Page 1


MAY 2012


BANKING NEW YORK Volume 22 | MAY 2012


The Electronic Accelerant

SPECIAL SECTION 06 The Digital Risk

and Investigative Landscape

08 Reduce Redundancies in

Fraud and AML Investigations

10 Protect Your Data or Suffer

Customer Loss

12 Volcker Rule Requirements

for Community Banks

13 How to Avoid Check Fraud in

the Digital-Imaging Age

14 The Under-Banked Consumer:

Not ‘Them’ but ‘Us’

NEWS 22 Provident Buys Gotham 26 NY AG Talks ‘Clearing The Air’ 27 Christmas Comes Early to Tarrytown


28 Banks Exploring Conversion





CONTRIBUTING WRITERS THIS ISSUE Lina Goodspeed, Steve Viuker, Scott Van Voorhis

EDITORIAL Cory Hopkins Christina P. O’Neill ASSOCIATE EDITOR Cassidy Norton Murphy EDITORIAL DIRECTOR


©2012 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210

TWG STAFF CHAIRMAN Timothy M. Warren CEO & PUBLISHER Timothy M. Warren Jr. PRESIDENT David B. Lovins CONTROLLER DIR. OF OPERATIONS Jeffrey E. Lewis SALES George Chateauneuf Megan Braga Cara Feldman Richard Ofsthun







FROM THE EDITOR | By Christina P. O’Neill

The Electronic Accelerant


his issue could easily be called the bank security/bank insecurity issue. Our special section on safeguards from within addresses the internal hazards of the banking infrastructure. Electronic technology is faster, lighter and more ubiquitous, but then, so is the ability to kite a check. Banks must constantly strike a balance between being as fast and convenient as the competition, and the increased exposure to risk. In this special section, we address various safeguards and practices to keep your deposits safe.

As for external risk, technology and social media have been the accelerant fueling the hot rhetoric of Occupy Wall Street. Our cover story taps industry observers for their comment on what kind of change, if any, the movement will ultimately have on the banking system. Their take: in the echochamber age of social media, a big following doesn’t necessarily translate into significant change. They raise the question of whether banks have pulled back from unpopular terms and conditions because they drew the attention of Occupy Wall Street, or

because of pushback from their own customers. This also raises the core question of how much a customer is actually worth. Are there some customers banks would be glad to see go? Undoubtedly, yes, and the churning in today’s banking market provoked by social media may just be a speeded-up version of what was going to happen anyway. n

Christina P. O’Neill Editor Banking New York

Got Apps? We Do! ...and they’re not games ...they’re productivity solutions for banks!

Learn how COCC apps and other core processing innovations can help your bank succeed.

Core ProCessinG serviCe

w w w. c o c c . c o m - 8 8 8 . 6 7 8 . 0 4 4 4 4 | Banking New York

With its customers under water, Diebold went where it had to go. Above and beyond.

In the aftermath of Hurricane Katrina, Diebold assembled a comprehensive unit to respond to every customer without exception. It’s another example of Diebold doing more to build relationships. Relationships that have inspired us to become leaders and innovators in the banking industry for more than 150 years. For the entire story, visit 1.800.806.6827


The Digital Risk and Investigative Landscape By Edward M. Stroz and Eric M. Friedberg


usinesses are showing a growing understanding that cyber attacks are not a matter of if, but when, and that the best defense is being prepared with a good offense. They need to think proactively about protecting customer information, and in turn their own corporate reputations, by treating cyber security as a process rather than a one-time product. Having handled many cyber incidents, here are the trends we have observed over the course of the last two years, which we expect to continue in 2012: Sophistication of cyber attacks: Most organizations’ digital assets are threatened not by individual rogue hackers, but sophisticated teams of experts with relevant specialties operating with stealth and military precision to carry out an attack. Many organizations still rely on the individual “jack-of-all-trades” defense strategy, and are thus dangerously exposed to sophisticated, team cyber attacks. Today, organizations can only counter cyber threats with their own team of skilled and seasoned experts.

Rising audacity of hackers: Response to cyber attacks is now a board-level issue requiring mitigation plans as well as crisis plans. This has been vividly proven by attacks on companies such as Sony, Lockheed Martin and RSA, which raised the specter of just how secure any form of digital security can be for anyone, and it has had a profound impact on corporate reputation. The spring 20011 attack on Epsilon Data Management, the world’s largest permissionbased email marketing provider, exposed email addresses at about 2 percent of Epsilon’s customers in several industries. One of the victims, a major pharmaceutical customer, disclosed that the breach exposed information about prescription and nonprescription drugs and products used by consumers registered on its websites. Following the initial attack, hackers created a phony website targeting the consumer victims of the breach victims through installing malware on their PCs. Whether a cyber threat involves hacktivism, state-sponsored data theft, malware or another technique, businesses must treat cyber security as a process rather than a product, by doing the following: • In advance of an incident: Establish a data breach response plan and a response team with an up-to-date notification plan. Preparations should include necessary steps to take in the first 72 hours after an attack, and having a crisis communications plan in place. • In the event of an attack: Respond by changing all passwords, including administrative passwords immediately; leave all computers powered on but disconnected from the Internet, if possible; isolate and preserve all compromised systems and data using forensic methods. • After the incident: Conduct a post-mortem to learn from mistakes. Assess gaps in your response plan and train staff based on the event; stay current on changing threats and laws, and update all plans and training.

Edward M. Stroz and Eric M. Friedberg are co-presidents of Stroz Friedberg, a global digital risk management and investigations firm. 6 | Banking New York

CLOUD COMPUTING AND CORPORATE GOVERNANCE The adoption of cloud computing – in which public and private providers host computer applications and data in different physical locations, accessed via a web browser – has caused much concern over perceived security shortcomings. However, much less attention has been paid to the more subtle implications of cloud computing on a company’s governance, risk management and compliance. These implications can significantly increase legal exposure for a company victimized by a data breach, as not every cloud vendor is structured to quickly determine where the servers housing the breached data are located, delaying the ability to investigate and appropriately respond. Legal teams shouldn’t wake up to these risks when there’s an incident, but become aware of such risks ahead of time so they can be prepared to respond. For example, in selecting a provider, a business should secure contractual rights to image entire servers, take backup tapes out of circulation or turn off auto-delete functions in the event of a data breach.

THE CYBER THREAT OF ‘BAD LEAVERS’ Corporate downsizing due to economic challenges and sudden changes in the workplace (such as mergers and takeovers) can trigger discontent that can transform otherwise happy and productive employees into potential “bad leavers,” a 21st-century phenomenon. Good workers can go bad when they feel devalued, left out of a financial windfall or otherwise disenfranchised. When a network administrator for the city of San Francisco became disenchanted in 2008 after being disciplined for poor job performance, and was unhappy with the management of his department, he “engineered a tracing system to monitor what other administrators were saying and doing related to his personnel case,” according to an article on, and set network devices that could erase vital configuration data with a single command. When it was time to let him go, for almost two weeks he held the network hostage until finally, after being arrested, he turned the passwords over – illustrating the massive damage that one employee can cause. Bad leavers can destroy or alter critical evidence, plant forged documents on a server, or walk out with proprietary documents and trade

secrets on a small external storage device. But while technology has certainly empowered bad leavers, technology can also contribute exponentially to their downfall. To combat this epidemic requires a thoughtful and deliberate plan, designed to pre-empt, counteract and remediate bad leaver situations. One innovative new methodology Stroz Friedberg sees gaining favor is a behavioral sciences approach that provides a psycholinguistic analysis of a subject’s emotional state, personal and risk, while tracking changes over time.

