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Federal Reserve Gives BNC An Approval Based on Secret Compliance Plan

By Matthew R. Lee

NEW YORK, June 2 -- The lack of seriousness in US bank regulation expends from the relatively smaller of mid-sized to the largest banks, with Goldman Sachs the most recent example.

  A mid-sized bank Inner City Press / Fair Finance Watch is scrutinizing, based on its records, is BNC Bancorp, seeking to acquire Southcoast Financial in South Carolina and, after that, High Point Bank & Trust.

On June 2 after a long delay, including delay in providing basic information to Inner City Press, the Federal Reserve approved the Southcoast deal. The Fed said, "In this case, the Board received comments from a commenter who objects to the proposal on the basis of alleged disparities in the number of conventional home
purchase loans made to African Americans and Hispanics, as compared to whites, by BNC Bank."

 Then the Fed says, "BNC further represents that BNC Bank is committed to continually improving its performance in the Greenville and Charleston MSAs and to meeting the needs of all members of the communities. BNC notes that the commenter
filed similar comments with the FDIC on an application for an unrelated acquisition, which was approved on the condition that BNC Bank develop and submit a supplement to its existing compliance plan that would strengthen the banks fair lending compliance program. BNC asserts that the supplement to BNC Banks compliance plan, which has been approved by the FDIC and implemented by the bank, adequately addresses the concerns raised by the commenter on this proposal."
But that's been withheld. We'll have more on this.

 On March 1 the Federal Reserve e-mailed Inner City Press a memo about a meeting it had with BNC Bank's highest executives, under the Fed's rules on Ex Parte contacts, avoiding the fair lending and Community Reinvestment Act issues which Inner City Press has raised. We are publishing the Federal Reserve memo online here.

  But as Inner City Press immediately replied, including to the Fed's Office of the Secretary, why did the Fed wait until March 1 to send a memo of a January 28, 2016 meeting -- more than a month? Does that comply with any meaningful rule on Ex Parte communications? We'll have more on this.

  There's a problem with this acquisitiveness: BNC is subject to to Compliance Order with the FDIC, which is rare, based on its fair lending record. But after Fair Finance Watch protested the deal, and the Fed told BNC to send it a copy of the bank's response, the response was provided six days later with with the entirety of the Community Reinvestment Act response withheld. See here.

Inner City Press has immediately filed a Freedom of Information Act request, and a second comment with the Fed.

 Separately, Inner City Press / Fair Finance Watch has filed the second of two comments to the St Louis Fed:

"This is a timely first comment opposing and requesting an extension of the FRS's public comment period on the Application by Bank of the Ozarks to acquire Community & Southern.

This proposed transaction raises troubling Community Reinvestment Act issues. Bank of the Ozarks has a disparate lending record, including in the Atlanta MSA where it proposes to acquire C&S (which itself just acquired branches from CertusBank while leaving behind others to be closed, evading any review).

In the Atlanta MSA in 2014 for home purchase loans, Bank of the Ozarks made 25 such loans to whites and NONE to African Americans -- it had a 100% denial rate for African Americans.

For refinance loans, it made 17 loans to whites and NONE to African Americans -- it had a 100% denial rate for African Americans.

There is more to be said, but this is outrageous, and in the MSA in which Bank of the Ozark proposes to make this acquisition.

In the Little Rock MSA in 2014 for home purchase loans, Bank of the Ozarks made 332 such loans to whites and only 13 to African Americans -- it denied the applications of African Americans 4.3 times more frequently than those of whites.

This is outrageous, and systematic. Bank of the Ozarks has also had consumer compliance issues."

On BNC, Fair Finance Watch has raised to the Federal Reserve:

In the Charleston MSA in 2014 for conventional home purchase loans, BNC made 173 such loans to whites and only SIX to African Americans, and none to Latinos. For refinance loans, it made 68 loans to whites and only ONE to an African American, while denying the applications of African Americans 3.94 times more frequently than those of whites.

  Southcoast in the Charleston MSA in 2014 for conventional home purchase loans made 136 such loans to whites and NONE to African Americans. For refinance loans, Southcase made 35 loans to whites and only TWO to African Americans. To combine these two banks would make them worse.

  In the Greenville MSA in 2013 for home purchase loans, BNC made 117 such loans to whites and only SIX to African Americans, and only seven to Latinos.  For refinance loans, it made 31 loans to whites and only one to an African Americans and none to Latinos.

