Bank Lawyer's Blog

Another Chapter In The Horror Story Known As "Due Deliberation"

Regular readers may recall the Sturm und Drang that accompanied the introduction earlier this year of the Financial Institutions Examination Fairness and Reform Act, a bi-partisan effort to introduce the virus of due process into the examination process. Federal financial institution regulators had a veritable cow over the prospect that the Fifth Amendment might impede their ability to do what they want, when they want, and if you don't like it...tough nuggies.

A couple of months ago, some legislators on both sides of the aisle got another bee in their bonnets and tried to pull a similar fast one on the bank regulators in the form of the Independent Agency Regulatory Analysis Act. That heinous concoction would subject bank regulations to considerations that apply to other federal regulations, a prospect that caused projectile vomiting across the FI regulatory spectrum (paid subscription required).

The legislation would authorize the president to require all independent agencies to take up to 13 additional steps before proposing a rule, including measuring its costs and benefits. The bill could face a mark-up in the Homeland Security and Governmental Affairs Committee in the lame duck session following the Nov. 6 elections.

But in a letter obtained by American Banker, financial regulators warn that the bill would transform the role of independent agencies and undermine their authority.

"This would give any President unprecedented authority to influence the policy and rulemaking functions of independent regulatory agencies and would constitute a fundamental change in the role of independent regulatory agencies," says the Oct. 26 letter to panel chairman Joseph Lieberman, I-Ct., and ranking member Collins.

The letter was signed by Federal Reserve Board Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro, Comptroller of the Currency Thomas Curry, Federal Deposit Insurance Corp. Acting Chairman Martin Gruenberg, Consumer Financial Protection Bureau Director Richard Cordray and National Credit Union Administration Chairman Debbie Matz.

"Beyond injecting an administration's influence directly into our rulemaking, the bill also would interfere with our ability to promulgate rules critical to our missions in a timely manner and would likely result in unnecessary and unwarranted litigation in connection with our rules," the letter says. "We urge you to consider the potential negative consequences of this bill before proceeding with it legislatively, and would be happy to discuss it in more detail at your convenience."

Consumer adovacy groups also waxed apoplectic and apocalyptic.

"This bill would undercut the ability of independent federal agencies like the Consumer Financial Protection Bureau, the Consumer Product Safety Commission and the Federal Trade Commission to protect consumers from predatory financial schemes, dangerous consumer products and costly, anti-competitive practices," the groups wrote in a Sept. 13 letter.

"Most significantly for consumers, S. 3468 imposes duplicative and time-consuming requirements on independent agencies to conduct cost-benefit analyses of proposed protections."

Gee, I can see how everyone would be concerned about "duplicative and time consuming requirements" putting a speed bump in the fast lane to burying banks and credit unions under thousands of pages of mind-numbing, soul-crushing, pocketbook-draining regulations.

Senator Portman, one of the bill's principal sponsors, is buying none of the blowback.

"Independent agencies exercise vast power over major sectors our economy — from telecom, to agriculture, to financial services — but they are exempt from commonsense requirements including cost-benefit analysis of major regulations to ensure they do more good than harm," Portman said in an Aug. 1 press release.

"This bill would close the loophole for independent agencies by authorizing the president to bring them within the same regulatory review framework that applies to other agencies. This is a bipartisan, consensus reform with broad support, and it will promote a more stable regulatory environment for economic growth and job creation."

Subjecting bank regulators to the same standards that other federal agencies must abide by? How radical!

Notwithstanding its "broad, bi-partisan support," the chances of it being enacted are slim to none, this session. However, bills like this are laying down markers for 2013. Let's hope that by that time, we have a White House and Congress that won't listen to Chicken Littles in the regulatory arena.

Helping The Pendulum Swing Back

Last night's post prompted a thoughtful response from Tampa, Florida attorney Paul Phillips. Because I thought they offered insights that I found to be valuable, and because it allows me to drink Shiner Bock instead of blogging, I'm posting the gist of his observations as tonight's post.