NEW SEC GUIDELINES FOR DISCLOSURE In October, the U.S. Securities and Exchange Commission released its first-ever staff guidance pertaining exclusively to the cyber security-related disclosure obligations of public companies. This development will prompt many, if not all, of the several hundred largest companies to start opening up about what they have lost and what they stand to lose. We believe that disclosure obligations related to a cyber attack is a far cry from the usual triggering events that prompt reporting obligations of today’s public companies. Assessing and solving any cybercrime can necessitate a significant level of expertise that many public corporations simply might not have. The SEC’s guidance dovetails with the recent whistleblower provisions within the Dodd-Frank Wall Street Reform and Consumer Protection Act, which reward informants who provide certain types of information leading to successful securities actions, including failure to disclose actions, with between 10 and 30 percent of any recovery over $1 million. The result: public companies that may have previously believed they were not at risk for cyber attacks are now running a higher risk than ever before. For a public company to effectively respond to a data breach, its technical incident response team should take five separate actions: prepare a full response plan; preserve any evidence of the breach while swapping in clean machines; execute an immediate digital forensic assessment; identify key compromised data; and notify and report to multiple parties, not just the SEC – including contracting parties, victims, credit reporting agencies, government agencies, even the media. continued on page 9 

May 2012 | 7


Reduce Redundancies in Fraud and AML Investigations By Jamie King


ver the past two years we have sat through numerous sessions on the topic of combining anti-money-laundering (AML) and fraud at various conferences. Numerous articles have also been written on the topic. Until recently, most of the talk has centered on bigger institutions. But we think the focus should be on how financial institutions of various sizes are working on fraud and AML today. Mary is the chief compliance officer and chief risk officer at a $300 million financial institution. Every Monday morning Mary works through her alerts from an automated fraud/AML (FRAML) system. She starts with her fraud alerts and completes a first pass by lunch time, separating the obvious false alerts from those she would like to investigate further. After lunch she works through about 20 money laundering alerts. It is very common for her to see some of the same suspects in her AML alerts that she’s previously reviewed. Perhaps she cleared them or opened a fraud case on them just a few hours ago. She either acknowledges this alert or adds it to the opened case and makes a note that this may be fraud or money laundering. She then spends the next few days investigating this unusual activity. Several of the cases turn out to be fraud. She quickly closes the account. In another case, what appeared to be check kiting turns out to be a money laundering structuring scenario, so she decides to file a SAR. Then there’s Lisa and Frank, who work at a $2 billion financial institution. Lisa is the chief compliance officer and Frank is head of risk management. Since their institution is four

times as big as Mary’s bank, they typically see four times as many alerts. Each of them has hired an assistant to help manage the alerts. On Monday morning each of their assistants will start reviewing the fraud and money laundering alerts and determine whether to acknowledge the alert as a false positive or to assign it to their bosses (Lisa and Frank) for further investigation. Since they both work independently it is very common for them to see the same customers. And because they use separate monitoring and case management systems, this often results in Frank and Lisa investigating the same people. Finally let’s take a look at Kathy, Doug, Susan and Fred. They work at a $20 billion institution. Because they receive so many alerts across their different channels, not only do they have separate fraud detection and anti-money laundering groups, they have also separated their risk management into card fraud, check fraud and ACH/wire fraud. Each of them has a small team of case investigators reporting to them. Now consider the sophisticated criminal who has learned to commit fraudulent activity across multiple channels. This particular criminal has used a phishing scam to steal a customer’s credentials and has logged into an online banking system and set up a series of payments to a foreign account. In addition, he changed the customer’s mailing address and ordered a new ATM card. This activity shows up in the money laundering monitoring system as well as the various fraud monitoring systems, resulting in four different teams investigating the same account. These examples are very representative of the real world. While it is rare for a larger institution to look to a small bank in order to try to improve their processes, perhaps it’s time to look beyond the norm. n

Jamie King is CEO at Verafin, a provider of a converged fraud and anti-money laundering application for nearly 800 banks and credit unions in North America. 8 | Banking New York


continued from page 7


documents stored on a hard drive may be secured by encryption and security software, it is possible that copies of documents stored on a mobile phone may only be protected by a simple fourdigit combination – or not at all. With the growing adoption of BYOD policies, vendors are starting to offer solutions for securing mobile devices or

For legal counsel facing an explosion of data and growing complexity in cases, saving time and money in the discovery process is essential to success. Known as predictive coding, this process takes a random sampling of a large quantity of data for review; then software codes the subset and applies it to the entire collection of data. This algorithmic process provides the opportunity to make judgments without reviewing the entire data set. This result can be explained and verified in court but is not considered a black box technology. The well-known Pension Fund case, which found that data was not properly preserved, is an example of a case where analytics would have been beneficial in determining who was involved and who was missing. This directly points to risk reduction and what data needs to be preserved.

creating protected areas on the devices where company data will be stored. We hope this article will raise important questions and stimulate dialogue around complex digital risk and investigative issues. We would welcome the opportunity to discuss these trends and their implications for your business in greater detail. n

Do your statements look like this?

‘BYOD’ – BRING YOUR OWN DEVICE The “consumerization of IT” – the desire of consumers that the simple, easy-to-use devices, software and services they use in their personal life to be part of the business enterprise’s communications and computing platform – is now one of the top three drivers of cyber security, resulting in new challenges for IT in securing these endpoints as well as the corporate enterprise. Companies often are required to search their data for relevant documents as part of the discovery process in litigation. With BYOD policies, identifying the relevant data may not be as straightforward. For example, in addition to documents stored on computers, email, and file servers, employees may have notes stored on their iPads or other tablet devices. It may be necessary to use specialized software or employ assistance from digital forensic consultants to preserve data from mobile phones or tablet devices, particularly if employees choose sophisticated smartphones. While

Full-Color Redesigned Statements with Custom Formatting

Interactive PDF Delivered Electronically

Reduced Processing Costs

Targeted Cross-Marketing

Eliminate Inserts with Onserts

Built-In Response Buttons

Improved Customer Service


888-FSI-6200 today to schedule an online demo and see what FSI can do for your statements.

Trust well placed.

21 Harristown Rd, Glen Rock, NJ 07452 • 201.652.6000 • 888.FSI.6200 • Core Processing • Item Processing • Integrated Packages • Corporate & Branch Capture OFAC & Patriot Act Solutions • Web Hosting & Services

May 2012 | 9


Protect Your Data or Suffer Customer Loss By Michelle Drolet


n Jan. 5, federal law enforcement seized several automobiles valued at about $100,000, which had belonged to the former president of the Massachusetts Bank and Trust Company, as restitution for his defrauding the bank in 1997. Last year in May, Bank of America sustained a $10 million loss when an insider sold the bank’s customer data to organized criminals who then committed fraud against the bank’s customers. The former associate sold scammers customer names, addresses, Social Security numbers, phone numbers, bank account numbers, driver's license numbers, birth dates, email addresses, mother's maiden names, PINs and account balances. If confidential information – sales leads, customer accounts, trade secrets, intellectual property (IP) is stolen or misused, your competitive edge can evaporate and your reputation and balance sheet can take a major and potentially fatal hit. Regulated information – such credit cards, personal and financial information – is frequently the target of attacks. Theoretically this data is protected by U.S. state and federal regulations that require strong security controls. But many businesses are not fully compliant with these regulations. Or they may have all the right policies in place, but lax or no monitoring or enforcement. Whether a hacker steals customer data, or a well-meaning employee loses a laptop or other portable device containing sensitive data, the loss of regulated information amounts to a reportable data breach. Recently enacted state and federal regulations mandate security breach

reporting if it involves customer or employee personally identifiable information (PII). But the increase in breaches can’t be accounted for by increased reporting alone. We’ve all seen it: Critical, sensitive information is backed up on USB drives that dangle at the end of key chains, or other devices that IT has little or no control over, such as smartphones, tablets and MP3 players. Employees often fail to encrypt it, compounding the impact of its loss. When employees leave for jobs at other companies, they often believe that they own their relationships with customers. Unlike piracy or patent infringement, customer information theft exists in a legal gray area. In many states, noncompete and non-solicitation agreements favor the organization, but in other states non-compete clauses are not enforceable. The employee can retain the relationship so long as it doesn’t involve any solicitation. When departing employees take sensitive organizational data with them, you may be left to deal with a costly, reportable security breach, and a mass exodus of customers who have lost trust in your organization, or who follow your former employees to their new companies. Even if you suspect an employee has improperly taken customer information, you need a strong forensic process and tools in place, as well as policies that prevent, for instance, the re-issuing of computers the moment someone leaves. Otherwise you’ll be hard-pressed to prove any wrong-doing. One way to minimize insiders’ opportunity to steal sensitive data is through vulnerability scanning and penetration testing, which can help your organization find weaknesses in access controls, the technical implementation of administrative policies, and other vulnerabilities that enable insider attacks. n

