The Banking Law Modernization Act was signed into law on June 21, receiving unanimous support in the Senate and only one negative vote in the House. My colleague, Knox Proctor, was involved in the drafting of this much-anticipated legislation. You can find your very own copy here. Most of the provisions of the Act become effective on October 1, 2012.
You may rest assured that much ink will be spilled in the coming days analyzing the effect of this important legislation.
Wednesday, June 27, 2012
Thursday, March 1, 2012
Update: Ray Grace Nominated to Finish Joe Smith's Term as Banking Commissioner
Governor Purdue obviously reads this blog, which is why she followed my suggestion to nominate Ray Grace as the next Banking Commissioner.
Once approved by the General Assembly, Commissioner Grace will serve for the remainder of Commissioner Smith's existing term, which ends March 31, 2015.
In related news, Commissioner Smith has returned to his former law firm where he will be "of counsel" while heading up oversight of the nationwide mortgage settlement. Sounds like he'll be busy.
You can read the Governor's press release here.
Once approved by the General Assembly, Commissioner Grace will serve for the remainder of Commissioner Smith's existing term, which ends March 31, 2015.
In related news, Commissioner Smith has returned to his former law firm where he will be "of counsel" while heading up oversight of the nationwide mortgage settlement. Sounds like he'll be busy.
You can read the Governor's press release here.
Wednesday, February 15, 2012
Commissioner Smith moves on; Ray Grace to serve as Acting Commissioner
North Carolina Banking Commissioner Joseph Smith, Jr. has been appointed to oversee the $25 billion mortgage settlement we've all read so much about, and has resigned his position with the OCOB effective Thursday (tomorrow). We are grateful to Joe for the outstanding work he has done on behalf of the people of North Carolina over the past decade and wish him the best. On a personal note, I want to publicly express my thanks to Joe for the nice things he's said to, and about, me in my short career in banking law.
Chief Deputy Commissioner Ray Grace, who joined the OCOB in 1974, will serve as Acting Commissioner in the near term. By law, Governor Purdue must submit the name of a permanent successor to the General Assembly within four weeks for confirmation. In an election year with a besieged Democratic Governor and a Republican legislature, the process could become politicized.
As far as I know, no other names have been publicly mentioned at this point.
Chief Deputy Commissioner Ray Grace, who joined the OCOB in 1974, will serve as Acting Commissioner in the near term. By law, Governor Purdue must submit the name of a permanent successor to the General Assembly within four weeks for confirmation. In an election year with a besieged Democratic Governor and a Republican legislature, the process could become politicized.
As far as I know, no other names have been publicly mentioned at this point.
How to Prepare a Business Agreement: A Guide for Young Lawyers
I wrote a short "how to" article for young lawyers on drafting business contracts which was published in The Advocate, the quarterly publication of the Young Lawyers Division of the North Carolina Bar Association. You can find it here: http://younglawyers.ncbar.org/media/21649678/yldfeb2012.pdf.
Sunday, February 5, 2012
More on Website Privacy
TechWire published my short article on website privacy here.
"Internet privacy is gaining increasing attention from governmental entities, consumer groups, and plaintiffs' class action attorneys, and is expected to be an emerging source of risk for many companies. Fortunately, much of that risk is avoidable if care is taken to observe the patchwork of applicable legal requirements."
Stay tuned for a more detailed article on this topic in the near future...
"Internet privacy is gaining increasing attention from governmental entities, consumer groups, and plaintiffs' class action attorneys, and is expected to be an emerging source of risk for many companies. Fortunately, much of that risk is avoidable if care is taken to observe the patchwork of applicable legal requirements."
Stay tuned for a more detailed article on this topic in the near future...
Sunday, December 11, 2011
Do Community Banks Need to Worry About the "Volcker Rule"?
Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act contains restrictions on financial institutions ability to engage in "proprietary trading" or be associated with a private equity or hedge fund. The Act required the SEC and federal banking regulatory agencies to promulgate final rules implementing the restrictions by October 21, 2011. The agencies were a late, but on November 7, 2011, issued proposed regulations under Section 619.
History. Known as the "Volcker Rule", these restrictions were the brainchild of former (1979-87) Federal Reserve Board Chairman Paul Volker, who argued proprietary trading by insured banks introduced unacceptable risk to the deposit insurance fund. In 1933, the Glass-Steagall Act required a separation of commercial banking from investment banking and brokerage activities. This division remained until 1999.