Although I am now on my 10^th administrative enforcement action against federal banking regulators, and 2^nd against state – in the last three years -  I am inclined to agree with your position. The regulators can have long memories and exact retribution; however, when they are made aware of the fact that they are acting arbitrarily and capriciously, you would be surprised how they react even without the influence of the courts. The discovery phase becomes very useful in leveling the playing field.

I have seen examinations with so many redlines – all done at the regional office level – that it looks like someone cut fish on the report. These changes effectively rewrite  entire examinations. I have seen emails that verify – what most already believe - that asset quality is ENTIRELY based upon the ACA ratio without regard for ALLL levels or collateral protection. Even worse, I have seen “secret agency laws” that direct examiners to have Management ratings match the composite rating no matter how culpable management is for the bank’s problems (and those directives came from ARD’s and RD’s). When this type of information is produced in discovery, the true picture is made clear to both sides, which can alter the regulators attitude significantly.

Bottom line, there is an in-between. When bank management gets one story from the examiners, who are on the ground at the bank and diligently review the bank’s condition, and then regional officers and case managers, who have never step foot in the institution, change these determinations using ratio analysis and other quantitative assessments…well, perhaps it is time to stand up and find out where the disconnect occurred. Most bank officers and directors are stunned when a report of examination does not match what they were told at the exit exam; and many more are insulted when their management ratings are a reflection of the asset quality and not what management has done through this recession to keep the bank well capitalized.

The pendulum does not swing back without a little push.

Points well taken. I rarely urge institutions to assume a supine position vis-a-vis the regulators, and Paul reminds us that quite often "push back" is justified. My point last night was that there are ways to push back that don't involve digging a hole of hostility that you can't leap out of. I'm sure Paul would agree.

Martyrdom Postponed

One of my quirky "Super Seven Lessons" for officers and directors of financial institutions about which I spoke to NAFCU compliance officers and attorneys last week in Seattle, is a line made famous by Winston Churchill: "Although prepared for martyrdom, I preferred that it be postponed."

What I'm referring to is the suicidal tendency of some bank executives I've encountered over the years to think that they can respond to what they believe to be "provocations" by their federal or state regulators with open hostility, even a "jihad of snark." While guns-for-hire like the author of this blog may have a certain latitude to crack wise, I never recommend that officers and directors follow suit. For one thing, the bargaining positions are not equal, especially in cases where the financial institution may be having actual financial difficulties, and regulatory criticisms, such as those found in reports of examination, are, to some degree, either justified by the facts or at least arguably sufficient to pass the laugh test. The regulators have a large toolbox full of pain that they can whip out and employ to make a management team and board of directors miserable for months, even years, to come. To the contrary, unless the regulators are acting in a fairly obviously arbitrary and capricious manner, the courts are going to defer to them, and the institution is unlikely to prevail in a legal challenge.

Moreover, I think that regulators can possess the memories of elephants. Even if they allow you to escape the axe today, they can nip and scratch at you over an extended period of time, worrying you with criticisms small and large. You can die from a saber thrust through the throat, or you can slowly bleed to death of a thousand tiny cuts. It can be decades before your supervisory personnel are ready to retire on their government pensions, by which time you might have long ago taken up basket weaving to distract you from the voices screaming in your head.

That is not to say that a banker ought to be obsequious or back down when important issues are at stake. Rather, it's a matter of style, and a matter of picking your shots. I simply see no future in open hostility with your regulator except as a last resort (and then, of course, you must "unleash the hounds."). Those instances ought to be rare. In all other circumstances, maintaining rigid self-control and rising above those on the other side of the table is likely to prove the better course.

In other words, don't treat your regulator the way I treat them on this blog.

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I realize that many of my regular readers are hunkering down for the next few days and concentrating on withstanding the storm of a lifetime. My thoughts and prayers are with you all.

