Bank Lawyer's Blog

Moratorium on ILCs Extended

To the surprise of apparently no one (even including the usually clueless rejects who write for this blog), the FDIC extended for one year the moratorium on applications to start or gain control of ILCs by commercial companies. Applications filed by financial companies will be considered. That means that four of the current nine pending applications are on hold for at least another year or until Congress acts to bar such acquisitions entirely, whichever comes first. Barney Frank and Paul Gillmor are bustling about the House as we read, trying to hasten federal legislation through Congress to put paid the idea that foul commerce might blow through through this back door to the back alley of the banking "bidness."

The FDIC also proposed to adopt a rule to exercise more authority over the holding companies of ILCs by subjecting them to examination by the FDIC, and to require those "bad boys" to act as a "source of strength" for their ILC subsidiaries by guaranteeing they maintain minimum capital levels. Ah, the "source of strength" docrtrine! I remember so well the late 1980s, when the FDIC and the OCC used that doctrine to trigger the simultaneous default of every solvent bank in a multi-bank holding company when the first bank became insolvent. Sure, the regulators lost when the holding companies sued them, but they paid off by transferring a bunch of crappy loans to the holding companies (by that point, in liquidation), so the only people who made out like bandits in that ring-around-the-rosy were...? You guessed it: lawyers. Litigators, bankruptcy specialists, real estate loan workout lawyers and, of course, bank regulatory lawyers. Like Gloria Gaynor, cockraoches in a nuclear holocaust, we will survive.

Since that the time, a series of federal laws have given the regulators so much power to squeeze the "man juice" out every officer, director and controlling shareholder of every FDIC-insured bank and holding company that the ability to sue them for an abuse of power is nothing more than a fond memory. This state of circumstances is also the reason that when a client tells me he wants to start or buy a bank or bank holding company (or worse, sit as an independent director of one), I require a marathon session with Dr. Phil, who drones on for hours in that annoying Texas drawl of his with endless variations of the simple theme, "Are you out of you're cotton-pickin' mind?"

The FDIC's Board voted unanimously to approve the moratorium, but press reports painted a picture of half-heartedness.

"Let us be clear that the current law allows commercial companies to own industrial banks," FDIC Chairman Sheila Bair said at the meeting. "For commercial companies, I'm afraid the answer is that you have to wait a little longer (due to the moratorium)."

In other words, "if I were possessed of a pair, I might have done what the law allows, but lucky for me I'm, you know, not."

Not that having them would have helped commercial companies.

Comptroller John Dugan voted for the moratorium in order to prevent the FDIC from having to "unscramble the egg." His public comments indicate that he did so reluctantly. Among those comments are the following:

In this context, I frankly don’t believe the FDIC can or should deny an application for deposit insurance to an ILC merely because of commercial affiliations, and nothing in the comments we have received in the last six months has changed my view. Unlike the Bank Holding Company Act, the Federal Deposit Insurance Act has no specific prohibitions on commercial ownership. Likewise, the seven statutory factors expressly to be considered by this Board in making deposit insurance determinations say nothing about commercial affiliations.

Indeed, of those seven factors, only one is really relevant to the commercial affiliation issue, which is the fundamental need to assess the risk of a depository institution to the deposit insurance fund. There is no statutory authority for the Board to consider competitive effects, or potential conflicts of interest, or any of the other policy concerns unrelated to risk that commenters would like us to consider.

Instead, our sole statutory concern in this context is in essence the risk to the fund presented by commercial affiliations of industrial loan companies. As a general matter, I believe Congress has directly spoken to and addressed this issue by exempting ILCs from the Bank Holding Company Act’s restrictions. But even if one were to ignore that fact – which we cannot – the record before us simply does not establish that commercial affiliations present an undue risk to the fund.

[...]

In short, denying an ILC application for deposit insurance based merely on commercial affiliation would be fundamentally inconsistent with first, the express congressional exemption of ILCs from the Bank Holding Company Act’s restriction on commercial affiliation, and second, the FDIC’s track record in addressing risks raised by such affiliations during the last 20 years. The continued ability of commercial firms to own ILCs will undoubtedly be a close and difficult policy decision for Congress, but it is not a close decision for me as a legal determination to be made by this agency. As a result, if Congress fails to change the law permitting commercial ownership of ILCs during the extension of the moratorium, and if a deposit insurance application is submitted thereafter by an ILC with commercial affiliations, I will not vote to deny the application merely because of that affiliation. In the meantime, I strongly urge Congress to address this issue.