Michelle Drolet is founder and CEO of Towerwall, an IT security services provider in Framingham, Mass.

10 | Banking 10 New | Banking York New York

Believe it or not, the hole in their insurance is a much bigger issue. In the real world, uncovering exposures businesses face takes skill and experience. That’s where we come in. For more than 110 years, our local presence and industry-leading underwriters have combined to offer a comprehensive suite of coverages designed to protect you from these hidden exposures. Contact your independent agent today to learn more about our Travelers SelectOneŽ for Community Banks. Š2010 The Travelers Indemnity Company. All rights reserved. The Travelers Indemnity Company and its property casualty affiliates. One Tower Square, Hartford, CT 06183


Volcker Rule Requirements for Community Banks By Robert Taylor


ast November, the federal bank regulatory agencies, together with the Securities and Exchange Commission, issued proposed regulations implementing Section 619 of the DoddFrank Wall Street Reform and Consumer Protection Act. That section contains prohibitions and restrictions affecting the ability of banks and other financial companies to engage in proprietary trading. These prohibitions and restrictions of the Dodd-Frank Act commonly are referred to as the “Volcker Rule.” Because community banks generally are not engaged in propriety trading, they can ignore most of the voluminous and controversial regulations implementing the Volcker Rule. However, the Volcker Rule regulations will require some action by all community banks. Specifically, the proposed regulations require that by July 21, 2012, every bank have in place policies and procedures designed to prevent it from commencing such activities without first establishing a compliance program. The Volcker Rule restricts proprietary trading by insured depository institutions and their holding companies. “Proprietary trading” is defined as “engaging in the purchase or sale of one or more covered financial positions as principal for the trading account of a bank.” A “covered financial position” includes any position in a security. Therefore, any security investment made by a bank will be considered a covered financial position. These investments are restricted, however, only if the investment is made for a trading account of the bank. A “trading account” is defined as “any

account used for acquiring or taking positions in securities principally for the purpose of selling in the near term or otherwise with the intent to resell in order to profit from shortterm price movements.” If a bank’s investment account does not meet the definition of a trading account, investments in that account will not be restricted by the Volcker Rule. While community banks may have accounts that might fall within the definition of a trading account, these accounts typically invest only in government securities, and the proposed regulations exempt from the proprietary trading restrictions purchases and sales of U.S. government, state and municipal securities. The proposed regulations require banks that are engaged in proprietary trading to establish detailed compliance programs for monitoring compliance with the Volcker Rule. The proposed regulations further provide that any bank that is not engaged in proprietary trading must still have in place policies and procedures that will prevent the bank from commencing such activities without first developing a compliance program. Accordingly, a community bank that engages in no proprietary trading will still need to adopt policies and procedures to restrict the bank from commencing such activities without first developing a compliance program. Public comments on the proposed regulations were due by Feb. 13, 2012. While these requirements may change somewhat with the issuance of the final regulations, the Volcker Rule requirements are scheduled to become effective on July 21, 2012. Community banks will need to review the final regulations and make sure they have adopted any necessary policies and procedures by the effective date.  n

Robert Taylor is a partner at Day Pitney, a Hartford, Conn.-based law firm with offices throughout the Northeast.

12 | Banking New York

How to Avoid Check Fraud in the Digital-Imaging Age By Christina P. O’Neill


nstant availability of funds is and always has been a great marketing move. Today banks of all sizes struggle to replace lost fee income. They’re expanding their target market for check capture services from wellknown, trusted users to broader mass market. But it isn’t 2004 anymore. Now, practically everyone carries a high-resolution camera within their mobile phone. Would-be thieves don’t even have to walk into the lobby with a note – they can rob the bank from the parking lot. And then go down the street and do it again at another bank. Ben Knieff is director of product marketing for NICE Actimize, a leading financial crime, risk and compliance solutions provider. The cost of imaging technology has come down as the quality has gone up, he says, making it easier for small and midsized banks to partner with third party providers to provide once-premier check-clearing services to a broader market base at an economical cost. That doesn’t mean risk has gone away. “The bad guys know that the big players talk to each other,” he says. “They will try to attack the smaller organizations, and double-present items at two different community banks that they don’t think are talking to each other.” Offering image capture to consumers makes the problem more challenging, he says. A fraudster can present multiple items to dozens of institutions nearly simultaneously, creating a challenge to identify and verify the bank of first deposit. But banks have choices on how fast they need to make funds available.

“They can tighten up availability without massive negative impact on legitimate users,” Knieff says. “Banks don’t have to make the same decisions for every customer. An organization deploying the right technology can dial that decision to specific customers and specific items. … ‘This check looks dodgy – hold off on it. That one is a payroll check to a well-established customer; make it available.’ It’s a much finer level of granularity that maintains a good, positive customer experience while dialing back the risk.”  n

It’s Time to Expect More from Currency Automation Solutions and Self-Service Coin Centers

Doing Things the Right Way

Currency Dispensers

Centers ice Coin Self-Serv



61-201 50 Y E AR S

Currency Recycle rs

Contact us: 800-347-1414 ext. 336 or visit

May 2012 | 13


The Under-Banked Consumer: Not ‘Them’ but ‘Us’ By Drew Edwards


anks have always talked about “banking the unbanked,” but the underlying assumption has been that the unbanked need to be educated to become bankable. Banks have never been willing to change their product offerings to meet this massive consumer group’s real needs, including check cashing, money transfers, walkup bill payments or prepaid debit cards. That’s changing. Today, in response to lost fee income, banks are offering services that are currently primarily available at the corner check casher or market. Banks’ internal analysis has revealed that as much as 30 percent of their current deposit account holders are going outside the bank to obtain these services, and the consumers that are going outside the bank to cash checks are not the same consumers that pay them for overdrafts or for payday loans. Chexar has been trying to convince bankers to offer these services for almost 10 years, and we have seen the same two points of resistance consistently – until this year. First, bankers have historically regarded check cashing as predatory. Second, they have indicated that they would limit such offerings to their underperforming branches in demographically-changing areas perceived as no longer populated by “bankable” consumers. Today, Walmart is the largest check casher in America with thousands of Walmart Money Centers directly targeting these consumers and offering them FDIC insured accounts in the form of prepaid debit cards. This has both legitimized the business in the eyes of banks and given them a wakeup call. Now we are seeing major financial institutions developing new product sets for the underbanked consumers that are packaged as a branded ”relationship” with the bank and offered as a core product in all branches. This is going to be a huge shift in the marketplace. Banks are going to stand up to Walmart and offer to serve the massive unbanked and underbanked consumer group with a whole package of products, not just a single sideline product. 14 | Banking New York

