Regulators Issuing Orders on Record Pace; Enforcement Actions Becoming ‘Ordinary’
September 06, 2010
Expect your next safety and soundness exam to be tough — and don’t be surprised if you end up with an enforcement order. Regulators are continuing to issue enforcement actions against banks at a record-breaking rate, with the FDIC already on pace to surpass last year’s...
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Indexed by: Exams/Enforcement | Management
Making Sure Stress Tests are Part of the Bank’s Overall Risk Discussions
September 06, 2010
There’s no doubt that examiners want your bank to include stress testing as part of a comprehensive risk management program. Twice this year, regulators reminded banks that they should use stress tests to gauge interest rate risk and funding and liquidity risk.
“The funny thing...
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Indexed by: Market Risk
Court Ruling, Fine Print Helps Insurers Block D&O Coverage
September 06, 2010
Banks have begun to encounter language in their D&O liability insurance policies that is making the policies much harder to enforce. And one of the methods used by carriers - requiring a separately signed warranty letter at the time of policy placement – has withstood a Circuit Court...
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Indexed by: Legal
IRS Targets How Banks Are Treating Non-Performing Loans; Accrual Interest, Deductions at Issue
August 30, 2010
The IRS has created special teams to scrutinize bank income tax returns, questioning bad debt deductions and making sure that accrual interest on non-performing loans is treated properly, according to IRS Non-Performing Loans Directive #1. The rub: While bank regulators require banks to stop...
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Indexed by: Accounting | Asset Quality | Legal
Got Excess Capital? The Pluses and Minuses of Buying Back Your Bank Stock
August 30, 2010
Tread carefully if you're considering buying back your bank stock. Although stock prices are still lower than they were several years ago, bank regulators are demanding more capital than ever before. Still, some say it's a "once-in-a-generation opportunity."
"You have to be comfortable with your...
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Indexed by: Capital Adequacy | Management
Jump Start Your Enterprise Risk Management Program With Proven Categories
August 30, 2010
You’re about to embark on an enterprise risk management program. One way to jump start your plan is to follow some or all of the nine risk categories that the OCC uses when examining large banks.
The OCC launched its “supervision by risk program” in 1996 with some fanfare, urging...
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Indexed by: Liquidity | Management | Market Risk
Regulators Ordering Banks to Plan for Liquidation in Consent Orders
August 23, 2010
Federal regulators are increasingly inserting language into consent orders –instead of waiting to issue a Prompt Corrective Action– that requires adequately-capitalized banks to come up with immediate plans to merge, sell or liquidate their institutions, a Bank Safety and Soundness...
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Indexed by: Capital Adequacy | Enforcement/Exams | Regulation | Troubled Banks
A Guide to Enterprise Risk Management, From the Banker’s Perspective
August 23, 2010
Examiners are often demanding that banks establish enterprise risk management programs. But the task can seem daunting. How do you start? When do you end? How do you get your board to support it?
Bank Safety & Soundness Advisor set out to answer these questions by interviewing bankers across...
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Indexed by: Management | Market Risk
10 Proven Ways to Reduce Your Bank’s D&O Exposure
August 23, 2010
There’s some good news in the D&O insurance world. Pricing decreased 15.7% in Q1 2010 compared to Q1 2009, according to Aon Risk Services Financial Services Group’s quarterly pricing index.
But you’ll still need to scour your policies carefully and negotiate hard to get the...
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Indexed by: Litigation | Management
Bank Employees Who Suspect Accounting, Underwriting Misdeeds Get New Protections
August 09, 2010
Bank directors and officers may need to look over their shoulders more carefully. Buried in the fine print of the newly passed financial reform act is the most significant tightening of whistleblower protections since Sarbanes-Oxley – with specific provisions to protect employees at financial...
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Indexed by: Legal | Legislation | Management
Did Financial Reform Trigger a Capital Event?
August 09, 2010
Has the financial regulatory reform bill triggered a “capital treatment event” that could lead bank holding companies to recall their outstanding trust preferred securities (TruPS)? Several banking lawyers think so, and are advising issuers to check the fine print in their TruPS...
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Indexed by: Capital Adequacy | Legislation
In the Hunt for Liquidity and a Revitalized Market, FDIC Becomes Latest Seller of Mortgage-Backed Securities
August 09, 2010
Mortgage-backed securities are among the things that helped create the financial crisis. But that’s not stopping the FDIC from packaging $500 million in single family residential mortgages from failed banks into MBS. The goal: help revitalize the securitization market while increasing its own...
