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					March 2009

                                                               Bank Notes ...
Volume II, Issue 3


                                                                    A monthly publication from Alston & Bird LLP


                                   Alston & Bird Responds to Financial Crisis
  Following on the success of the EESA teleseminar series,       Registration information and audio replay of each session
Alston & Bird is continuing its discussions on the             will be available on the Alston & Bird website.
repercussions of the financial crisis with two new topics in     Please continue to logon to Alston & Bird’s website for an
the month of March. This month’s topics will cover the         ongoing an up-to-date analysis of the financial crisis via our
TALF and the new “Making Home Affordable” loan                 Financial     Markets     Crisis   Blog   (www.alston.com/
modification plan. The sessions will be hosted by members      financialmarketscrisisblog) and to view related client
of the Alston & Bird Financial Markets Task Force.             advisories (www.alston.com/resources/advisories/).


   FDIC Clarifies Interest Rate Restrictions on Institutions That Are Less Than Well Capitalized
  On February 3, 2009, the FDIC published in the Federal         The Proposed Rule provides that an interest rate
Register a proposed rule on “Interest Rate Restrictions on     “significantly exceeds” or is “significantly higher” than
Institutions That Are Less Than Well Capitalized (the          another rate, where the first rate exceeds the second rate by
“Proposed Rule”). As it stands, Section 29 of the Federal      more than 75 basis points. With respect to effective yields,
Deposit Insurance Act, prohibits institutions that are not     the Proposed Rule provided that, “a presumption shall exist
well capitalized from paying interest rates on deposits that   that the effective yield in the relevant market is the national
significantly exceed certain market averages. The purpose      rate … unless the FDIC determines, based on available
of the Proposed Rule is to provide insured depository          evidence that the effective yield differs from the national
institutions and examiners with a standard method of           rate.” The Proposed Rule also specifies that the prevailing
determining interest rates for less than well capitalized      rate in all market areas is presumed to be the “national rate”
institutions by amending three key definitions in the          as defined by the FDIC.
FDIC’s existing brokered deposit regulation. Significantly,      At the end of last year, only 154 banks were less than well
the Proposed Rule would redefine “national rate” to mean       capitalized out of the more than 8,300 insured depository
“a simple average of rates paid by all insured depository      institutions in the U.S. As a result, it is expected that the
institutions and branches for which data are available.” The   Proposed Rule would ultimately affect only a small minority
FDIC would monitor the rates paid by these institutions to     of banks. All comments must be received by April 6, 2009.
calculate the “national rate.”                                                                              ~ Lindsay Young
                Federal Reserve Issues Series of Final Rules to Reduce Liquidity Strains
   Last month, the Board of Governors of the Federal             Complementary rule changes were also made to
Reserve System released final rules amending risk-based        Regulation W such that a depository institution may
and leverage capital guidelines and exempting certain          purchase ABCP from an affiliated money market mutual
transactions between member banks and affiliates from          fund under the AMLF. Both exemptions effectively will
certain provisions of sections 23A and 23B of the Federal      no longer be available once the AMLF expires.
Reserve Act and Regulation W. The rules are intended “to         An additional final rule amends Regulation W to permit
reduce liquidity and other strains” in the market.             a bank affiliate to obtain financing from the bank for
   Regulations H and Y were modified to exempt certain         securities or other assets that it would normally have
asset-backed commercial paper (“ABCP”) held by a state         financed through the U.S. tri-party repurchase agreement
member bank or bank holding company under the Board’s          market. The Board cautioned, however, that securities
ABCP Money Market Mutual Fund Lending Facility                 financing transactions between banks and affiliates—such
(“AMLF”) from the leverage and risk-based capital rules.       as broker-dealers—must be on terms that are substantially
ABCP held by a depository institution under the AMLF is        the same as transactions not involving an affiliate. The
now assigned a 0% risk weight for determining risk-based       exemption is expected to expire on October 30, 2009.
capital ratios and is excluded from the average total
consolidated assets under the leverage capital rules.                                                     ~ Chris Steelman