CASH IS KING Contrary to popular opinion, banks are uniquely positioned to serve this consumer, and they have advantages over retailers in several areas. First, retailers entering this space face regulatory licensing and compliance issues. Banks are exempt from this licensing and they are already in the compliance business. Second, retailers don’t like to deal with cash, but the unbanked/underbanked consumer favors cash. Banks have the cash and the infrastructure to deal with it. Finally, transactional costs associated with offering check cashing, for example, are extremely high for a non-bank. For a bank, these costs are by definition “wholesale.” And while the perception is that the targeted consumers are averse to visiting a bank, the facts disagree. A few years ago, major retail banks started charging non-customer walk-ins seeking to cash a check drawn on that bank. These are called “non-customer, on-us checks,” and the objective was that the fee would drive the consumer to the check casher. But today, each of these major banks still cash staggering numbers of these items. Supporting many consumer studies, this offers further proof that millions of consumers are more comfortable doing their confidential financial transactions in a bank. We expect that all major banks will offer full product sets in their branches targeting the true needs of consumers who want to live the “pay as you go method” within three years, with offerings available at teller lines, ATMs, self-service kiosks both at banks and retailers, and on mobile phones.

THE INSTANT-GRATIFICATION GENERATION The millennium generation, which is very much into prepaid and instant gratification, fits into the unbanked/underbanked category. They will likely never adopt the traditional bank account that has transactions in transit, such as deposits and checks, that need to be reconciled and accounted for each month to determine your true

balance. Prepaid cards give them instant updates on the available funds and overdrafts don’t exist. As banks begin to repackage their accounts, they are utilizing checking and deposit technology for a fee, which includes instant risk free gratification. If prepaid is the new bank account, then instant check availability without return item exposure is the new deposit. This works in a traditional account just as well as in a prepaid account. As banks arm their branches with a complete product set for the underbanked consumer (including the millennium consumer), including the ability to cash or deposit risk-free any type and any size check, they stand to hold their own in the contest to win and profitably serve these valuable consumers. n Drew Edwards is CEO and founder of Chexar Networks, Inc. B:7.25”

SCREENING CHECKS IN THE MOBILE AGE All banks and check cashers are concerned that mobile deposit capture, where the consumer keeps the check, will create skyrocketing duplicate check transactions as these checks are deposited more than one time. Banks and check cashers that rely on Chexar for their risk management have built-in protection from this issue. Chexar Networks Inc. offers a check-activitymonitoring solution called Dupex, which allows banks, check cashers, mobile wallet and prepaid providers to better control the risks of cashing a check, or accepting a check for deposit, that has already been accepted by another provider. It provides advance warning of activity on a check before the decision is made to accept the check, including information about inquiries on the check prior to the first deposit. Dupex can be utilized through a variety of interfaces including a Web-based portal and full integrations with mobile application providers, banking platforms and industry point of sale solutions.

T:7.25” S:6.75”

UMB Card Services is the preferred premier bankcard provider of the New York Banker’s Association, offering credit cards at a competitive cost with less hassle.

May 2012 | 15


To learn more, visit or call 866.885.5609.


Better correspondent banking is within your reach. Grab it. Energize your business with UMB Correspondent Banking Services. We have the knowledge and resources to keep you competitive with easy access to the services you need to grow.

Wag the

Dog The ‘Occupiers’ vs. the Banks By Steve Viuker

For Occupy Wall Street demonstrators, the Guy Fawkes mask has become a symbol.

16 | Banking New York


ince its inception last year, the grassroots initiative Occupy Wall Street has gone downtown in a big way. The anti-1 percent folks now have office space both in New York City and Chicago. Occupy Chicago has two units leased in the Riverfront Work Lofts. In downtown Manhattan, Occupy Wall Street has a 2,500-square-foot office on Broadway near Zuccotti Park, the site of the protesters’ original occupation. Occupy Wall Street marked its sixth month anniversary on Saturday, March 17, in New York with a march to Zuccotti Park. Police moved aggressively, detaining 73 people and making use of force, according to reports from the Associated Press. After dark, the crowd in the park grew to more than 500. The Wall Street Journal reported a team of about 30 people has been working through the winter months, developing hightech tools to help coordinate demonstrations that protesters will execute this spring and summer. It ranges from Internet maps tracking police barricades to a fundraising website. The Journal says some of these tools – mapping, high-definition live-stream video, mass email list-serves and secure mobile Wi-Fi networks – will likely be used during a series of protests planned for across the country on May 1. Christopher Guerra, an OWS activist, has told several media outlets that he anticipates the movement becoming more of a political presence as the election year goes on. Mother Jones magazine reports 10 candidates for House and Senate seats in the November elections have made OWS part of their campaigns. They include Massachusetts Senate candidate Elizabeth Warren and Hakeem Jeffries, who is running for Congress in Brooklyn. But in the sound and fury world of social media, a big following doesn’t always translate into significant change, say many who follow the banking industry. Some credit OWS as a catalyst to get banks to implement more customer-friendly policies; others say that those policy changes have come as a result of pushback from the banks’ customers. But most agree that there’s ample evidence of OWS’ ability to foment. “There is a huge amount of what I call ‘free floating ire’ out there,” said Davia B. Temin, president and CEO of crisis management firm Temin and Co. “People are angry. The anger can attach to whatever is sticking out at the moment, as well as to those institutions people blame for their troubles. Obviously, the biggest targets are the organizations that have seemed to prosper while individuals suffered. The largest, most high-profile organizations seem to be the targets, not community banks. BoA rightly judged the potential harm that protests – from the public at large as well as clients – could do, and changed their policies quickly. Often, it is correct and courageous strategy to listen to the public and make changes.” continued on page 18 

May 2012 | 17


continued from page 17


New York-based consulting firm Novantas tracked customers who moved from banks to credit unions. They found convenience of some services better in big banks; Internet banking was smoother, community banks weren’t as dynamic. That situation should improve over time. Fifty to 75 percent of new account acquisition is initiated by a bank’s existing checking and lending households, explained Hank Israel, a partner at Novantas. “And there are three classes of customers. Those with sufficient balances to cover the cost of their transactions constitute 20 to 30 percent of the bank population. The other side are people who are willing to, and do, pay fees such as overdraft or foreign ATM fees. Those who pay for their account constitute another 20 to 30 percent. The ones in the middle keep a minimum balance that’s high enough to avoid maintenance fees but not enough to cover their costs.” “The people who would have been most likely to be upset by Bank of America’s now-scuttled $5 monthly fee for debit card use are those who have successfully avoided fees in the past. Some of them may be profitable in other bank products, but probably the bulk of them are nominally profitable at best. They’re the most likely to move.”

“Forget the small, community banks, thrifts and credit unions,” said Andrew S. Edson, president of Andrew Edson & Associates, Inc. “The attacks on the [larger] banks garner headlines. And customers of BoA, not OWS, caused the change. Credit unions and small[er] banks took advantage of the less-than-thought-out strategy by BoA.”