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Indexed by: FDIC | Liquidity | Troubled Banks
FDIC Sues IndyMac Officers, Civil Demand Letters Widespread
August 02, 2010
Expect more lawsuits like the one the FDIC filed in July against four former IndyMac Bank officers for alleged “negligence and breach of fiduciary duties.” The FDIC confirms it actively is investigating former bank directors and officers at failed banks across the country, sending out...
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Indexed by: FDIC | Legal | Troubled Banks
FDIC Tightens Benefits of Loss-Sharing Agreements; Are They Worth the Hassle?
August 02, 2010
Banks eyeing what has appeared to be a lucrative and relatively easy way to expand their operations through FDIC loss-sharing agreements need to be aware of key changes to the program. The FDIC – recently criticized by the GAO for mishandling the initiative – has reduced the amount of...
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Indexed by: Asset Quality | Exams/Enforcement | Troubled Banks
New Mortgage Crisis Looming; Obama’s HAMP Program Ill-Equipped
August 02, 2010
Big banks and mortgage servicers could face an unexpected and exponential increase in mortgage delinquencies in the second half of 2010. But the government’s signature program to modify troubled home loans - HAMP - is ill-equipped to handle even the current volume of modifications, warn...
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Indexed by: Asset Quality
Special Report: What New Capital Ratios Would Mean for Banks
July 26, 2010
If regulatory capital ratios were to increase in line with recent enforcement orders, banks would have to raise more than $476 billion, an effort that would undoubtedly lead to the merger of many banks and the failures of others, according to an exclusive analysis of Call Report data conducted for...
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Indexed by: Capital Adequacy | Exams/Enforcement | Management
A Success Story: First Michigan Bank Raises Capital, Grows By More than $1 BIllion
July 26, 2010
It is possible to raise capital in today’s environment. Just ask David Provost, chairman, president and CEO of First Michigan Bank in Troy, Mich. He not only raised $200 million, but he helped turn his $100 million bank into a $1.7 billion institution with a single acquisition on April...
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Indexed by: Capital Adequacy | FDIC | Management
New Wave of Lawsuits Likely over Commercial Real Estate Debt
July 26, 2010
Banks may soon be subject to a massive wave of new lawsuits related to commercial real estate collateralized debt obligations, warns attorney Jay Tambe, a partner at Jones Day in New York and co-leader of its Financial Institutions Litigation & Regulation Practice.
The reason: The delinquency...
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Indexed by: Legal
Is 12 the new 10? Examiners Ask for More and More Capital, Orders Show
July 19, 2010
Examiners across the country are ordering banks to increase their capital ratios well beyond what is considered well-capitalized, in some cases demanding as much as 14% total risk-based capital, a Bank Safety & Soundness Advisor analysis of enforcement orders shows.
The orders stretch from...
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Indexed by: Capital Adequacy | Exams/Enforcement
Analysis of State Street Bank Puts Congress' Volcker Rule to the Financial Crisis Test
July 19, 2010
A former bank executive contends that the controversial Volcker Rule would have greatly mitigated losses by many financial institutions during the economic crisis. The finding, which comes as the financial reform bill is about to head for President Obama’s signature, arises from an extensive...
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Indexed by: Earnings | Legislation
FDIC Gains Regulatory Back-Up Powers
July 19, 2010
The FDIC will use off-site monitoring of Call Reports to decide whether it needs to sit in on exams of banks it doesn’t normally supervise, according to a new agreement among the regulators approved unanimously last week.
The agreement gives the FDIC the power to conduct special exams of...
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Indexed by: Enforcement/Exams | FDIC | Regulation
Financial Reform, Slow Recovery Lead to New Bank Worries
July 12, 2010
Financial institution executives are equally concerned about market, accounting and governance risk, thanks largely to uncertainty about the economy and the impact of financial reform, a Bank Safety & Soundness Advisor survey shows. The new worries signal a shift from last year when bank...
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Indexed by: Accounting | Legislation | Market Risk
Social Media Confront Banks with Newfangled Safety & Soundness Risks
July 12, 2010
Hey Facebook Friends, we just received a C&D!
Could someone in your bank post such a message on Facebook? How about a tweet to the same effect, using Twitter? The phrase above has 38 characters, and a bank employee could add another 102 and stay within the Twitter per message limit. Something...
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Indexed by: Legal | Management
Some Well-Capitalized Banks Hit with C&Ds Over IT Issues
July 12, 2010
Bank examiners are focused on yet another issue of enterprise risk: Inadequate IT systems. Several strongly capitalized banks have been hit with Cease & Desist orders recently.
Consider First Bank of Williamstown (N.J.). The $230 million institution had 10.13% leverage capital and 19.88% Tier 1...
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Indexed by: Exams/Enforcement | Management
Why Selecting the Right Capital Ratio for Your Bank Isn’t Easy
July 05, 2010
Two significant events over the past 10 days have further muddled the definition of what it means for a bank to be “well capitalized.”
