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:

April 23, 2010 Issue 15

Financial Regulatory Reform Bill

On Wednesday, the Senate Agriculture Committee voted 13 to 8 to approve its financial regulatory bill, which was sponsored by the panel’s chairwoman Senator Blanche Lincoln (D-AR). The bill is expected to be part of the wider regulatory overhaul put forward by the Banking Committee, though Democrats are still figuring out how to combine the proposals. One Agriculture Committee Republican, Senator Charles Grassley (R-IA) joined all twelve Democrats in voting for the bill, however in a statement later, Grassley said that his vote did not mean he would support the larger financial reform bill when it comes to the Senate floor. The bill that passed out of the Agriculture Committee was marginally different than a draft previously unveiled by Chairwoman Lincoln. One important amendment added to the bill by Mrs. Lincoln just before Wednesday’s vote would allow the Secretary of the Treasury to exempt derivatives tied to foreign currency rates from the new rules requiring swaps contracts to be traded on an exchange and routed through a clearing agency. The bill would require most derivative contracts to be traded on a public exchange and to be processed, or cleared, through a third party to guarantee payment if one of the parties to a trade went out of business. The Agriculture Committee bill would also require Wall Street firms to spin off their derivatives trading into a separate subsidiary. That provision is opposed by the major banks as well as President Obama and therefore could emerge as an issue of compromise before the bill reaches the floor.

Last week, Senate Republican leaders expressed strong opposition to the financial regulation bill, but by Wednesday, with Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) making progress on negotiations over changes to the larger legislative package, Minority Leader Mitch McConnell (R-KY) claimed victory over forcing Democrats to make changes to the bill including dropping from the bill a provision to create a $50 billion fund, paid for by big banks, which would be used to unwind failing financial institutions, and expressed a willingness to work with Democrats to advance the bill. In order to pass the bill on the floor, Senate Democrats need the backing of at least one Republican to overcome a possible filibuster, and on Thursday Senate Majority Leader Harry Reid (D-NV) announced his plans to push for a first procedural vote on Monday that will test Republican opposition.

Monday’s test vote raises the pressure on Dodd and Shelby to reach a deal, perhaps even one that would address only major elements of the legislation. Points of disagreement include the role of the federal government in winding down failing financial firms; the independence of a new consumer financial protection agency; and the extent of regulations to be placed on derivatives.

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Geithner Trip to India and China

Treasury Secretary Timothy Geithner met with top Hong Kong, Beijing, and Indian finance officials during his week long trip through Asia which focused on trade and monetary matters. Meanwhile, the New York Times reported Friday that the Chinese government was preparing to announce that it will allow its currency to rise with increased volatility. China’s currency, known as the renminbi or yuan, has been pegged at a nearly fixed rate to the dollar for many years. While an official announcement on China’s currency policy may be delayed, the Times reported that China’s central bank appears to have prevailed within the Chinese governmental leadership for a stronger but more flexible currency. Geithner has refrained from publicly commenting about the currency issue in advance of his meetings in Beijing.

 Senate Financial Regulatory Reform Bill

Senate Banking Committee Ranking Member Richard Shelby (R-AL) offered to Chairman Chris Dodd a new draft compromise on the consumer protection title of the financial reform bill this week, reflecting a possible shift in the Republican position on the issue. According to sources close to Shelby, the new draft is much closer to the language Dodd and other Democrats have sought, which gives much stronger consumer protection authority to the new agency. However, the new Shelby language is said to also give a new council of regulators the power to veto rules from the agency. Shelby’s proposed compromise may reflect Republicans’ increasing willingness to appear amenable to financial reform.

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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 Deal Pipelines

Atlanta Partner Walt Moeling was quoted March 26 in The Deal Pipeline, an online transaction information service from The Deal, regarding the assets from failed banks that the Federal Deposit Insurance Corp. has been able to sell off recently.

Rinearson in Post-Dispatch, Inside Regulatory Strategies

New York Partner Judith Rinearson was quoted March 28 by the St. Louis Post-Dispatch on new gift card rules announced recently by the Federal Reserve. She also was quoted March 8 by Inside Regulatory Strategies concerning the Federal Reserve and competing proposals for a new consumer protection entity. Rinearson said consumer protection can be housed either at the Fed, the Treasury or the FDIC, as long as the agency in charge has autonomous rulemaking powers and independent funding, a presidentially appointed head and examination and enforcement powers.

