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Administration to Consider A One-regulator System for Banking Industry

Posted by Wendell Brock on Thu, Jun 04, 2009

The Wall Street Journal has reported that the Obama administration will recommend an overhaul of the current bank regulatory system to replace several regulators with one super-agency. The plan is said to involve the creation of a systemic regulator and a new consumer protection agency as well.

Currently, banks can be chartered as national banks, state banks, federal savings banks or state savings associations. Each type of charter involves a different set of regulators. For example, national banks are regulated by the Office of the Comptroller of the Currency or OCC. Federal savings banks, however, are regulated by the Office of Thrift Supervision or OTS. State banks can be jointly regulated by the state and either the FDIC or the Federal Reserve Board (FRB). State-chartered thrift holding companies and state savings associations, however, are regulated by the state and OTS. The bank’s organization group selects the type of charter and chartering group within its bank application during the formation process.

Competing agencies create gaps and leniencies

Critics of the current system argue that this regulator mélange lacks comprehensive, systemic oversight and creates regulatory gaps that have been exploited by financial companies.

Also at issue is whether the current system sufficiently motivates regulators to provide careful oversight. New banks represent new funding for regulators; since bank organizers tend to gravitate towards the regulator of least resistance, regulators actually benefit on some level from offering greater leniency.

A systemic regulator would eliminate this competition for leniency. The agency would be tasked with identifying and addressing regulatory gaps in areas such as mortgage banking, hedge funds, credit default swaps and other specialty financial products. As well, the entity would be responsible for recognizing risks and problems within financial companies that are heavily entrenched in the industry—to properly manage or even avoid failures of Lehman’s magnitude.  

ABA warns of ending dual-bank system

A single-agency system would require the unification of oversight functions currently managed by the OCC, OTS, FDIC and FRB. In a letter written to Treasury Secretary Timothy Geithner, ABA President and CEO Edward Yingling expressed the banking industry’s opposition to this concept. According to Yingling, such a system would favor federal banks over state banks, and eventually lead to the end of the dual banking system. The dual banking system, says Yingling, isn’t the enemy; it creates competition and stimulates innovation in financial products and evolution of regulatory systems.

Yingling also argues that the proposed model is based on the U.K.’s Financial Services Authority, which was not able to avert that country’s financial crisis.

The single regulator concept is still just a subject of debate on Capitol Hill. Senator Christopher J. Dodd and Representative Barney Frank have both spoken out against the idea. Press reports indicate that the administration will publicize a proposal later this month.

Topics: FDIC, regulators, Banking industry, OCC, OTS, FRB, super-agency

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 (

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

Pacific Western Bank Acquires All the Deposits of Security Pacific Bank, Los Angeles, California

Posted by Wendell Brock on Fri, Nov 07, 2008

Security Pacific Bank, Los Angeles, California, was closed today by the Commissioner of the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Pacific Western Bank, Las Angeles, California, to assume all of the deposits of Security Pacific.

The four branches of Security Pacific will reopen on Monday as branches of Pacific Western. Depositors of the failed bank will automatically become depositors of Pacific Western. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Pacific Western can fully integrate the deposit records of Security Pacific.

Over the weekend, depositors of Security Pacific can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of October 17, 2008, Security Pacific had total assets of $561.1 million and total deposits of $450.1 million. Pacific Western agreed to assume all the deposits for a two percent premium. In addition to assuming all of the failed bank's deposits, Pacific Western will purchase approximately $51.8 million of assets. The FDIC will retain the remaining assets for later disposition.

Customers who have questions about today's transaction can call the FDIC toll free at 1-866-934-8944. This phone number will be operational this evening until 9 p.m. pacific; on Saturday from 9 a.m. to 5 p.m. pacific; and on Sunday noon until 5 p.m. pacific and thereafter from 8 a.m. to 8 p.m. pacific. Interested parties can also visit the FDIC's Web site at

The FDIC estimates that the cost to the Deposit Insurance Fund will be $210 million. Pacific Western's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Security Pacific is the nineteenth bank to fail in the nation this year, and the third in California. The last bank to be closed in the state was First Heritage Bank, National Association, Newport Beach, on July 25, 2008.

Topics: FDIC, Bank Failure, Bank Regulators, OTS

JPMorgan Chase Acquires Banking Operations of Washington Mutual

Posted by Wendell Brock on Fri, Sep 26, 2008

FDIC Facilitates Transaction that Protects All Depositors and Comes at No Cost to the Deposit Insurance Fund

JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund.

