Bank Lawyer's Blog

In-House Blues

A recent conversation with an in-house counsel for a privately-held financial institution spurred me to unearth a brief article (paid subscription required) from last fall by Wall Street Journal reporter Ashby Jones, who writes on issues related to the practice of law, particularly those related to the problems encountered by lawyers in trying to balance being a lawyer with being a human being, one who must live in a world of non-lawyers. The impetus for Ashby's article, entitled "Tough Times for In-House Lawyers"  was the resignation of another general counsel of a publicly-traded company as the result of one more back-dating scandal.

The general-counsel position hasn't traditionally been known as a particularly risky job: Often a general counsel passes the bread-and-butter legal work along to in-house staffers and farms out the bet-the-company litigation and mergers-and-acquisitions work to seasoned outside counsel.

[...]

Industry observers say the intense scrutiny facing in-house lawyers could make it harder to recruit attorneys to in-house counsel jobs. The damper comes at a time when companies increasingly had been focused on finding candidates with experience pointing to a compliance mindset, such as a job in the Department of Justice or an attorney general's office, said Robert Major of the Houston and San Francisco offices of legal search firm Major, Lindsey & Africa.

The general-counsel position at a public company began losing appeal for some after the passage of the Sarbanes-Oxley Act of 2002, which required companies to place much greater scrutiny on corporate governance and internal record-keeping.

The backdating imbroglio appears to have furthered some candidates' hesitation. "For the first time, I'm hearing 'No thanks, I don't want to sit on the hot seat,' " said Mr. Major. Even though the position "is still the holy grail in the in-house arena, there are just fewer and fewer good candidates."

Well before the appearance of SOX on the scene, general counsels for banks and thrifts knew what it was like to sit in the hot seat of a job where "experience pointing to a compliance mindset" was always (or should have been) a requirement. The financial institution disasters of the 1980s and early 1990s, particularly in the commercial banking industry in the Southwest and in the thrift industry generally, brought grief to a number of in-house (and "out-house") lawyers. Being a public company does add a layer of risk to the general counsel's job, yet I think that in-house counsel for financial institutions, private and public, have, especially since the early 1990s, faced regulators armed with fearsome disciplinary "weapons" who have the power to make their personal and professional lives a veritable hell-on-earth should they or their institution stray from the straight and narrow path. Being general counsel for a bank always carries a high level of risk.

You would have thought, in the wake of the RTC's, the FDIC's, and even US Justice Department's pursuit of legal professionals associated with thrift failures in Texas, Colorado and elsewhere, that it would have been virtually impossible to find a sane, competent bank lawyer to take a general counsel's position in a "Southwest Plan" thrift, particularly when the FDIC began breaching their assistance agreements in the early 1990s (leading to some juicy lawsuits which are still being fought out in the federal Court of Claims). Yet, I saw a number of very qualified, ethical, and not obviously insane lawyers take on those roles and perform admirably. I don't recall many of them running into trouble, although there was an exception or two.

Therefore, while I don't doubt Mr. Major's claim that he's seen fewer and fewer "good candidates" (after all, he's in the recruiting business and I'm not), I wonder if his pool of talent is too shallow. I have a hard time believing, with the surfeit of lawyers that exists in this country, especially aging big-firm Baby Boomers with experience and, I would hope, judgment, married to a already-decent investment portfolio, there is not an adequate pool of candidates for these slots. I realize that many companies practice unacknowledged "ageism" and may prefer the younger, less-expensive hotshot over the gray-haired (or no-haired) duffer. Some good friends are young hotshots. Yet, maybe publicly-traded companies ought to expand their horizons (and their search criteria) to look at lawyers who might actually be secure enough with themselves to stand up to miscreant management officials who want to "do the wrong thing," and who don't turn into quivering masses of protoplasm at the sound of the word "SOX."

