William Cohan has a furious column about Mary Schapiro, joining Promontory Financial Group just four months after stepping down as chairwoman of the SEC.
She’s joining about 100 other former regulators at Promotory and the gist of Cohan’s complaint is that Schapiro and others are cashing in outrageously here. Having served up a soup of overly-complex regulation while in office, these former regulators are now selling their inside knowledge on how to navigate the regulatory thicket. Read more
Take note. This is an important observation from TD Securities, especially in light of all the talk that US Treasury/safe haven trades are dead in the water.
Our emphasis: Read more
There’s a heated debate going on in the blogosphere between Amar Bhidé, professor at Tufts’s Fletcher School of Law and Diplomacy, and Felix Salmon, Reuters blogger extraordinaire. Reuters’ Peter Thal Larsen has also waded in.
It pertains to Bhidé’s proposal that a 100 per cent state deposit guarantee system might be just what is needed to nip the current crisis in the bud. Read more
Foreign-owned banks operating in the US have suffered their largest six month fall in deposits on record in what some analysts have described as a “flight to safety” from European banks to domestic institutions, reports the FT. Cash on deposit at foreign-owned banks fell $291bn, or 25 per cent, to $879bn from the end of May to the start of December, the first time deposits in the sector have fallen for six consecutive months since 2002, according to Federal Reserve data. While the Federal Reserve only publishes data on foreign-owned banks once a year, in June, quarterly filings by individual subsidiaries of European banks with FDIC show falls in deposits. Deposits at Deutsche Bank’s Americas Trust Company fell by $2.1bn or 6.8 per cent during the third quarter, while deposits at Barclays’ Delaware subsidiary fell by $397m or 5.6 per cent. Read more
Three former Washington Mutual executives are close to a settlement with the Federal Deposit Insurance Corporation over claims they were grossly negligent and breached their fiduciary duty in the run-up to the biggest bank collapse in US history, according to people familiar with the situation. According to the Financial Times, Kerry Killinger, ex-chief executive of WaMu, Stephen Rotella, former chief operating officer, and David Schneider, the ex-home loans president, were close to agreeing a settlement of less than $100m to settle the case. The FDIC had demanded $900m. If agreed, the settlement would be one of the most high-profile in the aftermath of the financial crisis. The FDIC and lawyers for the executives declined to comment. The WSJ reported that in its lawsuit the FDIC alleged the three executives “focused on short term gains to increase their own compensation, with reckless disregard for WaMu’s longer-term safety and soundness.” Read more
Bank of America has been the hardest hit among US banks downgraded by Moody’s, the FT reports, which warned that regulatory reforms made it less likely that the government would step in to bail out creditors when a large bank failed. The Moody’s downgrade on Wednesday to banks’ credit ratings is good news for the Federal Deposit Insurance Corp, which has argued there is no basis for rating agencies to include in their models a premium for banks considered “too big to fail”. The FDIC says new powers granted by the Dodd-Frank Act last year allow the government to wind down safely any financial group, imposing losses on creditors in the process. As well as BofA, Citigroup and Wells Fargo also saw their debt downgraded. However, BofA, which is struggling to emerge from an avalanche of mortgage-related losses and litigation, was worst affected; its stock fell 52 cents, or 7.5 per cent, to $6.38, below the level that Warren Buffett’s Berkshire Hathaway infused $5bn of new capital last month.
