A collection of new banking resources from around the internet:

• Characteristics of FDIC Lawsuits Against Directors and Officers of Failed Financial Institutions – Courtesy of Cornerstone Research.
• FDIC Publishes 3rd Quarter 2012 State Banking Profiles
• FDIC Publishes Winter 2012 Supervisory Insights – Includes articles on Mobile Banking and High-Yield Checking Accounts.
• FDIC Releases Community Banking Study, Supervisory Initiatives – The FDIC released the results of a study of community banking in the United States, as well as a series of supervisory and rulemaking measures relating to community banks, as the outcome of its yearlong Community Banking Initiative.
• OCC Highlights Risks Facing National Banks and Federal Savings Associations – Regulators highlight the risks associated with the potential for banks to take excessive risk in an effort to improve profitability, revenue challenges from a slow economy and financial market volatility, and lingering effects of real estate lending.
• WSJ’s Top 10 Economic Charts of 2012 – Hopefully the fiscal cliff doesn’t make them all irrelevant to a historical review.
• 100 Best Lists of All Time – Courtesy of the New Yorker.  Personally, I’m a big fan of #16 – 16. Hasbro’s “2-Letter Scrabble Words List”.
• The S.E.C. vs. the S.E.C. – Hailing from the South, I clearly take the football conference, notwithstanding my profession.

On December 18, 2012, the Treasury provided an update on the wind down of the TARP bank investment programs and also announced the future auction of 53 TARP investments, approximately 25% of the remaining pool of investments.

As previously announced, Treasury is pursuing three basic options to exit the TARP program:  (1) waiting for banks to repay; (2) selling investments (typically by auction); and, in limited circumstances,  (3) restructuring investments to facilitate repayment or sale.  Since March 2012, Treasury has completed 91 auctions and had an additional 49 banks repay Treasury at par value.  Treasury indicated that, in the aggregate, its returns in the auctioned investments exceed the Treasury’s last estimate of their current value.

Treasury indicates that it will auction approximately two-thirds of the remaining institutions (or about 145 institutions) and expects the majority of the remaining banks to repay at par.

Treasury also provided a preview of banks that Treasury intends to auction starting late in January.  Treasury stated that it was making this early announcement as a large number of the banks in light of potential regulatory concerns for investors associated with these investments.  Specifically, Treasury indicates that, for a large number of the institutions, the TARP securities represent a large portion of the equity capital of the depository institution or that the institution is in arrears on dividend payments, causing the TARP securities to become voting securities, or both.  Either of these scenarios can cause ownership of the securities to be subject to the Bank Holding Company Act or the Change in Bank Control Act.

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The FDIC recently released a consent order with Meridian Bank (Paoli, Penn.) which dealt largely with the bank’s oversight and management of its electronic payment program and third-party payment processors (TPPPs), as well as BSA/AML issues. Although this order is tailored by the FDIC to address specific issues found at the bank and focuses on merchant transaction processing, a review of the requirements outlined in the order may be useful for banks and other financial services companies that deal with third-party providers or high-risk customers.

The order includes a lengthy and detailed list of the steps the bank must take regarding its oversight and management of third parties involved in the bank’s electronic payments program, including the following:

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A collection of new banking resources from around the internet:

• Congress Amends ATM Fee Disclosure Requirements – Pending the President’s signature, banks will no longer have to include duplicative signing informing customers of ATM fees going forward.
• Senate Rejects Bill to Extend Transaction Account Guarantee – Based on a Congressional Budget Office report that concluded “that, using recent history, the FDIC and NCUA would underestimate probable losses when setting fees to charge for this additional coverage,” the Senate was unable to overcome a procedural objection to the bill.  In the larger context, the bill was killed as part of a senate fight over the filibuster, a battle with credit unions over expansion of business lending, and objection to continued “bailouts,” but looking solely at the official record, the bill failed on the belief of Congress that the FDIC did a lousy job foreseeing the economic crisis.
• FDIC Updates Status of Professional Liability Suits – Despite the FDIC’s inability to foresee the economic crisis, the FDIC continues to pursue litigation against directors and executive officers, having authorized suits against 369 defendants in 2012.
• FDIC Publishes Regulatory Calendar for Community Banks – The online regulatory calendar is intended to help community banks stay up-to-date on changes in federal banking laws, regulations, and supervisory guidance.
• Treasury Announces Results of 5th Round of “Opt-Out” Auctions – Discounts ranged from less than 2% to 35%.

As has been noted on this blog before, the State of Georgia has the dubious distinction of leading the nation in the number of failed financial institutions. In the month of October 2012, the number of lawsuits against former officers and directors of those failed institutions increased by two (2).

In the first lawsuit, filed on October 17, 2012, the FDIC brought suit in its capacity as Receiver for American United Bank of Lawrenceville, Georgia against two former officers and 6 former directors of the bank. (A copy of the complaint can be found here.)  In that suit, the FDIC alleged both ordinary negligence and gross negligence in connection with the management of the lending function of the bank. The FDIC alleged that the failure of American United caused a loss to the Federal Deposit Insurance Fund in the amount of $45.2 million, and, through alleged damages in the lawsuit, seeks to recover an amount in excess of $7.3 million.