And with all due respect to those who labor in the US Justice Department and state attorneys general offices, what I'm hearing from financial institutions and other businesses today is that what they need the most are lawyers who not only know the law, but who also can give them real-world, hands-on, practical solutions to the legal problems that are presented. To fill that role takes an understanding of the particular business in question, as well as experience in dealing with human foibles in a setting where business and the law intersect and where the law, and lawyers, may be viewed by the people with the power as, at best, a necessary evil.

By the way, I don't include myself in that expanded pool of potential talent. My normal temperament is akin to that of a cornered badger with bi-polar disorder, suffering from a really bad hang over. I'm referring to the more normal members of the profession.

A Wake-up Call

Think about world peace; while you're doing that I'll be over here stealing your stuff.
--Jack Handey

We noted this past March that a lawsuit filed by former employees of Dutch bank ABN Amro publicly disclosed a common practice among European banks: instituting procedures to evade US restrictions on funding terrorist organizations and the states that love them. We didn't much like to hear that. Neither, apparently, did the US government.

People close to several European banks say that US regulators and criminal investigators have broadened the scope of a probe that began with the Dutch bank.

They are now examining whether a handful of banks similarly violated laws by processing US dollar payments through US counterparts for clients in Iran, Cuba, Libya and Sudan, countries that – with the exception of Libya after 2004 – are still subject to US sanctions programmes.

Some legal experts say the case against ABN Amro, which promised in April to set aside hundreds of millions of euros to resolve a criminal investigation by the US justice department into its US dollar clearing practices, clarified for the first time the Bush administration’s position and interpretation of sanctions rules and their application to the financial services industry.

Namely, that US banks and individuals are not allowed to facilitate banking activity abroad in which they could not engage directly.

[...]

“As a result, it is a wake-up call for the financial community with respect to the handling of wire transfers by foreign banks that ultimately touch on US-embargoed states,” says Wynn Segall, a partner at law firm Akin Gump in Washington.

I wonder whether the wake-up call will be enough. Maybe a loud pounding on the bedroom door, followed by kicking it in, then spraying the sleepy foreign bankers with semi-frozen yak spit, will be required. If so, I hope that I get to watch.

There has been the expected whining and sniveling from various quarters, along the lines of "everybody does it" and "but you let it go on for so long, you can't  punish us now."

Some people familiar with the investigations, who asked not to be named, say that the looming possibility of financial penalties raises questions about the authority of US regulators to penalise banks for conduct that went unchecked for years.

“This is an issue where the legal lines are not clear. It is the kind of thing that banks around the world engaged in.

That line of pathetic excuse-making never worked for me with my parents, and it won't work on Uncle Sammy.

But if the ABN Amro case represents a model for the kinds of cases that US authorities may be bringing against other banks in the future, as some legal experts believe, then the US government would have a strong case to argue that the violations under scrutiny were not just routine technical blunders.

In the case of the Dutch bank, regulators found that one of ABN Amro’s foreign branches was able to develop and implement “special procedures” for certain fund transfers and other operations “designed and used” to circumvent compliance systems established to comply with US laws.

James Freis, director of the Financial Crimes Enforcement Network (FinCen), a division of the Treasury that investigates money laundering, said last month that “myths” about big penalties for minor lapses in banking requirements should be dispelled and that federal financial regulators were making “great efforts” to eliminate uncertainty about what they expect in a “solid, risk-based”, anti-money laundering programme.

As we understand it, as part of the stepped-up US enforcement effort, those foreign banks that violate US restrictions will henceforth find themselves facing "sanctions" imposed by one US "Treasury Agent" known as Jack Bauer. He hates foreigners, and he isn't real keen on bankers.

The "Show Me" State: Land Of Opportunity

Everything's up to date in Kansas City, except, apparently, one small item. The home state of the late, great robber of banks and an "insurgent" before "insurgency" was cool, Jesse James, carries on its historic tradition of providing succor for bushwhackers. These days, however, instead of killing jayhawkers in cross-border raids into Kansas, Missourians of a criminal bent prefer to stay at home and make money the old fashioned way: mortgage brokerage.

Among the ranks of Missouri's mortgage brokers are convicted drug dealers and bank robbers, according to the Federal Bureau of Investigation.