His other comments on the proposed regulation make clear that he's also not thrilled about transforming the FDIC into another Federal Reserve Board when it comes to regulating holding companies of ILCs. He'll get plenty of support on that position from other quarters, including some private quarters.

Publicly, both Home Depot and Wal-Mart were taking a low-key attitude. Home Depot was "disappointed."

"We're obviously disappointed by the FDIC's decision to extend the moratorium," says Anthony Wilbert, Home Depot spokesperson. "But to be clear, the FDIC was not commenting on or ruling on The Home Depot's application; it merely deferred its decision. We still believe we have a strong application, and we look forward to a final determination on the specific merits of our application."

Wal-Mart, the business with a bullseye on its back, also appeared to take the setback in stride.

In a telephone interview, Wal-Mart Financial Services President Jane Thompson said the retailer has no plans to drop its bid for an industrial bank.

"My hope is that we see this through," Thompson said. "There's no evidence that these banks have had safety and soundness issues."

Privately, however, our "undercover sources" inform us that when she was informed of the decision, Walton Family Matriarch Helen Walton hissed through clenched teeth: "That b**** Bair will pay! I swear on the heads of the children of my maid Consuela, I'll gut her like a flopping flounder." Driven mad beyond the power of intelligible speech, daughter Alice Walton ran in circles, screetching like a penguin on fire, until brought to ground with a well-aimed thorazene dart.

The next year should be loads of fun.

Califonia Commercial Banks vs. Credit Unions: The Raisins of Wrath

Commercial banks in Massachusetts may or may not heed my tongue-in-cheek call to fund their PACs and press for legislation to curb the growing competitive clout of credit unions in that state, but in California, 2007 promises to be a legislative slug-fest.

The California Bankers Association legislative agenda for this year is focused on reining in expansions by credit unions and increasing regulations for non-bank mortgage lenders.

The Sacramento-based CBA, which represents more than 300 banks, isn't pushing any specific legislation itself. Instead, it plans to educate lawmakers about its two main issues.

After losing many battles in the 1990s, the CBA largely stopped challenging credit unions' tax-free status. Although that status still angers bankers, they concede that horse left the barn a long time ago.

But this year, the bankers group is anticipating an expansive play by credit unions. Credit unions still have to ask for regulatory permission to expand their service to a geographic area, and in the past such approvals weren't always forthcoming.

Ah, so the best offense is a good defense! That's a twist on the usual canard.

As is the case whenever you're speaking with legislators, "money talks."

The California Credit Union League, the bankers say, has a war chest for marketing and lobbying efforts to be able to expand more easily and also to fight for other issues.

A "war chest." As big as Jessica Simpson in camouflage combat fatigues? Wisely, perhaps, the article gives us not a clue. It does, however, give us more of the anti-CU spin of flaks for commercial banks.

Credit unions and banks have been battling for years over some primary differences. As cooperatives, credit unions don't pay taxes, which riles bankers who do the same business and pay hefty corporate taxes because they are for-profit operations.

Credit unions look and act like banks but have far less regulatory structure and oversight, said Anissa Routon, senior vice president of marketing and communications for the CBA.

The bankers contend credit unions are far evolved from their historic start as co-ops for small, unbanked groups, such as employees and church members. Credit unions remain limited to serving their "fields of membership," which can be a geographic area or group of workers.

Credit unions are starting to remind me of the weather: everybody talks about them, but nobody does a thing about them.

The CBA's similarly-sized (DD) war chest isn't scaring credit unions, though.

"We continue to look for ways to modernize credit union legislation," said Bill Cheney, chief executive officer of the California Credit Union League. He denied the league has any war chest or agenda. The league is working to expand banking services to people of modest means, those people who often are targeted by cash advance and check cashing companies. "We want to ensure that credit unions have the flexibility to meet their customers' needs. We are looking for better ways for credit unions to serve their members, just as banks are doing for their customers."

Thus, the credit unions set themselves up as the poor little mutual, with empty pockets but hearts lined with gold, just lookin' out for the little guy. If to do that, they've got to battle the capitalist pig oppressor and his commercial banking running dog lackeys, well so be it.

"Bring 'em on!"

Just like Ma Joad puts it so well in The Grapes of Wrath, the "Peeps" will never quit.