A Change In The Wind

According to WSJ reporter Jennifer Smith (paid subscription required), financial institutions and other business clients have had it up to their earlobes with being nickled-and-dimed for pass-through "soft costs" by their outside law firms. They're mad as hell, and they're not going to take it anymore.

Invoices for food, photocopies and legal research—items that once were rubber-stamped by companies—are drawing howls. As for charges for first-class flights? Clients are simply saying, "No more."

Some routine costs, such as an attorney's cab fare to the courthouse, are minuscule compared with the huge sums lawyers bill for work on complex mergers or lawsuits. But other items, such photocopying, often pile up and can amount to millions of dollars a year for some big companies.

Clients are making lawyers squirm by making them accountable. How unreasonable!

Often, in-house attorneys are asking law firms to justify the charges. "We're a big corporation, we have pretty deep pockets," says Jordan Kanfer, an in-house lawyer who until Friday was general counsel for the T-Systems North America unit of Deutsche Telekom AG. "You're paying a partner $800 to $1,000 an hour and they're charging you because they ordered sushi."

Mr. Kanfer has signed on for a post at Nippon Telegraph & Telephone Corp. It "drives me insane," he says, to go to a meeting at an outside law firm and get billed for the food.

Personally, someone would have to pay me to eat sushi, but if scarfing raw fish and seaweed floats your boat, and you're paying the Full Monty of my hourly rate, you're welcome to belly-up your gullet to my all-you-can-eat Neptune's buffet 24/7/365 and graze gratis.

As a former in-house counsel, it warms the cockles of my shriveled, black heart to see corporate clients finally clamping down on other tricks of the trade.

Companies that make their own employees fly coach also expect their lawyers to do the same. Business class may be allowed for some long-distance flights. But attorneys who ride at the front of the plane often end up there thanks to their own frequent-flier upgrades.

Also, many clients no longer permit attorneys to charge their full hourly rate for travel time.

"We'll pay half of your time, either coming or going," says Christine Helwick, general counsel for California State University—assuming at least some legal work is performed en route.

I once had a large financial institution client who caught a big law partner billing over 24 hours of travel time to the institution for one calendar day. They asked him if he had crossed the International Date Line going west-to-east. They also fired him and his firm. Sometimes, honesty actually is the best policy, as hard as that might be to realize when your relativistic world is all about "spin."

Clients started clamping down on legal bills more than a decade ago, and the approach gained popularity as the economy tanked. Today, many in-house lawyers view back-office charges with increased skepticism. A poll of 64 law firms this year by Mr. Mattern's firm, Mattern & Associates LLC, found that 80% of respondents had clients who balked at paying for legal research and 69% said they had clients who simply wouldn't pay at all.

"We say, 'Overhead is overhead, and that's part of your cost of doing business,' " says Jeffrey Carr, general counsel at oil-services equipment supplier FMC Technologies Inc., which uses alternative billing to reduce outside legal costs.

"Overhead is overhead." That sounds a mantra to reduce overhead, doesn't it? Welcome to the brave new world your financial institution clients inhabit, counsel!

There's one more trend discussed by Ms. Smith that ought to be of interest to business consumers of law firm services: billing inexperienced attorneys, who sometimes have been known to be...well...inexperienced, at rates that are sometimes as high as those charged by senior attorneys at much smaller, less overhead-burdened firms.

[S]ome companies do object to paying for inexperienced junior lawyers, reasoning that the law firms should bear the cost of training first- and second-year associates.

I wonder if the paradigm shift that has been coming in the way legal services are delivered and compensated will be implemented with relatively minor pain or a whole lotta' hurt? Knowing how receptive to change and how proactive most lawyers are, I expect the latter.

Drive-Bys: Not Just For Gang-Bangers

Colorado attorney Jennifer Gokenbach sounds a warning of a phenomena we've seen not only in Colorado, but in other states, including Texas: the dreaded ADA Public Accommodation “Drive-By” Lawsuit. She alleges that "since April of this year, 20 lawsuits (and counting) have been filed against Denver area businesses by the same Plaintiff who is represented by the same two attorneys from Florida, for alleged violations of Title III of the ADA, including things like lack of ramps, narrow doorways, missing signage, doorknobs that can’t be opened by a closed fist, and misplaced soap dispensers and coat racks."