Julia Jensen, an FBI special agent who investigates mortgage fraud cases, said serious criminal and civil actions have not prevented some mortgage brokers from remaining active in the business.

"There's nothing that keeps them from going to work as a mortgage broker," Jensen said. "What I've seen is people who might not pass a background check for a license are not going through one."

That's because Missouri has no licensing requirement for individual mortgage brokers. Experts and law enforcement officials say this lack of a licensing system contributes to Missouri's reputation as one of the nation's hotbeds for mortgage fraud.

I understand why a state whose motto is "Salus populi suprema lex esto" ("The welfare of the people shall be the supreme law") wouldn't want to crimp the style of crack dealers and pedophiles by barring them from gainful employment in the high-status world of mortgage banking. That makes sense. Moreover, since the state animal is the mule, the populace doesn't like being pushed, and certainly not into adopting unnecessary laws when there's no demonstrated need for them. I mean, what's the big deal with licensing or not licensing mortgage brokers, I ask you?

Between 2001 and 2005, Missouri ranked among the top 10 states in the Mortgage Asset Research Institute's fraud index. The state dropped out of the top 10 in the institute's 2006 rankings, issued in May, but the FBI still reports that Missouri is among "problematic mortgage fraud areas."

[...]

Experts say a licensing system might have weeded out some brokers involved in high-profile mortgage fraud cases.

[...]

Rebecca Yocum, a Stinson Morrison Hecker LLP lawyer whose practice includes real estate matters, said individual brokers in Missouri can easily set up one or more companies to do their business.

"They start up one, they get in trouble, they start another one. They're easy to incorporate," Yocum said. "The big thing is there's no control. Anybody can go out and be a broker."

Authorities say the mortgage fraud problem is spreading beyond low-income neighborhoods.

"Now, you're seeing it move into the suburbs," said John Wood, U.S. attorney for the Western District of Missouri.

On Aug. 16, a jury found former Kansas City Councilwoman Saundra McFadden-Weaver guilty of a mortgage fraud scheme that involved obtaining fraudulent loans for a house in Lee's Summit.

Money skimmed from the fraudulent loans was used to renovate a house in Kansas City owned by a church that employed McFadden-Weaver.

As mortgage fraud spreads, so does its negative effects on the housing industry.

"Higher rates and expenses to obtain a mortgage begin to be realized," Louks said. "Fewer mortgage products and programs stay available, making it more difficult for some needy borrowers to qualify. Builders will find it harder to sell their homes and will reduce the number of projects they start or complete."

Oh. Maybe there is a demonstrated need for mortgage licensing in Missouri, after all.

Come to think of it, the last time I was in Missouri, I had a rather close encounter with a wild Missouri mortgage broker named Munny, whose partner Ned had been put on display in the local saloon, as an example to other miscreant subprime brokers. Munny didn't take well to that, and threw quite a little hissy fit. Frankly, he appeared to be a man in severe need of "licensing."

Luckily, I had my trusty cell phone camera with me and recorded the entire episode.

On Occasion, You Don't Get What You Pay For

No doubt about it: Chaz Schumer has simply GOT to switch to decaf. A motor mouth married to an empty head is not a happy union.

His clarion call to the Big 4 accounting firms, as related in a story released last Friday by Reuters, to not only inform investors in securitized subprime loans that, pursuant to FAS 140, they could voluntarily modify subprime loans without adverse accounting treatment, but that the Big 4 should encourage their clients to modify such loans, demonstrated a rather off-beat lack of understanding of the proper role of an accountant. Whether or not the owner of a loan should modify the loan is a business decision, not an accounting decision. The accounting treatment of the modification is a consideration, but not the primary consideration. The primary consideration has to be whether the modification makes business sense for the holder of the loan. Accounting should not drive the decision. Schumer's call is pure nonsense.

Francine McKenna of Re: The Auditors thinks it's more than nonsense. She thinks that it's comical.

