Financial Services Report

Consider this Editor's Note your amuse bouche. We start you off with a confection that didn't exist three months ago when we last broke bread: "Pension envy." Go ahead and weep, but don't expect another diatribe about California corrections officers retiring at age 55 and drawing $135,000 a year, with COLA. No, we are talking about former heads of state denied access to the Swiss bank accounts that would see them through their sunset years. It's one thing to be toppled by a mass of mutineers. That risk goes hand in glove with personal militias and private Beyonce concerts. But getting one's assets frozen by Jürgen is so unexpected (unmöglich!) and so...so un-Swiss. What's worse, the market for places of exile has tightened. Thirty years ago, Idi Amin found safe haven in Libya and Saudi Arabia, where he lived happily ever after. Scotch that now. Blame the baby boom.

There's a lesson here: hire a retirement professional. The rest of us worry about Roth IRAs and long-term nursing care. But despots need to plan too. And they need to start building that nest egg during their most productive years: Middle-dictatorship. That's when you make the down payment on the "Dr. No" island fortress in the Seychelles. If you had, you wouldn't be crying over spilled mustard gas now. Don't get me wrong. There are advantages to absolute tyranny — the epaulets, the dress swords, the voluptuous Ukrainian nurses — but the Swiss betrayal is enough to make a young tyrant consider the private sector.

As an appetizer, and still on the subject of Swiss banking, we are offering in these pages a fondue of Basel III, because stuff happened. (See Operations Report.) And for your main course, there is a full platter of Dodd's Franks (see Beltway Report and Mortgage Report) with a side of debit interchange (see, e.g., "The Interchange Bulldozer"). If you have room for dessert, we're suggesting a mélange of privacy initiatives from a number of sources (see Privacy Report) or an assortment of arbitration developments (see "Class Action Waivers"). Finally, if you have the stomach, you can finish with the California Supreme Court's new zip code case (see "Zapping with Zip Codes"). Until next time, think before you start a mildly suggestive end-zone dance, avoid Jeopardy with Watson, and take a drink every time this newsletter mentions Lady Gaga or Justin Bieber.

Beltway Report

CFPB Goes Viral

Psst. Hey buddy. Wanna see Miss April? You can view Special Advisor Elizabeth Warren's calendar online as part of the Treasury Department "beta" CFPB website, at http://www.consumerfinance.gov/ . One component of the CFPB "beta" website is the "Open for Suggestions" app, a feature through which you can communicate directly with the CFPB implementation team through YouTube video questions. The "About the Bureau" section includes an animated video tracing the origins of the financial crisis and explains what the CFPB will do to protect families and improve markets. The video is narrated by financial wizard and Hollywood director, actor, and producer Ron Howard.

Coming soon: Cute, stuffed CFPB animal mascots, exclusively at Toys "R" Us.

Finger Pointing? Or Finger Painting?

Thank goodness! Now we know. On January 27, 2011, a divided Financial Crisis Inquiry Commission released its final 662-page report regarding the causes of the 2008 financial crisis. The six-member majority concluded that the crisis was avoidable, and assigned culpability to a number of factors and players, including all of the usual suspects: failures of corporate governance, too much risk taking, compensation that rewarded short-term gain, lack of preparation by key agencies, and failures of credit reporting agencies. The five minority members beg to differ, and in their dissent they identify 10 different causes.

What did you expect, Camus? This is more like Gilligan's Island (Season Two), except there's less character development. For a copy, see http://www.fcic.gov/report .

R U "Important"?

Who matters? Under Dodd-Frank, a nonbank financial company can be designated as "systemically important" by the Financial Stability Oversight Council if at least 85% of the company's revenues or assets are related to activities that are financial in nature under the Bank Holding Company Act. The proposed rule also defines the terms "significant nonbank financial company" and "significant bank holding company" as firms that have at least $50 billion in total consolidated assets or have been designated by the Council as systemically important. Comments on the proposal must be submitted by March 30, 2011. Publication in the Federal Register is expected shortly.. 2 Big 2 Fail?

The FDIC Board voted to approve an interim final rule clarifying how the agency will treat certain creditor claims under the new orderly liquidation authority established under Dodd-Frank. The interim final rule differs from the notice of proposed rulemaking by clarifying the standard for valuation for collateral on secured claims and the treatment of contingent claims. The final rule provides that taxpayer money may not be used to cover losses associated with the failure of a large financial firm. The interim final rule also addresses other issues, including authority to continue operations, treatment of creditors, and application of proceeds from liquidation of subsidiaries.

More Vitamin Z

The Board proposed an amendment to Regulation Z increasing the threshold for exempt consumer credit transactions from $25,000 to $50,000. Under the proposal, future increases in the threshold will be tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers. A separate proposal issued by the Board on the same date would increase the threshold amount for exempt consumer leases under Regulation M from $25,000 to $50,000. For additional information, see our client alert at http://www.mofo.com/ files/Uploads/Images/101220-Proposed- Increase-in-Dollar-Threshold-for-Coverageby- Regulation-Z.pdf

The Dodd-Frank, 24/7

On March 14, MoFo will unveil an online resource that tracks rulemaking pursuant to the Dodd-Frank Act. The database features a robust search function that will allow users to quickly navigate to particular sections of the Act and to find links to related regulatory materials as well as relevant MoFo commentary. The basic database is available free-of-charge by subscription only to Morrison & Foerster clients. You will receive additional materials and instructions for requesting a password from your MoFo lawyer. It will provide: (i) Plain English descriptions of all the sections of the Act; (ii) links to regulatory materials; (iii) MoFo commentary; (iv) search by key word, title, section, substantive area, agency, type of regulatory action, action deadline, or any combination of criteria; (v) easily sortable data that can be downloaded in a print-ready, user friendly format; (vi) custom user alerts by act title, substantive area, and regulatory entity; and (vii) advanced data export compatible with may project management systems.

Volcker Rule Timing

On February 9, 2011, the Board published a final rule implementing the provisions of Dodd-Frank that give banking entities a defined period of time to conform their proprietary trading and hedge fund and private equity fund activities to the Volcker Rule. The Final Rule gives such entities a conformance period of two years, with the possibility of three one-year extensions, and an additional period of up to five years for investments in illiquid funds. For in-depth analysis of this rule, see our client alert at http://www.mofo.com/files/Uploads/ Images/110214-Federal-Reserve-Publishes- Final-Rule-Conformance-Volcker.pdf .

History Defines the Safety Net

The FDIC Board of Directors set their insurance fund's designated reserve ratio ("DRR") at 2% of estimated insured deposits, much higher than the 1.35% minimum required by Dodd-Frank. The decision to set the DRR at 2% was based on a historical showing analysis of losses to the insurance fund that, in order to maintain a positive fund balance and steady, predictable assessment rates, the reserve ratio must be at least 2% as a long-term, minimum goal. The final rule is part of a comprehensive fund management plan proposed by the Board in October 2010. The Board expects to act on the remaining aspects of the comprehensive plan, assessment rates, and dividends in the first quarter of 2011. If that doesn't work, the FDIC will arrange for direct deposit into our Serta mattresses.

OTS — The End Is Near

The federal bank and thrift regulatory agencies announced proposed changes to reporting requirements for savings associations and savings and loan holding companies regulated by the OTS pursuant to Dodd-Frank. The proposed changes include a change from quarterly Thrift Financial Reports to quarterly Consolidated Reports of Condition and Income, commonly known as Call Reports. The proposed changes create uniform reporting systems and processes among all FDIC-insured banks and savings institutions and among all holding companies supervised by the Federal Reserve Board. The agencies are requesting comment on the proposed changes within 60 days of their publication in the...