Embed Size (px)
Citation preview
Iowa Day with the Iowa Day with the SuperintendentSuperintendent
April 12, 2007April 12, 2007Neil Milner CAENeil Milner CAE
President and CEOPresident and CEOConference of State Bank Supervisors, Inc.Conference of State Bank Supervisors, Inc.
State System of Banking
> Our overriding goal is to maintain the state system as the charter of choice for community, multi-state, international and de novo financial institutions.
> The states must retain their role as the front-line, grass-roots regulator for the financial services industry.
> As state bank supervisors, we work at both the state and federal level for focused and efficient bank supervision.
> Federal regulatory preemption of state laws endangers the dual banking system and consumer protection.
> Through CSBS, the collective states have a single voice with Congress and federal policy makers and an organization for maintaining a pool of well-trained, focused banking regulation professionals.
CONFERENCE OF STATE BANK SUPERVISORSChampions of the State Banking System
Statement of Principles
Safety & Soundness of Financial Institutions and the Banking System
> We believe that a significant goal of bank supervision and examination is to assure the safety and soundness of individual financial institutions and the overall banking system.
> Cooperation between state and federal regulators strengthens bank supervision, the financial services industry, and the economy.
> We support financial independence and budget autonomy for state banking departments as they pursue excellence in supervision.
CONFERENCE OF STATE BANK SUPERVISORSChampions of the State Banking System
Statement of Principles (cont.)
Compliance with Banking and Consumer Laws
> We believe that bank supervision at the state level provides regulators that are accessible, who understand state laws, are in tune with the local economy, and knowledgeable about the consumer.
> We agree that for the supervision of interstate banks, the home state banking supervisor should be the primary regulator.
CONFERENCE OF STATE BANK SUPERVISORSChampions of the State Banking System
Statement of Principles (cont.)
Promoting Economic Development
> We recognize that community banks, most of which are state-chartered, drive the economic success of Main Street America.
> We support the authority of our states to empower banks to develop new services that serve the best interests of our citizens.
Approved by the CSBS Board of Directors, September 2006
CONFERENCE OF STATE BANK SUPERVISORSChampions of the State Banking System
Statement of Principles (cont.)
www.csbs.org
Board & IT areas restricted
New Features on our website Event registration Pay membership
dues online Improved
Regulatory area Examiner Resource
Links Mortgage Licensing
Systems working together: Website &
membership database interfaced
Database & accounting interfaced
Improved Website!!Improved Website!!
2007 Annual Meeting & Conference
> Coeur d’Alene, ID
> May 30 – June 1, 2007
> NEW: Industry All Day Session
> Marketing
Save the Date Cards & Eblast
Exhibitor/Sponsor Prospectus
Preliminary Program> Register TODAY!!!!
www.csbs.org
CSBS/AARMRMortgage Licensing System
> Two primary objectives: Provide uniform mortgage
application for every agency Develop comprehensive
registry of record for participating states to house the information from the uniform application
System Schedule
> System to go live 1/1/2008> Uniform annual renewal and
annual reports to go live end of 2008
> 7 states using MU Forms, expect another 9 over next 3 months
> 29 States signed “Statement of Intent” to try to come on the System by the end of 2009
> Quarterly functional upgrades to System throughout 2008 & 2009
> Expect 4-6 states to come onto system quarterly throughout 2008 & 2009
FFIEC –STATES HAVE A VOTE> SLC
Chair- Steve Antonakes (MA - CSBS)
Sandra Branson (MO - NASCUS) Bill Waits (NJ - ACSSS) Mick Thompson (OK – At Large) Eric McClure (MO – At Large)
> Taskforces & Working Groups
> Representation State and CSBS Staff Guidelines
FFIEC- States have a VOTE
Risk Based Capital: Basel IA
> CSBS supported direction of the initial proposal
> Current proposal scaled back significantly
> Residential mortgage loans risk weighted by LTV
> Risk Ratings for external credit ratings
Little applicability in the loan portfolio for most banks
> Short-term commitments risk weighted with a 10% conversion factor
Risk Based Capital: Basel IA
> No changes…
Small business loans
Multifamily residential loans
Non-current loans
Commercial real estate exposures> Will provide some appropriate relief to
community banks.> Opens a door to incremental changes –
positive and negative.
DO NOT DISCOUNT ITEMS IN THE ANPR – PERHAPS A LOOK INTO THE FUTURE.
> The proposal is an opt-in. Banks can choose to remain under the current rules.
CSBS: Not worth the effort!
Who would want RBC relief?