Proprietary trading is defined as “trading activity” in which a “banking entity” acts as “principal” in order to profit from “near-term” price changes.
While most community banks do not consider themselves to be engaged in proprietary trading in the sense that Wall Street investment banks trade, they do often take short-term positions in government securities as a risk-management tool. Since investments in government securities are exempt form the Volcker Rule, community banks need not change course.
Trust Department Trading. Trading within the trust department as part of its bona fide fiduciary activity is not proprietary, so the Volcker Rule does not prevent short-term strategies from being employed by the bank in its fiduciary capacity, subject to certain conditions.
Compliance Program Required. The proposed regulations require that even banks not engaged in proprietary trading adopt a policy and procedures to prevent it from engaging in restricted activities without first establishing a compliance program. Examiners are likely to begin looking for these policies in 2012.
Final Rules. The Act calls for the final rules to be effective by the earlier of (a) 12 months after the date of the issuance of the final rules, or (b) two years after the date of enactment of the Dodd-Frank Bill (July 21, 2012). There will be a grace period during which financial institutions may divest impermissible assets. That period should end July 21, 2014.
History. Known as the "Volcker Rule", these restrictions were the brainchild of former (1979-87) Federal Reserve Board Chairman Paul Volker, who argued proprietary trading by insured banks introduced unacceptable risk to the deposit insurance fund. In 1933, the Glass-Steagall Act required a separation of commercial banking from investment banking and brokerage activities. This division remained until 1999.
Proprietary trading is defined as “trading activity” in which a “banking entity” acts as “principal” in order to profit from “near-term” price changes.
While most community banks do not consider themselves to be engaged in proprietary trading in the sense that Wall Street investment banks trade, they do often take short-term positions in government securities as a risk-management tool. Since investments in government securities are exempt form the Volcker Rule, community banks need not change course.
Trust Department Trading. Trading within the trust department as part of its bona fide fiduciary activity is not proprietary, so the Volcker Rule does not prevent short-term strategies from being employed by the bank in its fiduciary capacity, subject to certain conditions.
Compliance Program Required. The proposed regulations require that even banks not engaged in proprietary trading adopt a policy and procedures to prevent it from engaging in restricted activities without first establishing a compliance program. Examiners are likely to begin looking for these policies in 2012.
Final Rules. The Act calls for the final rules to be effective by the earlier of (a) 12 months after the date of the issuance of the final rules, or (b) two years after the date of enactment of the Dodd-Frank Bill (July 21, 2012). There will be a grace period during which financial institutions may divest impermissible assets. That period should end July 21, 2014.
Saturday, December 3, 2011
Legal Myths on Trial: FDIC Deposit Insurance
In the aftermath of the financial crisis and ongoing bank seizures across the country, rumors and half-truths regarding FDIC deposit insurance have become widespread. A few are "put on trial" and judged below.
Myth: If you have more than $100,000 in a bank account and your bank is closed by banking regulators, only $100,000 per person is insured.
Verdict: False. The standard deposit insurance coverage limit was temporarily increased from $100,000 to $250,000 approximately three years ago to ease fears in the wake of the financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (enacted July 21, 2010) made that increase permanent.
The FDIC provides separate coverage for deposits held in different ways, so it is possible for a person to have more than $250,000 in coverage by carefully structuring accounts. The coverage rules are complex and should be reviewed by a knowledgeable attorney or banker when someone has more than $250,000 in deposit accounts at a single financial institution.
Myth: If my bank is seized by regulators, the FDIC has up to 99 years to return my money.
Verdict: False. For years, the FDIC has received questions from worried account holders who have heard that if their bank is seized, the FDIC can take up to 99 years to turn over insured deposit account funds. In fact, there is no hard deadline, 99 years or otherwise. Instead, federal law requires the FDIC to make insured funds available to depositors "as soon as possible" after a seizure, and the FDIC typically does so by the next business day.
Myth: Accounts opened in different branches of a bank are separately insured.
Verdict: False. While a depositor can increase the available FDIC deposit insurance by carefully using different accounts as mentioned, above, the same is not true with respect to using different branches of a single bank. FDIC deposit insurance is determined on a per-bank basis. Accounts opened at different branches of the same institution are combined for purposes of coverage limits.
