1. Iowa Day with the
Superintendent
April 12, 2007
Neil Milner CAE
President and CEO
Conference of State Bank Supervisors, Inc.

2. CONFERENCE OF STATE BANK SUPERVISORS
Champions of the State Banking System
Statement of Principles
State System of Banking
> Our overriding goal is to maintain the state system as
the charter of choice for community, multi-state,
international and de novo financial institutions.
> The states must retain their role as the front-line,
grass-roots regulator for the financial services
industry.
> As state bank supervisors, we work at both the state
and federal level for focused and efficient bank
supervision.
> Federal regulatory preemption of state laws
endangers the dual banking system and consumer
protection.
> Through CSBS, the collective states have a single
voice with Congress and federal policy makers and an
organization for maintaining a pool of well-trained,
focused banking regulation professionals.

3. CONFERENCE OF STATE BANK SUPERVISORS
Champions of the State Banking System
Statement of Principles (cont.)
Safety & Soundness of Financial Institutions
and the Banking System
> We believe that a significant goal of bank supervision
and examination is to assure the safety and
soundness of individual financial institutions and the
overall banking system.
> Cooperation between state and federal regulators
strengthens bank supervision, the financial services
industry, and the economy.
> We support financial independence and budget
autonomy for state banking departments as they
pursue excellence in supervision.

4. CONFERENCE OF STATE BANK SUPERVISORS
Champions of the State Banking System
Statement of Principles (cont.)
Compliance with Banking and Consumer Laws
> We believe that bank supervision at the state level
provides regulators that are accessible, who
understand state laws, are in tune with the local
economy, and knowledgeable about the consumer.
> We agree that for the supervision of interstate banks,
the home state banking supervisor should be the
primary regulator.

5. CONFERENCE OF STATE BANK SUPERVISORS
Champions of the State Banking System
Statement of Principles (cont.)
Promoting Economic Development
> We recognize that community banks, most of which
are state-chartered, drive the economic success of
Main Street America.
> We support the authority of our states to empower
banks to develop new services that serve the best
interests of our citizens.
Approved by the CSBS Board of Directors, September 2006

6. Improved Website!!
www.csbs.org
 Board & IT
areas
restricted
 New Features
on our website
 Event registration
 Pay membership
dues online
 Improved
Regulatory area
 Examiner Resource
Links
 Mortgage Licensing
 Systems
working
together:
 Website &
membership
database interfaced
 Database &
accounting
interfaced

7. 2007 Annual Meeting &
Conference
> Coeur d’Alene, ID
> May 30 – June 1, 2007
> NEW: Industry All Day Session
> Marketing
Save the Date Cards & Eblast
Exhibitor/Sponsor Prospectus
Preliminary Program
> Register TODAY!!!!
www.csbs.org

8. CSBS/AARMR
Mortgage Licensing System
> Two primary objectives:
 Provide uniform mortgage
application for every agency
 Develop comprehensive
registry of record for
participating states to house
the information from the
uniform application

9. System Schedule
> System to go live 1/1/2008
> Uniform annual renewal and
annual reports to go live end of
2008
> 7 states using MU Forms, expect
another 9 over next 3 months
> 29 States signed “Statement of
Intent” to try to come on the
System by the end of 2009
> Quarterly functional upgrades to
System throughout 2008 & 2009
> Expect 4-6 states to come onto
system quarterly throughout
2008 & 2009

10. FFIEC- States have a VOTE
> SLC
FFIEC –STATES HAVE A VOTE
Chair- Steve Antonakes (MA - CSBS)
Sandra Branson (MO - NASCUS)
Bill Waits (NJ - ACSSS)
Mick Thompson (OK – At Large)
Eric McClure (MO – At Large)
> Taskforces & Working Groups
> Representation
State and CSBS Staff
Guidelines

11. Risk Based Capital: Basel IA
> CSBS supported direction of the initial
proposal
> Current proposal scaled back
significantly
> Residential mortgage loans risk
weighted by LTV
> Risk Ratings for external credit ratings
Little applicability in the loan
portfolio for most banks
> Short-term commitments risk weighted
with a 10% conversion factor

12. Risk Based Capital: Basel IA
> No changes…
Small business loans
Multifamily residential loans
Non-current loans
Commercial real estate exposures
> Will provide some appropriate relief to
community banks.
> Opens a door to incremental changes –
positive and negative.
DO NOT DISCOUNT ITEMS IN THE ANPR –
PERHAPS A LOOK INTO THE FUTURE.
> The proposal is an opt-in. Banks can choose to
remain under the current rules.
CSBS: Not worth the effort!

