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Obama Proposes Comprehensive Regulatory Reform

On June 17, 2009, the Obama administration publicly announced its vision of regulatory reform.  Among the key points for community banks and thrifts:

  • Combine the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) into a new federal agency, the National Bank Supervisor, which would remain an office of the Treasury Department.  The National Bank Supervisor would have all the powers of the OCC and the OTS.  The Federal Reserve and FDIC would retain their respective roles with respect to state banks.
  • Eliminate the federal thrift charter, subject to “reasonable” transition arrangements.
  • Eliminate restrictions on interstate branching by national and state banks.  States would not be allowed to prevent de novo branching into the state, or to impose a minimum age requirement of in-state banks that can be acquired by an out-of-state banking firm.
  • Thrift holding companies and Industrial Loan Company (ILC) holding companies would both be required to become Bank Holding Companies supervised by the Federal Reserve.
  • Create a new federal Consumer Financial Protection Agency (CFPA).  The CFPA is proposed to have sole authority to promulgate and interpret regulations under existing consumer financial services and fair lending statutes, including TILA, HOEPA, RESPA, CRA, and HMDA.  The CFPA is also proposed to assume from the federal prudential regulators all responsibilities for the supervision, examination and enforcement of consumer financial protection regulations.
  • States would have the authority to adopt and enforce stricter laws, and federally chartered institutions would be subject to nondiscriminatory state consumer protection and civil rights laws to the same extent as other financial institutions.

As a reminder, we are the very beginning of regulatory reform; the final reforms are undoubtedly not going to be exactly as laid out in the President’s current proposal.

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New Supervisory Guidance on BHC's Dividends, Redemptions and Repurchases

On February 24, 2009, the Federal Reserve published a Supervisory Letter regarding the ability of bank holding companies to declare dividends and to redeem or repurchase equity securities.  The Supervisory Letter is generally consistent with prior guidance, although places greater emphasis on discussions with the regulators prior to dividend declarations and redemption or repurchase decisions even when not explicitly required by the regulations.  Although consultation with the Federal Reserve in these situations is optional, the guidance makes clear that the failure to consult with the Federal Reserve “could result in a supervisory finding that the organization is operating in an unsafe and unsound manner.”

The Federal Reserve provides that the principles discussed in the letter are applicable to all bank holding companies, but are especially relevant for bank holding companies that are experiencing financial difficulties and/or receiving TARP Capital.  To that end, the Supervisory Letter specifically addresses the Federal Reserve’s supervisory considerations for TARP Capital participants.

TARP Capital

In addition to the general guidance provided by the Supervisory Letter and the explicit restrictions on dividends, repurchases and redemptions contained in the TARP Capital documents, the Supervisory Letter also provides guidance on how the supervisory staff will analyze TARP Capital recipients.  The guidance provides that TARP recipients should “consider and communicate reasonably in advance” to supervisory staff  how the bank holding company’s proposed dividends, capital redemptions, and capital repurchases are “consistent with the requirements applicable to its receipt of capital under the program and its ability to redeem, within a reasonable period of time and with Federal Reserve consent, its outstanding capital issuance under the program.”  The Federal Reserve’s guidance specifically calls for the redemption of the TARP Capital “as soon as reasonably feasible and appropriate.”

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Federal Reserve Loosens Restrictions on Private Equity

Our September 25, 2008 Client Alert analyzes the impacts of the Federal Reserve’s new policy statement easing the limitations on private equity investments in banks and bank holding companies.

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