BBA Presentation Summary: Meet the Bank Regulators’ Lawyers

By Justin L. Fitzgerald, Esq. - Federal Reserve Bank of Boston

On Friday, November 22, 2013, a panel of senior bank regulatory attorneys shared insights on their respective roles along with perspectives on a variety of developing trends affecting financial institutions in New England. The panel consisted of David Schecker from the Federal Deposit Insurance Corporation, Merrily S. Storm Gerrish of the Massachusetts Division of Banks, and Christine A. Docherty from the Federal Reserve Bank of Boston.

Mr. Schecker was the first panelist and he touched on several sections of the Federal Deposit Insurance Act (FDIA). He began by providing an overview of some of the principal powers found in Section 8 of the FDIA. These powers include removing from banking those individuals who engage in misconduct, imposing civil money penalties, and enforcing remedies under the theory of restitution. Mr. Schecker went on to discuss FDIC exam authority and privilege issues. He noted that Section 10 allows examiners to conduct exams and make reports while Section 18(b) addresses interagency sharing and confidentiality concerns.  He explained that all privileges claimed by a bank in connection with the exam process are preserved despite the fact that said privileged information is shared with the FDIC and potentially among other regulators. Finally, Mr. Schecker discussed Section 19, which states that any person convicted of any criminal offense involving dishonesty or a breach of trust may not participate in the conduct of the affairs of any insured depository institution. He explained that there is a process for relief through application to the FDIC and that each case is judged on its own merits according to the particular facts and circumstances involved. He concluded by briefly mentioning current enforcement trends that he identified as claims against former officers and directors, high profile consumer enforcement actions concerning unfair and deceptive acts and practices, and the growing pains of coordinating the overlapping jurisdiction between the FDIC and the Consumer Financial Protection Bureau.

The next presenter, Ms. Storm Gerrish, explained the breadth of the responsibilities of the Massachusetts Division of Banks. These responsibilities include overseeing the supervision of over 200 banks and credit unions, licensing and supervising of over 6,500 non-depository institutions such as mortgage brokers and lenders, consumer finance companies and debt collectors, and providing advice and drafting legislative filings on behalf of the Division. She emphasized that the Division seeks to ensure a fair balance between supporting consumers and allowing regulated entities to maintain their competitiveness. She went on to discuss two emerging topics of interest. The first topic involved the case of
US Bank National Ass’n v. Schumacher[1], which was recently before the Massachusetts Supreme Judicial Court. She explained that this case involved the issue of whether a default notice that does not strictly comply with M.G.L. c.244, Section 35A[2] renders a foreclosure sale void. The Massachusetts Supreme Judicial Court is expected to publish its decision in early 2014. The second emerging topic addressed was technological advances, and specifically, virtual currencies. She acknowledged that virtual currencies, such as bitcoins, are growing in interest and have gained mainstream attention. She noted the recent congressional hearings discussing regulation of virtual currencies and suggested that states may be required to become involved with the licensing of virtual currencies.

Ms. Docherty was the final speaker and she provided an overview of the Federal Reserve’s structure and functions. She explained that the Federal Reserve System consists of twelve banking districts and the Board of Governors located in Washington, D.C. She emphasized that the Federal Reserve Bank of Boston is not a policy-making group, but rather that it has various functions that are delegated from the Board or derive from statutory authority. These functions consist of the supervision and regulation of financial institutions to ensure safety and soundness in their operations; data collection and analysis to promote price stability and sustainable growth in New England and the nation; and various community development efforts to promote economic growth in lower-income communities.       

The presentation concluded with a brief Q&A period during which the panelists fielded questions concerning the financial crisis and recovery, staying abreast of regulatory developments, and avoiding future crises.

[1] US Bank National Ass’n  v. Schumacher, SJC-11490 (Mass. argued Nov. 7, 2013).

[2] M.G.L. c.244 §35A provides ten points of information and provides the borrower 150 days to cure their default.