13. Who would want RBC relief?
Domestic Bank Capital, Performance & Exposures
As of 12/31/06
Total Risk Based Capital < 10%
Banks = 58
Avg Assets Leverage RBC ROA(1) ROE(1) Loans/Assets 1-4/Loans All Commercial CRE/RBC
Smallest 13,326 3.55% 6.63% 47.61% 3.72% 5.66% 0.67%
Largest 4,178,523 9.19% 9.97% 2.35% 33.92% 100.00% 89.67% 79.96% 810.07%
Average 289,522 6.92% 9.38% 1.05% 13.80% 83.21% 26.03% 45.23% 403.90%
Median 108,650 7.04% 9.66% 1.01% 11.81% 85.29% 18.87% 45.25% 426.08%
27 bank s >20% 40 bank s > 300%
Total Risk Based Capital > 10%, < 10.51%
Banks = 421
Avg Assets Leverage RBC ROA(2) ROE(2) Loans/Assets 1-4/Loans All Commercial CRE/RBC
Smallest 12,684 5.51% 53.71% 0.00% 0.00% 0.00%
Largest 142,273,327 13.10% 4.83% 49.85% 156.13% 80.76% 96.46% 952.66%
Average 1,215,993 7.88% 10.28% 1.12% 13.55% 85.24% 21.56% 47.96% 411.05%
Adj. Avg (3) 880,142
Median 253,358 7.85% 10.29% 1.03% 12.49% 85.47% 20.04% 48.49% 407.01%
212 bank s > 20% 301 bank s > 300%
(1) Does not include 18 unprofitable institutions.
(2) Does not include 3 unprofitable institutions.
(3) Adjusted by eliminating the largest institution.

14. Risk Based Capital: Basel II
> Numerous unresolved issues between
the agencies.
Standardized Approach
Safeguards (transition periods,
leverage ratio, 10% aggregate
drop)
> This will be the first time the U.S. has
had different capital rules for different
types of banks.

15. Risk Based Capital: Basel II
State System Perspective
> Need to consider Standardized
Approach in the U.S.
> What is the systemic impact from
multiple capital rules?
Competition
Consolidation
Safety & Soundness
> State regulator access to confidential
reporting data from Basel II banks.
Institution only versus a view of
the system

16. How do you measure
competitive
Bank Capital & Performance by Country
disadvantage?
Top 1000 Banks by Tier One Capital
Banks Removed Tier 1 Capital Return on Equity
Affect on Affect on
Average Average
Leverage Return from from
Banks in Ratio on Equity Sampling Sampling
Country 1000 > 20% < 0% Average Median Change Average Median Change
USA 215 5 3 8.34 8.05 -0.76 24.00 22.50 0.23
United Kingdom 32 4 2 7.18 6.01 -4.59 18.88 15.45 3.30
Switzerland 35 0 0 8.33 7.67 0.00 12.71 11.50 0.00
Spain 46 1 0 6.35 5.98 -0.30 17.48 16.75 -0.30
Japan 95 0 4 4.58 4.48 0.05 12.04 10.50 1.04
Italy 37 0 0 6.24 5.26 0.00 19.31 18.20 0.00
Germany 80 0 2 4.62 4.41 0.07 11.35 9.55 0.49
France 10 1 0 5.28 4.39 -8.36 20.76 18.05 1.78
Canada 11 0 0 5.00 4.23 0.00 20.94 23.30 0.00
Source: The Banker, July 2006

