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Bank On A Great Opportunity

Posted by Wendell Brock on Wed, Oct 13, 2010

Friends,

As many of you know I have been serving as the Executive Director of CREED – the Center of Resources for Economic Education and Development these past several years.  This year we have done some exciting things with the help of our board and many of you. 

We have shipped over 1000 humanitarian school kits to children in need so they can continue their education in Haiti and Belize, and we are preparing a shipment to Uganda.  We helped start a micro business in Uganda at an orphanage – we provided the funds to start a pultry business, we helped build a chicken coop stocked with baby chicks and feed.  This chicken coop, which will hold 500 chickens, will help provide enough money in the future to send the 27 children to school as well as help them have more food to eat.  We are starting a micro-business lending project in Belize which will provide small dollar loans to several micro business owners, after approval of the borrower’s business plan and education training.

We now have a very unique opportunity: Just Give, a non-profit company, which offers non-profits such as CREED and thousands of other non-profits an easy way to donate on line, is offering a matching gift to celebrate their 10 year anniversary.  For each donation of at least $10.00 they will send us an additional $10.00.  This offer is only for donation made up to October 20th.

A school kit cost $10.00.  So for every ten dollars donated we can send two children to school instead of one!  The micro business loans will be about $400-$500 each; we are working towards four loans per month in the next 12 months.

Please make your donation by following the following link and then filling in the boxes with the following information as shown below:

www.justgive.org/10years (this special link MUST be used for the matching funds)

CREED

McKinney

TEXAS

75071

Tax ID: 87-0586965

The web page should look something like this below:

Charity Name or Keyword

City

State

Zip Code

Tax ID / EIN

 

On behalf of CREED and the growing number of people we serve, we thank you very much your support, it is GREATLY APPRECIATED.  And we wish you the best as we press forward during these difficult times to strengthen families and homes, through self-reliance.

Thank you,

Wendell Brock
Executive Director, CREED

Please join me in sending more children to school and also help finance a micro-business with a small donation.

CREED is a registered 501(c)3 nonprofit and all donations are tax deductible.

Topics: Bank, Small Dollar Loans, Loans, market opportunity, CREED

The FDIC Can Now Resolve Any Size Bank Failure

Posted by Wendell Brock on Mon, Sep 27, 2010

The latest words from FDIC Chairman Bair on the implementation of the Dodd-Frank Act…

With the enactment of the Dodd-Frank Act on July 21st of this year, the FDIC was given the tools to resolve a failing financial company that poses a significant risk to the financial stability of the United States. We now have the framework in place to resolve any financial institution, no matter how large or complex. Implementation of Dodd-Frank is designed to end "too big to fail," and the new resolution authority is a major reason why it will do so. The orderly liquidation process established under Title II of the Dodd-Frank Act imposes the losses on shareholders and creditors, while also protecting the economy and taxpayer interests.

If appointed as receiver for a failing systemic financial company, the FDIC has broad authority under the Dodd-Frank Act to operate or liquidate the business, sell the assets, and resolve the liabilities of the company immediately after its appointment as receiver or as soon as conditions make this appropriate. This authority will enable the FDIC to act immediately to sell assets of the company to another entity or, if that is not possible, to create a bridge financial company to maintain critical functions as the entity is wound down. In receiverships of insured depository institutions, the ability to act quickly and decisively has been found to reduce losses to creditors while maintaining key banking services for depositors and businesses. The FDIC will similarly be able to act quickly in resolving non-bank financial companies under the Dodd-Frank Act.

This is a major new responsibility for the FDIC. As you know, on August 10th we created the new Office of Complex Financial Institutions to help ensure that we are always ready to meet this responsibility.

The Notice of Proposed Rulemaking is one step forward in this process. The proposed rule is intended to provide greater clarity and certainty about how certain key components of the resolution authority will be implemented and to ensure that the liquidation process under Title II reflects the Dodd Frank Act’s mandate of transparency. With the US financial system now stable and healing, it is important to move ahead with rules to make clear how the orderly liquidation process would be implemented to restore greater market discipline and promote clear understanding among shareholders and unsecured creditors that they, not taxpayers, are at risk.

The FDIC is consulting with the Financial Stability Oversight Council members in accordance with the Dodd-Frank Act. In order to provide some additional time for Council members to offer their views and allow further consultation, today's meeting will provide a briefing for the Board members. We plan to ask for a notational vote next week after the FSOC has had its first meeting.