"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said FDIC Chairman Sheila C. Bair. "For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."

JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.

"WaMu's balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses," Bair said.

Washington Mutual Bank also has a subsidiary, Washington Mutual FSB, Park City, Utah. They have combined assets of $307 billion and total deposits of $188 billion.

Thursday evening, Washington Mutual was closed by the Office of Thrift Supervision and the FDIC named receiver. WaMu customers with questions should call their normal banking representative, service center, 1-800-788-7000 or visit The FDIC's consumer hotline is 1-877-ASK-FDIC (1-877-275-3342) or visit

Topics: FDIC, Bank Failure, Bank Regulators, OTS

IndyMac Bank Is Shut Down

Posted by Wendell Brock on Sat, Jul 12, 2008

 FDIC Establishes IndyMac Federal Bank, FSB as Successor to IndyMac Bank, F.S.B., Pasadena, California

July 11, 2008
Media Contact:
In Washington: Andrew Gray (202) 898-7192,
Cell: 202-494-1049
In California: David Barr
Cell: 703-622-4790

IndyMac Bank, F.S.B., Pasadena, CA, was closed today by the Office of Thrift Supervision. The Federal Deposit Insurance Corporation (FDIC) was named conservator. The FDIC will transfer insured deposits and substantially all the assets of IndyMac Bank, F.S.B., Pasadena, CA, to IndyMac Federal Bank, FSB. Brokered deposits will be held by the FDIC and those insured deposits will be paid off when the insurance determination is complete. IndyMac Bank, FSB had total assets of $32.01 billion and total deposits of $19.06 billion as of March 31, 2008. As conservator, the FDIC will operate IndyMac Federal Bank, FSB to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by IndyMac Bank, F.S.B.

Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards and writing checks in the same manner as before. Depositors of IndyMac Federal Bank, FSB will have no access to on-line and phone banking services this weekend. These services will be operational again on Monday. Loan customers should continue making loan payments as usual.

Beginning on Monday, July 14, IndyMac Federal Bank, FSB's 33 branches will observe normal operating hours and will continue to offer full banking services, including on-line banking. For additional information, the FDIC has established a toll-free number for customers of IndyMac Federal Bank, FSB. The toll-free number is 1-866-806-5919 and will operate today from 3:00 p.m. to 9:00 p.m. (PDT), and then daily from 8:00 a.m. to 8:00 p.m. thereafter, except Sunday, July 13, when the hours will be 8:00 a.m. to 6:00 p.m. Customers also may visit the FDIC's Web site at for further information.

At the time of closing, IndyMac Bank, F.S.B. had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors. The FDIC will begin contacting customers with uninsured deposits to arrange an appointment with an FDIC claims agent by Monday. Customers can contact the FDIC for an appointment using the toll-free number above. The FDIC will pay uninsured depositors an advance dividend equal to 50 percent of the uninsured amount.

Based on preliminary analysis, the estimated cost of the resolution to the Deposit Insurance Fund is between $4 and $8 billion. IndyMac Bank, F.S.B. is the fifth FDIC-insured failure of the year. The last FDIC-insured failure in California was the Southern Pacific Bank, Torrance, on February 7, 2003.

Topics: Bank Failure, Bank Regulators, OTS

American Banking System to be Overhauled

Posted by Wendell Brock on Fri, Apr 04, 2008

Treasury Blueprint Would Abolish NCUA and NCUSIF

WASHINGTON - Among the long-term recommendations of the Treasury Blueprint would be the creation of a new federally-insured depository institution (FIDI) charter. The FIDI charter would consolidate the national bank, federal savings association, and federal credit union charters and would be available to all corporate forms, including stock, mutual, and cooperative ownership structures. A new prudential regulator, the Prudential Financial Regulatory Agency ("PFRA"), would be responsible for the financial regulation of all FIDIs. In explaining its rationale for a single charter, Treasury wrote "[t]he goal of establishing a FIDI charter is to create a level playing field where competition among financial institutions can take place on an economic basis, rather than on the basis of regulatory differences." The operation of the credit union insurance fund would be assumed by the FDIC, which would be reconstituted as the Federal Insurance Guarantee Corporation.  "Some credit unions have arguably moved away from their original mission of making credit available to people of small means, and in many cases they provide services which are difficult to distinguish from other depository institutions." Treasury Department's Blueprint for a Modernized Financial Regulatory Structure.

By: Keith Leggett, American Bankers Association 

Topics: FDIC, banks, Credit Unions, OCC, OTS, National Banks, Thrifts

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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