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Monthly Archives: March 2010

TARP Special Master Requests Historical Compensation Data

By Rob Klingler - Tuesday, March 30, 2010

On March 23, 2010, the Special Master for TARP Executive Compensation issued a letter to all financial institutions that received TARP CPP funds prior to February 17, 2009.  The letter requests compensation data to permit the Special Master to review all bonuses, retention awards and other compensation paid to the institution’s senior executive officers and next 20 most highly-compensated employees from the receipt of TARP CPP funds through February 17, 2009.

In the event the Special Master determines that such compensation is inconsistent with the purposes of TARP or otherwise contrary to the public interest, the Treasury shall seek to negotiate with the TARP CPP recipient and the affected employee for appropriate reimbursements to the federal government.

The review is applicable to all institutions that received TARP assistance prior to February 17, 2009, even if the institution has repaid such funds.  Institutions that received TARP assistance after February 17, 2009 are not included in the review.  A complete list of the affected TARP institutions is included as an appendix to the Special Master’s letter.

Institutions must confirm receipt of the Special Master’s request no later than April 6, 2010, and must submit the required data and certification not later than April 22, 2010.

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Federal Reserve Board Issues Final Gift Card Rules

By Margo Hirsch Strahlberg - Monday, March 29, 2010

On March 23, 2010, the Federal Reserve Board issued its final rule, a summary and analysis of the final rule, and the official staff interpretation of the final rule in connection with Title IV of the CARD Act (the “Final Rules” or “Rules”).  The Final Rules are comparable to the proposed rules that were issued in November 2009, and follow the gift card related provisions set forth in the CARD Act addressing fees, expiration, disclosures, and various exemptions.  Set forth in this Bryan Cave Client Alert is a brief summary of key provisions of the Rules.

The Rules set forth various restrictions and guidelines with respect to gift card fees, expiration dates, and disclosures.  The Final Rules apply to any gift certificate, store gift card, or general-use gift card (including any reward/promotional card or any virtual/online gift card) that is sold or distributed to a consumer on or after August 22, 2010.

The Rules may affect any retailer, restaurant, consumer product supplier, hotel or travel provider that offers gift or reward cards – including loyalty programs – to consumers.  The Rules apply to retailers, processors and financial institutions involved in the issuance, distribution and sale of various types of gift certificate and gift card products.

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Financial Services Update – Issue 11

By Matt Jessee - Friday, March 26, 2010

Senate Financial Regulatory Reform Bill
On Monday, the Senate Banking Committee held its much anticipated markup of Chairman Christopher Dodd’s (D-CT) “Restoring American Financial Stability Act of 2010.” Republicans declined to offer any of their more than 200 prepared amendments to the financial reform bill because Ranking Republican Richard Shelby (R-AL) believes they will have a better chance of incorporating their suggested changes as the pressure builds on Dodd to bring the bill to the floor and get the measure passed – an effort that will require Republican support. Dodd’s bill was passed out of the Committee on a strict party line vote of 13-10. Following the markup, Dodd indicated he will be reaching out to Republicans off the Committee such as Senators Olympia Snowe (R-ME) and George Voinovich (R-OH). President Obama met with Dodd and House Financial Services Committee Chairman Barney Frank (D-MA) on Wednesday to discuss the legislation and to develop a strategy following the expected Senate passage of a bill in the near future. The meeting signals the White House’s decision to turn its focus to the financial legislation following the conclusion of the health care debate.

In a speech at the U.S. Chamber of Commerce on Wednesday, Senate Banking Committee member Republican Bob Corker (R-TN) offered a sharp rebuke to the emerging Republican strategy of trying to keep all 41 GOP senators united against the bill in order to change key aspects of the reforms. In a letter to Secretary Geithner on Thursday, Senator Shelby also stated a desire to work toward a bipartisan bill. However, the letter also expresses concern that Chairman Dodd’s current draft fails to end the problem of  “too big to fail” and “taxpayer bailouts.”

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Media Mentions March 26, 2010

By Jeannie Osborne - Friday, March 26, 2010

With attorneys and staff worldwide, Bryan Cave attorneys often make the news.  Sometimes media mentions highlight the firm’s involvement with notable clients, sometimes the individual accomplishments of attorneys and staff.  Recent media mentions of attorneys in Bryan Cave’s financial institutions practice include:

Moeling in Atlanta Journal-Constitution
Atlanta Partner Walt Moeling was quoted March 18 by the Atlanta Journal-Constitution on the tough time former CEOs of failed Georgia banks are having finding work.

Rinearson on FinancialFraudLaw.com
New York Partner Judith Rinearson was quoted March 19 on FinancialFraudLaw.com regarding the proposal from Sen. Chris Dodd (D-Conn.) for a consumer protection division within the Federal Reserve. The idea is part of the ongoing development of new financial regulations for the banking industry.