I should add that such ADA-related claims have also been filed against banks in a number of states, usually alleging that the bank's ATMs or branches don't comply with Title III of the Americans With Disabilities Act.

Ms. Gokenbach explains the gist of these lawsuits.

The problem with these cases is that the vast majority are not situations where a disabled individual truly felt discriminated against and sought out an attorney to help redress an injury due to a lack of accommodation. Instead, it is the lawyers who hire investigators to identify local businesses that are not in technical compliance with the ADA, and then recruit plaintiffs from disability advocacy groups to serve as the front person. The investigators take pictures and build the case while the plaintiffs merely “drive by” the establishment, without any honest intentions of ever servicing the establishment.

Once the boilerplate suit is filed, questionable litigation tactics are then employed, such as serving immediate discovery in violation of the rules, asking the courts to order the parties to a settlement conference to force a quick settlement, and refusing to accept agreements or assurances of ADA compliance without monetary payments, even though the ADA itself does not allow damages to be awarded to plaintiffs (the ADA allows only injunctive relief and attorneys’ fees).

Yes, that's right: "even though the ADA itself does not allow damages to be awarded to plaintiffs," the plaintiffs are trying to squeeze money out of the banks and other businesses. In many cases, defendants, looking at the matter strictly from a cost standpoint (since paying litigation attorneys to defend you can quickly cost more than paying off the plaintiff and his or her attorney) decide to close their eyes, hold their noses, and consider a relatively small monetary settlement a nuisance cost. However, other defendants decide they want to make the point that they're mad as hell and they're not going to take it anymore. After all, if you buckle under the wings of the first vulture to land on you, can others be far behind?

Ms. Gokenbach asserts that those businesses that decide to stand up to the shakedown have plenty of ammunition to bring to the gunfight. In addition to advising businesses to check with an insurance professional to determine whether they are covered against such claims (or, if not, if they can get coverage for future claims), she notes that "in some cases, where business owners decide to fight back, courts have dismissed the suits, sanctioned the plaintiff’s attorneys for unscrupulous litigation tactics, and/or awarded attorneys’ fees to prevailing business owners." Of course, each fight-or-flight decision has to be made on the facts of the individual case, as well as on the defendant's appetite for engaging in butt-kicking contests with butt-heads. Nevertheless, rolling over and forking over cash is not the only alternative when hit with a cookie cutter drive-by.

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I'm speaking at, and otherwise haunting, the annual NAFCU Regulatory Compliance Seminar this week in Seattle. Therefore, I'll be off the air until next week. If you're attending the conference, and aren't enraged by either of my presentations tomorrow, or otherwise offended by my blogging or the fact that I represent commercial banks, feel free to say hello. I generally don't engage in concealed carry when I travel, so chances are. I won't be strapped.

What's A "Reasonable" Investigation?

Troutman Sanders released an informative advisory concerning a recent US Sixth Circuit Court of Appeals decision that overturned a district court's grant of a motion for summary judgment in a lawsuit filed by a consumer against USAA Federal Savings Bank that alleged that USAA had violated the Fair Credit Reporting Act. The plaintiff is a consumer who claimed that he was not a co-obligor on a delinquent automobile loan made by USAA and who  provided USAA "with documents showing that his ex-wife forged his name on a check, purchased the car while they were separated, and later signed a separation agreement confirming she was solely responsible for the loan payments."

The FCRA requires a creditor to conduct a "reasonable investigation" into the disputed information. According to deposition testimony of a USAA employee, "USAA’s procedures prohibited consulting documents from a consumer’s file – including the allegedly forged check – before responding to a dispute notice from a CRA. Instead, the employee testified that the company’s procedures only require a cursory verification of his identify and confirmation of the loan’s status before responding to a CRA dispute notice." USAA demanded that the consumer furnish USAA with a police report or fraud affidavit, and when he refused to do so, USAA made no further information. Instead, when contacted by major credit reporting agencies about the dispute, USAA responded that the consumer was a co-obligor.