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A collection of new banking resources from around the internet:

• Treasury Announces Results of Fourth Round of “Opt-Out” Auctions – This auction round included the first dividend-deferring institutions.  Baraboo Bancorp had missed one dividend, and sold at a 33% discount, while Community West Bancshares had missed two dividends, and sold at a 27% discount.
• FDIC Publishes 3rd Quarter 2012 Banking Profile – The number of institutions on the FDIC’s “Problem List” fell from 732 to 694, while assets of “problem” banks declined from $282.4 billion to $262.2 billion. This is the smallest number of “problem” institutions since third quarter 2009.
• FDIC Meeting Agenda for December 11, 2012 Meeting Announced – Nothing particularly controversial appears to be on the schedule.
• Federal Reserve Announces Chairs for Reserve Banks – Each Reserve Bank has a nine-member board of directors. The Board of Governors in Washington appoints three of these directors and each year designates one of its appointees as chair and a second as deputy chair.

On November 27, 2012, the CFPB announced that it intends to propose adjustments to its rules on international remittances, as well as briefly extend the effective date of the rule. A notice of proposed rulemaking is expected in December, and the bureau stated it intends to “fast track” the rule changes so that the new implementation date will be sometime in the spring of 2013. The rules are currently slated to become effective on February 7, 2013.

In its blog post regarding these plans, the CFPB acknowledged that some entities covered by the rules have identified issues that pose “practical challenges” in implementation. The bureau’s proposed changes will address:

• Errors resulting from incorrect account numbers provided by consumers sending remittance transfers. The bureau intends to propose that where the remittance transfer provider can demonstrate that the consumer provided incorrect information, the provider must attempt to recover the funds but will not be liable for the funds if it is unable to do so.
• Disclosure of certain third party fees and foreign taxes. The bureau’s proposal will provide additional flexibility for these disclosure requirements, including allowing remittance transfer providers to base fee disclosures on published bank fee schedules. The bureau also will provide further guidance on foreign tax disclosures where tax rates may be affected by certain variables.
• Disclosure of sub-national foreign taxes. The bureau plans to propose that the obligation for remittance transfer providers to disclose foreign taxes imposed on remittance transfers is limited to taxes imposed at the national level, and does not include taxes imposed by foreign sub-national jurisdictions.

The CFPB’s bulletin regarding its plans available here, and the bureau’s related blog post is available here.

Despite having more than its fair share of failed banks, Florida has not been a hotbed of D&O litigation. On November 9^th, the FDIC filed only its second lawsuit against former directors of a failed banking institution. The defendants here are former directors of Century Bank, FSB (Sarasota, FL), which was placed into receivership in mid-November 2009.  A copy of the FDIC’s complaint is available here.

 The FDIC’s complaint is consistent with most of its prior D&O lawsuits, with typical allegations of negligent overconcentration in ADC and CRE, as well as various failures to follow the Bank’s loan policy or to exercise safe and sound banking practices. What makes this complaint a little different is that it focuses on ten specific loan transactions which were approved after it was apparent that the Bank was in “dire financial condition” and not meeting regulatory capital requirements.  (more…)

A collection of new banking resources from around the internet:

• Bill Introduced in Senate to Extend Transaction Account Guarantee – Sen. Reid’s proposal would extend unlimited insurance for non-interest bearing transaction accounts through 2014.
• Interagency Policy Statement on Charter Conversions by Troubled Banks – Implementing one of the requirements of Dodd-Frank.
• Case-Schiller September 2012 Home Prices Report – Nationally, home prices up 3.6% from September 2011.
• Federal Reserve Beige Book Released – Atlanta Fed indicates that most businesses across the Atlanta Fed region described economic activity as increasing marginally in October, and most contacts expect little change in the near term.

Hot on the heels of FinCEN’s advisory on risks associated with third-party payment processors (see Government Update, issue 18), FinCEN and the FDIC assessed concurrent $15 million civil money penalties against First Bank of Delaware for violations of BSA/AML laws and regulations. Among other things, FinCEN and the FDIC found that the bank “failed to adequately oversee third-party payment processor relationships and related products and services commensurate with associated risks.”

The bank also settled related civil claims with the DOJ, which alleged it “established direct relationships with several fraudulent merchants and third-party payment processors working in cahoots with a large number of additional fraudulent merchants.” On behalf of those entities, the DOJ alleged, the bank originated hundreds of thousands of debit transactions against consumers’ bank accounts, many of which originated via remotely created checks (RCCs). The DOJ also alleged that the bank was aware of “significant red flags warning the bank that the debit transactions were tainted by fraud.” The DOJ’s $15 million penalty is concurrent with those of FinCEN and the FDIC. The bank also is required to maintain an account with $500,000 to pay consumer claims arising from its alleged conduct.  (more…)