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Changes to Loss Share Transactions Forthcoming

By Rob Klingler - Thursday, March 25, 2010

We understand that the FDIC is substantially changing the loss share formula structure, applicable to all bids made after March 31, 2010.  The material changes include:

  • Elimination of the “Stated Threshold” and 95%/5% loss sharing basis.  Accordingly, all loss sharing will be at a constant 80%/20% split (FDIC/acquiring bank) for all covered assets and all losses.
  • Bidders will now be expected to express the Asset Premium (Discount) component of their bid as a percentage of the book value of assets purchased, rather than a fixed dollar amount.
  • The “First Loss Tranche” will now be an element to be bid, rather then an amount calculated based on assets acquired and liabilities assumed.  Bidders will be expected to express the “First Loss Tranche” component of their bid as a percentage of the covered assets.  The “First Loss Tranche” will continue to represent the amount of losses the acquirer will absorb prior to the commencement of loss sharing.  Negative bids for the First Loss Tranche will not be accepted, although zero bids will.
  • As the “First Loss Tranche” will now be separately bid, the net equity position of the failed bank may cause an initial payment to be due to the FDIC at closing, particularly when assets passing to the acquiring bank exceed the deposit liabilities.  (Previously such an acquiring bank merely assumed 100% of the losses until the amount owed the FDIC was exhausted.)
  • The Initial Payment will be the sum of  the equity adjustment (assets – liabilities), deposit premium bid (in dollars), and the asset premium bid (in dollars). If the result of the calculation is positive, the acquiring bank will be required to wire the Initial Payment to the FDIC, while if it is negative, the acquiring bank will receive a wire of the Initial Payment from the FDIC.

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TARP Recipients and Reporting on the Use of TARP Funds

By BT Atkinson - Wednesday, March 24, 2010

On January 12, 2009, the FDIC issued a Financial Institution Letter, FIL-1-2009, addressing the use of funding from Federal Financial Stability and Guaranty programs. FIL-1-2009 was brought to the attention of one of our financial institution clients that is a pubic reporting company and a TARP recipient, during the course of its annual examination.  Based on the guidance in the FIL, we advised the client to document and summarize the data that it had been monitoring on its use of TARP proceeds and also to include a fairly brief discussion summarizing that information in its Annual Report on Form 10-K.  This advice is intended to address the suggestion in the FIL that state nonmember banks “summarize such information in published annual reports and financial statements. Including such information in public reports will provide important information for shareholder and public evaluation of participation in these programs.”

If you are a smaller reporting company that has not finalized your 10-K, you should consider adding this disclosure, or perhaps including it elsewhere in public releases or reports.  Also, to the extent you have an examination scheduled in the coming weeks and months, be prepared for an inquiry concerning this FIL.

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Business over Breakfast – Small Business Lending Discussion

By Rob Klingler - Tuesday, March 23, 2010

Click here to register online.

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High Rate Area Determination Relief?

By Rob Klingler - Tuesday, March 23, 2010

On Friday, March 18, 2009, FDIC Chairman Sheila Bair addressed the inclusion of all branches in the calculation of local rates in a speech at the ICBA convention in Orlando.  This modification may (1) create new or renewed opportunities for community banks to apply for, and receive, high rate area determinations, and (2) increase the relevant local rate for institutions operating in high rate areas.

As some of you may know, last year we changed the rule for complying with the statutory interest-rate restrictions for banks that are less than well capitalized. The new regulation includes a streamlined safe-harbor for compliance using a national rate schedule that is published on the FDIC’s website. The rule also builds in the flexibility to identify high-cost areas. As we make these judgments, one issue that can be material in some markets is the presence of multiple branches of large banks.

As I mentioned earlier, the largest banks enjoy lower average funding costs – and the differential appears to be rising. In our judgment, this trend is driven at least in part by the market perception that some of these banks are too big to fail. It was never our intent for this regulation to disadvantage smaller banks. That is why, as of today, we have amended the question and answer document on our website to clarify that the FDIC will, as appropriate, drop multiple branches of the same banks from the calculation of locally prevailing deposit rates. I would point out that this was an issue that was flagged for us by members of our Community Bank Advisory Committee, who have made many useful suggestions like this in the meetings we have held so far. (emphasis added)

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Financial Services Update – Issue 10

By Matt Jessee - Monday, March 22, 2010
 
Senate Financial Regulatory Reform Bill
On Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced his latest draft financial regulatory reform bill. The bill creates a new consumer protection agency, which will be located within the Federal Reserve, with regulatory authority over financial products such as mortgages and credit cards. The legislation also creates a resolution authority framework to liquidate failed financial firms, imposes stricter capital and leverage requirements on banks, creates a systemic risk council, requires shareholders be allowed a non-binding vote on executive compensation, and imposes new rules and standards for credit rating agencies. The bill also alters the banking regulatory structure by giving the FDIC regulatory oversight of state banks with assets below $50 billion, giving the OCC authority over national banks and federal thrifts with assets below $50 billion, eliminates the Office of Thrift Savings, and gives the Federal Reserve authority over national banks and thrift holding companies with assets of over $50 billion. Finally, the bill contains language regarding the regulation of over-the-counter ”OTC” derivatives that is identical to Dodd’s November draft bill, but Dodd has indicated his desire to replace those provisions with language currently being negotiated between Senator Jack Reed (D-RI) and Senator Judd Gregg (R-NH). Sources indicate Reed and Gregg may be unable to reach an agreement on such language, and with the markup scheduled to begin next Monday and hundreds of amendments expected to be filed, it remains to be seen how Dodd will handle these provisions.
 