According to Troutman Sanders, the Court of Appeals found that "simply following standard company policy will not excuse furnishers [of credit information to credit reporting agencies] from their obligations under the Fair Credit Reporting Act to conduct investigations into the accuracy of reported information, nor insulate them from punitive damage claims for recklessly disregarding the statute’s requirements. Even if a consumer refuses to provide a police report or a fraud affidavit, this does not excuse a furnisher from its obligation to conduct a reasonable investigation because section 1681s-2(b) does not permit furnishers to demand further documentation from consumers."

Of particular note, the Court of Appeals ruled that “the mere existence of a company policy does not resolve the inquiry into the reasonableness of its investigation.” The Court noted that section 1681s-2(b) does not allow “furnishers to require independent confirmation of materials contained in a CRA notice of dispute before conducting the required investigation.” And, in this case, [the plaintiff] was not notified of USAA’s standard procedure to require consumers to provide a fraud affidavit or a police report before it will conduct further inquiry into a disputed claim until after USAA had responded to the CRAs that the information was accurate as reported.  Therefore, the Court came to the conclusion that the consumer’s refusal to comply with this company policy could have not had any effect on the already completed investigation.

Lenders are advised to review their policies and procedures with respect to investigations of disputed information that has been reported to credit reporting agencies. I suspect that USAA is not the only financial institution that, when a similar allegation of fraud is made by a consumer, requires a fraud affidavit, a police report, or similar documentation to be furnished before it takes the allegation seriously. According at least one federal court of appeals, that is not a proper fulfillment of the lender's duty to conduct a reasonable investigation. While a jury may ultimately decide whether or not in this case USAA made a "reasonable" investigation, based on the facts set out in the advisory, and the alleged failure of USAA to even look at the information submitted by the plaintiff (including evidence of the forged check), I wouldn't count on a favorable outcome.

Bair Bares Her Big Bear Claws

While I often enjoy Larry Doyle's Sense on Cents blog, I think he got it wrong yesterday when he speculated that the lambasting Sheila Bair gave Vikram Pandit in her recently released book "Bull by the Horns" was the precipitating cause for Pandit's recent ouster by the board of Citigroup. The only "bull" in that book is the prairie-load of cow pies dropped by Ms. Bair in every page. Most bankers hold Sheila Bair in the same high esteem that they accord Liz ("Spouting Bull") Warren. Her consistent Pandit-bashing over the last few years hasn't done anything to influence commercial bankers to do more than grab the Tums every time they hear her yap.

The Wall Street Journal seems to have nailed the story more accurately.

Mr. Pandit's resignation came after a series of missteps this year left some directors feeling that the company wasn't being managed effectively and that the board wasn't kept adequately informed, according to the people. Citigroup shares dropped 89% over Mr. Pandit's tenure, and the company was hit this year by a shareholder revolt over executive pay, by the Federal Reserve's rejection of its plan to buy back stock and by a $2.9 billion write-down of a brokerage joint venture with Morgan Stanley.

Then again, The WSJ is relying on knowledgeable sources with actual banking expertise. That's more than can be said of Bair.

Bair's screeds against Pandit started years ago. As we noted at the time that Pandit cussed her out in a 2:00 am telephone conference call in the fall of 2008, when the FDIC double-crossed Citi and sold Wachovia to Wells Fargo, Sheila was acting like a child who got her feelings hurt.