A special issue of concern during consideration of Dodd-Frank was how the FDIC might use its authority in a liquidation to pay certain creditors of a receivership more than similarly situated creditors if certain criteria are met. This proposal re-affirms that all equity share holders and unsecured creditors are at risk for loss and that the general rule will be that their claims will be processed in accordance with the priorities established under the bankruptcy code which are the same priorities that we use in our bank receiverships. The authority to differentiate among creditors will be used rarely and only where such additional payments are "essential to the implementation of the receivership or any bridge financial company." This cannot be a bail-out – that is clear from the statute. The NPR proposes to confirm that long-term bondholders, subordinated debt holders, and shareholders of a financial company will in no circumstances receive payments above their share to which they are entitled under the priority of payments in the statute. They can never be "essential" to the receivership or the bridge. This is consistent with the clear intent of the statute and we believe it is important that creditors have clarity in their treatment in a future liquidation. This is also consistent with the approach we have taken in our receivership process for banks. We have authority now to differentiate among creditors where it will maximize recoveries and have never found the need to use it except to compensate employees and other general creditors necessary to maintain essential operations.

The other issues addressed by the NPR will, likewise, clarify how we will apply the liquidation authority in key, discrete areas – and provide important clarity to the markets.

Equally important parts of the publication of the proposed rule are the background description of the orderly liquidation authority and the series of questions on which we are seeking comment for 90 days.

The background information provided in the NPR gives an overview of the powers and different options that the FDIC may use in liquidating a large, complex non-bank financial company. We think this will be helpful to market participants who are less experienced with the bank closing process on which the liquidation authority is modeled.

We look forward to comments on the broader questions posed in the NPR. Given the importance of the new liquidation authority – and the need for clarity in how it could be applied – the responses to the questions posed will inform a future, broader regulation to be proposed early next year to define key issues in the liquidation of large, complex financial institutions.

As part of our public rulemaking, this NPR will facilitate communication between the FDIC and the financial services industry, as well as the general public, on implementing the new resolution authority. I look forward to the comments.

Topics: Bank, FDIC, regulators, Too-Big-To Fail

Banks, Small Business and Risk

Posted by Wendell Brock on Thu, Sep 16, 2010

In the recently passed legislation, the Dodd Frank Law, the FDIC is given the mandate to change the way it assesses deposit insurance premiums from banks, mostly based on risk. This will greatly impact small businesses, by limiting their access to capital through loans. Perhaps as much or more than the recent health care bill will.

First the Law

The law “defines a risk-based system as one based on an institution’s probability of causing a loss to the Deposit Insurance Fund (the Fund or the DIF) due to the composition and concentration of the institutions assets and liabilities, the likely amount of any such loss, and the revenue needs of the DIF. …allowing the FDIC to establish separate risk-based assessment systems for large and small members of the Deposit Insurance Fund.

“Over the long-term, institutions that pose higher long-term risk will pay higher assessments when they assume those risks. …should provide incentives for institutions to avoid excessive risk.” (the information quoted is found in the following paper about the new score card produced by the FDIC located at: http://www.denovostrategy.com/new-fdic-score-card/)  The new assessments will be based on a performance score, which will be comprised of three main elements: 1) CAMELS Score, 30%; 2) Ability to withstand asset-related stress, 50%; and 3) Ability to withstand funding-related stress 20%. It is the asset-related stress that has the regulators concerned and if an institution has too much risk in that category, it will also affect the CAMELS rating, as the regulators will perceive that management is not doing their job – that of taking care of the bank.

The banker’s number one job now it to make sure that the bank never becomes a problem bank, that may cause the regulators to pay on deposits; everything else is now ancillary to that goal.

Small Businesses

All small businesses are risk rated, based on their credit score, (or the owners credit score), which becomes the basis for easy or difficult access to credit at a financial institution. At times bankers make loans to small businesses, because they understand the business, the risk associated with the business and they know the owner, even though the credit may be simply o.k. (not great, but not terribly bad either).