                                                                                                  ATTORNEY ADVERTISING
Banking and Finance Regulation
                 FDIC Releases Survey on Efforts to Serve the Unbanked and Underbanked
   On February 5, 2009, the FDIC released its “Survey of                   The survey indicates that a majority of banks offer basic
 Banks’ Efforts to Serve the Unbanked and Underbanked.”                  deposits and financial education materials to unbanked and
 The survey consisted of two parts - a voluntary questionnaire           underbanked. However, fewer than half offer more
 mailed to a random representative cross-section of banks and            innovative deposit, payment or credit products. The chief
 thrifts with retail branch operations; and 16 case studies of           concerns among banks surveyed is profitability of offering
 banks that appear to successfully provide products and                  products and services to the unbanked and underbanked
 services to the unbanked and underbanked.                               and related anti-money laundering risks.
   The questionnaire focused on the following six areas: (i)               Contradicting the questionnaire results, the case studies
 financial education and outreach efforts; (ii) perceived                indicate that banks of all sizes and geographic regions can
 challenges; (iii) efforts to improve access through                     successfully serve unbanked and underbanked through
 modification of retail operations; (iv) services provided to            innovative strategies. Thus, FDIC “encourages all banks
 noncustomers likely unbanked or underbanked; (v) bank                   to expand efforts to work with community organizations,
 account opening policies and procedures; and (vi) deposit,              employers, the government and the nonprofit sector to
 payment and credit products and services offered to entry               address the unique needs of the financially underserved.”
 level customers.                                                                                                     ~ Laura Biddle
            FDIC Issues Final Rule on Processing of Deposit Accounts in the Event of Failure
   On February 2, 2009, the FDIC issued a final rule on                     Sweep account claims will be determined for deposit
 “Processing Deposit Accounts in the Event of an Insured                 insurance purposes using the following guidelines: (i) the
 Depository Institution Failure”, replacing an interim rule              failed institution’s established records will be used to
 issued by the FDIC in July 2008. The increase in interstate             determine ownership of funds and the nature of claims; (ii)
 banking and branching and the complexity of bank products               depositor-owned funds held in a general ledger account as
 and practices made the ascertainment of end-of-day account              of the end-of-day will be treated as insured deposits; and
 balances upon the failure of insured institutions increasingly          (iii) the full amount of swept funds attributable to an
 difficult. The final rule generally tracks the interim rule and         individual held in an omnibus or other commingled
 sets forth practices and policies the FDIC will use to                  account as of the normal end-of-day will be treated as
 determine deposit and other liability account balances at a             belonging to that customer, regardless of any netting
 failed institution, consistent with existing practices.                 practices established by the institution. The FDIC will also
   As receiver, the FDIC must complete an ending balance                 include all uncollected deposited checks as part of the end-
 sheet and determine the nature and value of the claims against          of-day ledger balance.
 a failed institution. Claims must be consistent with the                   Effective July 1, 2009, insured institutions must disclose
 following principles: (i) FDIC will use the end-of- day ledger          to sweep account customers, in writing, the nature of their
 balance to determine deposit insurance; (ii) FDIC will use              swept funds and how those funds would be treated should
 “best efforts” to stop new liabilities or extinguish existing           the institution fail. The final rule requires that these
 liabilities; and (iii) end-of-day balances will be subject to           disclosures be made: (i) within 60 days of July 1, 2009,
 corrections for posted transactions that are inconsistent with          and thereafter, at least annually; (ii) in all sweep account
 these principles. The FDIC will generally use “cutoff” rules            contracts; and (iii) in all renewals of existing sweep
 previously applied by the institution in establishing the end-          account contracts. Transfers within a single account and
 of-day ledger balances. However, the final rule allows the              sweep arrangements where funds are moved between
 FDIC to establish an FDIC Cutoff Point -the point in time               accounts are not subject to disclosure requirements if the
 where the FDIC takes action to stop all new liabilities and             insurance coverage available to the customer remains
 begins extinguishing existing liabilities. If the institution’s         unchanged. The final rule becomes effective March 4,
 ordinary cutoff time precedes the FDIC’s Cutoff Point, it will          2009, and applies to all FDIC-insured institutions.
 be used. Otherwise, the FDIC Cutoff Point will be used.                                                              ~ Lindsay Young

             If you would like additional information on the topics discussed in this edition or have questions regarding other
             matters, please contact a member of our Banking and Finance Regulation team:
             Dwight Smith                            (202) 756-3325                                      Dwight.Smith@alston.com
             Jeffrey Hare                            (202) 239-3902                                        Jeffrey.Hare@alston.com
             Robert Andersen                         (704) 444-1283                                   Robert.Andersen@alston.com
             Laura Biddle                            (202) 239-3901                                       Laura.Biddle@alston.com
             Joe Yesutis                             (202) 756-3350                                     Joseph.Yesutis@alston.com
             Lindsay Young*                          (202) 756-3036                                     Lindsay.Young@alston.com
             Chris Steelman*                         (202) 239-3922                                     Chris.Steelman@alston.com
To add or remove names from distribution please contact: Shalom.Raboya@alston.com                    * Supervised by licensed DC attorneys

				
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