17. Commercial Real Estate Guidance
> Issued by agencies on December 6, 2006
> Two key thresholds as % of Capital
100% Construction & Land Development
300% CLD, multi-family & CRE
**Thresholds do not apply to OTS supervised institutions.
> Expectations
Stress testing
Market analysis
Underwriting according to secondary market standards
More Capital!
> We must be vigilant in ensuring the
guidance is implemented as stated
Thresholds are not limits
Does not discourage CRE lending
> Examiner training will be key

18. Mortgage Products: Nontraditional
Federal financial agencies released their final guidance
on September 29.
CSBS/AARMR released parallel guidance on November 14
 Applies to state-licensed mortgage providers
who were not covered by the interagency
guidance.
 Closely mirrors interagency guidance, but
without provisions that are inapplicable to
mortgage providers (portfolio management,
capital levels, etc.)
As of April 11, 31 states plus D.C. have adopted the
guidance

19. Mortgage Products: Sub-Prime
Mortgage Products:
Nontraditional
Consumer advocacy groups and Congress have
expressed concern with 2/28 & 3/27 ARMS.
Fixed at above market rate for 2 or 3 years, re-price each 6 months after initial period.
Designed to “repair credit.”
Payment shock after initial period is significant.
Policy Statement:
1. Qualify customers at full-indexed, amortizing rate.
2. Timely, clear disclosure
3. Balanced marketing
4. The fine line between sub-prime & predatory!
CSBS will draft parallel guidance similar to NTM.

20. Risk Based Assessments
Components
> Weighted CAMELS
(25%, 20%, 25%, 10%, 10%, 10%)
> Six Financial Ratios
> Long-term debt issuer rating
Well Capitalized banks pay between 5 and
7 basis points (others pay between 10
and 43).
Well Capitalized de novo banks pay 7 basis
points for five years, beginning in 2010.
**Know your ratings definitions – they
now have a financial impact!**

21. Supervisory Processes
Issues
> GETs/WPS
> BSA
> Best Practices
> Exam Tools
GENESYS
ALERT
FDICConnect
Interagency Examination Repository
(IER)

22. GETS/WPS
> Government Emergency Telecommunications
System FREE
Use “Calling Card”
GETS provides emergency access and priority
processing in the local and long distance
segments
> Wireless Priority System
program for priority cellular network access
WPS is accessed by dialing 272 before the
destination number using a phone that has
been subscribed with the WPS Feature.

23. BSA Exam Manual Update
> BSA/AML Examination Procedures
Update scheduled for Fall 2007
> InfoBase training CD available on
FFIEC website
> Available TRAINING:
CSBS 'Boot Camp' for BSA professionals – 2007
Annual BSA Conference
FFIEC Annual Conference- Pilot 2007

24. BSA – State MOUs
> FinCEN
• 40 banking departments have signed the
information sharing agreements
• 8 are in the review or final stages of process
• 6 other states need to change their statutes prior to
having the ability to sign the agreements
> IRS
• 35 have signed
> OFAC MOU
• 9 states have signed

25. Advocate In the Agencies
and on the Hill

26. Congressional Agenda Items
> New Congress the 110th
> Government sponsored enterprises –
regulating housing finance
Will be introduced and marked-up in the House Financial Services
Committee in the near future (the recent mark-up was temporarily
postponed).
> Predatory Lending
> Data Security
> Preemption
> Terrorism Re-Insurance Act (TRIA)
> Regulatory relief (Signed into law on
October 13, 2006 PL 109-351)

27. Regulatory Burden Reduction
> Legislation passed the Congress as S. 2856 and was
signed into law on October 13, 2006, as P.L. 109-351.
What CSBS called for in testimony
> Focus on Community Banking (Communities First Act, Rep.
Ryun, R-KS) Several provisions were added to the House Bill)
> Flexibility for state chartered Federal Reserve member banks
> Review of Riegle-Neal interstate branching
> IRS re-interpretation on tax status of LLCs
> State vote on FFIEC
> Interstate supervision policy
> Review of federal “regulatory” preemption policy
The law includes:

