From: Damaged Justice <frogfarm@yakko.cs.wmich.edu>
Date: Sun, 7 Sep 1997 07:17:15 +0800
To: cypherpunks@Algebra.COM
Subject: 076l-090597-idx.html
Message-ID: <199709062308.TAA18475@yakko.cs.wmich.edu>
MIME-Version: 1.0
Content-Type: text/plain




   [1][LINK]
     _________________________________________________________________
   
   [2]Business Section: the latest business headlines, company profiles
   and advice for managing your money.
   
   [3]Stocks Page: instant stock quotes, mutual fund quotes, market data
   and free personalized online portfolios.
   
   All Business stories and columns from [4]this morning's Washington
   Post and an image of the Business section front.
   
   [5][ISMAP]-[6][USEMAP]
     _________________________________________________________________
   
OTS Eyes Challenges of Rule-Making for `Virtual Banks'

   By Cindy Skrzycki
   Washington Post Staff Writer
   Friday, September 5, 1997; Page G01
   The Washington Post
   
   The advent of virtual banking -- in which customers may deal with
   their banks only through computers -- has prompted federal regulators
   to begin revamping existing rules regarding electronic transactions.
   
   Although banks have been dabbling in home banking and automated teller
   machines for more than a decade, only about 4 percent of U.S.
   households conduct their banking transactions online, and many of
   those may be doing such simple tasks as checking an account balance.
   
   Since 1995, two "cyberspace" banks have come online, offering services
   such as the electronic transfer of funds between accounts and bill
   paying on the Internet. Other more traditional banks are buying the
   same sorts of software to offer more electronic banking services to
   their customers, often as an adjunct to traditional services.
   
   Banking regulators expect electronic banking -- and the forms it will
   take -- to grow exponentially now that millions of Americans are
   hooked into the Internet.
   
   "We are examining whether there is anything in our rules that impedes
   electronic banking and the use of technology," said Nicholas Retsinas,
   director of the Office of Thrift Supervision, who is heading the
   agency on an interim basis. The OTS regulates 1,270 federally
   chartered savings banks and state-chartered savings and loans. "What
   can we do to facilitate the use of electronic banking?"
   
   Retsinas has written frequently about the expanding role of technology
   in banking, pointing out the profitability of using computers: A
   teller transaction can cost up to $2.93; an Internet transaction, 2
   cents.
   
   In April, the OTS began examining rules it has had on the books since
   the 1980s covering home banking, automated teller machines and data
   processing. "OTS is concerned that its current electronic banking
   regulations do not adequately address advances in technology and may
   impede prudent innovation by federal savings associations," the agency
   said, promising it will have a proposal ready next month.
   
   "We promulgated some rules where we wondered whether the language was
   appropriate, let alone the rule," Retinas said, referring to "data
   processing," a vintage term that hardly begins to capture the
   potential scope of electronic transactions.
   
   The agency also was confronted with an increasing number of questions
   by its banking constituency. Was it all right to offer Internet
   banking to depositors living abroad? Could savings and loans open
   accounts for customers or issue loans from remote electronic
   locations? What kinds of banking services could be offered over the
   Internet?
   
   These kinds of queries prompted the OTS to delve into several areas
   where current regulations are murky, or nonexistent. For example, the
   OTS is trying to figure out whether automated loan machines, which
   allow customers to apply and receive confirmation for a consumer loan
   at a site similar to an ATM, should be considered branches or
   something akin to an ATM -- though loans cannot now be originated at
   ATMs.
   
   The OTS also wonders whether its current regulation on home banking
   services covers transactions such as opening new accounts online or
   processing credit applications.
   
   The agency is considering the philosophical quandaries presented by
   the borderless nature of banking in cyberspace. How does a bank with
   no bricks and mortar define community for purposes of fulfilling
   mortgage-lending obligations to minority groups under federal laws
   such as the Community Reinvestment Act?
   
   "How does an institution demonstrate that is serving the credit needs
   of a widely dispersed customer base when there is little or no
   geographic proximity between its deposit customers and its loan
   customers?" the OTS asked.
   
   Then there are questions of security. The OTS wonders whether it
   should mandate a specific level of encryption to make transactions
   impenetrable or "rely on general safety and soundness principles to
   govern a safe system of operation?" Does it need separate regulations
   for various forms of electronic banking that might be done over the
   phone, with special software on a personal computer or on the
   Internet?
   
   Some of these questions the OTS has already had to answer.
   
   Since 1995, the OTS has approved two "Internet" banks -- Security
   First Network Bank (SFNB) in Atlanta and the Atlanta Internet Bank.
   Both offer an array of banking services and rates that are highly
   competitive with "real" banks.
   
   One of the first concerns that the OTS had was the security of systems
   used by the Internet banks. SFNB, for example, has about 12,000
   accounts and $44 million in deposits.
   
   To satisfy regulators that Security First could protect consumers'
   privacy and the sanctity of transactions being done via the Internet,
   the OTS asked Security First to "test the penetration capabilities,"
   of the bank, said Eric W. Hartz, president of SFNB. That's another way
   of saying the OTS wanted to make sure that Security First's Internet
   banking operations didn't become a playground for hackers. Atlanta
   Internet had to undergo a similar exercise to get approval from the
   OTS.
   
   Bankers, for the most part, think it's too early to write definitive
   rules for an area dominated by changing technology, although they
   would like some current OTS rules changed to accommodate different
   forms of electronic banking. They also said they hoped to see
   coordination between the OTS and other agencies that regulate banking,
   such as the Office of the Comptroller of the Currency and the Federal
   Reserve Board.
   
   As Citibank noted in comments to the OTS, "We strongly encourage the
   adoption of broad enabling regulations and policy statements," but "we
   believe that the OTS should not at this time promulgate detailed
   presciptive or, worse yet, proscriptive rules affecting electronic
   banking activities."
   
                (c) Copyright 1997 The Washington Post Company
                                      
                             [7]Back to the top
     _________________________________________________________________
   
   WashingtonPost.com
   [8][ISMAP]-[9]Navigation image map [10][LINK]

References

   1. http://ads.washingtonpost.com/realmedia/OAS/rm/try-it.try?www.washingtonpost.com/wp-srv/business/dink/@TopLeft
   2. http://wp2.washingtonpost.com/wp-srv/business/front.htm
   3. http://wp2.washingtonpost.com/wp-srv/business/longterm/stocks/stocks.htm
   4. http://wp2.washingtonpost.com/wp-srv/WPlate/m-financial.html
   5. http://wp2.washingtonpost.com/wp-srv/maps/navlong.map
   6. LYNXIMGMAP:http://wp2.washingtonpost.com/wp-srv/WPlate/1997-09/05/076l-090597-idx.html#navlong
   7. http://wp2.washingtonpost.com/wp-srv/WPlate/1997-09/05/076l-090597-idx.html#TOP
   8. http://wp2.washingtonpost.com/wp-srv/maps/mapfront.map
   9. LYNXIMGMAP:http://wp2.washingtonpost.com/wp-srv/WPlate/1997-09/05/076l-090597-idx.html#navfront
  10. http://ads.washingtonpost.com/realmedia/OAS/rm/try-it.try?www.washingtonpost.com/wp-srv/business/dink/@BottomRight