  BNC admits, as it must, that it is below-market in lending to African Americans, but paradoxically tries to use that the fact that it is subject to a compliance order as its defense to the Fed.

 To Fair Finance Watch, too. FFW asked to see, in writing, what are BNC's CRA plans going forward. BNC replied that it is "unable to share this with you. It is an internal document that is only shared with our Board of Directors and the FDIC (under the Order)."  FFW has requested a copy of the High Point application.

  Now the Federal Reserve has asked BNC for, among other things, for information about its Community Reinvestment Act compliance, and consumer compliance more generally. Inner City Press is putting the Fed's December 2 Additional Information letter online, here.

Federal Reserve's Letter to BNC Bancorp for compliance and other info after FFW CRA protest by Matthew Russell Lee

  BNC is supposed to send a copy of its response, with this information it already declined to provide, to ICP / FFW. But will it try to withhold it? That seems to be the trend at and encouraged by the Federal Reserve.

Goldman Sachs is trying to speed through Federal Reserve approval to buy $16 billion in insured deposits from GE Capital, and the Fed, documents  released to Inner City Press under the Freedom of Information Act (FOIA) show, is inappropriately bent on helping, including by closing its comment period.

 On December 2, Goldman Sachs has sent Inner City Press a heavily redacted copy of its submission to the Federal Reserve. Inner City Press has put it online, here, and immediately submitted a FOIA request.

 On November 19, Goldman Sachs submitted a purported reply to the Federal Reserve, stating among other things that "Certain Comment Letters express concern with the contact between GS Bank and Board staff prior to GS Bank submitting the Application. GS Bank respectfully submits that the contact was both appropriate and ordinary in the context of the Boards own guidance on pre-filing communications.11 Additionally, the allegations of contact are not germane to the scope of the statutory factors set forth for Board consideration under the Bank Merger Act."

  The 2012 Fed letter Goldman Sachs cites was meant to benefit smaller banks - and did not envision Additional Information letters before the public was even notified of the proposal. The misuse of small bank "regulatory relief" by the likes of Goldman Sachs casts new light of legislative riders being considered for the US spending bill due December 11.

 Going forward, KeyCorp is trying to buy First Niagara, and NY Community Bank wants to buy Astoria; there will be opposition.

  As to Goldman Sachs, Inner City Press / Fair Finance Watch filed a supplement comment on October 30 including Goldman's new and troubling settlement with the NYS Department of Financial Services regarding a former Federal Reserve employee impermissibly using Fed information for them. Public hearings and an extension of the comment period are needed.

 As detailed below, the Federal Reserve's General Counsel Scott Alvarez solicitiously agreed to weekend phone calls with Goldman's outside council Rodgin "Rodge" Cohen at Sullivan & Cromwell, and the Fed submitted its "Additional Information" request to Goldman in July, a full month before any application was submitted or the deal publicly announced.

  Thus there was no way for the public to be involved in the Fed's review, which is required by the Bank Merger Act (and the Administrative Procedures Act). The Fed began trying to essentially pre-approve some applications with a 2012 letter to banks, here - but it said no major issues could be addressed this way, and the interchanged would be subject to FOIA.

  In this case, though, where Inner City Press submitted its FOIA request as soon as it became aware of Goldman's GE proposal and application, none of the information would have been available until after the comment period was set to close on September. It has been extended to October 30, due to requests from ICP and other NCRC members, but the Fed is still withholding portions of its communication with Goldman in the face of the FOIA Appeal Inner City Press immediately filed. (ICP has also submitted a timely additional comment on these issues.)

  Inner City Press has previously litigated FOIA requests with the Fed and won, at least in part, for example in obtaining subprime lending information the Fed wanted to withhold, here.  But this should not be necessary in order for the public to have this basic information, during the comment period. Will members of Congress and other chime in? Watch this site.

  This process began by overbroad withholding of basic parts of Goldman's application, click here to view, which Goldman in an October 14 submission to the Fed, here, says has been cured (it has not been).

 The Federal Reserve responded to Inner City Press / Fair Finance Watch's September 2 FOIA request, with some of its internal documents, many heavily redacted. FOIA letter here; FOIA documents released to ICP here, and embedded below.

 While Inner City Press is appealing, even as released the documents show that Goldman Sachs through its law firm Sullivan & Cromwell reached out to Fed General Counsel Scott Alvarez in May 2015 about the transaction, and was largely able to vet it with the Fed's staff by July, even receiving an "additional information" request before any application was filed.

