Iowa Banking Law Blog

Today's FDIC Board Actions

The FDIC today issued a final rule on processing deposit accounts in the event of a bank failure.  The final rule to a large extend codifies the FDIC's established policies and procedures at bank closings and follows up on the interim rule issued back in July 2008.  The final rule sets forth the practices for determining for deposit insurance and receivership purposes deposit and other account balances at a failed institution.

In other action, which would only affect banks that are "less than well-capitalized", the FDIC proposed for comment a regulatory change in how the statutorily-imposed restricted deposit interest rates applicable to such institutions are calculated.  Currently, such instutions cannot solicit deposits at interest rates that significantly exceed prevailing rates, with such permissible rates being tied to the comparable maturity Treasury yield for deposits solicited nationally, and to undefined "prevailing local interest rates" for deposits solicited locally.

Under the proposed change, "nationally prevailing deposit rates" would be defined as a direct calculation of the averages of such rates, computed and published by the FDIC.  No longer would such rates be tied to comparable Treasury yields.  Moreover, the change would establish a rebuttable presumption that locally prevailing deposit rates are the same as the national rates published by the FDIC.

For more information, contact Allyn Dixon at adixon@dickinsonlaw.com or at 515.246.4520.

H.R. 384 (EESA Reform Act) Passes in the House

The U.S. House of Representatives passed Congressman Barney  Frank's EESA Reform Act bill in today by a vote of 260-166.  This Bill, which was only introduced on January 9, 2009, now goes to the Senate where it is not expected to move quickly.

We will update you as the legislation is taken up on the Senate side and invite you to contact us with any questions you may have.  You may wish to refer to earlier postings for a detailed explanation of H.R. 384.

For questions about H.R. 384, contact Allyn Dixon at adixon@dickinsonlaw.com or at 515.246.4520.

 

 

Term Sheet for S-Corp TARP Applicants Due out January 14, 2009

The Treasury's TARP program leader announced this morning that the term sheet for S-Corps that plan to participate in the Capital Purchase Program under the TARP will be available tomorrow.  We will update you as soon as the terms are released, and understand that there will be a 30 day window for submitting applications.

For further questions, contact Allyn Dixon at 515.246.4520 or at adixon@dickinsonlaw.com

Rep. Frank Introduces H.R. 384, the "TARP Reform and Accountability Act of 2009"

Late last Friday, January 9, 2009, House Financial Services Committee Chair Barney Frank introduced H.R. 384, the TARP Reform and Accountability Act of 2009 (the "TARP Reform Act").

In addition to containing the provisions we summarized in our most recent blog posting last week, which was based upon information released by Rep. Frank in advance of the proposed legislation's formal introduction, the bill contains a number other provisions which appear to have been added to the final draft.  Among them:

The bill expands the membership of the Financial Stability Oversight Board to include the Chair of the FDIC as well as two presidential appointees who are private citizens. 

The bill also specifically mandates that between $40 and $100 million be committed to prevent and mitigate residential foreclosures beginning by no later than April 1, 2009.

The bill permanently extends the deposit insurance increase from $100,000 to $250,000 with establishing an inflationary adjustment mechanism that will take effect after April 1, 2015. 

Under the bill, FDIC permissible borrowing limits are raised from $30 million to $100 million with flexibility for the Treasury Secretary to authorize additional borrowings upon request of the FDIC with its board's approval.

 Finally, the bill extends the period from 5 to 8 years for an insurance fund restoration plan to meet the requirement that reserve ratios meet or exceed the minimum specified amounts under such plan.

As the bill progresses through the legislative process, we will keep you informed.  A copy of the bill can be obtained by going to the House Financial Services Committee's website at www.house.gov.

For questions about the TARP Reform Act, please feel free to contact any of the following members of our TARP Team:  Allyn Dixon at 246 2520, Howard Hagen at 246 4543 or Arthur Owens at 246 515.

Outline of Legislation to Amend TARP

As we promised to do in an article we posted earlier this week, we are now able to provide information concerning the legislation Rep. Barney Frank plans to introduce in the House either today or early next week, which also addresses the issue of S-corps obtaining TARP funding.

The bill would amend provisions of the TARP that have prompted a good bit of criticism.  For example, the bill would strengthen accountability, close many loopholes, increase transparency, and require Treasury to take steps to mitigate foreclosures.  Treasury would be required to act swiftly to permit smaller community banks that have been precluded from participation due to the S-corp issues attendant with the preferred stock issuance requirement.  These institutions would be given the same access to funds as other institutions have received upon the same terms.

