Examiner News – Tuesday, June 11, 2011

Supervisory Insight
This issue is now available on http://www.fdic.gov  at http://www.fdic.gov/regulations/examinations/supervisory/insights/index.html .
This issue of Supervisory Insights  includes two articles of interest to examiners, bankers, and supervisors:  one provides useful information for bankers about the technical requirements associated with Small Business Administration (SBA) lending as well as information for examiners when reviewing bank SBA loan portfolios; and the second explains the risks associated with third-party payment processor relationships and discusses how banks can manage these risks.
   

Stay informed with the latest data releases from Economic and Financial Highlights
Retail sales fell in May, and break-even inflation rates are down since April.

View the latest data and more in the new Economic Highlights   and Financial Highlights   .

Risk-Based Capital Standards Final Rule on  Advanced Capital Adequacy Framework—Basel II;  Establishment of a Risk-Based Capital Floor
The federal bank regulatory agencies have jointly issued the attached final rule to amend the advanced risk-based capital adequacy standards (advanced approaches rules) to be consistent with certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act), and amend the general risk-based capital rules to provide limited flexibility consistent with Section 171of the Act for recognizing the relative risk of certain assets generally not held by depository institutions.

Statement of Applicability to Institutions with Total Assets Less than $1 Billion:  The only insured banks in this category to which this rule applies are those whose parent organizations use the advanced approaches rule and who have not been exempted from the requirement to also use the advanced approaches rule. Parent organizations that use the advanced approaches rule include mandatory banking organizations with total consolidated assets of $250 billion or more or on-balance sheet foreign exposure of $10 billion or more and those that have elected to use the advanced approaches rule

Complete Financial Institution Letter:   http://www.fdic.gov/news/news/financial/2011/fil11048.html  

News Clips – Tuesday, June 21, 2011

FICO Scores to Predict Drug Adherence? Posted on June 21, 2011  by admin

Nearly three in four Americans do not follow doctor’s orders for taking prescription drugs, a problem that is associated with 125,000 patient deaths each year, according to the National Consumers League….But which patients are likely to take their prescription medications correctly and which ones are likely to deviate from the plan? FICO, a company whose credit score is widely used to assess the credit worthiness of millions of consumers, is planning to answer that question. It has developed a new FICO Medication Adherence Score that it says can predict which patients are at highest risk for skipping or incorrectly using prescription medications. FICO Scores Predict Drug Adherence – NYTimes.com .

Posted in Consumer Protection , Credit Rating  | Comments Off

Bank Data Thefts Threaten National Security Posted on June 21, 2011  by admin   From the opening statement to be delivered this morning by Senate Banking Committee Chairman Tim Johnson (D-S.D.) at a hearing on data theft in the financial services industry: “Recent high-profile data breaches at major institutions within the financial sector and elsewhere underscore the importance of cyber-security for the American economy. … Breaches are disruptive and raise the potential for financial fraud, identity theft and, potentially, severe threats to our national economic security.” Learn More About Today’s Hearing … Posted in Bank Regulation (domestic) , Cyber Security  | Comments Off

Connected NYC Lawyers Reap Foreclosure Benefits Posted on June 21, 2011  by admin   The foreclosure crisis has caused a surge in the number of court-appointed receivers for distressed properties in New York, and politically connected lawyers are benefiting. Yet even as the fees mount, totaling millions of dollars, it remains unclear why judges are selecting some of these lawyers, and whether the fees are being well spent. The court system in New York State has long been criticized for fostering a system of patronage appointments that enriches lawyers and others with ties to influential politicians. Court officials defend the process of selecting receivers for distressed properties, saying judges are looking for people who they know have done good work. Over all, the number of receivers appointed by judges to oversee distressed properties in the city jumped to 284 last year from 47 in 2007, records show. Connected N.Y.C. Lawyers Reap Foreclosure Benefits – NYTimes.com . Posted in Foreclosure  | Comments Off