Dodd and Bernanke Exchange Criticism Over Proposed New Fed Role
On Wednesday, Federal Reserve Bank Chairman Ben Bernanke and former Fed Chairman Paul Volcker testified before the House Financial Services Committee at a hearing examining the central bank’s regulatory duties. During his testimony and under questioning by Committee members, Bernanke criticized Senate Banking Chairman Dodd’s draft regulatory reform bill for its provisions which remove the Fed’s supervisory role over small banks, saying it will deprive the central bank of key information it uses to execute monetary policy. On Thursday, Dodd’s staff countered Bernanke’s criticism by citing former Fed Vice Chair Alice Rivlin’s statement from a July 2009 Senate Banking Committee hearing in which she stated, “I don’t think that supervising individual banks is important to making monetary policy. I know that was said around the table when I was at the Fed, but I didn’t really experience that we learned a lot from supervising particular banking institutions that was useful to monetary policy.”

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Financial Services Update – Issue 9

By Matt Jessee - Monday, March 15, 2010

Senate Financial Regulatory Reform Bill

On Thursday, Senate Banking Committee Chairman Chris Dodd (D-CT) announced he was ending negotiations with Senate Banking Committee Republicans Bob Corker (R-TN) and Richard Shelby (R-AL) and moving forward with releasing his draft bill the week of March 15 with a likely markup in the Committee the week of March 22. Corker responded by announcing that he was disappointed that Dodd had ended negotiations but that he would continue to work towards a bipartisan bill.

The move by Dodd to abandon bipartisan negotiations was caused by the increasing pressure from Committee Democrats and House Financial Services Committee Chairman Barney Frank (D-MA) to move a bill with stronger consumer protections than what Republicans would agree to during the bipartisan negotiations. A sign of the increasing pressure on Dodd by fellow Democrats was seen on Thursday when Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) announced they would be introducing legislation that would expand the proposed Volcker Rule to limit propriety trading and other risk-taking activities to include nonbank financial institutions. Dodd has till this point been resistant to including the Volker provisions in the legislation.

While the compromise between Dodd and Corker to house the new consumer protection agency in the Federal Reserve seems to have remained intact, Dodd has now acknowledged that the biggest outstanding issues remain how to regulate over-the counter “OTC” derivatives and how to finance the new “resolution” authority. Senate Majority Leader Harry Reid (D-NV) said Thursday that the Senate would pass the financial reform bill before its Memorial Day recess, which is scheduled to begin May 31.

Senate Passes Tax Bill

On Wednesday, the Senate passed the American Workers, State and Business Relief Act which extends unemployment insurance benefits and eligibility for the 65 percent COBRA health care tax credit during Dec. 31, 2010. The legislation retroactively extends tax cuts for middle-class families and businesses that expired at the end of 2009. The bill also provides relief for pension plans by allowing companies to amortize their obligations over a longer time period and prevents a reduction in the federal poverty level from taking effect through 2010. The scheduled reduction is caused by a decrease in the average cost of goods resulting from the economic downturn. It allows families to continue to qualify for programs such as stamps, Medicaid and home-heating assistance. Likewise, the legislation allows individuals living below the poverty level to continue to disregard refundable tax credits and refunds as part of their income for 12 months after receipt.

The bill also extends tax cuts for research and development, allows restaurant owners and retail stores to depreciate improvements over 15 years rather than 39.5 years, extends tax credits for small businesses that continue to pay employees who have been called to active duty in the military, extends tax credits biodiesel and renewable energy, extends tax credits for teachers who buy classroom supplies, creates tax credits for home energy efficiency improvements, and allows taxpayers to continue to deduct state sales tax on their federal tax returns.

The bill also extends the increased federal assistance for state Medicaid programs, made available through the American Recovery and Reinvestment Act, for six months. In addition, the legislation continues funding for loan programs for small businesses, extending funding to reduce or eliminate fees under the Small Business Administration’s 7(a) loan guarantee program and the 504 loan program through the end of this year. In addition, the legislation reverses a scheduled 21 percent payment cut for doctors who provide services through Medicare and Tricare. The legislation also extends several other Medicare protections, including the exceptions process for Medicare beneficiaries who exceed their cap on therapy services and provisions affecting doctors and other health care providers who serve rural communities.

The Senate passed the bill by a 62-36 margin, but getting a final bill to President Obama’s desk might prove more difficult. New Ways and Means Chairman Sander Levin (D-MI) said Tuesday he “wouldn’t be surprised” if the House forced a conference committee on the extenders bill to iron out the significant revenue issues.

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