Some banks operate branches under different names, particularly after a merger, which can confuse customers about the availability of separate coverage unless the bank provides adequate disclosures. For this reason, the FDIC requires banks using more than one name to disclose their legal identity to depositors.
Myth: As long as my bank is insured by the FDIC, any account I open is insured up to the coverage limit ($250,000).
Verdict: False. The FDIC insures only deposit accounts, which include checking accounts, savings accounts, NOW accounts, certificates of deposit (CDs), and money market deposit accounts (MMDAs). Other accounts, however, including securities accounts (mutual funds, etc.) and certain insurance products, are not FDIC-insured even if they are opened or sold at an insured bank. To minimize confusion, federal law requires insured institutions to clarify deposit insurance coverage (or the lack thereof) in advertisements and account materials.
Myth: A law firm's trust account coverage limit is $250,000.
Verdict: False (for now). IOLTA accounts have unlimited insurance for the time being. In November 2008, the FDIC began the Transaction Account Guarantee Program, which temporarily provided unlimited insurance for non-interest bearing accounts and IOLTA accounts. The Dodd-Frank Wall Street Reform and Consumer Protection Act extended the insurance for non-interest bearing accounts through the end of 2012, but failed to address IOLTA accounts. That oversight was corrected when H.R. 6398 was enacted on Dec. 29, 2010, extending unlimited coverage to IOLTA accounts through the end of 2012.
[This article was first published in the November 2011 issue of The Advocate by the North Carolina Bar Association.]
Myth: If you have more than $100,000 in a bank account and your bank is closed by banking regulators, only $100,000 per person is insured.
Verdict: False. The standard deposit insurance coverage limit was temporarily increased from $100,000 to $250,000 approximately three years ago to ease fears in the wake of the financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (enacted July 21, 2010) made that increase permanent.
The FDIC provides separate coverage for deposits held in different ways, so it is possible for a person to have more than $250,000 in coverage by carefully structuring accounts. The coverage rules are complex and should be reviewed by a knowledgeable attorney or banker when someone has more than $250,000 in deposit accounts at a single financial institution.
Myth: If my bank is seized by regulators, the FDIC has up to 99 years to return my money.
Verdict: False. For years, the FDIC has received questions from worried account holders who have heard that if their bank is seized, the FDIC can take up to 99 years to turn over insured deposit account funds. In fact, there is no hard deadline, 99 years or otherwise. Instead, federal law requires the FDIC to make insured funds available to depositors "as soon as possible" after a seizure, and the FDIC typically does so by the next business day.
Myth: Accounts opened in different branches of a bank are separately insured.
Verdict: False. While a depositor can increase the available FDIC deposit insurance by carefully using different accounts as mentioned, above, the same is not true with respect to using different branches of a single bank. FDIC deposit insurance is determined on a per-bank basis. Accounts opened at different branches of the same institution are combined for purposes of coverage limits.
Some banks operate branches under different names, particularly after a merger, which can confuse customers about the availability of separate coverage unless the bank provides adequate disclosures. For this reason, the FDIC requires banks using more than one name to disclose their legal identity to depositors.
Myth: As long as my bank is insured by the FDIC, any account I open is insured up to the coverage limit ($250,000).
Verdict: False. The FDIC insures only deposit accounts, which include checking accounts, savings accounts, NOW accounts, certificates of deposit (CDs), and money market deposit accounts (MMDAs). Other accounts, however, including securities accounts (mutual funds, etc.) and certain insurance products, are not FDIC-insured even if they are opened or sold at an insured bank. To minimize confusion, federal law requires insured institutions to clarify deposit insurance coverage (or the lack thereof) in advertisements and account materials.
Myth: A law firm's trust account coverage limit is $250,000.
Verdict: False (for now). IOLTA accounts have unlimited insurance for the time being. In November 2008, the FDIC began the Transaction Account Guarantee Program, which temporarily provided unlimited insurance for non-interest bearing accounts and IOLTA accounts. The Dodd-Frank Wall Street Reform and Consumer Protection Act extended the insurance for non-interest bearing accounts through the end of 2012, but failed to address IOLTA accounts. That oversight was corrected when H.R. 6398 was enacted on Dec. 29, 2010, extending unlimited coverage to IOLTA accounts through the end of 2012.
[This article was first published in the November 2011 issue of The Advocate by the North Carolina Bar Association.]
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