EDITOR'S NOTE
The leaves are changing, the cicadas have finished making new cicadas, the kids are back in school and it's time to put the toothpick umbrellas and beer-dispensing caps back in the attic. It's also time to hit the wayback button and review all that happened this summer.
For those whose margarita glass is half full, there was lots of good news. Everyone loves babies, right? This summer, we got a new Royal Baby. His name is Anthony Weiner. Upon his arrival, everyone in New York was saying, "Aw, look, isn't he tweet?" Meanwhile, scientists came a step closer to identifying an elusive particle that accounts for the vast majority of dark matter in the universe, which they have named "twerk." Fortunately, "twerk" entered and exited the lexicon faster than the in-flight time of a North Korean rocket. If only Miley Cyrus had danced the "Argle-Bargle"! And for those like me who can't stand getting to airports early and having to wait around, we now know that it's possible to survive for weeks in the transit zone at the Moscow airport on nothing but scotch, perfume and Toblerone® chocolate.
What about the bad news? Our newsletter's regular readers, both of them, have been asking for more Bureau jokes, but there wasn't much to laugh about in that department. In fact, our editor gave himself a hernia working overtime trying to meet demand. He is texting Anthony Weiner even as we speak.
Until next time, please don't hit "Reply All" (again) to the Internet Viagra® emails, don't hire Lindsay Lohan as your chauffeur and listen carefully for drone strikes.
William Stern, Editor-in-chief
BELTWAY
You're So Wrong!
By Oliver Ireland
On July 31, 2013, the U.S. District Court for the District of Columbia issued a sharply worded opinion holding the Federal Reserve Board's (FRB) debit interchange fee and network exclusivity provisions are contrary to the language and purpose of the underlying statute, section 920 of the Electronic Fund Transfer Act (EFTA), commonly known as the "Durbin Amendment." The court relied on its view of the statutory language and on statements made by Senator Durbin to conclude that the FRB disregarded congressional intent in "inflating all debit card transaction fees." The court instructed the FRB to vacate the debit interchange fee limitation and network exclusivity rules, but stayed the vacatur to "provide the FRB an opportunity to replace the invalid portions of" the regulation. On August 21, the FRB appealed the decision to the D.C. Circuit, and both the FRB and the merchants requested a stay of the court's decision until the appeal has been heard. Read our Client Alert.
Do Something About It!
By Obrea Poindexter
Sixteen Democratic Senators sent a letter on the regulation of payroll cards to the Consumer Financial Protection Bureau (CFPB) and the Department of Labor (DOL). The letter urges the CFPB to clarify through rulemaking or guidance, employer compliance obligations for payroll cards. It focuses on three perceived problematic issues: (1) employer-mandated use of payroll cards; (2) fees associated with card usage; and (3) coercive tactics by employers to encourage card acceptance. The Senators also urged the CFPB to bring enforcement actions "[w]here systematic abuses are clear." See our Client Alert for more details.
Capital Is Contagious
By Barbara Mendelson
The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) approved final rules to implement revised regulatory capital requirements for U.S. banks that were proposed in June 2012, and proposed for comment a supplemental leverage capital ratio (Proposal) for the eight largest U.S. banking organizations that are deemed systemically significant. The Proposal would implement the leverage capital provision of the 2010-2011 revised regulatory capital accord (Basel III) adopted by the Basel Committee in the wake of the financial crisis. The Proposal contains an important modification of the Basel Committee proposal, namely, a significantly more stringent leverage capital requirement. For additional information, please review our Client Alert.
FRB's BSA/AML Focus Continues, Delaying Acquisition
By Barbara Mendelson
Citing deficiencies in M&T Bank's firm-wide compliance risk management program, internal controls, customer due diligence procedures and transaction monitoring processes with respect to Bank Security Act/Anti–Money Laundering (BSA/AML) compliance, and a bank subsidiary's due diligence practices for foreign correspondent accounts, the FRB entered into a consent order with the bank on July 11, 2013. Although no penalties were levied, the consent order requires implementation of an enhanced compliance program and an independent review of certain transactions with high-risk customers to determine whether such activity was properly identified and reported. M&T Bank postponed its acquisition of Hudson City Bancorp, Inc. after the FRB raised concerns about the bank's BSA/ AML program.
Get Ready to Count
By Obrea Poindexter
The OCC issued a final rule amending its lending limits rule. The final rule extends the effective date of the rule's application of its requirements to derivative transactions and securities financing transactions to October 1, 2013, to allow additional time for banks to comply. It outlines the acceptable methods of measuring credit exposure of derivative transactions and securities financing transactions and allows discretion in choosing a particular method unless the OCC directs otherwise for safety and soundness reasons. The final rule exempts securities financing transactions relating to Type I securities (U.S. or state government obligations, etc.) from the lending limits calculations.
Not Much to Look Forward to
By Obrea Poindexter
The OCC's Semiannual Risk Perspective for spring 2013 provides an overview of the risks facing federally chartered institutions. According to the OCC, "strategic risk" continues to increase for many banks as they re-evaluate their strategy and business models to generate returns amid slow economic growth, low rates and regulatory requirements. These institutions are facing increasing competition for lending opportunities along with a low-interest-rate environment, which increases the risk of capital erosion. The OCC also identified increasing BSA/AML risks as money-laundering methods evolve and electronic bank fraud increases in volume and sophistication.
One Size Does Not Fit All
By Oliver Ireland
The FRB, the FDIC, and the OCC are seeking comment on proposed guidance describing supervisory expectations for stress tests conducted by financial companies with total consolidated assets between $10 billion and $50 billion. These institutions are required to conduct annual company-run stress tests beginning this fall under rules the agencies issued in October 2012 to implement a Dodd- Frank requirement. Comments are due by September 25, 2013.
To read this Financial Services Report in full, please click here.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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