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Legislative and Regulatory Changes: A Banking Perspective

Legislative and Regulatory Changes: A Banking Perspective. RMA, Triad Chapter Meeting – 10/4/11. Nathan Batts Senior Vice President & Counsel North Carolina Bankers Association 919-781-7979 / 800-662-7044 nathan@ncbankers.org. Overview. State Federal. State.

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Legislative and Regulatory Changes: A Banking Perspective

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  1. Legislative and Regulatory Changes: A Banking Perspective RMA, Triad Chapter Meeting – 10/4/11 Nathan Batts Senior Vice President & Counsel North Carolina Bankers Association 919-781-7979 / 800-662-7044 nathan@ncbankers.org

  2. Overview • State • Federal

  3. State • Overview of the General Assembly • Recent Legislation • Satisfactions of Security Instruments • Filing Fees Paid to Registers of Deeds • Home Foreclosure Prevention Project • Payable on Death Account Beneficiaries • Unclaimed Property Program • Deed of Trust Provisions • Banking Law Rewrite

  4. Overview of the General Assembly • Senate: consists of 50 members; House: consists of 120 members • Meets in regular session beginning in January of each odd-numbered year, and adjourns to reconvene the following even-numbered year, typically in May, for a shorter session primarily focused on amendments to the budget

  5. Overview of the General Assembly • Adjournment resolution from 9/14 sets 11/7 as the next date to reconvene • Will primarily focus on: • Revising the state House and Senate district maps • Revising the districts for the election of members of the U.S. House of Representatives

  6. Recent Legislation from the NCGA • S.L. 2011-246 (Effective 10/1/11) • This law changes the methods for recording satisfactions of a security instrument with the Register of Deeds. Under prior law, a person could either file a certificate of satisfaction or the original documents appropriately annotated to show satisfaction. This bill eliminates presentment of the original documents as a means of filing satisfaction.

  7. Recent Legislation from the NCGA • S.L. 2011-296 (effective 10/1/11) • This bill stabilizes revenues for Registers of Deeds. It sets a new fee for recording mortgages and deeds of trust of $56 for the first 15 pages and $4 per page for each additional page. • Sunsets on July 1, 2013, at which time the legislature will determine if the change has worked out as projected or if adjustments are needed.

  8. Recent Legislation from the NCGA • S.L. 2011-288 (effective 7/1/11) • Transfers management and funding of the state home foreclosure prevention project from the North Carolina Office of the Commissioner of Banks to the North Carolina Housing Finance Agency

  9. Recent Legislation from the NCGA • S.L. 2011-236 (effective 10/1/11) • This bill makes it clear that payable on death (POD) accounts may have a beneficiary that is not a natural person (trust, charities, corporations, and any other legal entity will qualify). POD accounts may only have a single beneficiary, if the beneficiary is not a natural person.

  10. Recent Legislation from the NCGA • S.L. 2011-230 (effective 10/1/11) • This bill removes the requirement that a holder of unclaimed property provide to the Treasurer detailed information on the property and the apparent owner regardless of the value. • Replaces with a lesser reporting standard for property that is valued at less than $50.

  11. Recent Legislation from the NCGA • S.L. 2011-312 (effective 10/1/11) • This is a lengthy bill that modernizes the statutes governing Deeds of Trust. It has numerous provisions and focuses on such matters as releases, short sales, future advances, satisfactions, and releases.

  12. One the Horizon: Banking Law Rewrite • S.L. 2011-353: Joint Legislative Study Commission on the Modernization of NC’s Banking Laws • 14 study commission members: • 5 from the House, 5 from the Senate, 2 from state-chartered banks, 2 from consumer advocacy organizations • Issue report to the 2012 Session of the General Assembly

  13. Federal • Key Leadership Developments • Capital Purchase Program • Small Business Lending Fund • Credit Union Business Lending • Highlights of the Dodd-Frank Act • Reg Burden Reduction • The Future of Banking

  14. Key Leadership Developments • September 8, 2011 - Senate Banking Committee approves the following nominations and sent them for floor consideration by the full Senate: • Martin Gruenberg to be Chairman of the FDIC • Thomas Curry to be Comptroller of the Currency

  15. Key Leadership Developments • Former Ohio Attorney General Richard Cordray has been nominated to lead the Consumer Financial Protection Bureau (CFPB) • Republican Senators have vowed to block the confirmation process without changes to the CFPB’s leadership structure

  16. Capital Purchase Program (CPP) • CPP created by Treasury in October 2008 to stabilize the financial system (part of TARP) • Treasury provided $205 billion of capital to 707 financial institutions through the purchase of senior preferred shares, which included warrants for future Treasury purchases of common stock.

  17. Capital Purchase Program (CPP) • At the time, the total “eligible” pool of financial institutions was about 8,400 • Financial institutions participating in the CPP pay the Treasury a five percent dividend on senior preferred shares for the first five years following the Treasury’s investment and a rate of nine percent per year, thereafter.

  18. Capital Purchase Program • 3-year anniversary • Approximately 400 financial institutions still have TARP funds • Most less than $1 billion in assets

  19. Small Business Lending Fund • Enacted into law as part of the Small Business Jobs Act of 2010, the Small Business Lending Fund (SBLF) is a fund that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion

  20. Small Business Lending Fund • Up to $30 billion was authorized by Congress • Initial dividend rate was, at most, 5%. If a bank’s small business lending increases by 10% or more, then the rate falls to as low as 1%. If lending does not increase in the first two years, the rate increases to 7%. After 4.5 years, the rate will increase to 9%.

