BankBryanCave.com

Main Content

All Dressed Up with No Place to Go

November 3, 2017

Authored by:

Categories

All Dressed Up with No Place to Go

November 3, 2017

Authored by: Robert Klingler

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I discuss the prospects and alternatives for a small bank that finds itself without an interested buyer.   Frequently, we are finding clients and other depository institutions that have reached the internal decision that it’s time to sell, but when they check the market, the anticipated buyers are either not available, not interested, or at least not as interested as expected/hoped.

Before getting to those topics, we have a brief foray into me trying to avoid talking about college football, as well as updates on the proposed tax reform act and the announcement of the appointment of Jerome Powell to serve as Chair of the Federal Reserve Board.

Among the alternatives discussed:

  • A sale to a credit union;
  • A sale to a non-bank buyer;
  • A merger of equals, strategic merger, or stepping stone transaction; and
  • Longer term planning to set up the bank for a future sale.
Read More

A Potpourri of Bank Regulatory News

October 16, 2017

Authored by:

Categories

On the latest episode of The Bank Account, Jonathan and I discuss a veritable hodgepodge of new regulatory pronouncements, including the CFPB’s small dollar loan rule and the OCC’s guidance on CRA ratings.  But before we got to the bank regulatory issues, Jonathan first had to seek my opinion on the new Florida Gator jerseys (pictured).  I’m actually fairly proud in my restraint.  For the handful of listeners who enjoy this banter, I encourage you to view these rejected Florida Gator uniforms.  For those that wish we’d stick with banking, I assure you my interest in discussing college football has reached another low after this weekend.

the-bank-accountWe also encourage our listeners to check out the American Bankers Association’s new podcast, the ABA Newsbytes Podcast.  While we’re happy for you to listen to our podcast over and over again, we recognize that it has diminished value starting with the third listen, and encourage you to explore other podcasts as well.

The potpourri of topics discussed include:

Read More

Basel III Treatment of DTAs and MSAs

October 9, 2017

Authored by:

Categories

We have heard, read and seen (and internally had) some confusion regarding the joint proposed rulemaking regarding the potential simplification of the capital rules as they relate to Mortgage Servicing Assets (MSAs) and certain Deferred Tax Assets (DTAs).

In addition to simply being complicated regulations, the regulators also have two proposed rulemakings outstanding related to these items. In August 2017, the banking regulators jointly sought public comment on proposed rules (the “Transition NPR“) that proposed to extend the treatment of MSAs and certain DTAs based on the 2017 transition period. Then, in September 2017, the banking regulators jointly sought comment on proposed rules (the “Simplification NPR“) that proposed to alter the limitations on treatment of MSAs and certain DTAs (and also addressed High Volatility Commercial Real Estate or HVCRE loans).

The Simplification NPR also addressed the interplay of the Simplification NPR and the Transition NPR. The Simplification NPR provided that the Transition NPR, if finalized, would only remain effective until such time as the Simplification NPR became effective. Accordingly, the Simplification NPR, if adopted, will ultimately control, with no transition periods for MSAs and certain DTAs following January 1, 2018.

Net Operating Loss DTAs

Importantly, neither the Transition NPR nor the Simplification NPR have any affect on the Basel III capital treatment net operating loss (NOL) DTAs. DTAs that arise from NOL and tax credit carryforwards net of any related valuation allowances and net of deferred tax liabilities must be deducted from common equity tier 1 capital. Through the end of 2017, the deduction for NOL DTAs are apportioned between common equity tier 1 capital and tier 1 capital. In 2017, 80% of the NOL DTA is deducted directly from common equity tier 1 capital, while the remaining 20% is separately deducted from additional tier 1 capital. Starting in 2018, 100% of the NOL DTA will be deducted from common equity tier 1 capital.

The end of the transition period will have the effect of lowering the common equity tier 1 capital ratio of all institutions with NOL DTAs, although the tier 1 capital and leverage ratios should remain unchanged. This impact is entirely unaffected by the adoption (or non-adoption) of the Transition NPR and/or Simplification NPR.

Similarly, other aspects of NOL DTAs are unaffected by the proposed rules. Specifically, (i) GAAP still controls the appropriateness of valuation allowances in connection with the DTA, (ii) tax laws still control the length of time over which DTAs can be carried forward, and (iii) Section 382 of the Internal Revenue Code still controls the limitation (and potential loss) of DTAs upon a change in control of the taxpayer.

Temporary Difference DTAs

Unlike Net Operating Loss DTAs, DTAs arising from temporary differences between GAAP and tax accounting, such as those associated with an allowance for loan losses and other real estate write-downs, can be included in common equity tier 1 capital, subject to certain restrictions. To the extent that such DTAs could be realized through NOL carryback if all those temporary differences were deemed to have been reversed, such DTAs are includable in their entirety in common equity tier 1 capital. Essentially, to the extent the temporary difference DTAs could be realized by carrying back against taxes already paid, then such DTAs are fully includable in capital. Carryback rules vary by jurisdiction; while federal law generally permits a bank to carry back NOLs two years, many states do not allow carrybacks.

