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Regulators Propose Simplification of Capital Rules

September 28, 2017

Authors

Robert Klingler

Regulators Propose Simplification of Capital Rules

September 28, 2017

by: Robert Klingler

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)

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HVCRE Gets a Reboot

September 27, 2017

Authors

Jerry Blanchard

HVCRE Gets a Reboot

September 27, 2017

by: Jerry Blanchard

As we mentioned just a couple of weeks ago, the federal banking regulators have taken aim at the risk weighting rules for High Volatility Commercial Real Estate (“HVCRE”) loans that went into effect back in 2015. In a proposal published on September 27, 2017, the regulators seek to simplify the approach in several ways. First, the existing HVCRE definition in the standardized approach would be replaced with a simpler definition, called HVADC, which would apply to credit facilities that primarily finance or refinance ADC activities. Second, an HVADC exposure would receive a 130 percent risk weight.as opposed to the 150% risk weight for HVCRE exposure under the existing rule. The tradeoff though is that HVADC would apply to a much broader set of loans. For example, as compared to the

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Finding the Unicorn in Lender Liability Litigation

September 14, 2017

Authors

Jerry Blanchard

Finding the Unicorn in Lender Liability Litigation

September 14, 2017

by: Jerry Blanchard

Investors frequently talk in terms of trying to find the next unicorn, that small start-up company that is going to turn into a billion dollar valuation.  Lawyers are like that as well, always looking for that new decision where a court opens a crack in the door of some long held legal theory. Something like this occurred in the 1980’s when the courts in California held that a party could bring a tort action for the breach of the obligation of good faith. The courts were expanding a doctrine that then existed only in the area of insurance contracts. The expansion of this theory to noninsurance contracts generated universal criticism by other courts and scholars across the US and after a ten year experiment the California Supreme Court reversed its earlier decision

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HVCRE Lending: An Area of Regulatory Examination Focus

August 24, 2017

Authors

Bank Bryan Cave

HVCRE Lending: An Area of Regulatory Examination Focus

August 24, 2017

by: Bank Bryan Cave

the-bank-account

Jonathan and I are joined by our colleague, Jerry Blanchard, to discuss High Volatility Commercial Real Estate (HVCRE) Loans on the latest episode of The Bank Account.

HVCRE Loans are one of the areas of focus on regulatory exams, and we’re seeing increased attention to not only ensuring that a bank’s reported HVCRE loans are correct, but also that the bank has sufficient internal controls in place to monitor and track HVCRE lending.

Formal regulatory guidance on HVCRE lending is still rare, as the various regulatory agencies struggle to find consensus in an area that is fraught with technicalities and details.  Our colleague, Jerry Blanchard, has assisted numerous banks in evaluating overall HVCRE programs as well the application of the

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The Same Old Wrongdoer Blues: Creative Fraud Leaves Employer Holding the Bag for Fraud on its Account

July 26, 2017

Authors

Jerry Blanchard

The Same Old Wrongdoer Blues: Creative Fraud Leaves Employer Holding the Bag for Fraud on its Account

July 26, 2017

by: Jerry Blanchard

Articles 3 and 4 of the UCC provide a roadmap for addressing how to allocate liability for the various mistakes, embezzlements and forgeries that have followed the payments system since its invention several centuries ago.  While as a general rule a customer is not liable for forgeries and other fraud on its account there are several exceptions where the risk of loss can be shifted back to the customer. One of those situations is what practitioners refer to as the “same wrongdoer rule” found in section 4-406(d)(2). The rule says that when the bank sends a customer their statement, the customer has a certain time period, usually 30 days, to review the statement and notify the bank of any unauthorized signatures or alterations. Should the customer fail to flag such transactions then the UCC shifts the risk of loss for all subsequent

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No Fiduciary Duty Between Lead and Participants

July 10, 2017

Authors

Jerry Blanchard

No Fiduciary Duty Between Lead and Participants

July 10, 2017

by: Jerry Blanchard

A recent decision out of federal court arising out of litigation involving a Ponzi scheme has reinforced the principle that the lead in a loan participation does not owe a fiduciary duty to participants.  The case of Finn v. Moyes (Finn v. Moyes,  2017 WL 1194192 (D Minn 2017)) arose from a Ponzi scheme whereby First United Funding, LLC (“First United”) defrauded numerous banks of over $90 million.  A receiver was appointed to recover funds and sued a number of parties for, among other things, aiding and abetting the fraud carried on by First United.

