On August 10, 2010, the FDIC published a pilot program to evaluate the feasibility of insured depository institutions offering low-cost transactional and savings accounts. The FDIC will accept applications from banks wanting to participate in the pilot program through September 15, 2010.
Banks participating in the pilot program must offer electronic deposit accounts having the core features identified in the “Model Safe Accounts Template.” The pilot program is expected to last one year, during which participating banks would report to the FDIC on the viability of the accounts, focusing on the volume, use, success and profitability of the accounts.
In its announcement for the pilot program, the FDIC emphasizes the numbers of unbanked and underbanked consumers in the United States and the FDIC’s commitment to ensuring that all U.S. households have access to safe and affordable banking services. Unless banks participating in the pilot report significant and serious losses, there seems to be a real possibility that all banks will be coerced in one way or another to offer these accounts after the program. This post discusses the proposed features of the accounts and the possible difficulties.
Electronic, Checkless Accounts
Under the pilot program, the accounts would be “largely” electronic, purportedly for the purpose of limiting acquisition and maintenance costs. The transactional accounts also would be checkless, allowing withdrawals only through electronic means.
Because the accounts would be checkless, institutions will have somewhat more ability to prevent losses from overdrafts than they otherwise would have. On the other hand, all banks know that it is impossible to block every electronic transaction that results in an overdraft. Moreover, under at least the pilot program, banks would be expected not to impose any overdraft or insufficient funds fees. With consumers having absolutely no economic incentive to avoid overdrafts, it can be expected that banks will incur losses.
Very Low Fees
Monthly maintenance fees for the transactional accounts under the pilot program would be limited to $3, and the bank would not be able to charge any monthly fees for the savings accounts. The minimum monthly balance requirement for the account would be only $1, and it seems safe to assume that the target consumer market for these accounts is unlikely to maintain any significant average daily balances.
The Dodd-Frank Reform Act & What It Means to You
Wednesday, September 8, 2010 11:00 AM – 12:00 PM EDT
The Dodd-Frank Wall Street Reform and Consumer Protection Act represents a historic restructuring in the regulation of financial institutions. This comprehensive reform bill will have substantial effects on all facets of the financial services industry. The new law requires the development of numerous rules and regulations that will continue to evolve over time.
Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future. You will receive insight on specific provisions such as consumer compliance regulations, regulatory agency shifts, the Collins Amendment and other capital requirements. Other changes covered include those to Federal Deposit Insurance Corporation insurance, affiliate transaction and legal lending limits, private securities offerings and executive compensation.
If you are interested in attending, please register online for this free webinar.
On August 25, 2010, the Securities and Exchange Commission voted to adopt new rules that will require companies to include in their proxy materials nominations for election as directors submitted by eligible shareholders, subject to certain conditions. The proposal was adopted by a divided 3-2 vote at an SEC open meeting. Commissioners Casey and Paredes dissented, viewing the rules as intruding on substantive corporate affairs traditionally regulated by state law.
The new rules will apply to all companies subject to SEC proxy rules, including investment companies and controlled companies, except:
- Companies subject to such rules solely due to debt registered under Section 12 of the Securities Exchange Act of 1934; and
- Where state or foreign law or governing documents prohibit shareholders from nominating a candidate for director.
Foreign private issuers are not covered, as they are exempt from SEC proxy rules.
The new rules will be effective 60 days after publication in the Federal Register, with shareholder access permitted no earlier than 150 days and no later than 120 days prior to the anniversary date of the mailing of prior year’s proxy materials. The rules will be available if the window remains open after their effective date. Accordingly, if the new rules were to become effective on November 1, 2010, they would apply to companies that mailed their 2010 proxy statements after March 1.
Effectiveness of the new rules will be delayed for three years for smaller reporting companies, to allow the SEC time to monitor implementation and make adjustments, if desired.
The text of the new rules is available online as is a print-friendly version of this client alert.
Executive Summary
Eligible shareholders can require a company to include one or more nominees in the company’s proxy materials, unless applicable laws or governing documents prohibit nominations by shareholders. Companies will only be required to include up to the greater of (i) 25% of the company’s directors or (ii) one nominee. The rule sets priorities in case of multiple nominations.
To be eligible, the nominating shareholder or group must, among other requirements, (i) own at least 3% of the total voting power (which may be aggregated among shareholders), (ii) have held such securities for at least three years, and continue to hold them through the shareholder meeting, (iii) not have intent to change control of the company or to gain more board seats than permitted by the rule, and (iv) not have any agreement with the company regarding the nomination.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law as a means to address some of the most notorious causes of the recent “Great Recession,” was mostly aimed at banks and Wall Street; however it also has been extended to encompass some aspects of the prepaid card industry. Prepaid cards – including gift cards, payroll cards, flexible spending account and employee benefits cards, government benefits cards, employee incentive cards, employee per diem and relocation cards, and rebate cards – are being used increasingly by businesses in lieu of cash, checks, vouchers and gift certificates. All of these uses may be impacted by Dodd-Frank.