Read More

Storytelling by Walt

October 5, 2017

Authored by:

Categories

Storytelling by Walt

October 5, 2017

Authored by: Robert Klingler

As Jonathan and I mentioned on our podcast on succession planning a few weeks ago, our patriarch and founding father, Walt Moeling, formally retired at the end of 2016.  However, his knowledge and influence continue to permeate almost everything we do (and he still has the same office down the hall).  One of the ways that influence can be seen continues to be in our use of stories originally told to us by Walt.  Of course, his storytelling ability has been noticed, including by the press. Several years ago, as part of our succession planning, we began chronicling some of those stories.  What follows is what I wrote two years ago…

In early 2010, our clients were dropping like flies, with one or two clients failing every Friday. Even as one client entered receivership, we were each likely working with three or four others that were on the same path. (Each was a horror movie, and we knew exactly how it would play out, even if our clients held out optimism each time that, for whatever reason, their story would play out differently.)

Walt and I were on the phone with one such client who had just passed the 2% leverage ratio threshold, and was in discussions on next steps.  The executives were worried about how their employees would handle the receivership. Walt, as usual, slipped into a story about another (former) client that had been a client for years. Whenever Walt called, the president’s administrative assistant, Nancy, would answer the phone and chat with Walt before tracking down the bank’s president. Walt shared how he had listened as Nancy became increasingly depressed as the bank’s condition had deteriorated.

In his best Southern belle, falsetto, voice, Walt would demonstrate the decreasing pep in Nancy’s voice. From an upbeat “Good Morning, Walt!” to more and more depressing “Oh, Walt, things are hard, but we’re trying.” In the weeks leading up to that client’s receivership, Walt himself became increasingly saddened by Nancy’s stress. Calls now usually started “Oh, Walter, things are rough.

Read More

Regulators Propose Simplification of Capital Rules

September 28, 2017

Authored by:

Categories

the-bank-accountOn the latest episode of The Bank Account, “Adding HVADC to our Banking Alphabet Soup,” Jonathan and I are joined by colleague Jerry Blanchard to discuss the new capital rules proposed by the federal banking regulators on September 27, 2017.  The newly proposed regulators propose to overhaul the HVCRE regime with a “new and improved” HVADC regime, while also increasing the amount of Mortgage Servicing Assets (MSAs) and Deferred Tax Assets (DTAs) that can be included in Tier 1 Capital.

As discussed yesterday, the new HVADC rule would likely expand the scope of loans that require elevated risk-weighting, but reduce the risk-weighting from 150% to 130%.  In addition, the new rules would eliminate the need (or risk-weighting benefit) to require borrower contributed capital (and to retain any internally generated profits from the project for the life of the loan).

The proposed rule for MSAs and DTAs would require 250% risk-weighting for such assets (as contemplated in the original BASEL III rules as of January 1, 2018 and proposed to be delayed in August), but would also allow financial institutions to include MSAs and DTAs as capital, each up to 25% of Tier 1 Capital (with no separate aggregate cap amongst them).

Read More

Putting the Success in Succession

September 26, 2017

Authored by:

Categories

Putting the Success in Succession

September 26, 2017

Authored by: Robert Klingler

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I draw from personal experiences at Bryan Cave as well as the experiences of our bank clients for a discussion about succession planning.  Succession planning is rarely a top regulatory concern, but good succession planning requires time to implement.  Accordingly, boards (and managements teams) should always be looking at (and planning for) a future where one or more executives (and/or board members) decides to retire.  With the age of the CEO often being a primary contributor to the decision to sell the bank, succession planning should be a fundamental part of the strategic planning discussion.

A few alternative titles we kicked around for this episode include:

  • Paying Millennials in Avocado Toast: The Podcast About Succession Planning
  • Succession Planning for Banks
  • The Bryan Cave Model: How Walt Moeling & Kathryn Knudson Rocked Succession Planning (and how you can too!)
  • “We” Mode: Smart Succession Planning
  • Succession Planning: Why It’s Important and How To Do It Right
  • Big Team, Little Me:  Succession Planning Tips
Read More

Frenemies: Gaining Efficiency Through Shared Services

September 8, 2017

Authored by:

Categories

the-bank-accountBryan Cave colleagues Ken Achenbach and Sean Christy join Jonathan and me on this episode of The Bank Account to examine the ability of banks to gain efficiency through shared services.  Throughout the business environment, business are looking to out source all non-core competencies.  Ken and Sean explore the opportunity for banks to similarly explore the opportunity for banks to join forces to purchase outsourced services and invest in technology platforms together. By working together, banks can leverage buying power and share the burden associated with evaluating their vendor options.