  Since the public cannot comment or ask questions before a transaction is announced, this "pre-review" by the Fed in essence cuts public review and transparency out of the process. The Fed's rules against ex-parte communications can't be triggered before there is an application. But should Fed review be held, and apparently completed, before there is any public notice?

  The documents Inner City Press has obtained under FOIA show that on May 14 and May 18, Goldman Sachs and its outside counsel Rodgin "Rodge" Cohen of Sullivan & Cromwell told the Fed and its General Counsel Scott Alvarez of their plans for GE Capital Bank.

 On May 28, the Fed met with Goldman which presented a "deck" of information about "Project Apple," much of it still redacted as provided to Inner City Press (which is appealing under FOIA).

  As precedents, Goldman Sachs cited Capital One - ING and RBC - City National (see below).

 This was followed by a May 29, 2015 letter from "Rodge" to the Fed's Scott Alvarez, asking for confidential treatment of everything including the letter, and including from any Governmental inquiry. (Page 28 of FOIA response to ICP.) A similar letter was submitted by Cohen on June 16, attaching a letter the Fed has redacted in full from Goldman Sachs' Esta E. Stecher.

  Scott Alvarez took the conversation onto the telephone, not subject to FOIA, on June 16. His accompanying e-mails, as redacted, only say "Thanks! Scott."

 On June 26, the Fed' Alison Thro wrote that "Rodgin Cohen was in today briefly to discuss, among other things, GSs plans to acquire the deposits of GEs ILC. He asked what the next steps might be." What were those "other things"?

 On July 13, the Fed sent Cohen a "request for additional information concerning the proposal by GS Bank to purchase certain assets and assume the deposit liabilities of GE Capital Bank."

  A request for additional information is usually what the Fed sends a bank or bank holding company after it has submitted an application; a commenter would get a copy. Here, the Fed was pre-reviewing Goldman Sachs' proposal, entirely outside of any public scrutiny. (The later public questions are as if by rote: the fix was already in.)

  On Friday, July 17 the Fed's Thomas Baxter wrote to Scott Alvarez that the transaction would be public announced the next Monday -- AFTER the Fed's "additional information request" -- based on a long voicemail from Harvey Schwartz of Goldman Sachs. (Page 59 of FOIA response to ICP). Alvarez was on the phone with "Esta of GA and Rodge Cohen."

  Alvarez said he was willing to talk with Goldman Sachs on Sunday, July 19. Cohen had written to Alvarez:

"In view of the various communications on Friday and the intended announcement of the deposit assumption transaction on Monday, GS believes that it must decide over this weekend whether it can proceed as scheduled and, as a matter of fairness and transparency, what it can tell GE. As we have discussed, this transaction appears to be a centerpiece of the GE restructuring. We would therefore most appreciate the opportunity to have a conference call as soon as possible over the weekend to obtain as much clarity as possible as to timing and other relevant matters.
We apologize for intruding into your weekend and thank you your consideration of this request." (Page 65 of FOIA response.)

   The reference to "fairness and transparency" was apparently without irony. But Goldman stood the Fed up.

  But this announcement was postponed. Alvarez wrote on July 20 that "Rodge just sent a note that GS wants to postpone signing the deal with GE and the announcement for 2 to 3 weeks." More review continued, outside of public scrutiny. Alvarez made himself available on Sunday, July 26. But to no avail.

 The deal was publicly announced on August 13 and Goldman Sachs on August 18 submitted the apparently pre-approved application. Inner City Press / Fair Finance Watch submitted a comment and FOIA request (delayed until now); the end of the FOIA response has a redacted reaction to the "public comment." Now others have commented and a campaign has begun. But has the Fed already made up its mind?

On Goldman Sachs, Federal Reserve's Initial FOIA Response to Inner City Press on GE Capital Bank by Matthew Russell Lee

  On September 22, 2015, the Federal Reserve belatedly released the 2014 Home Mortgage Disclosure Act data. A quick review of the lending of Goldman Sachs Bank USA in the New York City Metropolitan Statistical Area shows the Goldman Sachs focus which should require publish hearings in this case.

  Fair Finance Watch, hours after the data was released, has commented to the Federal Reserve at the highest level that "in the New York City MSA in 2014, for conventional home purchase loans (Table 4-2), Goldman Sachs Bank USA made 45 such loans to whites, only two to African Americans and only one to a Latino. For refinance loans (Table 4-3), Goldman Sachs Bank USA made 16 loans to whites and NONE to African American or Latinos. This is inconsistent with the demographics of the New York City MSA and with other lenders' records; it further militate for the timely requested public hearings."