99 TO 1 “The real backlash seems to be coming from everyone who is working so hard to make a living,” said Temin. “They look at the OWS folks and wonder how they have time to do this.” According to Edson, “Left-leaning organizations, unions suffering from member loss, recent graduates who 18 | Banking New York

could not or did not find a job, new generation hippies and segments of the Democratic Party” are the core support for OWS. “Centrist and right [of center] constituents, well-educated, mainstream Americans and small business owners view them largely as unkempt and totally unrealistic,” he said. “Instead of helping to create jobs, the actions of OWS caused small businesses to close and people to lose jobs. Certain elements of the OWS credo will be integrated in the body politic of both major parties and perhaps more so with the Democrats.” Fraser P. Seitel of Emerald Partners believes OWS had a minimal effect. “OWS hasn’t done much with small community banks. It is so loosely structured and haphazard that its best

shot for publicity – a primary aim – is the biggest banks. So the small banks get a pass. OWS can take some credit for BoA’s rollback. OWS didn’t start the controversy. But, opportunistically, it joined in, and BoA caved.” OWS appeals most to the disenfranchised, the unemployed, the people struggling to make a living and appeals least to most people trying to make a living. OWS has hurt its cause and support most by disrupting the very small businesses it ostensibly is supporting. Wall Street small businesses got ravaged during the OWS occupation, although the local McDonald’s bathroom received significant use. When the economy recovers, OWS will be but a memory. Its lack of leadership was one crushing


blow. However, in fairness, its only discernible rallying cry, “99 percent v. 1 percent,” has gotten traction and may well be a strong part of President Obama’s reelection campaign. “Smaller banks and commercial finance groups are starting to speak up about bad service and unfair competition from the bailed out [too big to succeed] banks … and how inefficient they are. I believe the debit card reversal on the fees issue is a direct result of Occupy Wall Street and consumer backlash,” said Jeffrey Sweeney, CEO of US Capital Partners. “Wait for the weather to get better in spring and summer of 2012. The movement will explode and social media will work its organizational magic during the winter.”

Competition from credit unions and community banks might help their bigger brothers. “With a weak loan environment and a flattened yield curve, this isn’t a great time for large banks to be attracting deposits anyway,” explained Richard Barrington, a spokesperson for “That’s why banks – and large banks in particular – are offering such anemic interest rates for deposit accounts. Losing what are generally likely to be small deposit accounts to credit unions isn’t going to hurt large banks. And ironically, in today’s environment, it might even improve their bottom line.” “I believe the industry takes OWS seriously,” said banking consultant Charles Wendel. “But OWS seems

to be disorganized and rag-tag with some issues that are mainstream and others bizarre. I visited the New York site. People were saying ‘kill bankers’ and others were talking about a 9/11 conspiracy plot. And I don’t believe banks have to be embarrassed. They are usually clear about what fees they will charge customers and the fees are major revenue sources. BoA revoked the $5 fee because customers were being smart and vocal. And the internet has allowed people to express their views and also find options; such as credit unions and community banks. Those institutions are telling customers they won’t ‘fee’ them to death and as banks such as BoA close branches, continued on page 20  May 2012 | 19


continued from page 19

the smaller banks will remain. Credit unions are better for consumers; most can’t do business lending.” Explained Randi Busse, president of Workforce Development Group, “I believe that it was regular customers who were fed up with big bank fees in general, as well as the specific charge by Bank of America, that had the biggest impact on the reversal of the fee by Bank of America. The number of customers who participated in Bank Transfer Day was influenced by social media. I feel that banks’ social media sites are ignoring the movement specifically and focusing more on what they are doing to be philanthropic as well as how they are offering educational programs to their customers.” Although OWS is primarily focused on the United States, it has made it presence known in Europe as well. In London, an executive of the RBS gave up a large bonus due to protests that were going to be held in front of his residence. The New York Times reported on Occupy W.E.F., short for the World Economic Forum. The mayor of Davos, Hans Peter Michel, cleared the parking lot, offered the protesters the use of a portable cabin and helped them build igloos. But they were separated from the official proceedings by barbed-wire fences and security guards. However, Klaus Schwab, executive chairman of the forum, invited representatives of the Occupy group to meet with him. Occupy countered by saying he could visit the camp in the parking lot. And a talk on remodeling capitalism included an Occupy representative as well as Ed Miliband, leader of the opposition Labour Party in Britain.

WE UNDERSTAND YOUR CONCERN Some of the big banks checked in with comment. Wells Fargo spokesperson Richele Messick said, “We certainly respect the rights of everyone who has been 20 | Banking New York

involved in the Occupy movement. We understand the concerns that this movement has been raising. We know Americans want more from their financial institutions. These are difficult economic times that people are living in. Wells is doing home preservation workshops and mortgage modifications. We want to keep people in their homes.” As far lending issues to small businesses, Messick pointed out that in 2011, Wells was the first bank to reach $1 million is SBA loans. “We are doing everything we can to say yes to creditworthy borrowers,” she said. Citi spokesperson Molly Meiners supplied Banking New York with a transcript between Citi CEO Vikram Pandit and Fortune magazine Managing Editor Andrew Serwer at an event sponsored by Fortune on Oct. 12, 2011. Regarding OWS, Pandit told Fortune, “I’d say that their sentiments are completely understandable. The economic recovery is not what we all want it to be. There are a number of people in our country who can’t achieve what they are capable of achieving. I would also corroborate that trust has been broken between financial institutions and the citizens of the US, and that it’s Wall Street’s job to reach out to Main Street and rebuild that trust. We’ve got to make sure that we deal with our customer transparently, fairly.” Bank of America declined comment.

FIVE BUCKS, 500 BUSINESS CARDS Patrick Cullen offers an unexpected perspective on the travails of big banks. He’s president of the Bank of Cattaraugus, on the opposite end of the bank-size spectrum from Wells Fargo and Citi. The bank is based in the town of Cattaraugus (population 900) in Cattaraugus County, in the southwestern part of the New York state and immediately north of the Pennsylvania border. Abraham Lincoln, Teddy Roosevelt, Daniel Webster and Franklin D. Roosevelt all

visited the town. Think Bedford Falls, Jimmy Stewart and It’s a Wonderful Life as reference points. “OWS didn’t affect us one way or another,” said Cullen. “But I will say that both OWS and news media are misinformed.” Cullen, a second-generation banker, believes the problems began on the local level, and that they didn’t start at the big banks. “About 10 years ago, there were ads running in the local papers telling people they could become mortgage brokers. $4.95 got them 500 business cards. HFC and Countrywide were providing the forms to the brokers. We had three; one guy was still in high school. They were telling people to lie on their financial forms. I don’t believe the major banks were aware of the deception when they purchased those loans.” Countrywide was the country’s largest independent non-bank lender before its January 2008 acquisition by Bank of America.

A REPUTATION INFLUENCER Summed up Davia Temin: “Every public organization is in some way thinking about how to leverage an election year. They would be naive if they did not! The social movements of the late ’60s and ’70s fizzled, but not before making a lasting societal impact. And many of the financial services CEOs I know are listening carefully. OWS is a reputation influencer.” Indeed, a story on said OWS plans protests at the G8 Summit in Chicago and a general strike on May 1. Plans also include protests outside the Republican National Convention in August, followed by the Democratic National Convention. Organizer Austin Guest said OWS plans to protest in front of banks, as they did this winter. “In the spring, we’re going to shut them down,” he said. “We’re going to cost them money. We’re maybe going to make them go bankrupt.” n


One advance can help fund hundreds of neighborhood needs. FHLBNY advances are a reliable liquidity source for our member lenders to finance home mortgage, small business, and economic development activities. M&T Bank, an FHLBNY member, used an advance to help renovate a commercial structure in Rochester, New York, owned by North East Area Development, Inc. (NEAD). The building is leased to the Dazzle School of Visual & Performing Arts, a non-profit agency serving a racially, economically, and developmentally diverse audience of area youth and adults. The project helped revitalize Northeast Rochester and provide a variety of programs to benefit community residents. Contact us to see how the power of an advance can improve your community. 101 Park Avenue, New York, NY 10178 | (212) 441- 6700 | Note: The Federal Home Loan Bank of New York uses the word “advances� to refer to the loans it provides to our member lenders.