The receiver claimed that one group of defendants (the “Moyes”) had actual knowledge of the fraudulent conduct and aided and abetted First United by fraudulently over-pledging collateral. The Receiver also alleged that the most of the other loans made

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The HVCRE Easter Egg for Community Banks

July 5, 2017

Authors

Jerry Blanchard

The HVCRE Easter Egg for Community Banks

July 5, 2017

by: Jerry Blanchard

We have written several times about the rules concerning the appropriate risk weighting for High Volatility Commercial Real Estate (“HVCRE”) loans. The interagency FAQ published on April 6, 2015 provided some guidance but many banks continue to have questions about fact situations that are not addressed under the regulation.  Despite indications that an interagency task force was looking at a further set of FAQ nothing has yet come out. Despite that, there are actually grounds for optimism that the rules will yet be simplified.

Section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)  requires that, not less than once every 10 years, the Federal Financial Institutions Examination Council (FFIEC) and the Board of Governors of the Federal Reserve System (Board), the Office of the

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If the Shoe Fits, Wear It – Bank Third Party Vendors as Institution-Affiliated Parties

May 26, 2017

Authors

Jerry Blanchard

If the Shoe Fits, Wear It – Bank Third Party Vendors as Institution-Affiliated Parties

May 26, 2017

by: Jerry Blanchard

When negotiating bank third party vendor contracts it is not unusual to ask the vendor to acknowledge in the contract that bank regulators might exercise some sort of supervision over the vendor. Vendors will oftentimes push back on that point, claiming that since they are not a bank the FDIC has no jurisdiction over their affairs. We typically respond that “if the shoe fits, wear it.”

The fit arises because of the definition of “institution-affiliated party” (“IAP”). The definition was added under FIRREA when the regulatory agencies were seeking additional authority to impose sanctions against lawyers, accountants and appraisers whose negligence may have contributed to the failure of a bank. The language added to the statute is broader than just those professionals and covers any shareholder, consultant joint venture party, any other

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Before You Comment on My Haircut, Think Again

May 10, 2017

Authors

Jerry Blanchard

Before You Comment on My Haircut, Think Again

May 10, 2017

by: Jerry Blanchard

Back in 2008 and 2009 Eddie Liles lent around $102,000 to his brother Dallas to purchase rental properties at 554 South Shore Drive and 540 South Shore Drive in Greenup County, Kentucky, as well as a 2008 Ford 4×4 truck.  The brothers signed a Loan Agreement that provided the loan would be interest free and that the loan for 554 South Shore Drive to be repaid first, followed by the loan for the truck, and finally the loan for the 540 South Shore Drive. The Loan Agreement called for Dallas to make payments of “ [a] minimum of $600.00 per year,” which it specified could be “multi-payments or one payment of $600.00.” It was also clear that Dallas could pay more than $600 per year towards the indebtedness, if he so desired.

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Do you get Bragging Rights if the Malware Infecting your Computer was Named after Zeus?

April 17, 2017

Authors

Jerry Blanchard and David Zetoony

Do you get Bragging Rights if the Malware Infecting your Computer was Named after Zeus?

April 17, 2017

by: Jerry Blanchard and David Zetoony

Over the last decade as the specter of cyber attacks has increased dramatically, financial institutions have been encouraged to look into the use of cyber fraud insurance as one means of minimizing risk. A recent decision by the 8th Circuit provides an interesting opportunity to see how such policies are going to be interpreted by the courts.

In 2011, an employee at Bellingham State Bank in Minnesota initiated a wire transfer through the Federal Reserve’s FedLine Advantage Plus system (FedLine). Wire transfers were made through a desktop computer connected to a Virtual Private Network device provided by the Federal Reserve. In order to complete a wire transfer via FedLine, two Bellingham employees had to enter their individual user names, insert individual physical tokens into the computer, and type in individual passwords and

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