Avg Assets Leverage RBC ROA(1) ROE(1) Loans/Assets 1-4/Loans All Commercial CRE/RBCSmallest 13,326 3.55% 6.63% 47.61% 3.72% 5.66% 0.67%Largest 4,178,523 9.19% 9.97% 2.35% 33.92% 100.00% 89.67% 79.96% 810.07%Average 289,522 6.92% 9.38% 1.05% 13.80% 83.21% 26.03% 45.23% 403.90%Median 108,650 7.04% 9.66% 1.01% 11.81% 85.29% 18.87% 45.25% 426.08%
Avg Assets Leverage RBC ROA(2) ROE(2) Loans/Assets 1-4/Loans All Commercial CRE/RBCSmallest 12,684 5.51% 53.71% 0.00% 0.00% 0.00%Largest 142,273,327 13.10% 4.83% 49.85% 156.13% 80.76% 96.46% 952.66%Average 1,215,993 7.88% 10.28% 1.12% 13.55% 85.24% 21.56% 47.96% 411.05%Adj. Avg (3) 880,142Median 253,358 7.85% 10.29% 1.03% 12.49% 85.47% 20.04% 48.49% 407.01%
(1) Does not include 18 unprofitable institutions.(2) Does not include 3 unprofitable institutions.(3) Adjusted by eliminating the largest institution.
Total Risk Based Capital > 10%, < 10.51%Banks = 421
212 banks > 20% 301 banks > 300%
27 banks >20% 40 banks > 300%
Domestic Bank Capital, Performance & ExposuresAs of 12/31/06
Total Risk Based Capital < 10%Banks = 58
> Numerous unresolved issues between the agencies.
Standardized Approach
Safeguards (transition periods, leverage ratio, 10% aggregate drop)
> This will be the first time the U.S. has had different capital rules for different types of banks.
Risk Based Capital: Basel II
State System Perspective> Need to consider Standardized
Approach in the U.S.> What is the systemic impact from
multiple capital rules?
Competition
Consolidation
Safety & Soundness> State regulator access to confidential
reporting data from Basel II banks.
Institution only versus a view of the system
Risk Based Capital: Basel II
How do you measure competitive disadvantage?
CountryBanks in
1000
Leverage Ratio > 20%
Return on Equity
< 0% Average Median
Affect on Average
from Sampling
Change Average Median
Affect on Average
from Sampling
ChangeUSA 215 5 3 8.34 8.05 -0.76 24.00 22.50 0.23United Kingdom 32 4 2 7.18 6.01 -4.59 18.88 15.45 3.30Switzerland 35 0 0 8.33 7.67 0.00 12.71 11.50 0.00Spain 46 1 0 6.35 5.98 -0.30 17.48 16.75 -0.30Japan 95 0 4 4.58 4.48 0.05 12.04 10.50 1.04Italy 37 0 0 6.24 5.26 0.00 19.31 18.20 0.00Germany 80 0 2 4.62 4.41 0.07 11.35 9.55 0.49France 10 1 0 5.28 4.39 -8.36 20.76 18.05 1.78Canada 11 0 0 5.00 4.23 0.00 20.94 23.30 0.00
Source: The Banker, July 2006
Bank Capital & Performance by CountryTop 1000 Banks by Tier One Capital
Banks Removed Tier 1 Capital Return on Equity
Commercial Real Estate Guidance
> Issued by agencies on December 6, 2006> Two key thresholds as % of Capital
100% Construction & Land Development
300% CLD, multi-family & CRE
**Thresholds do not apply to OTS supervised institutions.
> Expectations Stress testing
Market analysis
Underwriting according to secondary market standards
More Capital!
> We must be vigilant in ensuring the guidance is implemented as stated Thresholds are not limits
Does not discourage CRE lending
> Examiner training will be key
Mortgage Products: Nontraditional
Federal financial agencies released their final guidance on September 29.
CSBS/AARMR released parallel guidance on November 14
Applies to state-licensed mortgage providers who were not covered by the interagency guidance.
Closely mirrors interagency guidance, but without provisions that are inapplicable to mortgage providers (portfolio management, capital levels, etc.)
As of April 11, 31 states plus D.C. have adopted the guidance
Consumer advocacy groups and Congress have expressed concern with 2/28 & 3/27 ARMS.Fixed at above market rate for 2 or 3 years, re-price each 6 months after initial period.
Designed to “repair credit.”
Payment shock after initial period is significant.
Policy Statement:1. Qualify customers at full-indexed, amortizing rate.2. Timely, clear disclosure3. Balanced marketing4. The fine line between sub-prime & predatory!
CSBS will draft parallel guidance similar to NTM.
Mortgage Products: Nontraditional
Mortgage Products: Sub-Prime
Risk Based Assessments
Components> Weighted CAMELS
(25%, 20%, 25%, 10%, 10%, 10%)
> Six Financial Ratios> Long-term debt issuer rating
Well Capitalized banks pay between 5 and 7 basis points (others pay between 10 and 43).
Well Capitalized de novo banks pay 7 basis points for five years, beginning in 2010.
**Know your ratings definitions – they now have a financial impact!**
Supervisory Processes Issues
> GETs/WPS
> BSA
> Best Practices
> Exam Tools
GENESYS
ALERT
FDICConnect
Interagency Examination Repository (IER)
GETS/WPS
> Government Emergency Telecommunications System FREE
Use “Calling Card” GETS provides emergency access and priority
processing in the local and long distance segments
> Wireless Priority System program for priority cellular network access
WPS is accessed by dialing 272 before the destination number using a phone that has been subscribed with the WPS Feature.