No wonder Ms. Bair and her coven are looking to stir up a witches brew of payback and whoop-ass on Pandit and his crew. They were mean to Sheila and then, after a lot of time went by, they begged for forgiveness and asked Sheila to take them back. Anyone who's ever witnessed puppy love gone sour knows that the girl will NEVER take the boy back until she makes him suffer like the gnarly, cruel, hateful, and really, like, SPASTIC bully he is. Or until he apologizes sweetly, buys her a Kobe Bryant-like 6-carat rock for her ring finger, and, like, promises never to do it again, cross his heart and hope to die.

What we have here is not simply a failure to communicate. What we have here is the federal government run by a bunch of high school kids.

Even usually sympathetic sorts like Felix Salmon find Bair's book a bit much.

Bair has always come across as someone with a bit of a persecution complex: she has a tendency to think of herself as the sole defender of what is good and true, even as the rest of the government allows itself to get captured by the rapacious financial services industry. And of course there’s some truth to that: she’s absolutely right that the OCC, in particular, was an utterly toothless regulator which could always be relied upon to do whatever was wanted by the banks it was supposed to be regulating.

But it’s really not helpful, let alone accurate, to ascribe malign intent to any and every public servant you disagree with. Bair had a relatively narrow job — to make sure that banks didn’t fail, leaving her FDIC on the hook for untold billions of dollars in deposit guarantees. She fought her corner aggressively. But other people, including Ben Bernanke and Tim Geithner, had different jobs, and looked at the decisions being made, especially during the crisis, in different ways.

John Talton of The Seattle Times has even less patience with Ms. Bair's petty penchant for payback.

I want to read her chapter on Washington Mutual. It was Bair who most insisted on closing the 119-year-old institution and handing its substantial good assets and branch network over to Jamie Dimon of JPMorgan Chase. Bair and the other bigs in D.C. were curiously uncurious about the rumors and short-selling the brought on a bank run at WaMu and make its rescue much more problematic.

For somebody who casts apparently casts herself as the foe of big banks, she helped the biggest get bigger still. An opportunity was lost to preserve the "good" WaMu as an independent institution and prevent further consolidation. The charitable answer is that Bair was only looking out to keep the FDIC fund safe. Even so, bad call. She could be a scab official in the NFL.

I still receive occasional emails from bitter WAMU holding company shareholders who wax vitriolic about Bair (and Jamie Dimon, to boot). Many in the Pacific Northwest are not Bair fans. Talton's last line is a keeper, by the way.

The most damning indication that the Care Bair is not the sort of pundit to influence a bank's board is the news today that Bair has endorsed 1/32nd Cherokee Princess Elizabeth Warren for the US Senate.

"For the life of me, I do not understand why they vilify her so," Bair said. "I've never seen her as that far out there on financial issues. I don't see that at all. She understands the bank business model. She wants to protect the consumer—what's wrong with that? I think this fear of her is misplaced."

"For the life of you," I do understand why "they" (bankers) vilify Warren, Sheila. It's for the same reason they vilify you. You're both their mortal enemies, notwithstanding your all your doublespeak to the contrary.

So, Larry, I sincerely doubt that the release of Ms. Bair's rants had much to do with Pandit's departure, notwithstanding the timing of the book's release and Pandit's ouster. You might have as much luck tying Pandit's resignation to Sunday's massive solar flare. On occasion, timing is nothing more than coincidence.

Taking Social Media Access "Personally"

Professor Eric Goldman is an astute observer of the legal risks of both using social media and of trying to regulate its use. One of his most recent commentaries in Forbes concerns a new California law that restricts an employer's right to access an employee's "personal social media accounts." Professor Goldman thinks that, while the impetus for the legislation may be admirable, the execution is a pile of bat guano.

Superficially, both laws sound like a good idea.  It’s ridiculous to force people to disclose social media content if they don’t want to do so; not only can that violate the accountholder’s privacy, but it can violate the privacy rights of innocent third parties.  Demanding access to a social media account can be just as invasive as demanding access to an email account, something we all already knows is off-limits.

Still, new legislation is a blunt tool, and it’s not the right solution to every problem.  In this situation, California’s new laws create two problems, one big and the other bigger.