  Goldman Sachs has purported to respond to the comments of Inner City Press / Fair Finance Watch by releasing a small amount of the withheld information, and arguing that what the wider Goldman Sachs does cannot or will no be considered by the Federal Reserve on this Bank Merger Act application by Goldman Sachs Bank. We've put Goldman Sachs' response online, here. It says:

FFW states that the audio released by examiner Ms. Carmen Segara requires an extension of the comment period and a public hearing... GS Bank believes the issue is outside the scope of the statutory factors for Board consideration under the Bank Merger Act... Goldman Sachs Bank USA ('GS Bank') hereby submits its response to the three comment letters, submitted on September 2, September 3 and September 9, 2015 (the 'Comment Letters'), by the Inner City Press's Fair Finance Watch ('FFW')....

"FFW makes accusations of 'predatory practices' in the 'mortgage field' and 'municipal finance,' and states that there are a number of compliance settlements that must be reviewed in connection with the Application. FFW references several articles related to lawsuits, settlements and other events, all but one of which involve Goldman Sachs but not GS Bank. GS Bank respectfully submits that such comments are not substantiated by specific arguments or facts. GS Bank notes that none of the articles relate to GS Bank itself, and believes these issues are outside the scope of the statutory factors for Board consideration under the Bank Merger Act.

  Goldman Sachs is arguing that the acts of a parent company cannot be considered when its bank applies to buy ($16 billion) in insured deposits, an absurd argument. FFW has submitted another comment to the Fed, including that

"ICP has received by mail from Goldman Sachs' counsel a purported response which claims that issues ranging from conflict of interest and under-regulation by the FRB (evidenced for example by the audio leaked by whistleblower Carmen Segarra) is not cognizable under the Bank Merger Act - an absurd argument. The FRB would be the decision maker, therefore such issues must be addressed.

 "Goldman Sachs cavalierly states that since it withdrew some of its indefensible requests for confidential treatment of its application, that issues is resolved. It is not - too much is still being withheld. Significantly, Goldman Sachs has offered no explanation of the specious requests for confidential treatment it made, denying commenters access to information during the comment period. As others now argue, the comment period would be extended and hearing held."

  Inner City Press will be covering this wider National (Community Reinvestment Coalition) protest, in which it joins; it has also submitted more comments to the New York State regulator, in a proceeding currently slated to come to a head on September 28, the first day of the UN General Assembly debate.

Goldman Sachs' Response to Inner City Press / Fair Finance Watch Comments on GE Capital Application, Sept 1... by Matthew Russell Lee


Goldman Sachs' Heavily Redacted "Confidential" Application to the FRB to Acquire GE Capital Bank Deposits by Matthew Russell Lee

  When Goldman Sachs became a bank holding company literally overnight in 2008, Inner City Press / Fair Finance Watch and others including NCRC asked the Fed how this was done with no public comment period at all.

  The answer, it seems, is to be found in the audio leaked by Carmen Segarra of the Federal Reserve, showing further Fed favors for Goldman Sachs.

 With this history, and Goldman's history in predatory lending with Litton Servicing and as an underwriter, see Occupy Wall Street video here, and UN / migration connection here, it seems clear that the Fed must hold public hearings on Goldman Sachs' GE Capital application, when it is filed.

  But with the Federal Reserve, you can never be too sure, or too careful.

  When Community Bank System of upstate New York filed with the Fed nine answers to questions asked after Inner City Press' challenge, it tried to withhold fully eight of the nine responses. More here.

  Inner City Press immediately filed a Freedom of Information Act request for the whole submission - and even the Federal Reserve saw through Community Bank System's absurdly -- and tellingly -- overbroad withholding, releasing all but one part of one of the eight withheld responses. But since then, all the Fed has done is seek a mere antitrust control commitment.

  Here's is the Federal Reserve's letter to Inner City Press granting most of its FOIA request:

Freedom of Information Act Ruling Rejecting Community Bank System Withholding 8 of 9 Responses on Oneida Ap... by Matthew Russell Lee

here is the now unredacted version of Community Bank System's submission.

Unredacted Version of Community Bank System's Responses on Oneida, After ICP's FOIA Request by Matthew Russell Lee

We'll have more on this.


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