Under the bill, Treasury must require existing and future TARP fund recipients to provide quarterly public reports on how funds are being used.  This provision is aimed at ensuring that funds are being used to promote lending.  Future TARP fund recipients would be required to enter into agreements spelling out how funds would be used and establishing benchmarks.  Examiners would be required to verify that funds are being used as promised and that program requirements such as the executive compensation limits are being met.

In a move that may significantly impact future TARP participants and those that have already received TARP funds, the bill would prohibit TARP funds from being used to acquire healthy banks.  In fact, any acquisition by a TARP fund recipient of another bank would require Treasury's finding that the acquisition reduces the risk to taxpayers or that it could have been accomplished without TARP funds.

As for executive compensation, tighter, clearer requirements are imposed, including the same requirements that were made a part of the auto bailout transactions.  The strengthened conditions can be applied retroactively.

The bill allows Treasury to have a representative at board and committee meetings of TARP fund reciepients.

At least $50 billion of the next round of TARP funding must be allocated to foreclosure mitigation, with a plan on the part of Treasury for doing so in place by March 15, 2009, with funds beginning to be allocated thereunder no later than April 1, 2009.  Servicers would be given a safe harbor for engaging in loan modifications as long as certain conditions are met by the servicer.

The bill clarifies Treasury's ability to provide assistance to car manufacturers under the TARP and to provide support for consumer lending, commercial real estate loans and MBSs.  In addition, the bill amends some of the Hope for Homeowners program provisions, incuding eliminating the upfront 3% premium and reducing the annual premium range by at least 1/2 of a percent.

Finally, the bill requires Treasury to develop a program outside of the TARP to stimulate demand for home purchases and to clear property inventories including through ensuring the availability of affordable mortgages for qualified buyers.

Here's a link to Congressman Frank's outline:

http://www.house.gov/apps/list/press/financialsvcs_dem/press0109092.shtml

 For further questions, contact Allyn Dixon at 515.246.4520 or at adixon@dickinsonlaw.com

Feeling Overwhelmed By Credit Card Debt?

The Office of Thrift Supervision recently approved new rules, which apparently drew the highest number of comments ever received by the Federal Reserve – 65,000, aimed at the credit card industry.

 

Some of the new rules, which will take effect in July 2010, include, among others:

- allowing credit card companies to raise rates only on new credit cards and future purchases or advances, rather than on current balances;

- providing customers with 45 days notice – as opposed to the current 15 days notice - before changes can be made to the terms of the account;

- prohibiting unfair time constraints on payments;

- charging expensive fees for exceeding the card’s credit limit solely because of a hold placed on the account;

- requiring lenders to apply payments above the minimum amount to balances with the highest interest rate;

- making deceptive offers of credit.

 

Although the thrift agency believes that the new rules will go a long way towards establishing public confidence in the financial industry again, others believe that the new rules could make it more difficult for people with a poor credit history to obtain cards with higher interest rates.  Still others envision that the new rules could cost the banking industry more than $10 billion a year in interest payments, a cost which may ultimately get passed on to those consumers who do pay their credit card bills on time.

 

For more information on this topic, please email Mary A. Zambreno.

What's Next for the TARP Program?

As the news has been quick to let us know, about $257 billion of the first $350 billion in TARP capital purchase program funds have been disbursed, with all of the first round of funding allocated already.  Opinion is split as to whether the Bush Administration in its waning days will seek to have the next installment released, or leave the begging to the new Treasury Secretary.  What does seem likely is that Congress will require more accountability for how funds are used by passing new legislation.

In the Senate, Senators Feinstein and Snowe introduced S.3698, "The Accountability for Economic Rescue Assistance Act of 2008" at the end of the last session.  The bill would prohibit receipients of TARP monies from using any funds for lobbying expenditures or political contributions and would require recipients to file publicly-available quarterly reports and certifications with the Treasury  Secretary that would provide details as to how TARP funds are being used, including an explanation of how such funds have been allocated to stabilize financial markets and increase consumer and business credit.

Word on the street is the Congressman Frank may introduce similar legislation as soon as this week in the House.

Another unknown at this time is how Treasury plans to deal with its required investment in TARP capital purchase program fund recipients that are S-corporations.  Treasury has been eerily quiet on the subject ever since indicating that it would address the issue.

Stay tuned for more details.