On April 13, 2010, the FDIC extended the Transaction Account Guarantee (TAG) portion of the Temporary Liquidity Guarantee Program for another six months, through December 31, 2010, and preserved the flexibility to further extend the Transaction Account Guarantee through December 31, 2011 without further rule making.  In addition to extending the expiration date of the TAG program, the FDIC’s final rule (1) maintains the current assessment fees for participation, except that the calculation will now be based on an average daily balance rather than quarter-end balances; (2) reduces the maximum interest rate limit for NOW accounts guaranteed under the program from 50 basis points to 25 basis points; and (3) provides an opportunity for participating institutions to opt out of the program as of July 1, 2010.

All currently participating institutions have until April 30, 2010 to determine whether to continue in the program or opt out of the program.  Attorneys in Bryan Cave’s financial institutions practice can discuss the advantages and disadvantages of opting out for particular financial institutions.

Six-Month Extension (and Right to Extend Further)

Funds held in non-interest bearing demand deposit accounts (as well as NOW accounts that are obligated to pay less than 25 basis points and IOLTA accounts) will be fully guaranteed by the FDIC for participating entities through December 31, 2010.

If the FDIC finds a continuing need for the TAG program, the FDIC Board may, at its discretion, elect to further extend the TAG program through December 31, 2011.  The FDIC will announce such an extension, if warranted, no later than October 29, 2010.  In the event the TAG program is further extended, participating institutions will be obligated to remain in the program during that extension.  (In other words, no additional opportunities to opt out after April 30, 2010 are contemplated.)

Currently, nearly 6,400 insured depository institutions, representing approximately 80% of all insured depository institutions, continue to participate in the TAG program, holding almost $340 billion in deposits in accounts currently subject to the FDIC’s guarantee.  Of those deposits, $266 billion represented amounts above the standard insurance limit and are thus only guaranteed through the TAG program.

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The Treasury Department is conducting a survey on how all TARP CPP recipients used the capital provided by TARP during 2009.  Specifically, the Treasury is seeking to collect information to understand what actions institutions took, or were able to avoid taking, because of CPP funding.  In addition to collecting feedback through the surveys, the Treasury will also publish summary balance sheet and income statement information from each institution’s regulatory filings.

Survey responses are due Thursday, April 15, 2010.

While responding to the survey is not required under the TARP CPP agreements or regulations, banks failing to respond are likely subject to possible criticism from their primary regulator.  For example, FIL-1-2009 encourages state non-member banks to document how the CPP funds were used and encourages summarizing such information in public documents.  While the Use of Capital Survey is not explicitly listed, FDIC examiners may take the failure to respond as an affront to their regulatory guidance.

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While the insider lending rules are always a source of headaches, the opportunities for error are greater in bad economic times.  To make matters worse, as the economy slowly improves and the regulatory focus moves from credit quality issues, we are seeing increased regulatory focus on insider lending.

This article is Part One of a two part article on common insider lending problems that we have identified in the industry.  (Read Part Two here.) This installment focuses on the regulatory impediments to renewing insider loans.  While most comments in this article will apply to any bank that is subject to Regulation O, we also discuss a lending limit problem unique to Georgia state banks.

Under Regulation O, any loan to an insider (a) must be made on substantially the same terms as the bank provides on comparable loans to non-insiders and (b) may not involve more than the normal risk of repayment or present other unfavorable features.  These requirements can be called the “arms’ length” and the “normal risk” requirements.

It is easy to think of the normal risk requirement as simply another way of saying that the loan must be on arms’ length terms.  However, neither the Federal Reserve nor the OCC see it that way.  Under current Federal Reserve and OCC interpretations, these are separate and distinct requirements.  Accordingly, a bank can never renew a troubled loan to an insider, even if the bank would have renewed a non-insider loan on the same terms and in the same circumstances.  OCC examiners in the Southeast Region have said that an insider loan cannot be renewed unless it is at least “pass” rated.

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March Jobs Report Released

On Friday, the U.S. Department of Labor said in its March jobs report that non-farm payrolls rose by 162,000, the largest gain since March 2007. Despite the gains, economists were expecting payrolls to rise by as much as 200,000. The Census accounted for 48,000 of the employment boost. Another 40,000 of the increase came in other temporary jobs. The unemployment rate stayed at 9.7%, in line with economists’ expectations. The U.S. economy has lost nearly 8.5 million jobs since the recession began. With stock markets closed for Good Friday, the report’s full impact will be more apparent next week. Total government employment, which includes state and local jobs, rose by 39,000. Beyond government jobs, the report showed that manufacturing jobs continued to trend up, rising by 17,000, as well as jobs in the construction industry which added 15,000 jobs in March.

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