Bryan Cave Leighton Paisner Banking Blog

Bank Bryan Cave

Bank Regulations

Main Content

Updated Guidance on Prepaid Assessment Exemptions

Standards for Prepaid Assessment Exemptions

We understand that the FDIC has decided to exempt the following categories of financial institutions from the requirement to prepay three years of deposit assessments:

  • Institutions with a CAMELS rating of 4 or 5; and
  • Institutions that are less than well-capitalized.

Institutions falling in either of these categories should have already received an electronic letter from the FDIC confirming that they have been exempted from the prepayment of deposit assessments.

Read More

FDIC Finalizes Prepaid Assessments Rule

On November 12, 2009, the FDIC adopted its final rule regarding prepaid assessments.  The final rule is largely unchanged from the FDIC’s initial proposal; the most significant change is that the FDIC will now refund any unused assessments after collection of the amount due on June 30, 2013, as opposed to December 30, 2014.

Effect

As noted by the FDIC, the prepayment of FDIC assessments primarily impacts liquidity – both of the FDIC Deposit Insurance Fund and the banks.  As the prepaid assessments merely represent the prepayment of future expense, they do not affect a Bank’s capital (the prepaid asset will have a risk-weighting of 0%) or tax obligations.

Given the higher FDIC assessments generally, and the elevated assessment rates for troubled banks, the prepayment of FDIC assessments could represent a significant cash outlay.  The FDIC’s online assessment rate calculator includes a prepayment tab to help banks estimate their payments

Exemptions

The final rule provides that the FDIC, after consultation with the institution’s primary federal regulator, may exempt any institution from the prepayment requirement if it determines, in its sole discretion, that the prepayment “would adversely affect the safety and soundness of the institution.”  The FDIC is required to provide notice to such institutions by Monday, November 23, 2009 if it has exempted the institution.  We are aware that the FDIC started mailing exemption letters on November 12th.

The FDIC has not indicated the standards it will apply for exemptions.  Based on the exemptions we’ve seen so far, it appears that all institutions subject to a formal enforcement action may be exempted.

Read More

FDIC Issues New Guidance Relating to the Brokered Deposit/Interest Rate Restrictions

As we have discussed earlier, the FDIC has revised the brokered deposit/interest rate restrictions to create a presumption in favor of a “national deposit rate” starting January 1, 2010. Under this new rule, financial institutions that are less than well capitalized will be barred from paying in excess of 75 basis points above the national rate unless the institution is able to persuade the FDIC that the institution’s local market rate is above the national rate. As noted earlier, we anticipate that the presumption in favor of the national rate will be difficult to overcome.

On November 3, 2009, the FDIC issued Financial Institution Letter 62-2009 and Frequently Asked Questions that provide new guidance for financial institutions that would prefer to use a prevailing rate for their local market area instead of the new national rate. As described in its publication, the FDIC envisions a two-step process for financial institutions seeking to use a local rate basis. A financial institution that believes it is operating in a market area with deposit rates that are, on average, higher than the national rates must first request and receive a determination from the FDIC that it is operating in a high-rate area; the FDIC anticipates providing additional guidance explaining how banks can seek this threshold determination later this year. However, regardless of whether a financial institution receives such a determination from the FDIC, the new national rates will apply to all deposits outside the market area.

Should the FDIC provide a “high-rate area” determination to the financial institution, the bank or thrift must then calculate the effective rates for its local market. As today’s guidance makes clear, the prevailing rate in the applicable market area is the average of rates offered by other FDIC-insured depository institutions and branches in the geographic market area in which the deposits are being solicited. This prevailing rate includes not only other competing financial institutions, but also individual branches; in other words, a financial institution must determine the effective yield paid by each branch in its market area in order to correctly calculate the prevailing rate for its local market. This average must exclude the rate offered by the subject financial institution. The FDIC noted in its guidance that when an institution is calculating its prevailing market rate, before or after January 1, 2010, it must calculate this rate using the rates of all branches within its local market area. The FAQ provide several sample calculations.

Read More

Red Flags Rule Compliance is Delayed to June 10, 2010 in a Last Minute Decision

The FTC announced over the weekend that, at the request of members of Congress, the compliance date for the Red Flags Rule is now delayed to June 1, 2010. This gives companies additional time to prepare their required Red Flags Rule Plans. The FTC has said it will continue to provide guidance on the development and implementation of these Plans, especially for companies who want to voluntarily adopt identity theft protection measures for the benefit of their customers and business reputation (Click here for the FTC’s Red Flags Rule website). This delay does not affect any other agency oversight or other federal regulations relating to data security and identity theft.

On a related note, a federal court (District of Columbia) issued the first ruling regarding the application of the Red Flags Rule on October 30, 2009. That decision held that the FTC may not apply the Red Flags Rule to attorneys. This case (and any appeals) are independent of the June 1, 2010 delay, but companies should keep an ear out for other decisions that may directly affect their industry.