Although much of Dodd-Frank has little to do with prepaid cards, it includes provisions with which the entire prepaid value chain must be familiar – because all will be subject to new requirements that will affect their current business operations.
New York Partner Judith Rinearson authored an in-depth article in the August edition of Paybefore Update explaining the impact of the act on the prepaid card industry. Click here to read her full article, used with permission from Paybefore Update.
On August 16, 2010, the Bryan Cave Prepaid Card team gave a webinar on how the Dodd-Frank Wall Street Reform and Consumer Protection Act will affect the prepaid card industry. Readers can now access online the presentation slides and webinar audio.
Bernanke Promises More Fed Action on Economy
On Friday, Fed Chairman Ben Bernanke said that the Federal Open Market Committee, the Fed panel that Bernanke leads and which sets interest rates, could make additional purchases of longer-term securities in order to prevent deflation. In regards to the overall state of the economy, Bernanke said “the pre-conditions for a pickup of growth in 2011 appear to remain in place, as banks increase lending, worries over the European sovereign debt-crisis abate and consumers increase their savings.”
SEC Votes to Give Shareholders “Proxy Access”
On Wednesday, the SEC Commissioners voted along party lines 3-2 to give shareholders what is commonly known as “proxy access,” which requires companies to include the names of all board nominees, even those not backed by the company, directly on the standard corporate ballots distributed before shareholder annual meetings. To win the right to nominate, an investor or group of investors must own at least 3% of a company’s stock and have held the shares for a minimum of three years.
Currently, shareholders who want to oust board members must pay for mailing separate ballots, as well as wage a separate campaign to win shareholder support. The new rule will be in place in time for the 2011 annual meeting season next spring.
However, the final rule did address concerns from the business community. Smaller companies will be exempt from complying with the rule for three years. Investors will be prevented from borrowing stock to meet the 3% threshold and will be restricted to nominating directors for no more than a quarter of a company’s board.
Department of Labor Weekly Unemployment Report Released
On Friday, the Department of Labor announced that the unemployment rate fell in 18 states during the month of July. The Department also said the jobless rate rose in 14 states and stayed the same in the remaining 18 states. Nationwide, the unemployment rate remained stuck at 9.5 percent in July. New York and Massachusetts reported strong job gains with Massachusetts reporting that it added 19,200 private-sector jobs in July, the largest monthly gain for any state in more than 20 years.
On Tuesday, the Departments of Treasury and HUD invited a cross section of housing and banking industry participants to Washington for a summit on the future of the housing finance industry. The industry representatives voiced overwhelming support for the government to maintain a large role in supporting the nearly $11 trillion mortgage market. Participants expressed support for a new program that would allow homeowners to refinance their mortgages at lower interest rates through Fannie Mae and Freddie Mac, although Treasury officials indicated they have no plans to enact such a program.
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 the financial institutions practice include:
Klingler in American Banker
Atlanta Associate Robert Klingler was quoted Aug. 4 by American Banker regarding the charges against Rep. Maxine Waters, and whether those charges might be of use to banks denied TARP funds. An ethics panel report alleges Waters may have broken rules when she helped a trade group arrange a meeting between then-Treasury Secretary Henry Paulson and executives of OneUnited Bank, an institution with financial ties to her husband and huge losses from the takeovers of Fannie Mae and Freddie Mac. Klingler said the government had a uniform standard for deciding TARP investments – essentially awarding funds to institutions that could prove their viability – and no one ever expected the system to be perfect. “We understand that the process will sometimes result in wrong outcomes,” he said, adding that those who believe they were treated unfairly could use the Waters investigation for “rhetoric” at best. “I don’t know that it is rhetoric that necessarily the public is happy with. Generally, the public is opposed to TARP. So hearing a bank whine about not getting TARP isn’t going to get the American public riled up.”
Moeling in National, Regional Publications
Atlanta Partner Walt Moeling was quoted in the August edition of US Banker on the moves being made by community banks to boost their capital ratios. “In this kind of market, the most successful banks that deal with their problems don’t just take one approach, they pull out the playbook,” Moeling said. “My most successful clients have cut expenses, sold branches, consolidated charters, disposed of nonbank activities.” Click here to read the full article. Moeling was quoted Aug. 10 by American Banker (reprinted by Bank Investment Consultant online) concerning a push of stock offerings expected this fall from community banks, particularly via private placements rather than public offerings. Click here to read the article. In addition, he was quoted Aug. 2 in The Atlanta Journal-Constitution regarding JPMorgan Chase & Co., which plans to open 10 new bank branches across the northern metro Atlanta area by the end of the year. Eight currently are under construction. Click here to read the article.