Foreign banks with a small US presence are pushing for exemption from new “living will” requirements, the WSJ reports. The rules as they are currently proposed would apply to 98 financial institutions based outside the US, of which the Institute of International Bankers says 78 have US operations so small that a living will would be an “undue burden”. The push comes ahead of a meeting by the Federal Deposit Insurance Corp next week in which the regulator is expected to finalise proposed rules for living wills, however further input on the rules will come from the Federal Reserve, which is jointly writing the rules with the FDIC. US authorities also will have to coordinate their stance on living wills with regulators in other countries. Read more
A US federal judge ruled that the Federal Deposit Insurance Corporation has to face a $10bn lawsuit tied to the failure of Washington Mutual Bank, Reuters reports. The judge refused the regulator’s request to dismiss the lawsuit brought by Deutsche Bank National Trust over bad mortgages that were securitised by WaMu before it was seized by the Office of Thrift Supervision in September 2008 in the biggest bank failure in US history. The FDIC was appointed receiver and immediately sold the bank to JPMorgan Chase for $1.9bn. The Deutsche Bank unit filed its lawsuit in 2009, arguing that loans that were pooled into mortgage bonds did not meet the underwriting standards that had been promised by WaMu, causing investors to lose billions of dollars. The WSJ says the lawsuit is part of a broader battle over what exactly JPMorgan bought in the acquisition, much of which is being played out in bankruptcy courts, where WaMu’s former parents, Washington Mutual Inc, took refuge after the bank was seized. Read more
Regulator powers to claw back up to two years of executive pay in the event of a bank failure go too far, banks have warned on the eve of the FDIC creating a formal rule on the matter, according to Reuters. Bank associations said the powers, introduced under the Dodd-Frank act, did not allow for circumstances when a bank’s failure was beyond its control and wrongly tied clawbacks to job titles over actual decisions. Regulators are sympathetic to the second objection but are unlikely to concede the powers in a climate of public anger over executive compensation. ‘Say on pay’ shareholder votes on compensation are meanwhile now being used with gusto across corporate America, says the FT. Read more
From the annals of financial repression, we bring you Libor rates.
It’s a torrid tale of QE2, dollar funding and liquidity — and it’s one we thought we’d mention, given that the Federal Reserve’s second bout of quantitative easing has just come to an end. Read more
Up until April this year, US banks had a nice little earner.
As Freakonomics explained, big banks were able to borrow cash from the Fed funds or repo market for say, 15 basis points, posting US Treasuries as collateral, and then deposit the cash received with the Federal Reserve overnight at 25bps, earning some 10bps. The FT has estimated that since late 2008, this risk-free arbitrage may have netted America’s banks as much as $200m in profits. Read more
After seeing 51 banks in Florida fail since the start of 2007, some of the regional survivors are finally beginning to make loans again, reports the Wall Street Journal. The first quarter saw 29 Florida banks increase their total loan volume by at least 5 per cent compared with the end of 2010, according to the Federal Deposit Insurance Corporation. The modest rebound, the WSJ says, is a contrast to the overall decline of 1.7 per cent in total loans at the nation’s 7,574 banks and savings institutions, the fifth-steepest drop in 28 years. But many banks are still struggling to overcome piles of bad loans, while some institutions with plenty of capital are having trouble finding enough eager, qualified borrowers. The paper adds that most of the fastest-growing banks are new, meaning they won’t have made as many loans before the financial crisis erupted. Read more
If you’re a money market fund manager, you’ll already be aware (plus possibly extremely concerned about) that general collateral rates are approaching zero. If you’re not, then read on.
