week, adopting a slew of provisions that streamline bank and thrift operations. "There is a lot of valuable cleanup in this legislation, " said Karen Shaw Petrou, president of the consulting firm ISD/Shaw Inc. "While it isn't particularly helpful in terms of the banking industry's competitiveness, it's worthwhile because it gets a lot of fairly meaningless underbrush out of the way." One of the most significant provisions makes more banks eligible for less frequent examinations. The law enables federal regulatory agencies to examine banks with the top two Camel ratings and assets of less than $250 million every 18 months instead once a year. Prior to this change, the asset cutoff for this treatment was $175 million. "This is extremely important to small banks because an exam is a burdensome event" said Karen Thomas, director of regulatory affairs at the Independent Bankers Association of America. "If you have a bank that is in good condition, it shouldn't impinge on safety and soundness for the agencies to extend the exam cycle out." "This will significantly help the agencies to more efficiently use personnel," added Julie L. Williams, chief counsel of the Office of the Comptroller of the Currency. Another provision geared primarily toward small banks expands the number exempted from the reporting requirements of the Home Mortgage Disclosure Act. The law mandates that the banking agencies annually adjust for inflation the asset size of exempted institutions. It began by raising the cutoff to $28.3 million from $10 million. Industry representatives were miffed that Congress didn't keep the $50 million cutoff originally proposed. "We were very disappointed that got rolled back," said James D. McLaughlin, director of regulatory and trust affairs for the American Bankers Association. The new law also makes it easier for banks to share directors. Institutions with up to $2.5 billion of assets can now have directors who also serve banks with up to $1.5 billion of assets. The prior limits were $1 billion and $500 million, respectively. In addition, the OCC can now waive the requirement that two-thirds of the directors reside within 100 miles of the bank, or in its headquarters state. "These provisions conform the law to the needs of the industry now that (it is) approaching business increasingly on an interstate basis," said Richard Whiting, general counsel of the Bankers Roundtable. A host of reporting and application requirements also were eliminated or significantly pared back. Banks no longer must file branch applications to open ATMs. Branch closure notices are no longer required when banks close ATMs or in certain merger situations. The law also lets state banks engage in activities not permitted national banks - unless the Federal Deposit Insurance Corp. objects within 60 days. "There has been a tremendous bottleneck at the FDIC," said Ellen Lamb, vice president of the Conference of State Bank Supervisors. "This (provision) is going to make it significantly easier for state banks to explore new areas of business." Foreign banks in the United States also got a number of paperwork breaks. The Federal Reserve must act within 180 days on foreign banks' applications to open U.S. operations. Observers viewed this as significant because these applications have a tendency to back up at the Fed. Additionally, the Fed got the authority to approve such foreign bank applications even if the institution's home-country regulator doesn't thoroughly supervise the bank. Previously, the Fed could approve the application only if it had determined that the foreign institution was being comprehensively supervised in its home country. Now the Fed only has to ascertain that the home-country regulator is actively working towards comprehensive supervision. A number of provisions in the new law will be a boon for thrifts. The cap on the assets they may have in student and credit card loans was eliminated. In addition, the 10% limit on business loans was increased to 20%, provided that the loans in excess of 10% are to small businesses. "These are very substantive and hugely important changes for the thrift charter," said Brian Smith, director of policy and research at America's Community Bankers. Another provision doubles to 10 years the amount of time banks may own foreclosed property. "A lot of bankers quietly support this provision," said Mr. McLaughlin. "It is helpful because sometimes these assets are very hard to sell, and if a bank runs up against the five-year deadline, they would just have to get rid of it." The law also: *Eliminates the requirement to notify regulators of new executive officers and directors for healthy banks seeking new charters or control changes. *Doubles to 20% of capital the limit on national banks' investments in subsidiaries established purely to assist in foreign trade transactions. *Drops the requirement that independent auditors attest to an institution's compliance with safety and soundness laws. Next: Legal and litigation implications