  21. Small Business Lending Fund • More than 900 applications • Just 332 institutions were approved • Only about $4 billion distributed • Funding expired on Sept. 27 with $26 billion left on the table

  22. Credit Union Business Lending • The number of North Carolina credit unions has declined from 227 in 1992 to 95 in 2011 • While the number of competing institutions is down, total credit union membership is up. There were 1.36 million credit union members in 1992, and the number has grown to 3.28 million today.

  23. Credit Union Business Lending • “Small Business Lending Enhancement Act of 2011” • S. 509 • H.R. 1418 • Would raise the member business-lending cap for credit unions from 12.25 percent to 27.5 percent of total assets • Under existing law, credit unions can make business loans under $50,000 in amount without these applying toward the cap

  24. Highlights of the Dodd-Frank Act • The Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) • 3,078 reg proposal pages, 1,795 final regs and guidance pages as of 8/26/11 • CBO estimates it will result in $27 billion in new private-sector fees and increase budget deficits by $6.3 billion over a 10-year period

  25. Highlights of the Dodd-Frank Act • $250,000 FDIC deposit insurance coverage made permanent • Will eventually double the size of the Deposit Insurance Fund (DIF) • CBO estimates that increasing the deposit insurance limit will cost banks and credit unions $9 billion through 2020, plus increasing the size of the DIF will cost an additional $6 billion

  26. Highlights of the Dodd-Frank Act • Creation of the Financial Stability Oversight Council (FSOC) • The Council is charged with identifying threats to the financial stability of the U.S. and promoting market discipline • 10 voting members and 5 nonvoting • In July, released a final rule on designating firms for systemic oversight and its first report on emerging threats

  27. Highlights of the Dodd-Frank Act • “Living Wills” / Resolution Plans • In September, FDIC and the Federal Reserve issued a final rule that applies to bank holding companies with consolidated assets of $50 billion or more and nonbank financial companies that the FSOC designates as systemically significant • Interim final rule applies to banks above $50 billion

  28. Highlights of the Dodd-Frank Act • New annual and semi-annual “stress tests” for institutions • In September, the FDIC also approved final guidelines governing assessment-rate adjustments for banks with more than $10 billion in assets • Adjustments up or down by 15 basis points

  29. Highlights of the Dodd-Frank Act • Creation of the Consumer Financial Protection Bureau (CFPB) • Direct examination and enforcement authority over federal- and state-chartered banks with over $10 billion in assets • Rulemaking authority for those under $10 billion • Examination and enforcement authority over “shadow banks”

  30. Highlights of the Dodd-Frank Act • One of the CFPB’s important tasks is to integrate the Truth in Lending Act with the Real Estate Settlement Procedures Act • “Know Before You Owe” campaign • Important challenge: • Information sharing with state AGs and others

  31. Highlights of the Dodd-Frank Act • HR 1315 would give the FSOC authority to overrule a CFPB regulation with a majority vote, instead of the 2/3 vote required under current law • Would replace the CFPB Director with a 5-person commission

  32. Highlights of the Dodd-Frank Act • Merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency • Accomplished on July 21 • Federal Reserve assumed authority over savings and loan holding companies • Interim final rule establishing regulations published in August

  33. Highlights of the Dodd-Frank • Risk Retention – in proposed rulemaking stage • Credit risk retention for asset-backed securitizations. Securitizers required to retain at least 5% of credit risk in assets transferred through a securitization, subject to an exception for securitizations backed by “Qualified Residential Mortgages”

  34. Highlights of the Dodd-Frank Act • Higher Capital Requirements and More Restrictions on What Qualifies as Capital • In June, the Federal Reserve, FDIC, and OCC finalized a rule that creates a “risk-based capital floor” for the largest, internationally active banks • “Collins Amendment” exclusion of trust preferred securities from Tier 1 capital • BASEL III

  35. Highlights of the Dodd-Frank Act • Caps on Debit Card Interchange Fees • Durbin Amendment • New Derivatives Rules • New deposit insurance training for bank employees

  36. Highlights of the Dodd-Frank Act • “Claw back” rule • In July, the FDIC approved a rule that creates a 2-year recoupment period for any compensation to senior executives that were substantially responsible for the condition of a failed institution. Unlimited recoupment in the event of fraud.

  37. Highlights of the Dodd-Frank Act • Volcker rule • Prohibits certain proprietary trading in securities, derivatives, and other financial instruments • Use of Credit Ratings • Section 939A requires Federal agencies to remove from their regulations any reference to or requirement of reliance on credit ratings and to develop a substitute standard

  38. Highlights of the Dodd-Frank Act • Municipal advisor registration • Ability-to-repay mortgage proposal • New supervisory “guidance” imposing additional obligations on the operation of overdraft programs • Divergence by Federal Reserve, FDIC, and OCC

  39. Reg Burden Reduction • Communities First Act • H.R. 1697 • S. 1600 • Some provisions: • Increases the threshold number of bank shareholders from 500 to 2,000 that trigger SEC registration. • Extends the 5-year net operating loss (NOL) carryback provision to free up capital

  40. The Future of Banking • Where is the industry headed?

  41. Questions? • nathan@ncbankers.org • 800-662-7044

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