Rich fellas come up an' they die, an' their kids ain't no good an' they die out. But we keep a'comin'. We're the people that live. They can't wipe us out; they can't lick us. We'll go on forever, Pa, 'cause we're the people.

And speaking of Woody Guthrie (?), we couldn't let a reference to 1930's-era populism pass by without tying in net neutrality. Why? Because it's our blog, that's why.

Nuts Over Net Neutrality

When a man possessed of the highest standards of integrity, who is the CEO of a company known for its highly ethical conduct and fair dealing, tells you that the position that you hold on a matter of public policy is "nuts," you have to stop short, reconsider, and take a long, serious look at the basis for your position. When the man is the aptly named "Dick" Notebaert, CEO of Quest, you have to hire a circus elephant to bury his Mercedes under an avalanche of gargantuan road apples.

Qwest CEO Dick Notebaert said Thursday proposed Internet neutrality legislation is "nuts," and called it a "preposterous charge" that a telecommunications company would ever block or degrade somebody's Internet service.

[...]

Congress is again considering so-called "Net neutrality" legislation, which supporters say is needed to ensure that the Internet remains open and nondiscriminatory.

The bill, which would prohibit telecommunications carriers from offering preferential treatment to certain content providers, has had bipartisan support. But it is given more of a chance to succeed now that Democrats control Congress.

Without such a law, proponents argue, carriers will have too much power in controlling Internet traffic, and certain Internet content providers could be driven out of business or forced to pay an exorbitant amount to compete. Consumers could find certain Web sites blocked or slower to get to.

"Certain websites." Like your bank's web site, which will be a business that has found, and will continue to find, that driving business to the Internet will be increasingly convenient and cost efficient for both the consumer and the bank. The Internet is the future of consumer banking, and "net neutrality" will continue to be a policy issue that deserves careful consideration. Unless, of course, you dismiss your opponent as "nuts."

Banks will have good company if they support net neutrality.

Supporters include giant content providers such as Microsoft, eBay and Google, consumer groups and even some Christian groups. They say the Internet is different from other industries because of its history as a free, open platform.

This appears to be one of those rare issues on which both Christ and the Anti-Christ (Microsoft) are aligned on the same side. Even a Manichean could buy off on that, couldn't he?

So what do the forces of darkness have to say in opposition? Glad you asked.

Telcos and cable companies such as AT&T, Qwest and Comcast counter that they, too, want the Internet to be open and would never block it. But they say customers such as an online movie service should have the choice in a free-enterprise system to pay an additional fee for "expedited" delivery of their content.

Notebaert argued that Congress must "cut through the hyperbole" and make a decision based on reason and reality.

"I'm actually pretty optimistic the ploy won't work," Notebaert said, "that logic will prevail."

He maintained that Net neutrality is supposed to be a solution, but first there needs to be a problem, and there isn't one.

"There's been no infractions, no abuses," he said, adding there are regulatory and legal remedies to deal with abuses should they arise.

I get it: "Trust us." That's the defense. "We haven't done anything and, of course, we're never going to do anything so despicable."

Like a CEO, CFO and other officers of Quest concocting a massive financial fraud that devastated the company and its shareholders.

A number of the attendees at the conference at which Slick Dick spoke were not impressed.

Some of the 100 attendees at the conference challenged Notebaert. Several expressed concern about how carriers, because of their market power, already favor certain content on their home pages over others and could discriminate further in the future.

"I can't think of one case where we discriminated," Notebaert said.

"What created divestiture (of AT&T in 1984)?" asked one attendee, referring to the allegations of discrimination back then.

"Not proven, never guilty," Notebaert responded.

Sweet. "Not proven, never guilty" because AT&T surrendered and voluntarily broke itself up under the gun of massive, drawn out anti-trust litigation filed by the U.S. Justice Department. That's the best you got, Dick?

"Trust us." Doesn't work for the government, won't work for a stellar organization like Quest, and certainly won't work for an arrogant jackass who dismisses his opponents as "nuts."

The Big Chill?

Damian Paletta, writing in Friday's The Wall Street Journal, reports that the FDIC "is considering a plan to extend the moratorium [on applications for Utah Industrial Loan Companies] for a year so they and lawmakers can study the issue further." A freeze might become a BIG freeze.

The original six-month freeze ends Jan. 31, and the FDIC has scheduled a public meeting for that day to discuss the matter. It hasn't indicated publicly, though, what approach it might consider. FDIC Chairman Sheila Bair has carefully navigated questions on the issue so as not to indicate what policy she might favor.