Lending Battle Is Risky Business – WSJ.com Posted on June 21, 2011  by admin   Banks and other lenders are engaged in an increasingly pitched fight for some corporate borrowers, raising concerns among analysts and regulators that the banks aren’t charging enough to cover the risk they are taking on. The battle to make loans, in contrast to the credit squeeze of recent years, is being driven by two factors: demand by investors for these loans and desire by banks to boost their revenues, which they have struggled to do recently. “These guys are kind of climbing over each other” to increase loan volumes, said William Schwartz…His said his concern is that banks are relaxing their lending standards to make more loans. Lending Battle Is Risky Business – WSJ.com . Posted in Bank Lending & Borrowing , Bank Regulation (domestic) , Bank Regulation (Foreign)  | Comments Off

Whistleblower Sues N.H. Insurance Regulators Posted on June 21, 2011  by admin   A health policy analyst with the New Hampshire Insurance Department who was fired after challenging her bosses over a federal health care contract is now suing them under the state’s whistleblower statute. Concord attorney Chuck Douglas…filed a lawsuit in Merrimack County Superior Court on Thursday against Insurance Commissioner Roger Sevigny and Deputy Commissioner Alexander Feldvebel on behalf of Leslie Ludtke. Ludtke was fired May 31 after challenging her bosses over their push to change bidding procedures for a contract to design an insurance exchange under the federal Patient Protection and Affordable Care Act. They said she was fired for refusing to work with them.  Whistleblower Sues N.H. Insurance Regulators . Posted in Insurance Industry , Insurance Regulation  | Comments Off

Bi-Partisan Push on Derivatives Posted on June 21, 2011  by admin   Sen. Debbie Stabenow (D-Mich.), chair of the Senate Agriculture Committee and Rep. Frank Lucas (R-Okla.), chair of the House Agriculture Committee, wrote to federal regulators urging them to implement the derivatives title of Dodd-Frank in a way that does not imposed extra costs on end-users or put U.S. firms at a disadvantage to foreign competitors. Read the Letter Here: http://politi.co/mxFKvA Posted in Derivatives , Dodd-Frank  | Comments Off

BofA May Sell Some China Bank Stake Posted on June 21, 2011  by admin   Bank of America Corp. may sell some of its $21 billion stake in China Construction Bank Corp. to bolster capital before new international standards take effect, said three people briefed on the plans. Bank of America, the biggest U.S. lender by assets, wants to keep about half its CCB shares so it can remain a strategic investor in the world’s second-biggest bank by market value, said two of the people, who declined to be identified because the plans are private. CCB led declines among Hong Kong-listed Chinese banks today. “This is obviously a forced sale — it’s a big chunk of a valued enterprise in an attractive place in the world…” BofA May Sell Some China Bank Stake – Bloomberg . Posted in Bank Regulation (domestic) , Bank Regulation (Foreign) , Basel II | Basel III , Capital Requirements  | Comments Off

Appealing An Insurer’s Denial Is Often A Good Strategy Posted on June 21, 2011  by admin   Nobody wants to get into a fight with a health insurer, but it may be worth your while. A recent Government Accountability Office report found that more claims problems stemmed from annoying but often straightforward billing and eligibility issues than from disagreements over whether care was medically appropriate. What’s more, the odds are about 50/50 that if you appeal an insurer’s decision, you’ll win….Under the 2010 health law…[h]ealth plans will be required to inform members that they can appeal disputed claims internally within the health plan as well as to an independent review organization not affiliated with the health plan. The new rules become effective in July. Appealing An Insurer’s Denial Is Often A Good Strategy – Kaiser Health News . Posted in Insurance Regulation  | Comments Off

JPMorgan, RBS Sued by Federal Agency Over Mortgage Bonds Posted on June 21, 2011  by admin   JPMorgan Chase & Co.and Royal Bank of Scotland Group Plc units were sued by the federal agency that regulates credit unions, seeking to recover money lost on mortgage-backed securities. The National Credit Union Administration Board, or NCUA, accused the institutions of packaging and selling mortgage bonds with loans that didn’t meet underwriting guidelines. The bonds, sold to federally chartered credit unions, caused more than $800 million in losses, according to the agency.  JPMorgan, RBS Sued by Federal Agency Over Mortgage Bonds – Bloomberg . Posted in Bank Regulation (domestic) , Bank Regulation (Foreign) , Lawsuit , Mortgage Backed Securities , NCUA  | Comments Off