First was agreement that the financial reform bill will require bank holding companies to be subject to the same capital rules as banks, thereby...
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Indexed by: Capital Adequacy
Bankers: Financial Reform Means More Regulation, Less Earnings
July 05, 2010
Nearly every financial institution executive expects more cumbersome and expensive regulation in 2011 – as well as decreased earnings – due to financial reform legislation, an exclusive Bank Safety & Soundness Advisor survey shows.
One out of three bank execs said their biggest...
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Indexed by: Legislation | Regulation
Financial Reform Mostly Shuts Down Charter Changes at Struggling Banks
July 05, 2010
Congress virtually has shut down the ability of stressed banks to convert between national and state charters, despite a last-second amendment to the financial reform bill that left a sliver of an option.
The bill includes a provision that would prevent banks from “charter flipping”...
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Indexed by: Legislation | Regulation
Examiners Tighten Screws on Enterprise Risk Management at Banks
June 28, 2010
Regulators have begun to focus more heavily on the way banks handle risk assessment, urging in supervisory guidelines as well as in exams that institutions move toward an “enterprise risk management” model.
Already in 2010, 105 banks have been ordered to write a risk exposure plan,...
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Indexed by: Exams/Enforcement | Management | Regulation
Banks Put on Notice by Regulators: Keep Bargain Gains Out of Capital
June 28, 2010
Regulators have struck again in their quest for transparency of regulatory capital. The five agencies issued guidance this month stating that fair value gains from acquisitions could be blocked from use in capital calculations, at least temporarily, even though it is permitted under Generally...
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Indexed by: Accounting | Capital Adequacy
Banking Regulators Take Fed’s Lead, Adopt New Compensation Guidelines
June 28, 2010
Examiners will be examining your incentive compensation arrangements as part of their evaluation of your “risk-management, internal controls and corporate governance” and making their findings part of your CAMELS score, according to the Guidance on Sound Incentive Compensation Policies...
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Indexed by: Earnings | Management | Regulation
Credit Ratings Agency Overhaul Plan Would Impact Bank Capital, Lending, Investments
June 21, 2010
A significant but largely overlooked piece of the financial reform bill being finalized over the next two weeks in Congress – reform of credit ratings agencies – could have a direct effect on bank capital, commercial real estate lending, investments and even correspondent...
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Indexed by: Capital Adequacy | Earnings | Regulation
Regulators Want Powerful Chief Risk Officers
June 21, 2010
Regulators, fearful that banks remain unrealistic about their safety, are emphasizing the need for stricter board oversight and a much greater role for chief risk officers.
The issue was highlighted by a group of senior bank regulators that want banks to make quick headway in...
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Indexed by: Management | Market Risk | Regulation
FDIC Pushes for More Regulatory Back-up Powers
June 21, 2010
Even healthy banks not regulated by the FDIC should brace themselves for FDIC examiner visits in the future. That’s because the FDIC is lobbying to broaden its powers as a “back-up” regulator, the Bank Safety & Soundness Advisor has learned.
And with Congress about to pass a...
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Indexed by: Exams/Enforcement | FDIC | Regulation
Take the CRE Loan Workout Quiz: Try Your Hand at These Scenarios
June 14, 2010
Required reading: The CRE loan workout scenarios outlined in the FFIEC's policy statement issued last fall. Although the examples are "for illustrative purposes only," they provide a roadmap for banks on the analytical process examiners will use when classifying credit and assessing whether...
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Indexed by: Accounting | Asset Quality
With Fee Income Squeezed, Economist Pinpoints 3 Benchmarks for Success
June 14, 2010
This summer offers a perfect storm for banks that rely on fee income. It begins with the July 1st implementation of a Fed rule limiting overdraft fees and continues days later with the likely passage of financial reform and its regulation of interchange fees. By late August, banks also will see...
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Indexed by: Earnings | Management
Inside TARP Warrant Negotiations: Inconsistent Standards, Little Documentation
June 14, 2010
In a “troubling” finding, the Special Inspector General for TARP recently revealed that Treasury did not document key phone calls it made with bankers while negotiating the repurchase of TARP warrants. What’s more, Treasury officials gave detailed pricing advice to some banks, but...
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Indexed by: Capital Adequacy | TARP
Civil Money Penalties Against Bank Officers and Directors on the Rise
June 07, 2010
The tougher regulatory environment is leading to more civil money penalties against bank directors and officers. And as enforcement orders skyrocket, no one is immune from the regulators’ wrath. Among those agreeing to pay a civil money penalty this year is Arthur R. Connelly, the...