At best, it's comical that Senator Schumer is demanding action on the sub prime crisis from the accounting firms. After all, they pay him to protect their interests, not the other way around. Where did he get the idea that they're part of the solution? I wouldn't be surprised to find out that Deborah Harrington wrote the press release.

She then proceeds to issue a WWE-style smackdown of "Charles in Charge."

US Senator Charles Schumer is number 3 on Ernst & Young's list of top campaign contribution recipients for the years 2001-2006.

He's also number 3 on Deloitte's all time 1999-2006 list of campaign contribution recipients.

As a matter of fact, E&Y and Deloitte are in his top 20 all time greatest contributors!

PricewaterhouseCoopers has him a little farther down on their list but still in the top ten. He's number 9 on their list of top federal candidates receiving their contributions between 1990-2006.

From 1999-2004, KPMG was Mr. Schumer's 14th largest contributor overall.

When Arthur Andersen was still around, they gave big money, also. He's high on their list, too.

Senator Schumer has also received money from the American Institute of Certified Public Accountants, the industry trade association, over the last several years.

In general, Senator Schumer was the number 2 US Senate recipient of contributions from the accounting industry in the 2003-2004 election cycle. Only Christopher Dodd and George W. Bush got more money.

I suppose Chuck's not a man who takes to heart Simon Cameron's definition of an honest politician: one who, when he is bought, will stay bought.

They Should Retitle It: "Everyone's A Loser At Nixon Peabody"

One more reason, among a nearly infinite number, to hate lawyers: a sense of self-importance beyond all bounds of rational perspective.

Working Around A Logjam

It appears that even for banks whose business plans seem ready made for an industrial loan company charter, the consequences of Wal-Mart's aborted attempt to enter the ILC business have soured the sweet taste of ILCs (paid subscription required).

When MagnetBank opened two years ago, its founders chartered it as an industrial loan company, because that charter seemed to suit its unconventional business model of funding commercial loans entirely with wholesale deposits.

But this month the Salt Lake City lender ditched its ILC charter and converted to a state-chartered commercial bank. The reason: Controversy surrounding the charter — brought on by Wal-Mart Stores Inc.'s 2005 application to start an ILC — had hog-tied the lender's efforts to raise capital, and its management feared the problems could threaten its expansion plans.

"The regulatory environment surrounding industrial banks has changed dramatically since the bank commenced operations in 2005," MagnetBank said in a proxy statement to shareholders last month. "Management believes that a conversion to a Utah-chartered commercial bank will enable the bank to be regulated like any other commercial bank, without the heightened scrutiny placed on industrial banks."

[...]

MagnetBank's October 2006 application to raise $50 million through a private placement to fund its rapid growth got caught up in the controversy. Utah regulators approved that application in December, but the FDIC did not make a final decision — even after the first moratorium ended in January.

Frustrated by the federal agency's inaction, MagnetBank changed its tack. In June it filed an application to convert to a commercial bank charter. Regulators approved the switch last month, and it became official Aug. 16, after shareholders unanimously approved it.

Along with the charter change, the FDIC approved MagnetBank's plan for raising capital.

Darrell Pittard, the company's founder, chairman, and chief executive officer, said in an interview this week that the ILC charter was becoming more trouble that it was worth.

The FDIC wouldn't approve a growth plan by an existing ILC until it changed its charter to a state commercial bank, at which point - voila! - the growth plan suddenly made sense to the FDIC. Such a "coincidence" might lead a cynic to conclude that Sheila Bair's tenure as Barney Frank's lap dog will be a mutually beneficial one for all concerned. Except ILCs, of course. Thank Gaia that Bank Lawyer's Blog is positively Panglossian in its view of Ms. Blair.

It would be unfair to blame MagnetBank's decision entirely upon the FDIC, however. Those state laws designed to prevent Wal-Mart from branching also played a role. MagnetBank didn't plan on branching, just expanding via the use of loan production offices, but it didn't need to constantly look over its shoulder at hyper-sensitive state regulators who might feel compelled by their constituents to take a hard line with any office of an out-of-state ILC that even smelled like it might be a branch.