BSA Exam Manual Update
> BSA/AML Examination Procedures
Update scheduled for Fall 2007
> InfoBase training CD available on FFIEC website
> Available TRAINING: CSBS 'Boot Camp' for BSA professionals – 2007 Annual BSA Conference FFIEC Annual Conference- Pilot 2007
BSA – State MOUs > FinCEN
• 40 banking departments have signed the information sharing agreements
• 8 are in the review or final stages of process
• 6 other states need to change their statutes prior to having the ability to sign the agreements
> IRS • 35 have signed
> OFAC MOU • 9 states have signed
Advocate In the Agencies and on the Hill
Congressional Agenda Items
> New Congress the 110th
> Government sponsored enterprises – regulating housing finance Will be introduced and marked-up in the House Financial Services
Committee in the near future (the recent mark-up was temporarily postponed).
> Predatory Lending
> Data Security
> Preemption
> Terrorism Re-Insurance Act (TRIA)
> Regulatory relief (Signed into law on October 13, 2006 PL 109-351)
Regulatory Burden Reduction
> Legislation passed the Congress as S. 2856 and was signed into law on October 13, 2006, as P.L. 109-351.
What CSBS called for in testimony
> Focus on Community Banking (Communities First Act, Rep. Ryun, R-KS) Several provisions were added to the House Bill)
> Flexibility for state chartered Federal Reserve member banks
> Review of Riegle-Neal interstate branching
> IRS re-interpretation on tax status of LLCs
> State vote on FFIEC
> Interstate supervision policy
> Review of federal “regulatory” preemption policy
The law includes:
State Vote on FFIEC> The State Liaison Committee’s role was one of
advising the FFIEC on issues> When it came time to vote or a member
called for an “executive session,” the state groups had to sit on their hands
> We asked for a real vote on the FFIEC> This is now LAW and the State Liaison
Committee now has a VOTE on the FFIEC
Extended Exam Cycle
> Extend 18 month examination cycle to well capitalized, well managed banks under $500 million (up from $250 million on old law).
> It has been suggested that the Federal Deposit Insurance Fund would be alive and well even if all banks under $500 million failed…
> Due to a drafting error in S. 2856, the 18 month exam cycle did not apply for certain well-managed, well-capitalized institutions with “good” ratings. The Congress passed H.R. 6345 during the lame duck session to include the “good” rated institutions.
Litigation
> Wachovia v. Burke (appealed to Supreme Court Cert. pending)
> Watters v. Wachovia (Argued before the Supreme Court in November…pending decision any time now)
> National City v. Turnbaugh (appealed to the Supreme Court Cert. pending)
> OCC/NY Clearinghouse v. Spitzer (appealed to the 2nd Circuit…decision on hold pending Watters case)
interstate compared to one-state banks, state and national
Professional Development“Developing Financial Professionals”
> BSA Boot Camps> Problem Bank School> Real Estate Appraisal> Fraud Identification> MSB Examiners Course
Professional Development (con’t)“Developing Financial Professionals”
> BSA Boot Camp
10 Boot Camps & 3 Mini Camps Conducted Intensive hands on exercise based program 209 State & Federal Regulators from 34 states 181 Bankers and Industry participants
New Prepaid Card Mini-Camp Developed Intensive 1 ½ day exercise based program Precourse programs First Session: Las Vegas, February 25-26 Second Session Scheduled for the Seidman Center, April 23-24
Certified Anti-Money Laundering Specialist New Certification Designation Available
Education Requirements On-the-Job Experience Attestation of Supervisor Continuing Education Credits
Professional Development (con’t)“Developing Financial Professionals”
> Problem Bank School
4 ½ day Blended Learning Program Morning – Lectures & Case Studies Afternoon – Web-Based Bank Simulation (with a
problem institution) Update March 2007
Learn how to: Reconcile correspondent bank accounts Trace loan proceeds identify red flags risk focus the exam identify and prevent fraud draft enforcement actions document to prevent or prepare for litigation
Professional Development (con’t)“Developing Financial Professionals”
> Real Estate Appraisal Review
5-week web-based course 8 to 10 hours a week
Learn how to: Effectively use appraisal reports Describe the various types of appraisal reports Explain the appraisal valuation process Describe the identification aspects of highest
and best use analysis step of the appraisal valuation process
Describe and apply the cost, direct sales comparison, and income capitalization approaches to valuation.
Professional Development (con’t)“Developing Financial Professionals”
> Fraud Identification Training
5-week web-based course 21 real-life case studies 6 to 8 hours a week
Learn how to: Identify weaknesses in internal controls that
may lead to fraud Recognize “red flag” issues that may require
additional examination procedures Identify measures that could correct internal
control weaknesses noted Recognize the importance of investigating weak
internal control programs
Professional Development (con’t)“Developing Financial Professionals”
> Money Service Business Examiners Course (online) 3 Courses conducted since April 2006 57 State and Federal Regulators from 20
states 2 Industry participants Exam-focused curriculum BSA/AML component Two more programs 2007
Contact Information:Contact Information:
Neil Milner CAEPresident & CEOConference of State Bank Supervisors1155 Connecticut Avenue NW – 5th FloorWashington, DC 20036
(P) 202.728.5702(F) [email protected]