NEWS | By Scott Van Voorhis

Provident Buys Gotham


ome of the world’s largest banks are facing new competition in their New York City backyard from a pesky local upstart. Provident New York Bank recently gained its first beachhead in Manhattan, acquiring Gotham Bank. The bold move puts the $3 billion-plus bank, based in Rockland County in the Lower Hudson Valley outside New York, in direct competition with the likes of $1.8 trillion Citigroup and the $2.2 million JPMorgan Chase & Co. Montebello-based Provident’s move is yet another example of community or regional banks seeking new growth at the expense of the behemoths of the industry, challenging the titans in their urban strongholds. And New York is an appealing battleground, with the city on the rebound after a tough economic and real estate downturn. “Gotham Bank is a great strategic fit for us and offers an attractive platform in the New York City market to grow our franchise,” said Jack Kopnisky,

“GOTHAM BANK IS A GREAT STRATEGIC FIT FOR US AND OFFERS AN ATTRACTIVE PLATFORM IN THE NEW YORK CITY MARKET TO GROW OUR FRANCHISE.” - Jack Kopinsky, president and CEO, Provident Bank president and CEO of Provident Bank. “The acquisition of Gotham Bank continues the implementation of our strategic objective to expand our reach into the greater New York City marketplace.”

BUYING A BIG APPLE BEACHHEAD Provident announced plans in January to buy Gotham for $40.5 million in cash. The price is 125 percent of Gotham’s net worth, with an estimated 3.3 percent core deposit premium. Provident is expanding through the acquisition of a relatively strong community bank franchise rather, than picking up a troubled operator at a fire sale price. A small, community orientated commercial bank with a single branch in mid-town Manhattan, Gotham was founded in 1980 and has earned a reputation for offering a high degree of personal service for its clients. Gotham has $169 million in loans on its books, as well as $335 million in deposits. 22 | Banking New York

The deal is anticipated to close in the third quarter of the year. “Provident Bank has a strong plan for the future and we are pleased to be an important part of their entry into New York City,” said Laurence R. Marchini Jr., CEO of Gotham Bank of New York.

HEALTHY NEW YORK MARKET AN ATTRACTION It was not Gotham’s size that was attractive to Provident, but rather its value as a springboard into the wealthy Manhattan market, a rich hunting ground for banks interested in tapping into a vibrant commercial lending market and attracting high-networth customers. Even as many other major cities have struggled to get back on their feet after the Great Recession, New York City managed to escape the worst of the downturn. Fitch Ratings recently affirmed its “AA” rating on New York’s $41 billion-plus municipal debt load. Along with citing prudent management practices by city officials, Fitch also pointed to the “inherent economic strength” of the New York City economy. New York has recaptured many of the jobs it lost during the recession. Moreover, key sectors, such as tourism and commercial real estate, are booming. The city attracted a record 50.5 million visitors from around the world in 2011, according to Fitch. And commercial real estate is doing well, with 30.1 million in leasing activity in 2011, the highest volume in more than a decade. New York’s 9.3 percent vacancy rate is the best of any major metro market in the country. In addition, there is a huge concentration of wealth in the Big Apple, with median income 123 percent of the national average. In a telling statistic, the financial services sector accounts for 12 percent of all jobs in New York and 30 percent of all takehome pay, according to Fitch.

HITTING THE GROUND RUNNING Meanwhile, Provident has already put into motion a plan to tap into the wealth of business and personal lending opportunities to be found in New York City. Provident plans to hire three to five New York-based banking teams, which will partner with Gotham’s veteran Big Apple lending team. The new teams will continued on page 24 

The bank other banks can bank on. For over six decades, Union Bank has been working with a wide range of financial institutions to help them improve profitability, reduce costs and streamline operations. We offer a wide range of traditional and specialized products, backed by the strength and experience of a recognized leader in treasury management services. Add to that our industry knowledge and you’ll be poised to fully realize the potential of your financial institution. With a legacy like that, it’s no wonder so many banks, well, bank with us.

To put our financial institutions experience to work for you, call us today at 800-590-7305. Western Region

Central Region

Eastern Region

Sally J. Hazen SVP & Industry Manager 877-800-8740

Denise Wiest Vice President 916-321-3198

Peter Caligiuri Vice President 312-601-3957

Marla Feldman Vice President 914-273-0351

Adnan Mneimne Vice President 800-590-7305

Scott Strebe Vice President 213-236-6999

Robert Wettergren Vice President 214-468-7851

Philip Toscano Vice President 917-639-4438

Robert Markey Vice President 816-229-7884

©2012 Union Bank, N.A.

April/May 2012 | 23


continued from page 22

focus on middle market commercial lending while also offering personal banking services to business owners, senior managers and their employees. David Bagatelle, an executive vice president at Provident, will oversee the expansion in a newly created position as president of Provident’s New York City operations. “As we put together our middle-market banking teams in New York City, Gotham provides a platform to expand that includes a core asset and deposit base, a long-term client base, an advantageous location in midtown Manhattan, and an initial legacy client relationship team,” Mr. Bagatelle said in a press statement Though Provident might seem mismatched, moving into the home territory of such banking behemoths at Citigroup and JPMorgan, it is yet another example of how community banks in the New York metro market and across the country are moving into claim lucrative niches serving small and midmarket businesses and wealthy individuals as the big banks focus on more global concerns, notes David Albertazzi of the Boston-based Aite Group. Banks like Provident, a larger community bank with $3.1 billion in assets, have a nimbleness their much larger competitors can’t match. Technology is also proving to be a great equalizer, allowing small banks to expand their reach in

ways that would have been impossible a decade or two ago, he noted. “Larger institutions have been closing branches and have been creating opportunities,” Albertazzi said. “Much smaller institutions are grabbing at those opportunities.” Other community banks and investors are looking at making similar plays in the New York metro market. Private equity investor Michael Carrazza pumped $50 million back in 2010 into Patriot National Bank, based in the wealthy New York City bedroom community of Stamford, Conn. The bank’s location was a major draw – it came with three branches in New York itself. The bank has aggressively pushed to ramp up its commercial and industrial lending, as well as loans to small businesses. “In other geographies, we might not have been quite as interested,” Carrazza said, adding the “spread of customers in both New York and Connecticut” was an attraction. “It is a very affluent and stable market.” New York-based Amalgamated Bank, after a $100 million bailout by a group of investors – including a fund launched by Lakers great Magic Johnson – also plans to ramp up its business lending in New York. The bank’s problems stemmed from housing ventures across the country that blew up with the real estate bubble burst. The bank lost more than $100 million over

That’s confidence through clarity. They had the right mix of solid experience and knowledge of banking operations that kept my institution ahead of the industry.

We make it a priority to monitor legislative and regulatory changes as well as economic trends that influence your day to day business. Our 200 financial institution clients include de novo banks to multi-billion dollar asset bank holding companies.

See what we can do for you.

Audit | Accounting | Tax | Business Advisory © ParenteBeard LLC

24 | Banking New York

the past several years on real estate loans gone bad, some made in once-booming Sun Belt markets like Las Vegas. A profit of $9 million in 2009 turned to a $1.2 million loss in 2010. “New York is probably one of the more stable markets in the world,” said Ed Mermelstein, a real estate attorney and co-founder of international real estate law firm Rheem Bell & Mermelstein in New York. “It has fared the best during the downturn and the risk and reward scenarios are different.”