More than a dozen states have passed or considered laws in the last two years that would prohibit commercially owned ILCs from opening branches there. Though MagnetBank is not commercially owned and has loan offices, not branches, Mr. Pittard said its management did not want to take any chances with the charter.

"I didn't want to get into a fight with a state regulator as to whether my office was a loan production office or a branch," he said.

Though the new charter gives MagnetBank the authority to accept demand deposits and open full-service branches, Mr. Pittard said it has no plans to do so.

"It's the same business plan with a different charter," he said.

It looks like the FDIC may have set out to destroy the ILC charter, and, if so, the moratorium is having the intended effect. The refusal to act on existing ILC applications such as that filed by MagnetBank is a clever twist, however. The miraculous "thaw" of the "freeze" that accompanied the charter switch indicates that Barney Frank and his fellow ILC opponents are being well-served by Ms. Bair. Let's hope that such faithful service is rewarded appropriately.

Show Me The Money!

Chuckles Schumer interrupted his vacation yesterday to  jawbone big banks for money (paid subscription required).

The roughly 40 lenders he wrote included Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Countrywide Financial Corp., and Washington Mutual Inc. Sen. Schumer asked them to detail steps they have made to modify subprime loans to help borrowers.

The New York Democrat is also seeking to find out what other measures banks are taking to keep home foreclosures on loans they have originated to a minimum and how much money they have directed to nonprofit or community groups working to prevent foreclosures.

He also asks lenders to list "what major obstacles remain to refinancing troubled loans that would benefit from policy actions taken by the federal government or legislation in Congress."

The lenders unanimously responded that taking the time to read and respond to inane letters from political hacks like Senator Schumer was the main obstacle to dealing with troubled loans, as well as the leading cause for the increased mainlining of black tar heroin by senior bank executives.

(Up)Chuck also sent a love note to Treasury Secretary Henry Paulson.

In a separate letter to Treasury Secretary Henry Paulson and the principals of the federal banking and thrift agencies, Sen. Schumer said regulators should "use their influence over the major market players to encourage them to engage in a major effort to modify or refinance the loans that have a high probability of defaulting."

He asked that the agencies direct "additional federal resources" to nonprofits certified by the Department of Housing and Urban Development to help troubled borrowers.

"There are many nonprofit groups that are experienced and willing to assist these borrowers, but they are both resource-constrained and need the cooperation of the banks, lenders, and loan servicers," Sen. Schumer wrote.

Here's actual footage of Charles in Charge, at the intermission of the play "Raisin in the Sun" at the Catskills resort where Chaz is playing the starring role (a master of makeup, that Charley), taking the time to place a telephone call to Treasury Secretary Paulson, and urging Paulson to pony up for the poor. Chucky keeps calling Henry "Jerry," but then, he calls Hillary Clinton "Rosie," so Hank shouldn't take it personally.

Sweet Dreams

If you've been losing sleep over the deterioration in the availability of credit, snooze away. At least one rating agency says "no problema."

The credit crunch triggered by a rout in the U.S. subprime mortgage market does not pose a "systemic" threat to banks, Moody's Investors Service said Tuesday.

"The 'core' of the system is still comfortably shock-resistant," Moody's said in a statement. "U.S. and international financial institutions have a high pain threshold."

[...]

"Confusion and uncertainty of risk is creating this liquidity problem," said Pierre Cailleteau, the senior vice president of Moody's. Sometimes banks are affected indiscriminately, "requiring more frequent market-stabilizing operations," he said.

This is the same Moody's that will be "probed" (and not in a pleasant manner) by the EU over its, and Standard and Poor's, role in the subprime mortgage meltdown. Not that they're actually to blame, you understand, but the fact that many observers wonder what the heck they were doing when they rated so highly so many mortgage-backed securities that are now performing so poorly  leads you to put less than full faith in the assurances of one of them that things won't get worse. Moreover, the fact that Moody's and I happen to agree on that prognostication ought to cause conservative investors to liquidate their stock and bond portfolios and invest in concertina wire, AR-15 ammunition, and an attack mastiff called "Bite Me."

