Executive briefing

Northwestern Financial Review, Jan 10, 1998

Sub S Popular Among Community Banks

Grant Thornton reports that 561 banks, resenting 6 percent of the banking industry, have converted to subchapter S incorporation status. Eighty-three percent of the banks that converted have less than $100 million in assets. The majority of the banks that converted are located in the Upper Midwest. The consulting firm says that at least 10 percent of the banks in Iowa, Minnesota, North Dakota and South Dakota have converted. In Minnesota, 16 percent of the banks have converted, even though the state still assesses distributions to pay federal taxes as though they were ordinary dividends. A Grant Thornton spokesperson said he expects even more banks to convert in 1998.

FDIC To Hire More Examiners

The Federal DeDosit Insurance Corporation announced it plans to hire 150 additional examiners in 1998. The supervisory staff of the FDIC will expand to 2,750 employees this year. Officials said hiring freezes and downsizing left the division understaffed. The agency had nearly 4,000 supervisory employees in 1992. Overall employment at the FDIC, however, will decrease in 1998 to 7,661. The FDIC's budget for 1998, at $1.36 billion, is 16 percent lower than in 1997.

Fee Income Top Profit Source

Fee income now contributes more toward the banking industry's profitability than all other sources of income, according to Veribanc, of Wakefield, Mass. Using third-quarter industry data, the company said large banks generally charge more than medium-size banks. The smallest banks, those with less than $25 million in assets, generally have the priciest fee structures, Veribanc said. In the third quarter, all banks enjoyed an annualized fee-based return on assets of 1.29 percent. Fees are subsidizing other less lucrative banking activities, Veribanc said. Reg Z

Disclosure Requirement Simplified

The Federal Reserve has adopted changes which simplify the disclosure requirements on variable-rate loans secured by the borrower's principal residence and which have maturities of more than one year. Under the new provisions in Reg Z, lenders are permitted to disclose that there may be substantial variations in monthly payments based upon annual interest rate changes. Lenders may also illustrate the maximum payment and interest rate for a $10,000 loan, rather than using the 15-year example based on indices.

Streamlined Modernization Bill Pushed

U.S. ReD. David Dreier (R-Calif.) plans to push his financial modernization bill, H.R. 2940, when Congress reconvenes. The-bill repeals Sections 20 and 32 of the Banking Act of 1933, amends the Bank Holding Company Act to allow bank holding companies to affiliate with non-financial commercial enterprises, and pre-empts state law that prohibits affiliation between banks, securities firms and insurance companies. Dreier said he believes his approach is less controversial than H.R. 10, and will seek consensus to bring the bill to the House floor as soon as possible.

FFIEC, IRS Comment On Y2K

The Federal Financial Institutions Examination Council has issued a statement on the business-wide implications of the Year 2000 problem. The statement offers safety and soundness guidance and details regulators' expectations of senior managers in overseeing Year 2000 resolution projects. The guidelines are available on the FFIEC's web site at www.ffiec.gov. Also, the Internal Revenue Service has determined that the cost of fixing Year 2000 computer software problems are deductible.