This newsletter offers a supplement to the usual fine articles by the "staff" of Charlotte Bahin, Travis Nelson, Tom Vartanian and Ray Natter. Joseph Vincent, General Counsel of the Washington State Department of Financial Institutions, becomes our first guest author as he explains the Washington Business Development Act of 2006, a unique response of the State of Washington to the challenges of preemption.

Our Committee audience of 1600 banking lawyers affords a unique opportunity for many of you to demonstrate your expertise, offer insights on difficult issues or espouse a position for which you are seeking support or feedback. We invite more of you to join Joe in submitting materials to Chris Bellini at cbellini@gibsondunn.com, the editor of this Committee newsletter. The newsletter is also posted on our Committee website.

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

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After years of working to have deposit insurance reform legislation enacted by Congress, the Federal Deposit Insurance Reform Act of 2005 (the "Reform Act") was signed into law in February 2006. During the almost ten-year debate, a number of controversial elements divided the Federal Deposit Insurance Corporation ("FDIC"), Members of Congress, the two Administrations and the industry. Compromise was reached on several important elements, and the law contains changes to a number of provisions affecting deposit insurance including the level of coverage, the amount of premiums to be charged, and appropriate level for the designated reserve ratio for the new combined Deposit Insurance Fund. While the Reform Act represents sweeping change in a number of areas, the amendments are the natural evolution from earlier changes made in 1989, 1991 and 1996.

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The Basel II capital framework agreed to by the banking authorities of the world’s leading economic countries in 2004 envisions a three pronged approach to enhancing the safety and soundness of financial institutions: (i) new capital standards; (ii) enhanced supervision; and (iii) increased market discipline through additional public disclosures. Most of the attention has focused on the first pillar, the new capital standards.

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William Shakespeare, perhaps unknowingly, foretold the damage of identity theft: "But he that filches from me my good name/Robs me of that which not enriches him/And makes me poor indeed." 1

Back in 1969, words like "phishing," "dumpster diving," and "skimming," or even "Internet" and "e-mail," were not household terms, and "spam" was found in the grocery store. Yet it was in 1969 that U.S. Senator William Proxmire, author of the Fair Credit Reporting Act ("FCRA"), argued: "The consumer has a right to information which is accurate. He has a right to correct inaccurate or misleading information....And he has the right to know when inaccurate information is entered into his file." Thirty-seven years later, the importance of the consumer's right to accurate information and the protection from those who would seek to threaten that right is among the forefront of national issues as put by President George W. Bush in February 2002: "One of the most harmful abuses of personal information is identity theft."

[1] Othello, Act III, Scene 3

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The current preemption battle between the Office of the Comptroller of the Currency (OCC) and the states has again directed a spotlight on the state banking charter and the function of state banking regulation. This scrutiny has prompted many states to perform the kind of self-examination that has historically led to many improvements in banking. Indeed, throughout the history of the dual banking charter, the function of the states in financial institutions regulation has shown a great capacity and affinity for innovation. Examples of such innovation by the states, which were only later adopted by Congress, include checking accounts, bank branches, real estate loans, trust services, NOW accounts, reserve requirements, deposit insurance, adjustable-rate mortgages, automated teller machines, bank sales of insurance products, interstate electronic funds transfer systems, and interstate bank holding companies.

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The order of the United States Supreme Court granting certiorari in the case of Watters v. Wachovia, issued on June 19, 2006, has attracted considerable attention in the banking world, and for good reason. The case raises the question whether national banks' operating subsidiaries are shielded from state laws by the regulation of the Office of the Comptroller of the Currency declaring that "State laws apply to national bank operating subsidiaries to the same extent that those apply to the parent national bank" [i.e., hardly at all]. 12 C.F.R. § 7.4006.

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A. If It Walks like a Duck, and If It Quacks like a Duck, It is a Barift

Soon after the passage of the Garn-St Germain Depository Institutions Act in 1982 ("Garn-St Germain"), thrifts began to seek to be treated as a "bank" for purposes of the Federal securities laws. At the time, the cause celebre was acting as a securities broker, so thrifts sought to enjoy the exemption that a "bank" then had from the definitions of "broker" and "dealer" under the Securities Exchange Act of 1934 ("Exchange Act"). In 1983, the SEC issued a release asking a number of questions about whether a thrift should be treated as a bank, and no further action was taken. Meanwhile, culminating in the famous no-action letter issued to Chubb, most thrifts were able to avoid registration as a securities broker or a dealer by engaging in networking activities where another, fully-licensed broker-dealer, engaged in brokerage activities on the premises of the thrift institution.

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