Read More

Policy Statement on Prudent Commercial Real Estate Loan Workouts

Regulators and financial institutions have been trying for some time now to come to an understanding of what type of how workout strategies affect the classification of loans and the corresponding impact on estimates of loan losses. On October 30 the federal banking regulators published guidance on prudent commercial real estate loan workouts that addresses these issues. The guidance addresses some of the most contentious areas of disagreement between banks and examiners.  One of those areas is the impact of a decline in value of collateral in situations where the borrower or guarantors have the ability to service the loan. The new guidance tells examiners that renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. This is a significant change from the manner in which examiners have been classifying acquisition and development loans in the past and time will tell exactly how the examiners will in fact deal with such loans in the future.

A problem loan workout can take many forms, including a renewal or extension of loan terms, extension of additional credit, or a restructuring with or without concessions.  The key to any loan workout is that the renewal or restructuring should improve the lender’s prospects for repayment of principal and interest and be consistent with sound banking, supervisory, and accounting practices.

Read More

Fraudulent E-Mails Claiming to Be From the FDIC

We are aware of several fraudulent emails circulating purporting to be from the FDIC.  Subject lines include: “FDIC has officially named your bank a failed bank” and “FDIC Alert: you need to check your Bank Deposit Insurance Coverage.”

These e-mails and the associated Web site are fraudulent. Recipients should consider the intent of these e-mails as an attempt to collect personal or confidential information, some of which may be used to gain unauthorized access to on-line banking services or to conduct identity theft.

The FDIC does not issue unsolicited e-mails to consumers. Financial institutions and consumers should NOT follow the link in the fraudulent e-mail.

The FDIC has released a special alert confirming that these announcements are not from the FDIC.

The official FDIC website does contain useful information if you have questions about FDIC insurance; alternatively, we encourage you to contact your bank if you have questions about whether your deposited funds are insured.

Read More

REMINDER – Red Flags Rule Takes Effect Nov. 1

Barring some last minute legislative/regulatory activity, the FTC will expect companies to be red flags rule compliant as of November 1, 2009.  Companies should recognize that there is not a “one size” approach to addressing identity theft risks in making a Red Flags Rule Plan.  Instead, the FTC expects each company’s plan to be tailored to its own needs and circumstances.   Click here for help on steps your company can take.

Read More

FDIC Pre-payment Assessment Update

On September 29, 2009, the FDIC announced a proposed rule that would require institutions to prepay on December 30, 2009, an estimated quarterly risk-based assessments for the 4th quarter of 2009 and for all 2010, 2011, and 2012.   For a synopsis, see our prior summary of the proposed rule. Comments to the proposed rule are due by October 28, 2009.

Tax Treatment of Prepayments

The general rule is that prepayments that benefit more than one taxable period cannot be deducted in full, but must be deducted over the periods for which the benefits are obtained.  Thus, a payment of 3 years worth of insurance premiums cannot be deducted in a single tax year regardless of whether the institution is an S corporation or a C corporation.  The rule also is the same for cash method taxpayers, with one limited exception.  A cash method taxpayer can prepay up to 12 months of expenses and claim a deduction when paid.  For example, an institution could prepay its 2010 insurance premiums in December of 2009 and claim the deduction in 2009.  However, if the institution prepaid 3 years worth of insurance premiums in 2009, it could not deduct the entire amount paid.

Read More

FinCEN Outreach to Community Banks

FinCEN has announced a new outreach effort targeted at depository institutions under $5 billion in total assets to determine how these institutions comply with the Bank Secrecy Act and the specific compliance hurdles they confront.   If your institution has assets under $5 billion, please see our client alert about FinCEN’s outreach proposal.

As part of its ongoing outreach efforts, FinCEN is now seeking to engage smaller to moderate size depository institutions who are working to implement the four pillars of the Bank Secrecy Act regulatory regime: (1) policies, procedures and internal controls; (2) designation of a compliance officer; (3) ongoing training; and (4) independent testing.

Read More

Malicious Computer Programs Highlights Error of “Not My Computer, Not My Problem”

As new capabilities evolve through technology, so do new opportunities for hackers and thieves to compromise a customer’s data. These technologies stand as a major threat to a bank’s customers. In addition to general concerns of reputation and customer loyalty, banks should not forget they have certain expectations of helping keep customers informed about threats to online security and protective steps that can be taken.

Evolving Threats

One malware program that chillingly shows how far these programs have come (and is recently getting significant press for this) involves literally stealing money from a customer’s account under his or her nose. Once downloaded, the program first takes the customer’s login information for internet banking. After stealing the customer’s password, this program begins transferring money from the account to the thief’s account – a scheme which has been done before. The catch is the program also intercepts the code coming from the bank and manipulates it. That means, when the customer refreshes or relaunches his or her account page, the numbers remain the same. So, to the customer, his or her account looks untouched. All the while, until the customer logs on to an uninfected machine or realizes something is fishy (be it because none of his or her recent transactions start appearing or his or her debit card starts getting declined), the cyberthief can escape and cover his or her tracks. Just like crime in the real world, the longer the thief has to flee, the tougher he or she is to catch. Therefore, given the nature of this program, prevention is the only effective solution.

Read More
The attorneys of Bryan Cave LLP make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.