The "big problem" is that the law too broadly defines "social media." Here's the definition:

“social media” means an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.

To say that definition is "overly broad" is a gross understatement. As Goldman observes, that breadth is sure to have "unintended consequences."

In other words, the law governs effectively all digital content and activity, both on the Internet and stored in local storage devices, not just social media.  After all, what digital resource isn’t “an electronic service or account, or electronic content”? 

Here's the "bigger problem": the law restricts an employer's access to "personal" social media, but doesn't define "personal."

Thus, the law assumes that social media accounts have only two states: personal or not-personal. Sadly, that’s completely contrary to the cases I’m seeing in court right now. Instead, social media accounts fit along a continuum where the endpoints are (1) completely personal, and (2) completely business-related–but many employees’ social media accounts (narrowly construed, ignoring the statutory overbreadth problem) fit somewhere in between those two endpoints. Indeed, employers and employees routinely disagree about whether or not a social media account was personal or business-related.

So, while it's advisable, even imperative, that an employee "cough up" his access information for business-related social media accounts, the employer may be unintentionally violating state law if it asks for those credentials and the employee can make a case that the account is "personal." Goldman cites several cases where employer and employee are slugging it out in court right now over the business/personal dichotomy. While trial lawyers might regard this ambiguity as a good thing, the rest of us consider it a pain in the "personal" nether regions.

Goldman asserts that this confused state of affairs is par for the course.

Speaking for myself, I always assume that a state legislature trying to “fix an Internet problem” will botch the job. After all, state legislatures have a virtually unbroken history of poorly designed Internet regulations.

Change "state" to "federal" and "Internet" to "financial institution" and you have Dodd-Frank.

Those of us who do not live in California might chalk this up to the typical dysfunctionality of life in the land of fruits and nuts. Unfortunately, other states are adopting similar laws. Legislators can't help themselves. Screwing up the lives of their citizens, and especially those ctizens who attempt to conduct business, is what they do. It's embedded in their DNA. As in many areas, The Golden State sheds a light on America's future.

Thank God for Shiner Bock...

Bankers Give Maxine A Big Hug

I deliver an offhand insult about Maxine Waters, the California congresswoman who has had a bad feeling about banks (other than the one in which her husband had an ownership stake) since back in the days when Julius Caesar haunted the dreams of the Gauls, and the very next day I discover that for the last year (or more), she's been reaching out to grab some big luuuuv from big banks and the men who man them.

Maxine Waters and big banks are rarely on the same page.

But as the California congresswoman prepares to become the top Democrat on the House Financial Services panel, she is engaging in an aggressive outreach effort with some of the very institutions that she has heavily criticized for their role in the financial crisis and recent home foreclosure scandals.

From organizing industry roundtables to one-on-one meetings with Wells Fargo's CEO to holding fundraisers targeting banking donors, Waters is opening the door to big banks and Wall Street.

[...]

Despite these efforts, there’s still a ways to go before some in the industry can feel that Waters is just a phone call away, said James Ballentine, the American Bankers Association’s executive vice president for congressional relations and public policy.

“For some folks in the industry, this is the first date with Congresswoman Waters and her office. And I don’t think relationships are built over a first date,” Ballentine said. “I think she realizes that there’s outreach that’s needed from her and her office to the industry. ... And I think a firm recognition from the industry standpoint is that you get little done by ignoring the person that’s in the chair or the ranking position.”

I would suspect that a "first date" with Ms. Waters might be like a "last date" with Freddy Kreuger. The slicing and dicing would not be confined to the preparation of the Caesar salad. On the other hand, John Stumpf apparently has a strong stomach, because he's occasionally been starting his day with a bowl of Wheaties and a side order of bloviation.

The California lawmaker has also developed an unlikely friendship with Wells Fargo CEO John Stumpf. The two met last year when Stumpf unexpectedly dropped by her office and they struck up a friendly conversation for about 30 minutes. That turned into periodic conversations about financial services issues.