As a reminder, the introduction of a new fee on banks in April by the US Federal Deposit Insurance Corporation sparked a slump in the government repo market, knocking that general collateral rate. Read more
FDIC chairman Sheila Bair has taken a leaf out of recent British regulatory moves and proposed that US banks ring-fence their investment banking operations from retail business, the FT says. Regulators now have the power to break banks into smaller parts during the exercise of resolution authority, allowing this retail-investment split, Bair said. On Monday, the FDIC will publish its report of how Lehman Brothers would have been liquidated under Dodd-Frank — a copy can be found here. The FDIC says it could have used new powers to encourage Barclays to acquire the failing US bank and to persuade UK regulators to approve the deal. Read more
What was that about devils and details? European banking groups could take advantage of a loophole to escape higher capital requirements recommended by the Vickers Commission report on UK bank restructuring, claims the FT. European Union “passporting” rules allow banks from across the EU to operate in each other’s markets as “branches” subject to regulations in their home-country, rather than full-blown subsidiaries that would have to play by UK rules. Michael Ellam, a top UK official, may be able to prevent the worst, however, in his new role as chair of the EU’s Financial Services Committee, says Reuters. Meanwhile, across the pond, the Vickers report is picking up support from FDIC chairman Sheila Bair, who told the FT she supports the idea of separating banks’ retail and investment divisions. Read more
Hundreds of billions of dollars invested in money market funds face almost zero returns after sharp falls in short-term interest rates, according to the FT. The key interest rate for funding trades in US Treasuries fell to a tiny fraction of 1 per cent on Monday. Nearly a third of the $2,750bn that sits in US money market funds is invested in the repurchase or repo sector, trading in which has been hit by a new charge levied on banks at the start of the month by the FDIC. The plunge in short-term interest rates, to just 0.01 per cent, is also due to the temporary absence of some Treasury securities, after wrangling in Washington over the US debt ceiling, that would help soak up excess cash. Reuters asks whether the repo reaction to the FDIC fee change is starting to fade, with some analysts predicting rates will stabilise. Read more
US regulators are expected to file up to 100 lawsuits against executives and directors of failed banks in the next two years, as they seek to hold people accountable for management failings and recover billions of dollars, industry experts said. According to the FT, the Federal Deposit Insurance Corporation is only now beginning to step up its efforts to make an example of overly aggressive executives or inattentive directors of the 348 banks that have failed since 2008. The FDIC says the failures have cost its insurance fund $59bn. However, analysis by Nera Economic Consulting of material on the FDIC’s website suggests it has lost $80bn.
For the commute home, where budget decisions are made for rather than by children,
- Corn goes pop! Reaches a 33-month high. Read more
The introduction of a new insurance charge on overnight borrowing by banks in the US has led to the collapse of a profitable arbitrage opportunity that financial groups have used to rebuild their balance sheets after the financial crisis, the FT reports, citing traders. The FDIC on Friday began levying the charge on funds borrowed by banks in the overnight money markets. Banks are now abandoning trades in which they borrowed in the overnight Fed funds market at about 10bp-15bp, then deposited the money at the Fed at an overnight rate of 25bp. Some dealers estimate these trades could have allowed banks to lock in profits of about $200m since late 2008, when the Fed began paying overnight interest of 25bp on excess reserves. Reuters adds that the FDIC charge has also sparked a squeeze on Treasuries collateral. Read more
US officials are divided on how many financial institutions should be branded systemically important, amid frenzied lobbying by non-bank financial groups to avoid the designation, reports the FT, citing people familiar with inter-agency talks. The Federal Deposit Insurance Corporation is arguing for a broad approach, involving hedge funds, insurers and asset managers, while the Treasury and the Federal Reserve wants to designate only a handful. By placing Fed examiners inside companies and forcing them to maintain higher capital and liquidity standards, the new system aims to stop the sort of risks that insurer AIG took before its $180bn government rescue in 2008. Non-bank financial groups are lobbying to escape the net, which they fear will impose heavy extra costs. Read more
The five biggest US mortgage servicers were told this week at a private meeting with regulators to consider paying delinquent borrowers up to $21,000 each as part of a broader settlement of the foreclosure crisis, reports the FT. People who attended the meeting, chaired by the Federal Deposit Insurance Corporation on Monday, said the industry-wide “cash for keys” programme would involve the biggest servicers, led by Bank of America, paying borrowers as an incentive to leave their homes quickly and to leave them in good condition. Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors, and private investors who own mortgage loans were also mentioned as possible providers of cash in the scheme. Eligible borrowers would likely include some, but not all, of the 4.8m who are more than 90 days in arrears. Read more
Our colleague Jennifer Hughes cites the worries of fund managers over the underlying collateral that backs covered bonds in Europe, which reminds us that we’ve been meaning to write something about another recent proposal meant to jumpstart a covered bond market here in the US.
