In the 13 years I have been actively involved with the Banking Law Committee, I have come to appreciate the "traditions" of the Committee.  These include meeting in a hollow square, introductions of all present before each meeting, questions welcomed by any speaker at any time.  I am prepared in introducing our third issue of the Committee's Quarterly Newsletter to declare that it has reached the status of "tradition" of the Committee.  To me that means simply that Chris, Peter, Tom, Charlotte and Ray are are going to make this happen at the same high level of scholarship again and again.  It is becoming our traditional link with that portion of our 1500 members whom we see infrequently at meetings.  I commend these articles to you because for the most part they address topics discussed in recent Committee meetings. 

 

I also invite you to become part of the tradition.  Send Chris Bellini an article.  So that is the assignment.  Please read, ruminate and write.

Jim Scott
Chair, Committee on Banking Law
scottj@citigroup.com

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There's a funny scene in the movie "Ghostbusters," when Bill Murray, as spook eradicator Peter Venkman, responds to a call from client and romantic interest Dana Barrett (Sigourney Weaver), who has reported disturbing supernatural phenomena in her apartment.

When Venkman arrives at her door, it is obvious that Dana is no longer herself: She appears sexily attired in a revealing dress and, drawing Venkman into her bedroom announces: "I am Zuul, the Gatekeeper . . . Do you want this body? Take me now!"

Venkman demurs, explaining: "I make it a rule never to get involved with possessed people." But as Dana, continuing to come on strong, pulls him down on her bed, he allows: "Actually, it's more of a guideline than a rule."

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In 1995 Congress added Section 10A to the Securities Exchange Act of 1934 (“Exchange Act”) as part of the Private Securities Litigation Reform Act (“PSLRA”).1 Prior to the passage of the PSLRA, Congress had left the accounting profession to its own devices when it came to promulgating auditing standards. Congress enacted Section 10A with the intent “to require auditors to blow the whistle on the fraudulent activities of their clients.”2 According to the bill’s chief sponsor, Rep. Ron Wyden of Oregon: “Because the regulators and the [accounting] profession have abdicated their responsibility, we feel it is time for Congress to step in.”3 Although auditors are trained to investigate accounting irregularities, and reveal some types of accounting misconduct, they are not generally trained to detect fraud, especially in the complex world of financial institutions. But in the Post Sarbanes-Oxley corporate environment, the impact of Section 10A is being felt in a number of different ways, and creating greater pressure for internal investigations at financial institutions.

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On October 20, 2005, the Federal Banking Agencies published an advanced notice of proposed rulemaking, or “ANPR,” soliciting comments on proposed changes in the capital rules for banks, savings associations, and bank holding companies that will not be subject to the Basel II framework. The comment period closed on January 18, 2006.

The ANPR was issued in response to industry and Congressional concerns that establishing a separate Basel II capital structure for large institutions and leaving the rest of the industry subject to the Basel I standards could result in competitive disadvantages for the non-Basel II banking organizations. The ANPR is intended to be the first step in the agencies’ attempt to address these concerns, while at the same time making progress in their long-term goal of making capital standards more risk sensitive. The modified capital standard is informally referred to as “Basel I-A.”

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In response to a growing trend by lenders to develop and market and consumers to want mortgage products with nontraditional terms, the federal banking agencies have issued proposed guidance on Nontraditional Mortgage Products. The proposed guidance establishes the agencies’ expectations regarding the assessment and management of the risks involved in these types of products as well as expectations regarding communications with consumers who want these types of loans. As a result of the concerns raised that the issuance of the proposed guidance will have a negative impact on the ability of lenders to continue to offer the mortgage products identified, the agencies have extended the comment period. The agencies have asked a number of questions seeking details about the products, how they are offered and what are their features.

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