McKinsey Defends Survey on Health Care Law’s Effects Posted on June 21, 2011  by admin   After nearly two weeks of widespread queries and criticisms, McKinsey & Company, the management consulting firm, posted on Monday the questionnaire and methodology of an online survey it had released that was denounced by the White House and others for contending that nearly a third of employers would definitely or probably drop coverage for employees when provisions of the health care law took effect in 2014. The White House responded on Monday night. “As we learn more, it’s become clear that this one flawed study from McKinsey is truly an outlier,” Nancy-Ann DeParle, an assistant to the president and deputy chief of staff, said in a blog post. McKinsey Defends Survey on Health Care Law’s Effects – NYTimes.com . Posted in Insurance Industry , Insurance Regulation  | Comments Off

Steuben bank crosses into Wyoming Co. | Business First Posted on June 21, 2011  by admin   Steuben Trust Co, a community bank based in Hornell, has received permission from the State of New York Banking Department to open and operate a branch in Wyoming County. Steuben Trust plans to open its 14th branch in an existing 6,300-square-foot commercial building at 2490 Route 19 North in Warsaw near the Buffalo Street intersection. The bank currently operates 13 branches in four counties, including seven in rural Allegany County. The office in Warsaw will be its first in Wyoming County. Steuben bank crosses into Wyoming Co. | Business First . Posted in Bank Regulation (domestic) , Banking Department News , Community Banks  | Comments Off

Treasury seeks brainy search engine to follow terrorist money Posted on June 21, 2011  by admin   The Treasury Department is searching for a supersmart search engine to spot signs of terrorist-financing and money laundering among monetary transactions totaling 9 terabytes of data — the equivalent of a stack of typewritten pages nearly 460 miles high. Treasury’s intelligence arm, the Financial Crimes Enforcement Network, or FinCEN, has a database to organize the 15 million reports it receives from financial institutions annually, but needs a better way to home in on what’s in there, FinCEN officials said Monday. On June 17, FinCEN issued a request for information from contractors on technology to improve analytical queries into the repository. The software must be able to work with FinCEN’s existing fraud-detection application to probe the database, according to the notice.  Treasury seeks brainy search engine to help follow terrorist money – Nextgov . Posted in FinCEN , Money Laundering , Treasury Department  | Comments Off

League battle over bank risk will end in tiers Posted on June 21, 2011  by admin   About 30 global banks are bracing for tougher capital requirements as regulators meet this week to begin ranking the groups by the risk they pose to the broader financial system.Essentially, the regulators are trying to weigh five interlocking factors: size, interconnectedness, complexity, global footprint and whether a bank has competitors that could pick up its business if it collapsed. The resulting league table will then be used to determine how much extra capital each bank will have to hold to protect itself from unexpected losses. More capital could mean lower profits and lower returns on equity. A preliminary list of eight banks believed to be in the top – or most risky – category shows how complicated the sorting process can be. FT.com / Companies / Banks – League battle over bank risk will end in tiers . Posted in Bank Regulation (domestic) , Capital Requirements , Too Big To Fail  | Comments Off

ICE fines Goldman over disorderly oil trading Posted on June 21, 2011  by admin   ICE Futures Europe Exchange said on Monday it had imposed a 25,000 pounds penalty on Goldman Sachs for what it called “disorderly trading” in oil contracts. The exchange said in a circular on its web site that its monitoring on Jan. 28 had detected six “price spikes” in April 2011 “These were investigated and found to be the result of a limit order and several large market orders placed in quick succession by a Goldman Sachs International trader,” it said in a statement. ICE fines Goldman over disorderly oil trading | Reuters . Posted in Bank Regulation (domestic) , Bank Regulation (Foreign) , Financial Fraud , Financial Regulation  | Tagged ICE – IntercontinentalExchange  | Comments Off

