Bank Secrecy Act/anti-money laundering programs commensurate with the risk profile of the institution is paramount in protecting our financial system and individual banks from harm," said Sandra L. Thompson, director of the FDIC’s division of risk management supervision, in a release. "This penalty underscores the significance for banks to have strong internal systems and controls to detect and report suspicious activity and ensure compliance with Bank Secrecy Act requirements." Tom Cardwell, commissioner of the Florida OFR, added, “The OFR will continue to monitor Ocean Bank's efforts to enhance its BSA/AML program. We are confident the bank is committed to be in full compliance with the letter and spirit of the Consent Order and Agreement." In a recent BSA/AML webinar hosted by the Credit Union National Association (CUNA), Judy Graham of the National Credit Union Administration's (NCUA) Office of Examination and Insurance, said NCUA examiners identify risk assessments and staff training as two top areas of compliance problems (News Now Aug. 23). On a related issue, Graham also noted that some suspicious activity monitoring programs being implemented are found to be insufficient to manage the risks involved in the credit union's business. Use the resource links below to access information on an archived version of the CUNA webinar and to read the BSA penalty release.