During its six-month review, the FDIC has decided to treat ILCs owned by commercial firms differently than those owned by financial-services firms, the people familiar with the situation said. Of the 10 applications still pending, several are from financial-services parent companies.

While the current plan is for the agency to vote on a one-year extension of the moratorium for commercial firms, such a scenario could change by next week, the people familiar with the matter said. Also, such an extension would likely require a majority vote by the FDIC board.

An FDIC spokesman declined to comment on the matter.

Oh, so we're back to "wait until Wednesday and we'll take everybody's temperature then." The default position, however, is to extend the moratorium for a year. I guess those noises that Sheila Baird has been making (about which I commented last week) that the FDIC would make a decision on Wal-Mart's application by the end of this month were merely digestive disturbances. We'll see by the end of the day on Wednesday.

Messrs. Frank and Gillmor are expected to introduce legislation early next week [now "this week"] that would prohibit commercial ownership of ILCs. The House passed similar language last year but it was never brought to a vote in the Senate.

It would be a nice piece of political theater for Frank and Gillmor to introduce such legislation shortly prior to the FDIC's Board meeting on Wednesday. I suppose that there's nothing Barney likes better than the smell of the crowd and the roar of the greasepaint, or was it the other way around?

Extending the moratorium may be the politically safe move if legislation is a realistic possibility. Unlike last year, when Bob Bennett refused to let House-passed legislation proceed in the Senate, Friday's The American Banker hints that a compromise with Bennett may be in the works.

Sen. Bob Bennett, R-Utah, the Senate's strongest ILC defender, may be open to a compromise that would preserve the charter but restrict how commercial giants like Wal-Mart Stores Inc. use it.

Rep. Paul Gillmor, R-Ohio, who is writing an ILC bill with House Financial Services Committee Chairman Barney Frank, said the two lawmakers met with Sen. Bennett last week to discuss the issue and came away with the sense that an agreement could be reached.

"The feeling we had there was maybe the end result of this will be we come up with some compromise," said Rep. Gillmor, the ranking Republican of the financial institutions subcommittee. "At this point the House will proceed with its legislation, and the Senate will proceed, and we'll see what can be worked out."

One option is a bill that would ban commercially owned ILCs from branching across state lines — an approach similar to the one taken by several states, including Oklahoma and Virginia.

Because ILCs do not branch widely Sen. Bennett essentially would be conceding little to get something very big: continued commercial ownership.

But the bill that Reps. Frank, D-Mass., and Gillmor are expected to reintroduce Monday would go further. It would ban any company with more than 15% of its revenue derived from commercial activities from owning an ILC.

Still, Rep. Gillmor did say that a deal on branching restrictions is "among the possibilities," and several observers said it would make sense.

While that sounds promising, it's a long way from happening. The "dead enders" in Utah are not going to find ANY compromise to be acceptable.

Frank Pignanelli, the executive director of the Utah Association of Financial Services, which represents the state's ILC industry, said he has yet to hear of a suitable compromise.

"I'm not sure if anyone in our organization has been approached about any compromises on anything yet, or any type of change in legislation," he said. "Any suggestions or hints of a compromise have been rumors, and we just don't comment on rumors."

Sen. Bennett's position is critical because Democrats hold only a one-seat majority in the Senate and need 60 votes to prevent a filibuster. What's more, the chamber's strongest ILC critic, Sen. Tim Johnson of South Dakota, the second-highest Democrat on the Banking Committee, has been sidelined while he recovers from brain surgery.

According to another article in The American Banker on Friday, Bob Bennett may sound reasonable in private discussions with Frank and Gillmor, but he's hanging tough in his public utterances.

Also Thursday, Sen. Bob Bennett, R-Utah, made it clear he is not ready to compromise on the question of commercial firms' owning ILCs. House lawmakers are seeking to ban such ownership.

"I don't see any reason why a legitimate business should be prohibited because of the nature of its owner," he told reporters Thursday outside a Senate Banking Committee hearing.

Doesn't exactly sound like Henry Clay talking about another "great compromise," does it?