State & Political News | June 21, 2011 Posted on June 21, 2011  by admin   Legislature Still at Odds Over Cuomo’s Top Issues The annual legislative session sputtered into overtime on Monday night with no visible progress on critical elements of Gov. Andrew M. Cuomo’s ambitious first-year agenda, while legislative leaders battled behind the scenes on a host of contentious issues.  The highest-profile battle, over whether to legalize same-sex marriage, continued without resolution as protesters sang and shouted in the Capitol, and a small group of lawmakers continued to negotiate language to protect religious groups that do not support same-sex marriage from the threat of legal sanctions.  But the Legislature was also at odds over New York’s rent regulations, after Republicans in the State Senate balked at the broader tenant protections and expanded oversight of landlords that are being sought by Mr. Cuomo and Assembly Democrats.   http://www.nytimes.com/2011/06/21/nyregion/ny-legislature-still-at-odds-on-cuomo-priorities.html?ref=nyregion State workers gather at Capitol to rally against Layoffs About 2,000 state workers gathered at the Capitol, and a dozen other locations in the state, to rally against the pending 9,800 state layoffs and what the employees feel to be a lack of respect especially in the current contract negotiations. Gov. Andrew Cuomo proposed the elimination of the state employees to save $450 million. http://www.saratogian.com/articles/2011/06/21/news/doc4dffa462cfe01064069250.txt In New Jersey, Bill Advances on Public Workers’ Benefits A central piece of Gov. Chris Christie’s agenda moved to the brink of becoming law on Monday, when a bill requiring government workers to pay much more for benefits, while limiting their bargaining rights, passed two crucial tests. To a chorus of boos from angry union members in the visitors’ gallery, the State Senate passed the bill, and on Monday evening a key Assembly committee sent it to the full chamber, where a vote was expected later this week. http://www.nytimes.com/2011/06/21/nyregion/nj-senate-votes-to-make-workers-pay-more-for-benefits.html?_r=1&ref=nyregion Layoff Schedule Unchanged: Pink Slips For First Wave Set To Come Friday If Cuts Remain While Monday marked the last scheduled day of the Legislative session, another deadline is looming — Friday is the day that state workers affected by the first round of possible layoffs are supposed to have their “pink slips” in hand if the job cuts move forward. The two schedules aren’t related. But while Gov. Andrew Cuomo and lawmakers said they would extend their session as long as need be, the administration insisted that the June 24, notification deadline was unlikely to be pushed back.  ”The goal is unchanged,” Budget Division spokesman Morris Peters said of the Friday deadline. “We’re still working on that assumption.” http://www.timesunion.com/local/article/Layoff-notice-schedule-unchanged-1432699.php PEF Has Buyer’s Remorse Last year, the Public Employees Federation broke ranks with two of its public sector colleagues – NYSUT and CSEA – to endorse Gov. Andrew Cuomo even as many union members were concerned by his pledge (laid out in the “New New York Agenda,” remember that?) to freeze state worker salaries and push other policies that considered unpalatable by the labor community. Now that PEF is deadlocked in contract negotiations with the Cuomo administration, its president, Ken Brynien, is experiencing a bit of buyer’s remorse.   http://www.capitaltonight.com/2011/06/pef-has-buyers-remorse/ City Payroll Project Was Riddled With Fraud, U.S. Says Nearly all of the $600 million that New York City has paid to the main contractor for its troubled automated payroll project has been tainted by fraud, prosecutors said Monday in announcing a new indictment that charged two technology executives and their company in what a United States attorney called a “massive and elaborate scheme.”   http://www.nytimes.com/2011/06/21/nyregion/executives-are-charged-in-citytime-payroll-scandal.html?ref=nyregion Silver Medal May Be Golden Opportunity For 9/11 Memorial And Museum Officials unveiled a memorial medal which could provide up to $20 million in needed cash for the museum-in-progress. Ten dollars from each $56.95 coin sold will go to the organization, which is getting ready to open the memorial plaza that surrounds the museum site to victims’ families on the tenth anniversary of the attack. http://www.nydailynews.com/ny_local/2011/06/20/2011-06-20_officials_unveil_memorial_medal_to_raise_money_for_911_memorial_and_museum.html Posted in State & Political News Round-Up  | Comments Off