We say “another” because politicians pushing covered bonds in the US isn’t a new trend. FT Alphaville has been writing about the possibility for some time now, and there have been several attempts since the crisis ended to get this market moving. Read more
The FDIC is seeking $900m in damages from three former executives of Washington Mutual and their wives, according to a recently filed lawsuit, reports the FT. The damages would be the largest sought by the FDIC from individuals related to a bank’s collapse during the financial crisis and would be in addition to $125m that WaMu’s outside directors have agreed in principle to pay the regulator to settle bankruptcy-related claims. The WSJ adds that the suit also accuses the wives of two top WaMu execs of illegally moving assets into trusts in an effort to shield them from legal claims. Read more
The Federal Deposit Insurance Corporation is seeking $900m in damages from three former executives of Washington Mutual and their wives, according to a recently filed lawsuit, reports the FT. WaMu was the largest retail bank to fail in US history, The damages would be the largest sought by the FDIC from individuals related to a bank’s collapse in the financial crisis and would be on top of $125m that WaMu’s outside directors have agreed in principle to pay the regulator to settle bankruptcy-related claims. In the lawsuit, the FDIC claims that Kerry Killinger, WaMu’s former chief executive; Stephen Rotella, former president and chief operating officer, and David Schneider, former president of home loans, “gambled billions of dollars of WaMu’s money”. Read more
US banking regulators have paid out nearly $9bn to cover losses on loans and other assets at 165 failed institutions that were sold to stronger companies during the financial crisis, the Wall Street Journal says. The payments were made under loss-sharing agreements struck by the FDIC that shield buyers from much of the risk associated with loans inherited from failed banks. As of January the FDIC has paid out $8.89bn to banks under the loss-share agreements. Such deals are in place at 236 financials, with the FDIC agreeing to assume most future losses on $160bn of assets. Read more
US banking regulators have paid out nearly $9bn to cover losses on loans and other assets at 165 failed institutions sold to stronger companies in the financial crisis, reports the WSJ. The payments were made under loss-sharing agreements struck by the Federal Deposit Insurance Corp. The deals are a reminder of the price tag attached to many government programmes launched in the crisis. As bank failures surged, FDIC officials offered loss-share arrangements as an incentive for banks to acquire institutions and try to improve their asset values over time. As of Jan 31, the FDIC had paid out $8.89bn to banks under the loss-share agreements. Such deals are in place at 236 financial institutions, with the FDIC agreeing to assume most future losses on $160bn of assets. Read more
The FDIC has sent letters to former executives of the failed Washington Mutual Bank warning of possible legal action, the Wall Street Journal reports, citing a person familiar with the situation. The FDIC has discussed damages of $1bn in relation to the potential Washington Mutual lawsuit and a decision against former execs of WaMu, the largest institution to be seized by regulators during the financial crisis, could be made within the next 30 days. It is unclear which former WaMu executives would be charged. Read more
Remember this chart? It’s old, but still relevant.
The Federal Deposit Insurance Corporation said on Tuesday that reserves for bad loans at the largest US banks declined in the third quarter for the first time since the financial crisis began, the FT reports. The regulator said total reserves fell nearly 4 per cent, or $9.6bn, in the period, the first decrease since the fourth quarter of 2006. The drop was driven by a reduction in loan-loss reserves at the largest financial institutions, while smaller banks continued to struggle with souring commercial real estate portfolios, said Sheila Bair, FDIC chairman. Total loans and leases held by FDIC insured institutions decreased by 0.1 per cent, or $6.8bn, in the third quarter, far less than in previous periods. Read more
Older entries
1About China's capacity to absorb more capital
2Japan's mini crash: Blame China, not just Ben
3Spain's awful unemployment
4Pump up, debase
5S&P 2,100, by Goldman Sachs
Show more6Everlasting credit, the long view
7The Nikkei: a market abducted by retail
8Measure it however you like: inflation has been low and falling
9Buyback to enrich
10Apple Operations International, facts (?) du jour
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