SUBURBAN INVASION? Provident is not alone in seeking to expand from a suburban base into a downtown urban area, following a game plan seen in other cities. In Boston, suburban community banks like Eastern Bank and Danvers Bank have expanded from suburban bases to open branches in downtown Boston. It is a way, say bank executives, of following their customers to work. Making such moves even more enticing has been a retreat by the big banks from the nitty-gritty of community lending. Provident’s push into New York is part of a larger strategic reorganization by the bank, executives wrote in a filing with the federal Securities and Exchange Commission. The bank has restructured its management structure around geographic markets, such as New York, hiring market

presidents to oversee them, as well as a new chief operating officer. The bank’s main two twin areas of focus are growing “core deposit generation” and using that as a springboard to expand is commercial loan portfolio. Total loans on Provident’s balance sheets rose 4.3 percent during the last three months of 2011, hitting $1.7 billion. The growth came as the bank added more than $105 million in commercial real estate loans to its portfolio. As it expands into New York, Provident is hoping to find a sweet spot between very small community banks and impersonal financial giants. Kopnisky, the bank’s chief executive, makes a comparison with the retail industry to describe the niche Provident is striving to fill. According to remarks published on the bank’s website, he sees Provident as the mid-sized retailer, perfectly perched between the mom and pop stores and the mass chains. “With a smaller, local store, customers get a superior level of customer service, whereas large department stores can offer greater selection but with less individual attention,” Kopnisky said. “Provident Bank is situated between these two categories, allowing us to focus our attention on each customer, without sacrificing the innovation or range of services necessary to adequately serve our customers.” n

May 2012 | 25

NEWS | By Steve Viuker

Photo: Office of the New York State Attorney General

NY AG Talks ‘Clearing The Air’

Eric Schneiderman, shown here at a state press conference, has taken a tough stance on mortgage practices in the state.


n a tone that echoed a long-ago New York attorney general named Dewey, Eric Schneiderman told a packed breakfast at the Roosevelt Hotel of his plans for cleaning up the financial mess. “When I first took office, there was an effort by the states to resolve issues such as robo-signing in the foreclosure process,” he said at the breakfast on Feb. 16, sponsored by Crain’s New York. “I believe deregulation went too far and many safety features were taken off the system. And folks took advantage of it. There was a big push for people to refinance their homes and everything was rolling along. In 2004, interest rates began to rise and you would think the market would go down. But the amount of questionable loans went up and the quality of the securities declined.” Schneiderman said he objected to releasing the banking community from the “misconduct that lead to the bubble and the crash of the American economy. The mortgage-backed security market was inflated and collapsed and caused economic 26 | Banking New York

devastation. We have to clear the air and the housing market. The majority of Americans believe that somebody got away with something. And they’re painting Wall Street with a very broad brush.” He also sued Bank of America, Wells Fargo and JPMorgan Chase, accusing them of fraud in their use of an electronic mortgage database that he said resulted in deceptive and illegal practices, including false documents in foreclosure proceedings. The MERS database contains more than 70 million mortgage loans, including millions of subprime loans. Schneiderman is seeking all profits obtained through fraudulent and deceptive practices and other damages, including $5,000 for each violation of general business law. Regarding his lawsuit, Schneiderman praised the system of reporting property. His concern was deregulating to the point of recklessness. “You never want to have a question of whether you have title to a piece of property,” he emphasized. And New York state is planning to speed foreclosure cases. According to the New York Times, the plan includes an unusual agreement by four banks to send representatives to court who can approve loan modifications. According to The Times, the program is to start in Queens this spring and then expand around the city and to nearby suburbs. Judges would take over the running of some settlement conferences from court attorneys, who lack the power to impose punishments. The officials said the plan would also include court supervision of the collection of the required documents to try to avoid delays and would seek to shorten the time some foreclosure cases linger in the courts. In addition, courts would work to assure that homeowners who cannot afford lawyers are represented. If it is successful, the plan would be expanded across the state next year. A possible source of funding for lawyers could be New York’s $136 million share of the recently negotiated national mortgage settlement. The funds are to be controlled by Schneiderman. In a statement, the Attorney General said that he planned to use a significant portion of the money for homeowners’ lawyers and housing counselors.  n

NEWS | By Steve Viuker

Christmas Comes Early to Tarrytown


Photo: Robert Blumenfeld

es, Virginia, Bank Loans are Available” was the catchy subject of an ACGNY panel discussion on Feb. 17 in Tarrytown. And while Christmas was 10 months away, the panelists appeared to believe the lending spigot is open and the economy is rebounding. The discussion was moderated by Barry Korn, managing director, Barrett Capital Corporation. The panelists were Stephen Altneu, vice president, Capital One Business Credit; Barry Karen, first vice president, IDB Bank; John Mulvey, senior vice president, Wells Fargo Bank; and Oleh Szczupak, executive vice president and chief credit officer, Keltic Financial Services. “We do asset-based lending with somewhat better financial statements than what a Keltic would do. We specialize in financing finance companies and debt buyers,” said Barry Karen of IDB. “If you’re making money and have some capital, banks are chasing you. If you put out a RFB, you’re likely to have multiple banks interested. For the profitable company, there is lending at the bank level.” “Wells Fargo is the largest middle market lender in terms of customers in the United States,” explained Mulvey. “We can provide any type of asset based lending at various entry points with $50 million in revenue size up to $500 million. The majority of our business is with family owned clients but we also have small and mid-cap corporate clients in our portfolio. Banks can’t hang on to customers when the risk rating deteriorates. That gives an opportunity to asset based lenders.” Mulvey also said that “everyone is competing on price,” adding that it won’t be long before everyone will be competing on structure. “Bankers are lemmings and we’ll be back to where

Pictured at an ACGNY breakfast on credit markets in Tarrytown on Feb. 17 are Barry Karen, first vice president, IDB Bank (left), and John Mulvey, senior vice president, Wells Fargo Bank.

we were in 2007-08 with covenant transactions.” And where does Keltic fit in? “If companies are having operational problems or facing financial distress, they are being pushed out of the banks,” explained Szczupak “We are a privately owned finance firm. We target small to middle firms with revenues from $10$100 million. What does a firm do if they’re a $50 million revenue company; have a good product line but don’t have a bank that will support them if they have issues. Banks, due in part to their regulatory requirements, can’t react to [that] type of companies. We’re finding family owned businesses that are solid companies but their bank won’t give them a loan. That void is creating huge opportunities for [privately owned] ABLs because the banks can’t service those people.” Altneu pointed out that there has been an influx of players providing financing on the smaller end where the credit quality isn’t bank quality.

“We provide financing to the middle and lower markets and do transactions only on the senior side from $5 to $50 million,” he said. “On the larger end, the existing players are more competitive than ever. Lenders want to hold onto companies with good credit facilities. It’s difficult for a competitor to win business away from a company that has a good relationship with its lender.” As for the future, Mulvey expressed optimism. “The economy is recovering slowly and steadily,” he said. “Companies that saw revenues contracting in 2009 and capital requirements decreasing due to the economy have seen a rebound in sales in 2010-11. They’re on firmer footing and financial performance has improved. The real headwinds in commercial banking are that we look at things a little tighter structure-wise.” Regarding sector improvements, Mulvey pointed to media, tech and health care – the latter as baby boomers age.  n May 2012 | 27