New e-mails suggest MBIA plotted for approval of breakup plan Posted on June 20, 2011  by admin   There’s nothing quite like e-mail evidence when it comes to establishing someone’s true state of mind. Want to know how MBIA CEO Jay Brown felt about the 2008 restructuring that shifted the insurer’s mortgage-backed securities liability into a separate company? According to a coalition of banks claiming that MBIA’s restructuring was a fraud that shortchanged MBS policyholders, Brown wrote an e-mail showing that he was pretty excited about the effect the deal would have on his MBIA shares. In the February 18, 2008 e-mail, written the day the MBIA restructuring was approved, Brown said he would “need someone to push the wheelbarrow across the bank vault.” The Brown e-mail is in the newly-unsealed portion of a brief that the bank coalition filed in a regulatory proceeding challenging former New York insurance superintendent Eric DiNallo’s approval of the MBIA restructuring. The brief was originally filed in March, but most of the e-mail evidence was redacted until Thursday.  New e-mails suggest MBIA plotted for approval of breakup plan . Posted in Insurance Department , Insurance Industry , Insurance Regulation  | Comments Off

Banks Won’t Give Up On Durbin Posted on June 20, 2011  by admin   Nothing is ever over, at least in Washington. The American Bankers Association today plans to send a letter to Fed Chair Ben Bernanke urging the central bank to rethink its approach to implementing the debit card interchange fee limit: “I wanted to once again reiterate our concerns over aspects of the proposed … rule … that will do great harm to banks throughout the country, and particularly to community banks. I strongly urge you to make revisions to the rule to mitigate those harms… As you are aware, the Tester-Corker amendment received 54 votes in the Senate last week. … While short of the 60-vote procedural threshold reserved for many controversial issues, it is clear that a majority of the world’s greatest deliberative body has sent a very strong message of concern over the approach taken by the Board in this rule. Full letter: http://politi.co/iEtzhN Posted in Credit Cards , Dodd-Frank , Durbin Amendment , Interchange Fees  | Comments Off

Ranks Grow of Inhouse Regulators at Big Banks – WSJ.com Posted on June 20, 2011  by admin   Memo to employees at big Wall Street banks and securities firms: Be careful what you say on the elevator. You might be surrounded by regulators. As part of a push to prevent another financial crisis, the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency are increasing the number of examiners who go to work every day at the companies they regulate. Much like reporters assigned to a military unit during war, these regulatory “embeds” get unprecedented access to financial firms such as Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley. They file through the same security turnstiles, eat lunch at the company cafeteria and press top executives for answers to questions about mortgage-documentation procedures and exposure to European debt and municipal bonds. “We’re a cop on the beat,” says Steven Manzari, who helps oversee the Federal Reserve Bank of New York’s embeds. Ranks Grow of Inhouse Regulators at Big Banks – WSJ.com . Posted in Bank Regulation (domestic) , Federal Reserve Board/The Fed , OCC  | Comments Off

51 FL Banks failed since the start of 2007 – WSJ.com Posted on June 20, 2011  by admin   Fifty-one banks in Florida have failed since the start of 2007. Now some of the survivors are starting to make loans again. In the first quarter, 29 banks with headquarters in Florida increased their total loan volume by at least 5% compared with the end of 2010, according to the Federal Deposit Insurance Corp. The modest rebound is a contrast to the overall decline of 1.7% in total loans at the nation’s 7,574 banks and savings institutions, the fifth-steepest drop in 28 years. Many banks still are struggling to overcome piles of bad loans, while some institutions with plenty of capital are having trouble finding enough eager, qualified borrowers. In Florida, more than 200 banks are still standing… In Florida, Banking’s Survivors Are Lending – WSJ.com . Posted in Bank Closings , Bank Regulation (domestic) , Financial Crisis , Mortgage Industry  | Comments Off

Foreclosure Backlog Gives Homeowners Reprieve Posted on June 20, 2011  by admin   Millions of homeowners in distress are getting some unexpected breathing room — lots of it in some places. In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics…Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years.  Foreclosure Backlog Gives Homeowners a Reprieve – NYTimes.com . Posted in Foreclosure , Mortgage Industry  | Comments Off

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