This is the inaugural edition of the eNewsletter for the Banking Law Committee, and warmest thanks need to be extended to Chris Bellini, Editor, and to Peter Heyward, Tom Vartanian, Charlotte Bahin, and Ray Natter, his intrepid columnists, for pulling together the handsome and entertaining inaugural edition.  So far, they are all protecting their sources and none has been threatened with serious time in jail -- a little “inside the Beltway” humor during the Dog Days of August. 

There are many ways to be involved in the Banking Law Committee’s activities.  Many members of the Committee chose to attend the Fall, Spring, and/or Annual Meetings and appreciate the quality and depth of the information that is shared at our Programs, Committee Forum, and Subcommittee meetings.  We are justifiably proud of the high level of programming that the Committee regularly sponsors, especially our “crown jewel” Fall Meeting usually located near the Washington, D.C. metropolitan area to permit the participation of many senior members of the Federal banking agencies. 

The purpose of the eNewsletter is to communicate with the members of the Committee about reasonably current events between those meetings, and to communicate with those members of the Committee who, for whatever reason, are not able to participate in the meetings as often as they would like to.

The current plans envision publication of the eNewsletter on a quarterly basis while the Editor and his columnists get used to their new responsibilities.  It may be possible to entertain “guest” columns from members of the Banking Law Committee after the Editor and his columnists get all of the “bugs” out of the production system.  Please contact Chris Bellini, cbellini@gibsondunn.com, with any comments or suggestions that you may have about the eNewsletter.

Martin E. Lybecker

Wilmer Cutler Pickering Hale and Dorr LLP

2445 M Street, N.W.

Washington, D.C.  20037

(202) 663-6240

martin.lybecker@wilmerhale.com

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There is an obvious irony in Citigroup’s decision, announced in February, to sell most of its life insurance business, thus largely completing an exit from the insurance underwriting business that began with the spin-off to shareholders of its property and casualty operations in 2002.  Citigroup, as a financial conglomerate combining banking, securities and insurance in a single holding company, had been both the midwife and the most obvious beneficiary of the Gramm-Leach-Bliley Act (“GLBA”), whose enactment in 1999 (as opposed to, say, 2019) was undoubtedly hastened by The Travelers Group’s bold acquisition of Citicorp the year before.  Pared down essentially to banking, securities and insurance agency activities, Citigroup could have operated under the pre-GLBA bank regulatory structure, albeit with some inconvenience. 

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For the past several years, legislation to reduce regulatory burden in the financial services industry has been repeatedly bogged down by a controversy involving a little known type of financial intermediary – the “Industrial Loan Company” or “ILC.” These institutions represent one of the few remaining methods by which a commercial company may own an insured depository institution, and efforts to exclude these companies from more general regulatory relief legislation has rekindled the debate over mixing banking and commerce.  In part this arose from a proposal made by Wal-Mart in 2002 to charter a new ILC in California, and use this institution to provide financial services in its stores. This article will review the history and current legal status of industrial loan companies.  

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Ever easier access to electronic information systems has fueled an explosion of new products and services available at remote locations via the Internet.  Sophisticated transactions are no longer confined to the back office.  This dependence on remote access to electronic information systems requires a compromise between accessibility and security, since the very process of making a system widely accessible will lessen its security.  From a legal perspective, information security principles and best practices are discerned from regulatory guidance and legal precedents as to the proper course to follow in counteracting information security threats. 

What Are the Threats to Information Security?

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Introduction

With increased frequency, the confidential personal information of customers of various entities has been compromised. Generally, the breaches to date have not involved an insured institution directly, but have resulted from an action or inaction of a third party. Nonetheless, in several well-publicized situations, it is the financial institution with which many customers have contact and to whom they look to for recourse.

In 2003, the federal banking agencies issued a proposal that would interpret Section 501(b) of the Gramm-Leach-Bliley Act ("GLB Act") and supplement the Interagency Guidelines Establishing Information Security Standards (Security Guidelines). This interpretation and supplement is the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice (final guidance).  The final guidance establishes a risk-based framework for financial institutions to develop and implement a response program designed to address incidents of unauthorized access to sensitive customer information maintained by the financial institution or its service provider.

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On May 25, 2005, the Financial Services Committee of the U.S. House of Representatives overwhelmingly approved a bill, H.R. 1461, to strengthen the supervision and regulation of Fannie Mae and Freddie Mac (the “GSEs” or the “Enterprises”).  The bill has engendered some controversy based, in part, on provisions that could be used to enhance the GSE’s competitive position, such as increases in the size of loans that Fannie Mae and Freddie Mac can purchase.  Arguments have also been made that the regulatory and safety and soundness provisions in the bill are too weak, and that these areas of the bill are “worse than current law.”  This article will address this second point only, and will compare the regulatory and safety and soundness authority of the GSE’s current regulator, the Office of Federal Housing Enterprise Oversight (OFHEO) with the authority that would be granted the new regulator, the Federal Housing Finance Agency (FHFA). This analysis demonstrates that the supervisory authority and regulatory discretion granted the new regulator under this bill is much greater than under current law.

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