Waters's chief of staff Mikael Moore said they have developed a "respectful relationship" and also recently had breakfast.

For those who might not regularly read this blog, Moore recently got his hands slapped by the House Ethics Committee for engaging in inappropriate contacts with regulators on behalf of a savings bank in which Waters' husband owned stock. I'm certain that his sense of what constitutes a "respectful relationship" is finely honed.

Politico notes that the recent get-togethers by Waters, her staff, and bankers, may have a motive that is a common one at the federal legislative level: the need for cash.

The charm offensive comes as Waters's fundraising duties will increase sharply next cycle. Waters has made a commitment to make a significant contribution to the DCCC in the next two weeks, according to Moore.

The pressure for her to increase her financial contributions to fellow Democratic lawmakers and the party committee will only intensify next year.

[...]

Waters recently held court at a fundraiser hosted by the lobbying shop Elmendorf Ryan that had a who's who of financial services reps in attendance, including from Goldman Sachs, Bank of New York Mellon, JPMorgan Chase, Bank of America and the Investment Adviser Association.

Well, now, that all puts a patina on the whole affair that makes it positively shine, doesn't it? Maxine needs money and the bankers have money. It all makes perfect sense.

"Outreach," Waters style! As one snarky commenter to the linked article put it, "When Maxine puts out her hand, she's expecting to have something put into it; usually money."

Moving Right Along

This is the last post I intend to make (for the time being) on the subject of the NCUA's use of the "low income" credit union designation to permit credit unions who qualify for the designation to make business loans in excess of the 12.25% of assets cap. In my last post, I offered any representative of a credit union trade association the opportunity to respond to the comments of Dr. Keith Leggett of the ABA that were featured in that post. While a trade association official did not respond, a couple of credit union attorneys did, and I've arbitrarily chosen the comments of Hal Scoggins of Farleigh Wada & Witt in Portland, Oregon, to post. Here they are:

It's a bit odd that while Dr. Leggett is fierce in his desire to see credit unions strictly adhere to the 12.25% MBL limit prescribed by the Federal Credit Union Act, he is less keen on following the plain language of the Act when it says that the determination of "serves predominantly low-income members" is "as defined by the Board."  I don't disagree that the NCUA seems to want to give credit unions every opportunity to obtain the low-income designation.  But if a credit union is predominantly serving members with median household incomes of about $40k or less (the national median family household income as of December 2011 was about $51k), it would seem that the ABA should be happy that the credit union is serving the niche that the ABA always says credit unions should stick to. 

 And it's not like low income designated credit unions are free to make MBLs without limit.  A review of the NCUA's concentration risk policy requirements should make that evident.  Further, no matter what the regulations may officially permit, credit union examiners are prone to throw up roadblocks to huge member business loan concentrations in any credit union, because anything that actually earns income for the credit union is obviously much too risky and should be avoided (or severely restricted) at all cost. 

Finally, no matter how many credit unions (including some "big" ones) get low income designations, the fact is that credit unions are still just a small cupfull of water in the financial institution bucket.  As of 12/31/11, total CU assets in the US were just over $1 trillion.  Wells Fargo by itself has more assets than that.  Is the magnitude of the credit union "threat" really that great for banks?

I don't intend to make this blog a continuing forum for the debate about this particular issue, but I wanted to honor my commitment to post a response from someone connected to the credit union industry. Having done so, I'll feel free to move on to other areas on which to focus my snark. After all, I've wasted almost four days without commenting on everyone's Crazy Uncle Joe's maniacal performance in last Thursday's vice presidential debate, and such snark fodder usually surfaces only when Maxine Waters or Barney Frank opens a pie hole to emit gaseous effluvia. I need to pick such low hanging fruit before it over-ripens, which usually means before Saturday Night Live gets a chance to lampoon it, which it did in fine fashion last night.

If credit union and commercial bank representatives want to carry on the war, they'll have to change battlefields. This one is played out.

Speaking of Saturday Night Live...