Treasury-HUD “Conference on the Future of Housing Finance”
Next Tuesday, August 17th, the U.S. Departments of Treasury and Housing & Urban Development (HUD) will co-host the “Conference on the Future of Housing Finance,” an open press, day long event where Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan will moderate panel discussions which will include the following panelists: Barbara J. Desoer, President of Bank of America Home Loans; Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at New York University; · Bill Gross, Co-founder and Co-chief Investment Officer of PIMCO; Mike Heid, Co-president of Wells Fargo Home Mortgage; S.A. Ibrahim, Chief Executive Officer of Radian Group Inc.; Marc H. Morial, President and Chief Executive Officer of the National Urban League; Alex Pollock, Resident Fellow at the American Enterprise Institute; Lewis Ranieri, Chairman of Ranieri and Company, Inc.; Ellen Seidman, Ellen Seidman, Executive Vice President ShoreBank Corporation; Michael A. Stegman, Director of Policy and Housing at the John D. and Catherine T. MacArthur Foundation; Susan Wachter, Professor at the University of Pennsylvania’s Wharton School; Mark Zandi, Chief Economist of Moody’s Analytics. Sources indicate the topic of eliminating GSEs could emerge as one of the most contentious points of discussion.
July Retail Sales and Consumer Price Index Reports Released
On Friday, the Department of Commerce released its July retail sales report showing an increase of 0.4% during the month. This positive report follows Mary and June sales figures showing consecutive declines. The Department of Labor also issued its July consumer prices report for July on Friday showing the seasonally adjusted Consumer Price Index rose 0.3 percent. The June report also showed prices fell 0.1 percent, and therefore such positive July figures could ease concerns about deflation.
Romer to Leave Council of Economic Advisors
On Thursday night, the White House announced that Dr. Christina Romer, chair of the Council of Economic Advisors, will leave September 3rd to return to the University of California at Berkley. Some are speculating Friday’s announcement of the 9.5% July unemployment rate may have contributed to her resignation since Romer predicted the 2009 stimulus bill would help keep the unemployment rate under 8 percent. Sources indicate that Council of Economic Advisors member Austan Goolsbee appears to be the front-runner to succeed Romer as Chairman. There is also speculation that Romer is under consideration to replace Janet Yellen as president of the Federal Reserve Bank of San Francisco. Yellen was recently nominated to be Vice Chairman of the Federal Reserve.
July Jobs Report Released
On Friday, the Department of Labor released the July jobs report showing that nonfarm payrolls declined by 131,000 jobs and the unemployment rate remained steady at 9.5 percent. 71,000 private-sector jobs were added last month while 143,000 temporary workers on the 2010 census were let go. The June data were revised down significantly showing that payrolls fell by 221,000, more than the 125,000 drop previously reported, as only 31,000 jobs were added in the private sector. Taking into account revisions to prior months this year, the U.S. economy added an average of less than 100,000 jobs a month in the first seven months of 2010.
Tax Cut Showdown In September
On Wednesday, Senate Majority Leader Harry Reid (D-NV) announced that the Senate would vote on a package of expiring tax cuts when the Senate returns in September. It remains unclear whether Senate Finance Committee Chairman Max Baucus (D-MT) will hold a committee markup on the bill or it will be brought directly to the floor. Moderate Democratic Senators Kent Conrad (D-ND) and Evan Bayh (D-IN) have called for an extension of all the “Bush” tax cuts, including those benefiting individuals earning more than $200,000 and families earning over $250,000 annually. If the Senate passes such an extension, it would likely set up a showdown with the House where a majority of Democrats do not want to extend tax cuts for all individuals. Some Democrats on the Ways and Means Committee have discussed a proposal to repeal the Bush tax cuts for the top tax brackets but delay the collection of those revenues until 2012.
This post looks at potential enforcement and compliance risks for private funds under the new Dodd-Frank Act. We believe it should be of interest to managers of hedge funds, private equity funds and venture capital funds, as well as those who invest in or deal with them. It follows up an earlier post concerning the basic requirement that most private funds register with the SEC; this post focuses on a series of lesser known but significant risks under the Dodd-Frank Act (also available as a printer-friendly Client Alert).
By now, most “private” or “hedge” fund managers know that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires SEC registration of most advisers to private funds, effective July 2011. But SEC registration is not the only aspect of the new law that fund managers need to be aware of. Other provisions of the law will have significant effects on funds.
Key issues include:
- Funds must meet expanded books and records requirements.
- Advisers to venture capital funds, exempt from registration under the law, will have to take pains to avoid being treated as private equity or hedge fund advisers, who do have to register.
- The standard for aiding and abetting liability has been lowered, such that “recklessness” rather than “actual knowledge” is sufficient.
- Smaller advisers, not subject to SEC registration, will become subject to the vagaries of state regulation.
“Private” or “hedge” funds are swept into the law through Title IV, the “Private Fund Investment Advisers Registration Act of 2010.” While Title IV does contain the registration requirements, it also contains other provisions that expand the scope well beyond the regulatory hook of registration. Further, other provisions of Dodd-Frank – notably, Title IX, entitled “Investor Protections and Improvements to the Regulation of Securities” – also have significant implications for private funds.