This new way of assessing deposit insurance will now cause the banker to ask the question – how will this loan affect the bank’s portfolio and ultimately it’s DIF assessment? As bankers ask this question more loans will be turned down. This is not to say, that all loans should be written as applied for, but as the bell curve moves towards safety, it will certainly leave a larger percentage of good small business loans unfulfilled and business owners without the much needed capital to continue in business or to grow. And we all know that when small businesses don’t continue, or fail to grow, then lay-offs occur and unemployment lines increase.

Did Congress and the regulators think this one through completely? Is there a better way to asses risk?

Topics: Bank, FDIC, banks, Regulations, FDIC Insurance Fund, Loan Grading, Risk Management, Bank Regulations, Growth, small business

Bank Regulation Increases Under the HIRE Act

Posted by Wendell Brock on Thu, Aug 19, 2010

Many Bank’s don’t realize that the HIRE Act, signed into law in March, which was sold to promote jobs, also has implications for the banking industry. Namely, the offset provisions impose withholding and reporting requirements to expand offshore tax compliance by non US banks, thereby funding the cost of the act.

 

Tax penalty for failure to report

 

Under the new legislation, foreign financial institutions must enter into a reporting arrangement with the IRS to provide account information on U.S.-owned accounts. Institutions that refuse such an arrangement are subject to a 30% tax on any payment of interest, dividends, rents, salaries, gains, profits and other forms of income from U.S. sources. Excluded from this definition of “withholdable payments” are payments owned by publicly traded companies or businesses wholly owned by U.S. residents.   

 

An institution may obtain a waiver of withholding by certifying to the withholding agent that it has no substantial U.S. account owners. However, withholding agents are liable for the tax and are still required to collect it if they have any reason to believe such certification is false.

 

Terms of reporting arrangement

 

The accepted reporting arrangement defined in the act requires foreign financial institutions to provide the IRS with the following information for each U.S.-owned account:

 

  1. Name, address and TIN of each account holder
  2. If the account holder is a U.S.-owned foreign entity, the name, address and TIN of each substantial U.S. owner of that entity
  3. Account number
  4. Account balance
  5. Gross receipts and gross withdrawals from the account

 

With respect to Number 2 above, a substantial U.S. owner is: any U.S. individual who owns 10 percent or more of the stock of a foreign corporation; any U.S. individual who owns more than 10 percent of the profit or capital interests in a foreign partnership; or any U.S. individual who owns more than 10 percent of the beneficial interests of a foreign trust.

 

The institution does have the option to exclude reporting on individually owned accounts where the account holder has less than $50,000 in aggregate balances at that institution.

 

Individual reporting requirements

 

The legislation also requires individuals to comply with the new reporting regime. Individuals who own certain foreign financial assets worth more than $50,000 in aggregate must include the information listed above in their personal tax returns. Foreign financial assets are defined as financial accounts, as well as stocks or securities issued by a non-U.S. person, financial instruments or contracts issued by or counterparty to a non-U.S. person, or any interest in a foreign entity.  The IRS wants to know where US citizens are keeping their money and how much.

 

Basically, banks will chose to not to bear the risk being liable for the tax and withhold the 30 percent on all wire transfers/payments to offshore bank accounts and businesses that have not made the disclosure agreement with the IRS. If the bank makes the wire transfer and should have withheld the 30 percent but did not – they are liable to pay the 30 percent tax to the IRS.  If the bank makes the wire transfer, and should NOT have withheld the 30 percent, then it is the individual’s responsibility to collect the tax from the IRS, there is no liability on the bank for the mistake.

 

The HIRE Act’s reporting and withholding requirements apply to payments made after December 31, 2012. 

Topics: Bank, Banking, Bank Risks, regulators, tax laws, Banking industry

Small-dollar Loan -- Pilot Study Results Are In

Posted by Wendell Brock on Wed, Jul 07, 2010

Creation of Safe, Affordable and Feasible Template for Small-Dollar Loans

Small-dollar loan pilot

The Small-dollar Loan Pilot Project was a study to find if it is profitable for banks to offer small-dollar loans to their customers. Small-dollar loans were created as an option to expensive payday loans, or heavy fee-based overdraft programs.  This study opened up opportunities for small-dollar loans to be more affordable.    

Small-dollar loans have created a way to maintain associations with current costumers and opportunities to attract unbanked new customers.

Goals: The main goal the FDIC had in mind for small-dollar loans was for banks to create long-lasting relationships with their customers using the product of small-dollar loans. Many banks had another goal in mind in addition to the FDIC’s goal. Some banks wanted to become more profitable by producing the product while other banks produced the product to create more goodwill in their community. 