You can follow most of us on Twitter.  Jonathan is @HightowerBanks, I’m @RobertKlingler, and Sean is @SeanChristy.  Following Ken on Twitter is difficult, as he has, so far, refused to access that part of the internet.  Our producer, Sam Katz, is @SamathaJill1.

Note:  This episode was recorded before the University of Florida announced it was cancelling this weekend’s football game against Northern Colorado due to Hurricane Irma.  The Gators drought in offensive touchdowns will therefore continue at least another week.  We hope everyone stays safe.

Read More

The Sanity of Bank Directors

September 1, 2017

Authored by:

Categories

The Sanity of Bank Directors

September 1, 2017

Authored by: Robert Klingler

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I address two items of significant interest in our office: (a) a recent Wall Street Journal opinion piece on the sanity of bank directors, and (b) the start the of college football season (not necessarily in that order).

When starting the podcast, we expected the podcast would offer listeners an opportunity to hear the conversations we have around the office on a wide variety of topics.

Today, that includes a topic that represents a significant part of our fall conversations, college football, with a particular focus on the SEC.  As a Georgia Bulldog, Jonathan brings his bizarre view of the world, while as a Florida Gator, I correct him (or at least that’s how I see it, and I write the blog posts).  If you want to participate in the conversation, please do not hesitate to reach out to either of us (Jonathan.Hightower@bryancave.com and @HightowerBanks or Robert.Klingler@bryancave.com and @RobertKlingler).

Following the football discussion, we get down to the real business of the day, the insanity of a recent Wall Street Journal Opinion piece.  On August 28th, the Wall Street Journal published an opinion piece by Thomas Vartanian titled Why Would Anyone Sane be a Bank Director?  Jonathan’s response, Why Sane People Serve as Bank Directors, is available here.  Jonathan and I walk through aspects of Vartanian’s analysis that we agree with… as well as the many portions that we strongly disagree with.  We also address a few other items related to the analysis of what should be involved in director’s roles on bank boards and the FDIC’s approach in litigation.

Read More

Two Recent Card Payment Developments

August 18, 2017

Categories

Our Bryan Cave-affiliated sister site, the BC Retail Law Blog, recently published two posts that may be of interest to our banking, fintech and payments clients.

In “Bans on Credit Card Surcharges Face First Amendment Challenges,” the Retail Law Blog looks at how state laws that prohibit retailers from charging customers a surcharge for using a credit card are being challenged on First Amendment grounds.

For more than four decades, California’s Song-Beverly Credit Card Act of 1971 prohibited retailers from charging credit card customers such a surcharge. In Italian Colors Restaurant, et al. v. Harris, 99 F.Supp.3d 1199 (E.D. Cal. 2015), a federal judge ruled that the law unconstitutionally limits retailers’ freedom of speech. The California attorney general appealed, and the case is set for oral argument before the Ninth Circuit Court of Appeals on August 17.

One consequence of these actions may be to make credit cards more expensive to the consumer, which, in turn, could encourage further development of alternative forms of payment.

Read More

Regulators Tackle Board Effectiveness and Overdrafts

August 7, 2017

Authored by:

Categories

the-bank-account

On the latest episode of The Bank Account, Jonathan and Ken Achenbach discussed the Federal Reserve’s proposed supervisory expectations for boards of directors.

Before digging into the Federal Reserve’s proposed guidance, Jonathan and Ken first discussed the CFPB’s statistical analysis of frequent overdrafters.  As noted in the CFPB’s analysis, “very frequent overdrafters account for about five percent of all accounts at the study banks but paid over 63 percent of all overdraft and NSF fees.”  They also touched on the CFPB’s prototype model forms for overdrafts.   As might be expected from the CFPB, the sample forms do a good job of highlighting the economic consequences of utilizing overdrafts, but not mention the potentially significant benefits (tangible and psychological) that can be provided by allowing such payments to proceed.

As noted by Jonathan and Ken, the Federal Reserve’s proposed supervisory guidance identifying expectations for boards of directors of banking holding companies would only apply to institutions with consolidated assets of $50 billion or more.  However, we believe the guidance is appropriate for all bank directors to look at, particularly as it draws on the Federal Reserve’s experience with approaches that improve bank governance.

Per the Federal Reserve guidance, effective boards are those which:

  1. set clear, aligned, and consistent direction regarding the firm’s strategy and risk tolerance;
  2. actively manage information flow and board discussions;
  3. hold senior management accountable;
  4. support he independence and stature of independent risk management (including compliance) and internal audit; and
  5. maintain a capable board composition and governance structure.

We believe this Federal Reserve guidance is consistent with our advice that boards need to get out of the weeds and focus on the big picture, a topic we have addressed on earlier podcasts as well.

Read More
The attorneys of Bryan Cave LLP make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.