The American Banker also notes that Senate Majority Leader Harry Reid's home state of Nevada is also a hotbed of ILCs, as we previously discussed. Therefore, there's no upside for him to support such legislation, especially if Bob Bennett takes the driver's seat in opposing it, so Harry's not tainted with being a tool of big business (or little business, for that matter). On the other hand, which Democrats in the Senate are going to champion the anti-ILC legislation if it might mean displeasing someone who can do you harm? Chris Dodd? According to Paletta's article in the WSJ:

Senate Banking Committee Chairman Christopher Dodd, (D., Conn.), said he agreed that commercial ownership of ILCs raised public-policy questions and supported extending the FDIC's moratorium if the agency felt it needed more time.

That statement makes Dodd appear to be less than a zealous advocate. My best guess (which is only a guess) is that if the FDIC extends the moratorium, it will exempt from the freeze new charters and acquisitions by financial businesses. If so, then those firms won't be putting pressure on Senator Bennett to compromise. In that case, we may be talking about this issue at this time next year.

The Never-Ending Search For An Honest Lawyer

As I scramble madly to keep many plates spinning on the ends of skinny poles (I actually prefer skinny Brazilians, along the "lines" of Gisele Bundchen), I'd like to reprise my very first substantive post from 3 years ago. Why? "Because I can" seems a thin gruel to feed the reader. Rather, it's because, in the intervening three years, this continues to be a periodic problem.

Yes, I understand, it's an ethical problem, and when a writer uses the terms "ethics" and "lawyers" in the same sentence, he's taken a giant step down the road to ultimate irony. Yet, I trudge onward.

****************************************************

We hate to begin a blog directed to financial institution issues with a slightly off-message rant, but have law schools been teaching their lawyers-to-be the rules of professional conduct, in particular Rule 4.2? Recently, we've had more than one counsel on the other side of contract negotiations engage in discussions directly with our client without the client's prior knowledge that opposing counsel would be involved in those discussions and without our, or our client's general counsel's, knowledge or permission. In both instances, opposing counsel was aware that we represented our client and, in fact, the attorneys had exchanged drafts of the contract. In one instance, our client had requested that only business people be present at the meeting and that only business issues be discussed, but the opposing side showed up with counsel and stated at the meeting that they did not want to discuss any matters without their legal counsel being present. Not wishing to appear inhospitable, our clients negotiated the business points with their counterparts but either refused to discuss the legal points with the opposing counsel when he or she broached them, or qualified any tentative agreement reached with the caveat "I'll have to leave that up our legal counsel." The fact that our client was not harmed by this unethical conduct does not excuse it.

Ethical Rule 4.2 is clear. An attorney may not communicate with an opposing party in a matter in controversy that the attorney knows is represented by counsel, about the subject matter of the controversy, without the permission of opposing counsel. The opposing party cannot waive this restriction. This applies to contract negotiations as much as it does to litigation. Ignore it and, when the negotiations are over, you may find yourself facing a grievance. Especially if the deal you were trying to put together goes south, and the opposing party you were trying to take advantage of isn't happy about it.

Just a word to the wise.

What Would Brian Do (WWBD)?

Another bank client came to me with a typical reproductive gland-busting problem of sufficient complexity to cause Stephen Hawking to turn off his voice modulator and seek solace in cheap women, expensive wine and the company of mimes. A problem that might drive Pythagoras Samos to become the "mother of numbers" rather than their "father." A problem of such Gordian knot intricacy that Sherlock Holmes would be driven to exclaim: "Damned if I know! What do you think, Watson?"

At times like these, any lawyer who bills by the hour understands that what a normal person might dismiss in frustration as an unsolvable imponderable, a private practitioner regards as a vehicle to send his kids through college and to buy his wife a Lexus RX-400h.

So I leaned back, put my Justin Black Classic Kid Ostrich boots up on the desk, interlaced my fingers behind my head, and like any lawyer worth his salt, pondered:

What Would Brian Boitano Do?

If he was here right now,
He'd make a plan
And he'd follow through,
That's what Brian Boitano'd do.

When Brian Boitano was in the Olympics,
Skating for the gold,
He did two sow cows and a triple lutz,
While wearing a blind fold.  

When Brian Boitano was in the alps,
Fighting grizzly bears,
He used his magical fire breath,
And saved the maidens fair.

So what would Brian Boitano do
If he were here today,
I'm sure he'd kick an a** or two,
That's what Brian Boitano'd do.  

I want this V-chip out of me,
It has stunted my vo-ca-bu-lar-y.
And I just want my Mom
To stop fighting everyone

For Wendy I'll be an activist, too
Cuz that's what Brian Boitano would do.  