Where and how the study started: The FDIC found 28 volunteer banks with total assets from $28 million to nearly $10 billion to use the new product, offering of small-dollar loans. All were found in 450 offices in 27 states. Now, in the pilot study there have been over 34,400 small-dollar loans that represent a balance of $40.2 million. 

Template for small-dollar loans: Loans are given with an amount of $2,500 or less, with a term of 90 days or more. The Annual Percentage Rate is 36 percent or less depending on the circumstances of the borrower. There are little to no fees and, underwriting follows with proof of identity, address, income, and credit report to decide the loan amount and the ability to pay. The loan decision will usually take less than 24 hours. There are also additional optional features of mandatory savings and financial education.  

Long loan term success: Studies found that having a longer loan term increased the amount of success in small-dollar loans. This allowed the customer to recover from any financial emergency by going through a few pay check cycles before it was time to start paying the loan back.  Liberty Bank in New Orleans, Louisiana offered loan terms to 6 months in order to avoid continuously renewed “treadmill” loans.  The pilot decided that a minimum loan term of 90 days would prove to be feasible.

Often the bank will require the customer to place a minimum of ten percent of the loan in a savings account that becomes available when the loan is paid off.

Delinquencies: In 2009 the delinquency rates by quarter for small dollar loans were 6.2 in the fourth, 5.7 in the third, 5.2 in the second, and 4.3 in the first.

How to be most successful when producing small-dollar loans: The FDIC is reporting that the participating banks have found much success through small-dollar loans. But the most success came from long term support from the bank’s board, and the senior management. It is critically important to have strong support coming from senior management.

The small-dollar loan pilot has proven to be a great addition to bank’s loan portfolio, the FDIC hopes that it will spread to banks outside the pilot.

Profitability may depend on location: The FDIC has found the most successful programs are in banks located in communities with a high population of low- and moderate-income, military, or immigrant households. Banks in rural areas that did not have many other financial service providers also saw feasibility because of the low amount of competition.

Improving performance: Automatic repayments are a way to improve performance for all products not just the small-dollar loans.

 

 

Topics: Bank, FDIC, banks, Pay Day Loans, Banking, Bank Risks, Small Dollar Loans, Bank Executives, Loans, market opportunity, bank customers, Bank Asset

Bank Portfolio Management - Solve the Problems

Posted by Wendell Brock on Wed, Mar 10, 2010

It's a tangled mess in the financial jungle. In order to navigate the issues of portfolio management and compliance while still staying profitable and able to weather the market's unpredictable trends, financial institutions must arm themselves with the best information and resources. Yet many don't have either the knowledge or analytical resources to not only stay abreast of changing trends but also act on them in a timely and profitable manner. We have solutions.

New Rules, Economic Trends

A financial planner I know is now telling his older clients that the stock market is so volatile that it cannot be relied on as a stable platform for long term investing. Thus, the age-old saying that "assets are soft and debts are hard," has never been truer. In these difficult economic times, financial institutions need reliable information about their asset portfolio, including how the loans are matching up with the current value of the assets supporting the loans, along with the borrower's strength, all at a simple click of a mouse. 

By the time the CFO, CCO, CLO, CEO or any other member of the management team assembles enough information about the portfolio in a spreadsheet to make decisions, it seems the market may have changed enough to make the choice more difficult.  The analytics we can provide at a simple click of the mouse gives you 100 percent loan penetration and enough analytical information about your assets that your institution will have an objective defendable system to help manage the portfolio.  

Regulatory Requirements

The frequency and breadth of audits are increasing; requiring financial institutions to stay in a mode of continuous compliance, in one year's time they could be subject to internal and external loan review, IT audit, financial audit, CRA exam, and regulatory exams. Compliance is mandatory and with RiskKey, staying in continuous compliance is much easier.   

Industry Standards

There is a paradigm shift coming to financial institutions. Because lending is often formula driven, bankers need aggressively take on the roll of being asset managers. In addition to managing the loans in the portfolio, they need to manage the assets that support the loans. The tools and knowledge to help actively manage your portfolio are available with a simple, cost effective, mouse click!

