I am pleased to send you another quality edition of the Banking Law Committee Journal which will be posted on the Committee website. The formalization of the publication's title as part of the Newsletter reflects the dedication and hard work that our Editors put into each article. I commend these articles to you and note that they address many of the important topics discussed in our Committee meetings. As such, they provide a link to that portion of our 1600 members who may not be able to regularly attend the meetings of the Committee, the Section of Business Law or even the Annual Meeting of the ABA held each August.

The number of "hits" for each edition seem to confirm that link. The editors who write the majority of these articles provide examples of the knowledge, experience and insights from which we all benefit through interaction with others on the Committee. I invite you to become more active by sharing your knowledge. Write a short article for the next edition and send it to any of the editors listed here. Also, feel free to contact Chris Bellini at cbellini@gibsondunn.com if you want to discuss a proposed article or if you have other material you feel is suitable to be posted on the website for our members.

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A number of market, regulatory and legislative developments are working together to reinforce the importance of consumer protection and internal controls in the area of banking and mortgage products. Whether it is mortgage loans, consumer loans, credit cards or other credit products, Congress, state legislatures, federal and state banking authorities and state attorney generals are looking at the products - their terms, disclosures and uses - for compliance with existing consumer protection and other laws. They are looking at the products and the lenders to determine whether enhanced disclosures are needed, whether additional education should be required prior to a consumer taking the product or whether there should be a different standard to determine if the consumer should take the product at all.

For several years, consumer groups and other observers of mortgage lending arena have stepped up the calls for a suitability standard that can be used by mortgage lenders. The mortgage industry is resisting the efforts and instead is promoting a uniform nationwide standard. With the change in the leadership in Congress in January 2007 and the changing interest rate environment, the debate between the two views has increased. The current political climate is not as supportive of a national standard that would preempt state laws as it was in prior years.


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As most Banking Law Committee members are aware,
Watters v. Wachovia pits Michigan's Commissioner of Insurance and Financial Services against Wachovia Bank and its mortgage lending subsidiary regarding the extent, if any, to which a State may regulate a national bank's operating subsidiary doing business within its borders. Michigan sought to apply laws requiring Wachovia's mortgage lending subsidiary, Wachovia Mortgage, to register as a mortgage lender and pay annual registration fees as a condition of doing business in the State; submit annual financial statements; and retain certain records for examination by the Commissioner. The Michigan laws would also permit the Commissioner to investigate a complaint against Wachovia Mortgage if it were not being pursued adequately by the Comptroller of the Currency.


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Beginning with the implementation of the Basel I Accord in 1989, the world's leading economic countries have applied a uniform risk-based capital standard for internationally active banks. While variances exist among the nations, for all practical purposes these banks are currently competing on a level field. This situation may change in the near future.

In 2004, the Basel Committee adopted a new standard, the Basel II Accord, which more closely aligns capital with risk. The proposed implementation of the Basel II Accord in the United States would subject our banks to higher minimum capital requirements than certain foreign banks. This paper explains why this will adversely affect the competitive position of U.S. institutions.


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Over the last year law enforcement and regulatory agencies have been inundated with reports of mortgage fraud, occurring in an environment marked by substantial growth in mortgage lending markets and an increase in innovative loan products that have expanded consumer access to home finance. Mortgage loan fraud has become a growing risk for financial institutions, as reported by the Federal Financial Institutions Examination Council ("FFIEC"): "Mortgage loan fraud is growing because it can be very lucrative and relatively easy to perpetrate, particularly in geographic areas experiencing rapid appreciation."

This article will examine the phenomenon of mortgage fraud, basic steps that a financial institution can take toward preventing such fraud, and what remedies a financial institution can pursue in responding to mortgage fraud once detected.


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The Bank Secrecy Act of 1970 (the "BSA") empowers the Secretary of the Treasury (the "Secretary") to "require any financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation." Under this authority, the Secretary installed a new reporting system that required financial institutions, and certain individuals related to those institutions (such individuals and financial institutions collectively referred to herein as "financial institutions"), to file Suspicious Activity Reports ("SARs") with the Financial Crimes Enforcement Network ("FinCEN"). This SAR reporting system provided the government with a valuable pipeline of information concerning dubious financial conduct. Since the inception of the reporting system, these SARs and the wealth of information they represent have been a critical tool in the government's efforts against financial crimes.


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