And what would Brian Boitano do,
He'd call all the kids in town,
And tell them to unite for truth
That's what Brian Boitano would do.

When Brian Boitano traveled through time
To the year 3010,
He fought the evil robot king
And saved the human race again

And when Brian Boitano built the pyramids,
He beat up Kublia Khan

Cuz Brian Boitano doesn't take s*** from an-y-body

So lets all get together,
And unite to stop our Mom's
And we'll save Terrance and Phillip too,
Cuz that's what Brian Boitano do.

And we'll save Terrance and Phillip too,
Cuz that's what Brian Boitano dooooooo,
That's what Brian Boitano do.

It's all so clear to me now! The secret of life.

Like a modern day American philosopher, "I bill, therefore, I am."

Seasoning Your Customers

The U.S. House of Representatives yesterday passed the "Seasoned Customer
CTR Exemption Act of 2007," which directs the Secretary of the Treasury, within 270 days of enactment, to adopt regulations that will exempt from current currency transaction reporting requirements ($10,000 or more) those currency transactions with a "qualified customer" of the depository institution. Although the Secretary of the Treasury will define the term "qualified customer" more precisely in the regulations, the Act requires that the definition include "persons" that (a) are incorporated or organized under U.S. or state law (including sole proprietorships) or that are "registered as and eligible to do business within the United States or a State;" (b) have "maintained a deposit account with the depository institution for at least 12 months;" and (c) have "engaged, using such account, in multiple currency transactions that are subject to the reporting requirements" of applicable federal law.

According to Damian Paletta of Dow Jones Newswire (paid subscription required), the bill was pushed by Rep. Barney Frank, Chairman of the House Financial Services Committee, but introduced by Republican Spencer Bachus of Alabama, who then praised Rep. Frank like a todler might express his or her love for the real Barney.

"I'm grateful to Chairman Frank for prioritizing this issue, and for getting it done early in the 110th Congress," Bachus said in a statement. "By eliminating superfluous reports, CTR reform will reduce unnecessary costs borne by financial institutions, while making it easier for law enforcement professionals to pinpoint suspicious activity."

We'll have to see what happens in the Senate (the American Banker reported that its fate there is "uncertain"), but this bi-partisan (may I use the word "bi" and "Barney" in the same article and not violate the laws of political correctness? Phone Ms. Manners, at once!) display of "feelin' the love" for one another may bode well for banks this year. It's a small drop in the bucket, and Rep. Frank may turn a fire hose of regulatory cracked ice on banks in payment (anti-predatory lending legislation looms large in Barney Land). Nevertheless, this gives me such a warm and fuzzy feeling that I might just opt to take a Capitol Hill elevator ride all the way to the penthouse, real soon.

Incidentally, I previously speculated on the day-of-the-week "themes" that might be imposed for hearings under a Frank-led regime. You may recall "Carmen Miranda Mondays." Perhaps you don't. Regardless, my sources in the Democratic Underground inform me that to honor the retirement of Dallas Cowboys Coach Bill Parcells, Tuesdays will now be "Big Tuna Tuesdays." No one gets into the hearing room unless he or she is dressed either as a coach for the Giants, Patriots, Jets or Cowboys (athletic supporters may be worn on the outside of the trousers) or as Charlie the Tuna (glasses mandatory; no contact lenses permitted).

Costume requirements for the remaining weekdays have not yet been revealed.

Where else but on Bank Lawyer's Blog  do the worlds of banking, political incorrectness, and borderline insanity mesh so seamlessly?

Backdoor Repeal of HB 4050

Add to the foes of Illinois law HB 4050 Illinois Governor Rod Blagojevich. Last Friday, he suspended the law. It appears that the dire predictions of critics such as Dan Green of The Mortgage Report were correct.

The governor suspended the Illinois Predatory Lending Database Pilot Program on Friday after reviewing statistics released by urban planning specialists. They showed that residential sales in the 10 ZIP codes fell by nearly half compared with autumn 2005, according to professors with the University of Illinois and Texas A&M, which reviewed the program.

The real estate market slowed across the region, but sales in city neighborhoods with similar economic traits fell only 20 percent, said Lisa Bates, assistant professor of urban and regional planning at U. of I.

"The change was almost immediate," Bates said. "Markets operate largely on perception and investment potential, and it appears HB 4050 created a climate of perceived risk."

