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Csbspresentation Presentation Transcript

  • 1. Iowa Day with the Superintendent April 12, 2007 Neil Milner CAE President and CEOConference of State Bank Supervisors, Inc.
  • 2. CONFERENCE OF STATE BANK SUPERVISORS Champions of the State Banking System Statement of PrinciplesState 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.
  • 3. CONFERENCE OF STATE BANK SUPERVISORS Champions of the State Banking System Statement of Principles (cont.)Safety & Soundness of Financial Institutionsand 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.
  • 4. CONFERENCE OF STATE BANK SUPERVISORS Champions 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.
  • 5. CONFERENCE OF STATE BANK SUPERVISORS Champions 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
  • 6. Improved Website!! 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
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. FFIEC- States have a VOTE> SLCFFIEC –STATES HAVE A VOTE 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
  • 11. 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
  • 12. 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!
  • 13. Who would want RBC relief? Domestic Bank Capital, Performance & Exposures As of 12/31/06 Total Risk Based Capital < 10% Banks = 58 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% 27 bank s >20% 40 bank s > 300% Total Risk Based Capital > 10%, < 10.51% Banks = 421 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% 212 bank s > 20% 301 bank s > 300%(1) Does not include 18 unprofitable institutions.(2) Does not include 3 unprofitable institutions.(3) Adjusted by eliminating the largest institution.
  • 14. Risk Based Capital: Basel II > 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.
  • 15. 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
  • 16. How do you measure competitive Bank Capital & Performance by Country disadvantage? Top 1000 Banks by Tier One Capital Banks Removed Tier 1 Capital Return on Equity Affect on Affect on Average Average Leverage Return from from Banks in Ratio on Equity Sampling SamplingCountry 1000 > 20% < 0% Average Median Change Average Median 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 0.00Source: The Banker, July 2006
  • 17. 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
  • 18. Mortgage Products: NontraditionalFederal 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
  • 19. Mortgage Products: Sub-Prime Mortgage Products: NontraditionalConsumer 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.
  • 20. 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!**
  • 21. Supervisory ProcessesIssues > GETs/WPS > BSA > Best Practices > Exam Tools GENESYS ALERT FDICConnect Interagency Examination Repository (IER)
  • 22. 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.
  • 23. 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
  • 24. 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
  • 25. Advocate In the Agencies and on the Hill
  • 26. 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)
  • 27. 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 policyThe law includes:
  • 28. 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
  • 29. 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.
  • 30. 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)
  • 31. interstate compared to one-statebanks, state and national
  • 32. Professional Development“Developing Financial Professionals” > BSA Boot Camps > Problem Bank School > Real Estate Appraisal > Fraud Identification > MSB Examiners Course
  • 33. 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
  • 34. 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
  • 35. 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.
  • 36. 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
  • 37. 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
  • 38. Contact Information:Neil Milner CAEPresident & CEOConference of State Bank Supervisors1155 Connecticut Avenue NW – 5th FloorWashington, DC 20036(P) 202.728.5702(F) 202.296.1928nmilner@csbs.orgwww.csbs.org