Evaluate

With forward-thinking analytics, you can determine your portfolio's risk. These analytics provide a defensible probability of default within the portfolio, you can also stress test the portfolio along several different data inputs, including, percent of asset recovery, interest rate, fico score, and others. This basis can provide a direction as to the quality of the overall portfolio, all the while allowing the banker to zero in on the individual problem loans and assess their grade based on the institution's custom grading scale.

Act

Armed with a new, comprehensive understanding of your portfolio's risk, the analytics will subsequently locate the most pressing issues and provide options.

Assess

Finally, with your portfolio's risk evaluated and acted upon, you will have the tools and resources needed to clearly and concisely report your findings, to loan committees, the board of directors, and regulators.

Easy, Secure & Forthright

Working with us is simple. We take care of merging your data into a single platform. Your data will be protected and your analyses kept completely confidential. Our pricing is straightforward and simple.

People, Time & Action

Your employees should be generating revenue and managing accounts, not gathering statistics.  De Novo Strategy will allow your people to get back to profitable work. Our innovative practices are well beyond spreadsheets and simplistic reports. There's no laborious compiling of figures or making difficult assessments across a range of formats. Integrated reports and analyses mean less lag time between making a decision and executing it.

To learn more about Silverback Portfolio Analytics click and let us know. This will help you Build a Smarter Bank!

Topics: Bank, Bank Risks, regulators, Bank Regulators, Bank Asset, Regulations, Bank Policies, Compliance, Growth, real estate, Commercial Bank

Feds Make a Change to Bank Capital Rules

Posted by Wendell Brock on Fri, Dec 19, 2008

The OCC, Federal Reserve Board, FDIC and OTS have collectively approved a final rule that permits banking organizations to reduce the goodwill deduction to tier 1 capital by the amount of any associated deferred tax liability. Banks, savings associations and bank holding companies are allowed to adopt this rule for the reporting period ending December 31, 2008.

 Prior to the adoption of this rule, the tier 1 capital calculation required banking organizations to deduct the full carrying amount of goodwill and other intangible assets resulting from a taxable business combination. This full deduction, however, was inconsistent with other aspects of the tier 1 capital computation. Other intangible assets acquired in nontaxable transactions, for example, could be deducted from tier 1 capital net of any associated deferred tax liability.

In a taxable business combination, the deferred tax liability arises from differences between tax treatment and book treatment of the asset. And, that deferred tax liability is not routinely settled for financial reporting purposes; it remains until the goodwill is written down, written off or otherwise derecognized. If the entire amount of the goodwill is impaired, the banking organization would also derecognize the associated deferred tax liability for financial reporting purposes. Therefore, the banking organization’s maximum exposure to loss with respect to the goodwill asset would be the full carrying value of that goodwill less the deferred tax liability. The spirit of this rule change is to improve the tier 1 capital computation by reflecting the banking organization’s actual exposure to loss with respect to goodwill arising from taxable business combinations. Also, the banking organization that deducts goodwill net of the associated deferred tax liability from tier 1 capital may not net that deferred tax liability against deferred tax assets for the computation of regulatory capital limitations on deferred tax assets.

 Comments largely positive

 On September 30, 2008, the regulatory agencies published a notice of proposed rulemaking requesting comments on this change. Of the thirteen comments received, only two opposed the change. Five comments suggested that the rule be adopted and available to banking organizations for the reporting period ending on December 31, 2008. The agencies have agreed with this request.

 Some of the comments also requested that the change be applied to other intangible assets as well, but did not provide sufficient data or analysis to support that request.

 

Other miscellaneous changes

 The OCC is also adopting other miscellaneous changes as noted in the proposed rule, including:

 

·         Clarification of the current treatment of intangible assets acquired due to a nontaxable purchase business combination

·         Replacement of the term “purchased mortgage servicing rights” with “servicing assets”

·         Clarification of OCC’s interpretation of existing regulatory text

·         Amendment of the goodwill definition to conform to GAAP

 

To review the full text of the final rule, please click here (http://www.fdic.gov/news/board/08DEC15rule4.pdf).

Topics: Bank, FDIC, OCC, OTS, capital, savings associations, tax liability, asset

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BankNotes© is published by De Novo Strategy as a service to clients and other friends. The information contained in this publication should not be construed as legal, accounting, or investment advice. Should further analysis or explanation of the subject matter be required, please contact De Novo Strategy at subscribe@denovostrategy.com.