The clever means of "suspending" the law (since, obviously, only the legislature, not the governor, can repeal the law) was to have the Illinois Department of Financial and Professional Regulation designate the targeted zip codes as "no zip codes or areas whatsoever." That's a  chief executive with a sense of humor.

Sen. Martin Sandoval (D-Chicago), the Senate sponsor of the law, has said he will challenge the governor's authority to suspend HB 4050.

Unfortunately for Senator Sandoval, his "base of support" appears to be built upon clay footings.

Opponents of a controversial state program intended to rein in predatory lending want to go further than the suspension ordered by Gov. Rod Blagojevich and repeal the law that created it.

Officials with Rev. Jesse Jackson's Rainbow/PUSH Coalition said Saturday they will lobby state lawmakers and review banking practices in areas where the pilot program began last year.

"We all want to save people from predators, whether they are in Chicago, Peoria, Danville or Springfield, but no state law should apply to only certain people in certain areas," Jackson said. "This House bill has the smell of apartheid."

I'm sure Jesse Jackson's next sentence contained a line that rhymed with "apartheid" ("As it stinks like an old buffalo hide"?), but the Chicago Tribune reporter appears to have cut the good reverend off in mid-verse.

Let's review: the program is hated by both businesses that it burdens and the consumers who it is intended to assist. It's as unloved as K-Fed at the Appollo Theater on a Saturday night triple bill with Weird Al Yankovic and Donnie Osmond. It's been clearly demonstrated that it causes lenders to bolt and home sales to plummet. Yet, it's sponor can't just fess up to a good intention gone bad and move on. Nope, he's going to fight like Rocky Balboa, only with more bull-headed tenacity, to keep a bad piece of legislation in full force and effect.

The Bank Lawyer's Blog's first ever St. Jude  Award goes to: Illinois Senator Martin Sandoval, the King of (Unintentional) Comedy. Here's hoping that the captain of this hopeless cause goes down with his ship. 
 

More States Consider Anti-Wal-Mart Legislation

Following closely on the heels of last week's post on Colorado legislation, Friday's The Wall Street Journal (paid subscription required) describes pending legislation of several states, including Colorado, Kansas, Nebraska, Maine and Texas, that would "preempt" any attempt by Wal-Mart to spread the virus of big retailer retail banking within their borders, should the FDIC approve Wal-Mart's pending application to acquire a Utah Industrial Loan Corporation. As the article notes, similar legislation is already in effect in Maryland, Oklahoma, Virginia, Iowa and Missouri (some of which is discussed here, here and here).

Nu Wexler, a spokesman for Wal-Mart Watch, a labor-backed group that seeks to change Wal-Mart's business practices, said if more states bar the opening of branches inside an affiliate's store, FDIC approval could prove a pyrrhic victory. "Wal-Mart could get a banking charter that's significantly less valuable than when they filed the application," he said.

Sponsors said the impending decisions by Utah and the FDIC lend immediacy to their bills. "The fact it's Wal-Mart that could be doing this under the application that's pending lends incredible urgency. Their scale is beyond that of any other entity," said Maine Rep. Sean Faircloth, who has filed a bill pending in the Maine House.

Bob Hallstrom, general counsel of the Nebraska Bankers Association, which helped prepare a bill sponsored by the chairman of the state's banking, commerce and insurance committee, said supporters want to have legislation ready to thwart any move by the FDIC that would allow Wal-Mart to operate its own bank.

Is this fevered pitch necessary? I doubt it. First, there's the matter of the moratorium placed on all pending ILC applications by the FDIC in July. Yes, it's scheduled to expire on  January 31st, and FDIC Director Sheila Bair has made noises that she's ready to consider the application on its merits, notwithstanding the request by Barney Frank and others for the FDIC to extend the moratorium until Congress can thwart Wal-Mart carefully consider the pros and cons of the issues involved. Second, even if Wal-Mart's application is approved by both the FDIC and Utah, the FDIC (and possibly Utah) could impose the requirement that its activities will not extend to retail banking and/or that it will not branch without regulatory approval or a public hearing. Wal-Mart's floated that proposal, although its foes were less than impressed with it.  Finally, as the WSJ notes, all the ILC applications that were pending with the Utah Department of Financial Institutions at the time the FDIC moratorium was put in place were also suspended, other than those by Home Depot (which Barney Frank thinks presents a much bigger problem than Wal-Mart) and Daimler Chrysler, and Utah has not yet accepted Wal-Mart's application. There would likely be a 90-day delay between acceptance of the completed application and action by Utah.