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Indexed by: Exams/Enforcement | Legal
Banks Now Have Some CRE Relief with REMIC Rule Modifications
June 07, 2010
Banks have picked up a bit of relief in their ability to service commercial real estate loans they sold on the secondary market. The Treasury Dept. recently loosened the ability to modify CRE loans bundled into REMICs without affecting the investments’ preferential tax status.
REMICs, or...
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Indexed by: Accounting | Asset Quality | Regulation
Banks Face Tedious Changes, Higher Costs under Mark-to-Market Requirement for Loans
June 07, 2010
You soon may be required to “mark-to-market” all loans, under a proposal from FASB that also would require banks to accelerate recognition of credit losses and recalculate core deposits. The goal is transparency for investors, the accounting board says, but the result for banks is...
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Indexed by: Accounting | Asset Quality | Capital Adequacy
Banks Face Huge Recapitalization Requirement in Financial Reform Bill
May 31, 2010
Although community banks largely escaped onerous new requirements under the Senate version of the financial reform bill, one provision could be devastating. Bank holding companies are poised to become subject to the same capital rules as banks, thereby excluding BHCs’ use of trust preferred...
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Indexed by: Capital Adequacy | Legislation
About 20% of Banks Exceed CRE, ADC Guidelines, as Crackdown Continues
May 31, 2010
Regulatory scrutiny of commercial lending has continued to skyrocket, with examiners searching Call Reports for banks that exceed what once were suggested thresholds for CRE or ADC loan concentrations and demanding justification for it. A Bank Safety & Soundness Advisor analysis reveals that...
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Indexed by: Asset Quality | Exams/Enforcement | Regulation
Inside Financial Reform: What Banks Should Know
May 31, 2010
The Senate financial reform bill requires that the FDIC first obtain approval from Congress to create liquidity programs in the event of another crisis, a new constraint on the regulator. That’s just one of the surprising provisions in the 1,566-page bill, observes Brian Gardner, senior vice...
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Indexed by: Legislation
Banks Fear Concentration Limits Would Unjustifiably Make them Examination Targets
May 24, 2010
Examiners will be scrutinizing any funding exposure of 5% or more of an institution’s liabilities and any credit exposure of more than 25% of total risk-based capital, under new regulatory guidelines on correspondent concentration risk. Regulators want banks to calculate gross and net...
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Indexed by: Liquidity | Management | Market Risk
New Decision Means Overtime Pay for Mortgage Loan Officers
May 24, 2010
Bank execs take note: The U.S. Department of Labor recently ruled that mortgage loan officers are entitled to overtime pay. And that could be a giant headache for banks across the country.
Though the opinion is not binding, it will likely get “substantial deference” by the courts if...
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Indexed by: Legal | Management
Criminal Prosecutions of Bankers on the Rise
May 24, 2010
Federal investigative forces, armed with money and manpower, are combing through bank data, TARP documents and mortgage records searching for evidence of fraud. Four bank executives whose banks failed during the crisis already face criminal charges this year.
Early this month, federal...
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Indexed by: Legal | TARP
Fight Now or Lose Right to Appeal Later
April 12, 2010
After 30 years in the banking business, Ted Monzingo, CEO and President of Balboa Thrift and Loan Association, knew his last FDIC exam wasn’t going well. But what he wasn’t expecting was a report filled with “untruths.”
So when the FDIC finalized an 8-page Notice of Charges...
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Indexed by: Enforcement/Exams | Regulation
Regulators Emphasize Interest Rate Risk Concern, Urge Banks to Expand Modeling
April 12, 2010
Two senior FDIC officials tell Bank Safety & Soundness Advisor that they are becoming increasingly concerned that banks are not focused sufficiently on interest rate risk or being aggressive enough in their modeling of it. The concern spans all four regulatory agencies, which recently issued a...
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Indexed by: Market Risk
Call Report Analysis Leads to CAMELS Downgrades, Stepped-Up Enforcement
April 12, 2010
Examiners have begun downgrading banks’ CAMELS ratings based solely on their Call Reports, leading them to speed up the next onsite exam, warns attorney Daniel C. McKay II, a senior partner at Vedder Price’s banking group in Chicago and a former federal regulator.
He recently had...
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Indexed by: Capital Adequacy | Exams/Enforcement | FDIC
Examiners Taking Hard Look at ALLL Methodologies and Assumptions
April 12, 2010
Expect tough questions from your examiner about the quality of your loan portfolio and whether you relied on the right assumptions when setting aside your allowance for loan and lease losses (ALLL). If you primarily relied on historical loan loss rates to predict future losses, you could be in...
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Indexed by: Accounting | Earnings | Exams/Enforcement
