The comment period for the regulatory capital rule proposals ended on October 22nd. More than a thousand comment letters were submitted to the agencies addressing numerous aspects of the proposals. As noted in last month’s LRA update, we submitted a comment letter regarding the Standardized Approach NPR. Our letter identified issues specifically relating to BOLI. Despite the extremely broad scope of the proposed rules, we are hopeful that the final rules will include some specific clarifications regarding BOLI.
Please click here to view our full comment letter: MBSA Regulatory Capital Proposals Comment
On October 9, the OCC announced publication of its final rule regarding company-run stress testing required by Dodd-Frank §165. The final rule requires institutions with average total consolidated assets of ≥ $50 billion to begin conducting annual stress tests this year; although the OCC reserves authority to allow covered institutions to delay implementation on a case-by-case basis where warranted. The OCC anticipates releasing stress-testing scenarios by November 15 and results must be reported to the OCC in early January 2013. Banks will use their data as of September 30, 2012 to conduct the stress test. The rule delays implementation for covered institutions with total consolidated assets between $10 billion and $50 billion until October 2013. The OCC anticipates issuing proposed guidance and procedures for scenario development for comment at a later date. The Federal Reserve and FDIC will issue separate final rules with respect to their supervised entities.
On October 10, the OCC published a final rule that revises the short-term investment fund (STIF) rule which will apply to national banks that act in a fiduciary capacity and mange a STIF. A STIF is a type of collective investment fund (CIF) that operates pursuant to a plan that governs a bank’s management and administration of the fund. Provided that the STIF plan fulfills certain requirements, rather than marking the assets to market, which is the valuation method required for other CIFs, admissions to and withdrawals from STIFs may be valued on an amortized cost basis. Currently, a STIF plan must require the bank to: (1) maintain a dollar-weighted average portfolio maturity of 90 days or less, (2) accrue on a straight-line basis the difference between the cost and the anticipated principal receipt on maturity, and (3) hold the fund’s assets until maturity under usual circumstances.
The final rule revises and adds to these requirements by requiring a STIF to:
The effective date for the final rule is July 1, 2013.
In this matter, the plaintiff’s are alleging that American Greetings misappropriated the names and identities of its employees, breached fiduciary duty and was unjustly enriched when it purchased COLI policies on the lives of its employees without notifying employees or obtaining their consent sometime between 1989 and 1994. Last month, the federal judge denied American Greetings’ motion to dismiss the claims, but instructed the plaintiff to amend its complaint to include greater detail on American Greetings alleged fraudulent concealment of the policies and whether the discovery rule applies (which would allow the plaintiff to proceed with claims that would otherwise be time-barred). In the amended complaint, the plaintiff alleged that American Greetings planned and implemented a multi-level process of concealing the policies’ existence with the cooperation of its insurers and brokers. As evidence the plaintiff pointed to the fact that American Greetings never told the insured employees about the policies and that the policies were held in a Georgia trust to defy detection of the policies.
On October 18, American Greetings filed a motion to dismiss the claims with prejudice as being time-barred. American Greetings argued that the plaintiff’s claims are not sufficient to show American Greetings’ fraudulent concealment which requires a party to show that one took affirmative steps to prevent, and which does prevent, discovery of the cause of action. American Greetings also points to two 1995 newspaper articles that reference American Greetings’ COLI program as evidence that the plaintiff could have discovered the existence of the policies at that time. Notably, the plaintiff alleges that she questioned the existence of American Greetings having a policy on her father’s life (the former employee) upon seeing the Michael Moore 2011 documentary film “Capitalism: A Love Story.”
Case Reference: Baker v. American Greetings Corp., 1:12-cv-65 (N.D. Ohio)
On October 24, the U.S. Justice Department filed a civil fraud action against Bank of America, successor to Countrywide Financial Corporation and Countrywide Home Loans, to recover damages and penalties arising from an alleged scheme to defraud the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
According to the complaint, in 2007 Countrywide rolled out a new “streamlined” loan origination model called the “Hustle” or “High Speed Swim Lane” to increase the speed at which it originated and sold loans to the GSEs despite serious quality flaws and alleged fraud. With the government demanding damages and penalties of not less than $5,500 and not more than $11,000 for each false or fraudulent plus three times the amount of damages the GSEs have sustained, this lawsuit could reach more than $3 billion. Bank of America recently struck a $2.4 billion deal in September to settle a class-action lawsuit over shareholder claims that it misled investors about the 2009 purchase of Merrill Lynch.
Related, the Obama Administration created the Residential Mortgage-Backed Securities (RMBS) Working Group to go after banks and individuals accused of contributing to the 2007-2009 financial crisis. The taskforce, which is lead by New York Attorney General Eric Schneiderman, filed its first lawsuit last month against JPMorgan Chase related to securities offered by Bear Stearns. Also U.S. prosecutors on behalf of the Federal Housing Administration have filed a number of mortgage related lawsuits including one filed against Wells Fargo last month and settlements with Deutsche Bank, Citigroup, and Bank of America.
Case Reference: US v. Bank of America, No. 12-cv-1422 (S.D.N.Y)
American International Group, Inc. (AIG) is the latest insurer to settle a multi-state inquiry into what has been characterized as an industry-wide practice of carriers failing to pay death benefits to beneficiaries, despite having access to knowledge that policyholders had died. The settlement amount is reported to be over $300 million to be divided among 39 states and the District of Columbia. The settlement requires AIG to regularly check the Social Security Administration’s Death Master File to determine whether any of its life insurance policyholders, owners of annuities, and holders of retained asset accounts have died. If AIG finds that a policyholder has died, the agreement requires it to conduct a thorough search for beneficiaries, using all contact information in its records and online search and locator tools. If beneficiaries cannot be located, AIG must turn the proceeds owed to beneficiaries over to the states as required by state unclaimed property laws.