As usual, The Economist has an informative, and witty, analysis of why the rating agencies are being blamed, and puts it all in perspective with a closing bon mot.

“Securitisation,” says Avinash Persaud of Intelligence Capital, a financial adviser, “has meant that credit risks have moved from knowledgeable, long-term hands, to fast hands, where the principal risk-management strategy is to sell before prices fall more”. Working out who has won and who has lost in this round will take a long time.

Now, if we can just keep all the lemmings from marching off a cliff until all this has been "worked out."

The Rich (And Smart) Get Richer

Today's The Wall Street Journal "Heard on the Street" column speculated that "The Oracle of Omaha" may be coming to the rescue of Countrywide Financial, or, at least, to the rescue of its major assets.

These are happy days for Warren Buffett.

"I can spend money faster than Imelda Marcos when things are right," he says, referring to the former Philippines first lady and renowned shopper.

For the past three years, Mr. Buffett's traditional bargain-hunting investment strategy has been partly stymied as debt-fueled private-equity funds and hedge funds drove asset prices out of his value-investing orbit.

The result: Today he's sitting on a war chest of nearly $50 billion in cash.

Now, with the shakeout in the subprime-mortgage market forcing the end of easy money and the distressed sale of assets -- such as Thornburg Mortgage Inc.'s sale yesterday of $20.5 billion of its top-rated mortgage-backed securities -- many see Mr. Buffett, the 76-year-old chairman of the giant Berkshire Hathaway Inc. holding company, as one of the last buyers standing.

[...]

Some investors speculate Berkshire could be a buyer for parts of mortgage lender Countrywide Financial Corp., whose stock price has been hit hard by subprime worries. Countrywide's assets, including its debt-servicing business and its portfolio of high-quality mortgages and mortgage-backed securities, could be attractive to Berkshire, these investors say.

[...]

Investors are betting that he's likely to swoop in and make some good calls. While the Dow Jones Industrials Average sank last week, Berkshire's normally steady shares rallied. The Class A shares gained $2,200, or 1.9%, yesterday in 4 p.m. composite trading on the New York Stock Exchange to $120,700, up 8.2% since Aug. 10 and 9.7% higher in the year to date.

"This is Berkshire Hathaway's market," says Thomas Russo, partner at investment fund Gardner Russo & Gardner, where he manages about $3 billion. Mr. Gardner, also a longtime investor in Berkshire, says Mr. Buffett should be able to cherry-pick from a variety of cheap assets.

Countrywide doesn't respond to such rumors, so there's no telling what the powers that be at that firm really think about this speculation. Personally, unless the credit markets have truly lost their minds, I think that Countrywide should weather this storm. I don't own any of their stock, so I've no skin in the game either way. It's simply that the company appears to be well run and suffering from a temporary bout of insanity in the credit markets inflicted by the usual pack of lemmings that inhabit the stratosphere of this country's financial system. What a pack of maroons...

Speaking of skin in the game, it's apparent that the OTS has plenty of it in the game, and is keeping a close eye on it, at least that's the story in today's American Banker (paid subscription required).

Countrywide Financial Corp. said its thrift's deposit gathering has not declined and that withdrawals last week were higher than usual but still not "significant."

On Monday the thrift took out full-page ads in The New York Times and other newspapers reassuring consumers that problems in the mortgage market "do not impact the safety of FDIC-insured deposits." The ads followed news reports last week of customers lining up at Countrywide offices seeking to withdraw funds.

[...]

Dow Jones reported Monday that the Office of Thrift Supervision had beefed up its on-site oversight of Countrywide's thrift. Asked about that, OTS spokesman Bill Ruberry said the agency had not added any personnel at the thrift. "OTS has been on-site consistently at Countywide since the institution converted to a thrift charter in March 2007," he said. "That has not changed." Last week the Calabasas, Calif., company said it would be funding "nearly all" its loan production through the thrift by the end of next month.

