Bankers are finally getting some relief on a hodgepodge of legal issues that have dogged them for years.
Attached to the thrift fund recapitalization bill were measures addressing fair-lending self-assessments, credit union limits, the Retirement CD, electronic benefits transfer, and fictitious financial instruments.
The law also mandated that regulators undertake a slew of studies that could lead to other policy changes.
One of the more important provisions says neither the government nor private litigants can subpoena the results of fair-lending self-tests conducted by outside companies.
Disappointing to bankers, self-testing by internal auditors or other bank personnel is not covered, and banks forfeit the protection if they share results with examiners. Also, the protection evaporates once a bank is convicted of violating fair-lending laws. This means the government can use the results of a self-test against an institution during the penalty phase of trial.
"This doesn't provide a true privilege," said James McLaughlin, director of regulatory and trust affairs at the American Bankers Association. "It is not something a banking attorney would feel very comfortable relying on."
"This doesn't go far enough," said Andrew Sandler, a partner at the Washington law firm of Skadden, Arps, Slate, Meagher & Flom who works with trade groups on fair-lending issues. "It only provides protection for self- assessments done by independent third parties, but most useful self- evaluations are done by the entities themselves."
In the credit union area, the legislation prevents government-sponsored enterprises from affiliating or sponsoring credit unions. The provision was aimed at Countryside Credit Union in Wisconsin, which was recently created to serve members of the farm credit system.
"It would have been enormously difficult to compete against the combination of a government-sponsored enterprise and a credit union, and it was patently unfair," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America. "It could have changed the face of agricultural lending."
The law also prohibits the Federal Deposit Insurance Corp. from providing deposit insurance for the Retirement CD, an annuity-like product. This restriction, strongly supported by the life insurance lobby, didn't arouse the ire of many bankers. They had given up on the product after the Internal Revenue Service issued a draft rule eliminating its tax-deferred status.
"This is a face-saving victory by the insurance lobby," said Karen Shaw Petrou, president of the Washington consulting firm ISD-Shaw Inc. "The issue is moot because no one can offer it, so who cares."
The law overturned a key electronic benefits transfer decision by the federal appeals court in Washington. The court ruled in August that Treasury had to open up the bidding on electronic benefits transfers to nonbanks. But Congress said the government could limit bidders to banks.
"This is a significant victory," said Pamela Martin, director of agency, regulatory, and public relations at Robert Morris Associates. "It protects the Treasury's authority to grant financial institutions sole authority to provide this service. It removes the matter from the purview of the courts."
The package closed a loophole that impeded the government's prosecution of people who create fake financial documents. Previously, the government only could arrest people who forged documents. Completely fake bond and stock certificates were not illegal.
The law also ordered regulators to conduct several new studies and drop other reporting requirements.
The Federal Reserve Board has six months to produce a study on the effect consumer protections will have on the development of smart cards. The Fed also must wait nine months before finalizing a proposal to subject smart cards with more than $100 of value to the consumer protection rules.
Robert Ballen, a partner at the Washington law firm Schwartz & Ballen, said he doesn't expect the study or the nine-month delay to have much effect. He said the Fed would have needed until late spring just to review all the comment letters on its proposal.
Ms. Petrou said the law's stored-value card provision enjoyed widespread support because both the industry and consumer groups oppose the Fed's proposed rule. "People in the industry thought it would impede product development, and consumer groups thought it was too big of an exemption," she said.
The Fed also must conduct an annual state-by-state survey of bank fees. The provision was included at the insistence of Senate Banking Committee Chairman Alfonse D'Amato. Treasury, the Comptroller's Office, and the National Credit Union Administration also must study the investment practices of corporate credit unions.
Regulators must submit a report to Congress within 180 days, explaining their plans to replace regulatory accounting with generally accepted accounting principles. Mr. McLaughlin said he hopes the provision provides the final impetus to eliminate regulatory accounting. "Banks have to keep two sets of books," he said. "That is a lot of extra work."
The Fed must conduct a study every five years on small farms' and businesses' credit needs. This will replace a requirement that banks record their small-business and farm loans on the June 30 call report. Ms. Petrou discounted this change, saying most banks automatically collect the data anyway.
Among the law's many regulatory revisions is one that permits a state banking agency to serve as an institution's primary examiner. Currently only a federal agency can be so designated.
"This recognizes state regulators as equals and will take some of the burden off of the federal agencies," said Ellen B. Lamb, vice president of the Conference of State Bank Supervisors.
The FDIC is required to have at least one director with experience in state banking supervision. "This is important for our members," Ms. Lamb said. Former Mississippi banking commissioner "Joe Neely is filling this purpose now, but he isn't going to serve on the board forever."
The law also requires the agencies to periodically review their rules for outdated regulations and encourages them to eliminate unnecessary paperwork.