NEWS | By Linda Goodspeed

Banks Exploring Conversion from Federal to State Charters


ergers at both the federal and New York banking regulatory levels have prompted a number of federally chartered thrift institutions to switch to a New York charter. Banks operating in New York have the choice of having either a state or federal charter. Charter conversions, from either state to federal or federal to state, are nothing new, but in recent months, the New York Department of Financial Services, which oversees the state’s banking industry, has reported a surge in applications from federally chartered banks seeking state charters. The interest among federal banks in moving to a state charter seems to be related to the recent merger in August 2011 of the Office of Thrift Supervision (OTS), which had been the primary regulator of federal thrift institutions, into the Office of the Comptroller of the Currency (OCC), which is the primary regulator of national banks. “There were all kinds of rumors that the exam 28 | Banking New York

process under the Office of the Comptroller of the Currency was going to be a nightmare, a beast, impossible for small institutions,” said one New York bank president, who asked not to be named. The federal regulatory changes coincide with changes at the state level. Regulation of state chartered banks is now centralized within the new DFS, formed in October 2011 from the consolidation of the state’s banking and insurance departments. “We view the rationale for federal savings banks and associations trending toward the New York State charter, and to DFS as regulator, because of our greater accessibility, responsiveness and better understanding of the dynamics of the New York marketplace, compared with the Office of the Comptroller of the Currency, a federal agency responsible for regulating a much larger number of institutions located across the United States,” said a DFS spokesperson. “Because we are closely attuned to the challenges faced by local institutions, DFS is better able to provide supervisory guidance and support.” Michael Hosey, president and CEO of Elmira Savings Bank, the first federally chartered bank to receive a state charter under the new DFS, told the Elmira Star Gazette that the conversion “will reduce regulatory uncertainty for the bank in the aftermath of the dissolution of the Office of Thrift Supervision.” “It will enable the bank to be regulated by a regulatory agency closely connected to the needs and circumstances of community banks operating in the state of New York,” Hosey said. In addition to Elmira Savings Bank, DFS is currently processing state charter applications from NorthEast Community Bank, Cross County FSB and Dime Savings Bank, and is discussing charter conversions with several other federally chartered institutions. Changes in regulatory oversight are not the only reasons behind some of the charter conversions. Kenneth A. Martinek, president and CEO of NorthEast Community Bancorp, Inc., the holding company that owns NorthEast Community Bank, said NorthEast is switching to a state charter for

strategic, not regulatory, reasons. NorthEast has four branches in New York state and three in Massachusetts, with plans to open more in the Bay State in the next two to three years. “Massachusetts is ripe with small business lending opportunities,” Martinek said. “We are growing our Massachusetts franchise very rapidly.” But under a federal charter, that growth could be curtailed, he said. “The difference in charters has a lot to do with what you are allowed to do under a particular charter,” Martinek said. “We are a multi-family, mixed-use, commercial lender. Under a federal charter, we are limited to commercial lending of 10 percent of assets. With our growth plans in Massachusetts, it is only a matter of time before we bump into the 10 percent of assets rule. The New York state charter does not have that prohibition on commercial and industrial lending.” Under a state charter reciprocal agreement, Martinek said NorthEast will be able to operate in both New York and Massachusetts with a New York charter. As a bonus, Martinek said the New York state charter fees are about half the federal charter fees. “We save money and don’t run the risk of violating the statute involved with C&I lending,” he said. Martinek said federal regulatory changes did not figure into NorthEast’s charter conversion plans. “It’s just coincidental,” Martinek said of the regulatory changes. “Business-wise, moving to a New York charter is a better move for us. Our view is that one regulator is pretty much the same as any other regulator.” He said the charter change will be transparent to customers. All bank operations, loan terms, interest rates, deposit insurance, etc., remain the same under either a federal or state charter. “Our customers will see no change,” Martinek said. “It is truly transparent, even to most of our employees here at the bank. The only people who will see any change are those who have to read the regulations.” n

May 2012 | 29

Small Change

LOCAL WINNERS OF THE ABA’S ‘LIGHTS, CAMERA, SAVE’ VIDEO CONTEST ANNOUNCED New York’s winners of the “Lights, Camera, Save!” video contest for teens aged 13-18. The video contest was designed to inspire teenagers to learn about the value of saving and motivate their peers to become life-long savers. The first-place winner – Nang (Nancy) Yone from St. Brigid School in Brooklyn, N.Y. – won an iPad. She had two assistants, Rochey Roy and Jessica Louis, who each were awarded $50 gift cards. Judges from Ridgewood Savings Bank agreed that this winning video was truly creative, while clearly conveying important messages about savings. The second-place winner, who was presented with a Color Nook, was Melina Loli. She attends the High School for Arts & Business in Queens, New York. The third-place winner, Nicolette Wanunu from the Kings Bay Y in Sheepshead Bay, received a $100 gift card. “We would like to congratulate the winners and all contestants for highlighting the key message of this contest, which is to start young, save more,” said Peter M. Boger, chairman, president and chief executive officer of Ridgewood Savings Bank. “As a community-focused bank, we always look forward to teaching young people about the value of saving to achieve financial security and success.” According to LouAnn Mannino, vice president of Ridgewood Savings Bank, “This unique contest not only allows young people to be rewarded for their creativity – it encourages them to become lifelong savers. At Ridgewood we have a 90-year history of helping people save and are delighted to carry on this tradition to a new generation.” The “Lights, Camera, Save!” video contest is part of the American Bankers Association Education Foundation’s National Teach Children to Save Program.

RIDGEWOOD SAVINGS BANK PROMOTES PETER BOGER TO CHAIRMAN AND CEO WILLIAM MCGARRY TO RETIRE Ridgewood Savings Bank announced that Peter M. Boger will be its new chairman and CEO. He will continue to serve as the bank’s president. Boger, who joined Ridgewood Savings Bank in 1999, succeeds William C. McGarry as chairman and chief executive officer. McGarry is retiring after serving as chairman and CEO of Ridgewood Savings Bank since 2004. “It has been an honor and inspiration to have worked 30 | Banking New York

From left Walter Reese, senior vice president of retail banking, branch operations and banking administration; Sheila Smith Gonzalez, principal of St. Brigid School; first-place winners Nancy Yone, Rochely Roy and Jessica Louis; Sheepshead Bay Branch Manager Nancy Adzemovic; and LouAnn Mannino, vice president and district manager.

From left: Walter Reese, senior vice president of retail banking, branch operations and banking administration; second-place winner Melina Loli; Sheepshead Bay Branch Manager Nancy Adzemovic; and LouAnn Mannino, vice president and district manager.

with Bill McGarry for many years. His leadership and vision have been essential factors in Ridgewood Savings Bank’s notable growth and success,” said Boger. “As we pass our 90th anniversary, I look forward to continuing our bank’s mutuality and unwavering mission as a ‘community-first’ bank. We will always be guided by a steadfast commitment to personalized banking relationships and success through service.” Ridgewood Savings Bank is the largest mutual savings bank in New York state, with $4.8 billion in assets. William C. McGarry said, “It is highly gratifying to have Peter Boger succeed me as chairman and CEO of the bank. I have great confidence in his ability to carry on the legacy of Ridgewood Savings Bank. He has always embodied our dedication to the neighborhoods we serve.”  n

With the right life insurance partner, any size bank can run with the big dogs.

At Vantis Life®, our flexible life insurance distribution model can keep you ahead of the pack. Vantis Life understands that no two financial institutions are the same. That’s why we have a life insurance distribution model that creates a better life experience by meeting the specific needs of your institution, big or small. Whether that includes using licensed bankers, financial advisors, online or direct response methods, we customize your program and support it with best-in-class training, wholesaling and marketing.

To find out how Vantis Life can offer you a better life experience, call Craig Simms, Senior Vice President, at 860-298-6005 or visit us online at ©2012 Vantis Life Insurance Company, Windsor, CT. All rights reserved. Vantis Life and A better life experience are trademarks of Vantis Life Insurance Company.


In today’s climate, you need to be confident about where your debit card program is headed. Our singular focus on debit for more than 30 years provides you with insight, resources and guidance to help you optimize a secure debit program to retain customers and attract new ones. Go to to learn how we can help you take the right road.


Banking New York May 2012  

This issue of Banking New York features a special section on bank security; coverage of what Occupy Wall Street means for the future of bank...

Read more
Read more
Similar to
Popular now
Just for you