Countrywide's federally-chartered thrift is huge (by thrift standards) and, like Wamu, has OTS examiners sticking to it like Lindsay Lohan's nose to a line of coke. That's one of the reasons why I would be surprised if Buffett took control of the entire holding company, as opposed to purchasing some of its assets. Warren's reputation is that of a very polite and self-effacing man, but I just can't see him having the patience to deal with  banking regulators. No offense intended, but conversations between Buffet and bank regulators concerning any business-including the thrift business-would be like St. Thomas Aquinas discussing theology with Ryan Seacrest.  Even if it was possible, what's the point? I don't think they'd understand Warren even if he delivered his advice as Garrett Morris delivered the news to the hearing impaired on the old Saturday Night Live show: shouting loudly and slowly.

Then again, stranger things have happened.

UPDATE (8/22/07): If Warren is "hot on" Countrywide's assets, he'd better not dally. Bank of America appears to be bailing Countrywide out with a $2 billion investment in the form of convertible preferred stock. A smart move by Bank of America, for a lot of reasons, especially if you believe that the market is underpricing Countrywide significantly.

Crime Does Not Pay?

"I think crime pays. The hours are good and you travel a lot."
--Woody Allen, Take the Money and Run (1969)

Many crooks agree with Woody, and, in ever-increasing numbers, are attacking banks from without and within. Two blurbs in the August 6, 2007 issue of the American Banker (paid subscription  required) demonstrate the yin and the yang of the current criminal mindset.

The number of hacking attempts against bank systems has risen 81% from last year, according to the security firm SecureWorks Inc.

The Atlanta company said it blocked an average of 1,462 attacks per month against its bank clients in the first six months of this year, a sharp increase from the average number it observed from June to December last year. Attacks against credit unions rose 62%, to 1,799 a month.

"We've seen the number of hackers increase year over year, as more and more criminals realize the money that can be made and the minimal risk they face in perpetrating these crimes," Allen Wilson, SecureWorks' vice president of research, said in a press release Friday.

In most cases the hackers are based in Russia and Eastern Europe, and an increasing number are based in China, Mr. Wilson said. These countries "have large numbers of talented young people who are extremely computer-literate," he said.

And apparently without morals. We've observed this fact so many times that you're likely sick to death of hearing it, but since we're sadists, we'll mention it again: Many of the former Soviet republics appear to be well on their way to becoming (and perhaps already have succeeded in becoming) kleptocracies, run by and for criminals.

Then again, there's that old saw about people living in glass houses casting stones.

Insider fraud is an increasingly complex problem for banks, according to Catherine Allen, the chairman and chief executive of the financial services consulting firm The Santa Fe Group.

Ms. Allen, who until May was the CEO of BITS, the business strategy and technology division of the Financial Services Roundtable, said insider fraud now appears to be linked to organized crime more often and has become one of the top concerns of the bank executives she talks with.

In many cases insider fraud takes place within 30 days of the employee's hiring, and can last as much as 18 months before it is discovered, Ms. Allen said.

That this became such as stark problem so fast "tells me that there's a lot more going on internal to organizations than we're hearing about in the press," she said Thursday at an executive summit in New York hosted by BSI Inc., a Reston, Va., technology standards management company.

In recent years insider fraud has been perpetrated less by opportunistic employees and more by people who were planted within a financial institution by a criminal group, Ms. Allen said.

"Internal fraud is increasingly gang-related," she said. "It's people who are placed in the organization" with the intent of gaining access to information.

She said the problem will only get more widespread and harder to detect. "The sophistication of the bad guys is increasing drastically because the money is there."

I wonder if, when the yearned-for Sopranos movie is finally made by David Chase, one of the themes will be young Anthony Soprano being hired by the IT department of a large bank, where he proceeds to  engage in a complex scheme to loot the bank through the use of electronic transfers of cash to Uncle Syl's Cayman Islands bank accounts. As long as fifteen to twenty people also get "whacked," it might be "boffo box office." At least bankers, here and in Russia, will be able to relate.