Thus, it's not a crisis, at least not yet. On the other hand, the states that have acted, or are in the process of doing so, don't want an argument by Wal-Mart that it should be "grandfathered" because it has an existing charter. There are some happy owners of unitary thrift holding companies who enjoy the right to (theoretically) exercise unrestricted commercial powers at the holding company level due to their being grandfathered when the Gramm-Leach-Bliley Act was enacted. True, they lose that grandfathering if there's a change of control, but it's enough of a potential issue that these states apparently don't want to have to deal with it.

Most important, perhaps, Wal-Mart's a favorite whipping boy of populist pols. Therefore, any excuse to beat up on it, whether or not its immediately necessary, makes the legislators who support it look good with important segments of their constituency. Wal-Mart seems able to unite blue collar union members, small business owners, commercial banks and business-hating intellectual elites in a way that folks like Nancy Pelosi and Denny Hastert can only dream about.

Let's hope by now that most of the states with pending legislation have caught on to the problem brought to light by the Conference of State Bank Supervisors this past summer.  As we  observed in August:

The bottom line is that most of the state laws enacted or proposed thus far, that either (a) prohibit an out-of-state ILC, but not other types of "banks", from establishing de novo branches in their states, or (b) do not prohibit out-of-state banks of any kind from establishing de novo branches in their states but prohibit an out-of-state ILC (but not other types of banks) from establishing a branch on the premises of a commercial affiliate of the ILC, have caused those states' interstate de novo branching laws to fail the "Host State Law Requirements" of the Riegle Neal Interstate Banking and Branching Efficiency Act of 1994. Consequently, the federal banking agencies' legal eagles have opined that their agencies would be prohibited from approving the establishment of de novo branches in any such a state by any out-of-state bank.

It's always advisable to check to make sure that your barrel's not plugged before you pull the trigger. That way, you avoid that sinking "Oops, my bad!" feeling in the pit of your stomach that you get when you unintentionally blow your hand off.  

It's Hard To Stay On Top

From the crest of the Continental Divide comes the haunting chant..."We're Number One! We're Number One!"

Colorado regained the top spot in a widely watched foreclosure rate survey, after being briefly bumped down to No. 2, according to data released Tuesday by RealtyTrac Inc.

Colorado had the nation's highest foreclosure rate in December, with one new foreclosure filing for every 376 households, despite a nearly 4 percent dip in activity from the previous month, according to RealtyTrac, a California-based marketer of foreclosure properties.

In November, Nevada had the highest foreclosure rate, knocking Colorado out of the top position for the first time since March.

Nevada ranked second in December, with one new filing for every 392 households. Georgia ranked third for the third consecutive month, with one new filing for every 480 households.

"Regained the top spot." Wow, I'll bet Colorado is breathing a sigh of relief today. Nevada is tough competition in pretty much every aspect of overblown real estate, including the down side. If I lived in Colorado, though, I wouldn't rest on my laurels. I'd be making sure that I jumped out of bed every day at the crack of noon to make certain that my mortgage wasn't paid. Eternal lassitude is the price you have to pay if you want to stay on the top of the (garbage) heap.

In light of what a less charitable colleague griped to me the other day is our former Governator's and current Decider-in-Chief's "bankrupt foreign policy" (her words, not mine), you might expect that Texas would be leading the pack in the "per capita" foreclosure Iditorod. As a state, we're obviously not holding our own. On the other hand, there are encouraging pockets of decrepitude here in the Great Republic.

Greeley [Colorado] posted the highest foreclosure rate among more than 200 large metropolitan areas for the fifth month in a row. A total of 391 properties entered some stage of foreclosure in December, for a rate of one new filing for every 169 households, more than six times the national average, according to RealtyTrac.

"Go Bust Young Man." Isn't that what Horace Greeley directed?

Greeley was followed by Fort Worth, Texas, which had a foreclosure rate of one per every 242 households, and Detroit, which had one new filing for every 250 households.

Awwwwwwwwwwwwriiiiiiiiiiiiiiiiiiiiighhhhtttt, Cow Town!

Besides the Bass Family, Richard Rainwater, the Stockyards, Van Cliburn, and Billy Bob's, Fort Worth is now known as Number 2 in the national metro area foreclosure rate/rat race. Keep up the good work, Fort Worth. The rest of Texas will have to live vicariously through you.

Don't look now, but Motown is gaining on ya'.