28. State Vote on FFIEC
> The State Liaison Committee’s role was one of
advising the FFIEC on issues
> When it came time to vote or a member
called for an “executive session,” the state
groups had to sit on their hands
> We asked for a real vote on the FFIEC
> This is now LAW and the State Liaison
Committee now has a VOTE on the FFIEC

29. Extended Exam Cycle
> Extend 18 month examination cycle to well
capitalized, well managed banks under $500
million (up from $250 million on old law).
> It has been suggested that the Federal Deposit
Insurance Fund would be alive and well even if
all banks under $500 million failed…
> Due to a drafting error in S. 2856, the 18
month exam cycle did not apply for certain
well-managed, well-capitalized institutions
with “good” ratings. The Congress passed
H.R. 6345 during the lame duck session to
include the “good” rated institutions.

30. Litigation
> Wachovia v. Burke (appealed to
Supreme Court Cert. pending)
> Watters v. Wachovia (Argued before the
Supreme Court in November…pending
decision any time now)
> National City v. Turnbaugh (appealed to
the Supreme Court Cert. pending)
> OCC/NY Clearinghouse v. Spitzer
(appealed to the 2nd Circuit…decision on
hold pending Watters case)

31. interstate compared to one-state
banks, state and national

33. Professional Development
“Developing Financial Professionals”
> BSA Boot Camps
> Problem Bank School
> Real Estate Appraisal
> Fraud Identification
> MSB Examiners Course

34. Professional Development (con’t)
“Developing Financial Professionals”
> BSA Boot Camp
 10 Boot Camps & 3 Mini Camps Conducted
 Intensive hands on exercise based program
 209 State & Federal Regulators from 34 states
 181 Bankers and Industry participants
 New Prepaid Card Mini-Camp Developed
 Intensive 1 ½ day exercise based program
 Precourse programs
 First Session: Las Vegas, February 25-26
 Second Session Scheduled for the Seidman Center, April 23-24
 Certified Anti-Money Laundering Specialist
 New Certification Designation Available
 Education Requirements
 On-the-Job Experience
 Attestation of Supervisor
 Continuing Education Credits

35. Professional Development (con’t)
“Developing Financial Professionals”
> Problem Bank School
 4 ½ day Blended Learning Program
 Morning – Lectures & Case Studies
 Afternoon – Web-Based Bank Simulation (with a
problem institution)
 Update March 2007
 Learn how to:
 Reconcile correspondent bank accounts
 Trace loan proceeds
 identify red flags
 risk focus the exam
 identify and prevent fraud
 draft enforcement actions
 document to prevent or prepare for litigation

36. Professional Development (con’t)
“Developing Financial Professionals”
> Real Estate Appraisal Review
 5-week web-based course
 8 to 10 hours a week
 Learn how to:
 Effectively use appraisal reports
 Describe the various types of appraisal reports
 Explain the appraisal valuation process
 Describe the identification aspects of highest
and best use analysis step of the appraisal
valuation process
 Describe and apply the cost, direct sales
comparison, and income capitalization
approaches to valuation.

37. Professional Development (con’t)
“Developing Financial Professionals”
> Fraud Identification Training
 5-week web-based course
 21 real-life case studies
 6 to 8 hours a week
 Learn how to:
 Identify weaknesses in internal controls that
may lead to fraud
 Recognize “red flag” issues that may require
additional examination procedures
 Identify measures that could correct internal
control weaknesses noted
 Recognize the importance of investigating weak
internal control programs

38. Professional Development (con’t)
“Developing Financial Professionals”
> Money Service Business Examiners
Course (online)
 3 Courses conducted since April 2006
 57 State and Federal Regulators from 20
states
 2 Industry participants
 Exam-focused curriculum
 BSA/AML component
 Two more programs 2007

39. Contact Information:
Neil Milner CAE
President & CEO
Conference of State Bank Supervisors
1155 Connecticut Avenue NW – 5th Floor
Washington, DC 20036
(P) 202.728.5702
(F) 202.296.1928
nmilner@csbs.org
www.csbs.org