Banking Law Prof Blog

Connecting the Dots

The Federal Reserve Bank of Dallas has compiled a readable analysis of the roots of the current economic situation in its 2008 Annual Report, "The Financial Crisis:  Connecting the Dots."  Among the causes of the crisis, the report lists:

• Speculation on Housing
• Market Inefficiency
• Rapid Innovation in Mortgage Products
• Overreliance on Models
• Market Interconnectedness
• Monetary Policy - Long Period of Abnormally Low Interest Rates
• Insufficient Constraints by Regulators and Lack of Good Judgment

Link to Report:  http://dallasfed.org/fed/annual/2008/index.cfm

(ag) June 5, 2009, in Economy

Citigroup and Executive Compensation

"Excessive" executive compensation, however we define it, is a hot topic when most of the rest of the country is feeling the pain of recession.  Public outrage is heightened to an even greater degree when the company paying out big bucks to big wigs is receiving taxpayer bailout money.  The Wall Street Journal reports that Citigroup is "voluntarily" suspending payment of certain lucrative severance packages -- but may resume such payments when public attention wanes.

Link:  http://online.wsj.com/article/SB124391159480975333.html

(ag) June 5, 2009, in Economy

Let's Not Do This Again!

Here's an interesting comment on my item discussing Richard Fisher's talk to bankers this week:

"Our government and constitution were constructed around sentiments very similar to McKay's.  But in this last economic boom cycle, the conditions that played into it were approved by the government itself, so how do we prevent this from happening again?" --Thanks to Joseph Marchelewski for this question!

Coincidentally, I had just sent the following e-mail to Rebecca Christie in Bloomberg's newsroom:

Knowing that some reorganization of the financial regulatory structure is necessary, my greatest fear is that the focus will be exclusively on federal regulation -- to the detriment of the state banking system.  A strong dual banking system is key to avoiding a regulatory monopoly.  Checks and balances inherent in a strong system of state and federal regulation will guard against regulatory capture and "inside-the-beltway group think."

(ag) June 4, 2009, in Dual Banking/Economy

Geithner Can't Sell His House Either

It's tough all over.  With a 41% drop in housing prices in Westchester County, New York, Treasury Secretary Timothy Geithner has had to rent out the home he has not been able to sell.

Link:  http://www.bloomberg.com/apps/news?pid=20601093&sid=aJb6RpM.jY.w

(ag) June 4, 2009, in Economy

Richard Fisher Talks About Texas Banks

Yesterday, I attended a luncheon meeting for West Texas bankers hosted by Dallas Reserve Bank President Richard Fisher.  He reported that Texas banks are healthier as a group than are banks in many other parts of the country because, he says, "We learned from our mistakes in the 1980s.  We've been here before." 

As we study the causes of the current financial crisis, Fisher cited 19th Century author Charles McKay for his insight into boom-and-bust economic cycles.  In his 1841 book, The Memoirs of Extraordinary Popular Delusions,  McKay wrote, "Men think in herds and go mad in herds."  This is an apt description of the real estate bubble and the problem of exotic mortgage-related securities.

(ag) June 3, 2009, in Economy 

The Dallas Fed's Collection of "Chairman Bernanke on the Record"

The Federal Reserve Bank of Dallas has collected various quotes from speeches by Federal Reserve Chairman Ben Bernanke over the past few years, including:

• June 3, 2009 - "Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs.... With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands."
• May 7, 2009 - "I believe a more macroprudential approach to supervision—one that supplements the supervision of individual institutions to address risks to the financial system as a whole—could help to enhance overall financial stability."
• April 3, 2009 - "In pursuing our strategy, which I have called 'credit easing,' we have also taken care to design our programs so that they can be unwound as markets and the economy revive. In particular, these activities must not constrain the exercise of monetary policy as needed to meet our congressional mandate to foster maximum sustainable employment and stable prices."

Link:  http://dallasfed.org/news/speeches/bernanke.html

(ag) June 3, 2009, in Economy

The SAR Activity Report - May 2009

Advising clients about Bank Secrecy Act compliance?  Check out Issue 15 of "The SAR Activity Report:  Trends, Tips, and Issues," published by the Financial Crimes Enforcement Network (FinCEN).  This issue focuses on the Securities and Futures Industries.

Link:  http://www.fincen.gov/news_room/rp/files/sar_tti_15.pdf

(ag) June 2, 2009, in BSA/AML

Community Banking - "The Lifeblood of Our Nation's Financial System"

FDIC's Board of Directors announces the formation of a new Advisory Committee on Community Banking.  The Committee will advise on issues facing community banks and the communities they serve, with a special concern for rural areas.

Link:  http://www.fdic.gov/news/news/press/2009/pr09080.html

(ag) June 2, 2009, in FDIC

Proposed Rule for Mortgage Originator Registration

Today, the federal financial institution regulatory agencies jointly proposed a regulation implementing the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.  This proposal will be published in the Federal Register soon and a public comment period will be open for 30 days thereafter.

Link:  http://www.occ.treas.gov/ftp/release/2009-58.htm

(ag) June 1, 2009, in Lending Issues

GAO Looking Over the Fed's Shoulder

Under a new law signed into effect May 20, the GAO's first investigation may be into the Federal Reserve's role in the AIG bailout.  Congress wants to know about the Fed's expansion of lending to nonbank financial companies during the past year's efforts to address the financial crisis.

Link:  http://www.bloomberg.com/apps/news?pid=20601103&sid=aXLmKxJCk3fY&refer=news

(ag) June 1, 2009, in Economy

Saturday Night Live's Version of Bank Stress Testing

SNL's humor is so close to the truth it hurts.  My teenage son decided to help me out with this post.  The link is to SNL's version of "Timothy Geithner" reporting on a written examination supposedly administered to the CEO's of the 19 largest banks.  First, the plan was to assign a numerical grade from 1 to 100, but this was changed to a pass/fail scoring system so as not to "unfairly stigmatize banks who scored low on the test because they followed reckless lending practices or were otherwise not good at banking."  This system was also rejected in favor of pass/pass*, but ultimately, this became a grading of pass/pass, with the result that all nineteen banks achieved a score of "pass." 

Link: http://www.nbc.com/Saturday_Night_Live/video/clips/geithner-cold-open/1099562/

(ag) May 31, 2009.

Making It Tougher for Troubled Banks to Buy Deposits

FDIC published a new final rule yesterday to further restrict "less than well-capitalized banks" from paying an interest rate that exceeds the national average to acquire deposits.  The new rule becomes effective January 1, 2010.  It closes a loophole in FDIC's current implementation of the FDI Act restrictions on the ability of troubled banks to "buy deposits" in an effort to stay afloat.  Currently, the ceiling on interests rates that can be paid by "less than well-capitalized banks" includes a factor for local rates which is capable of being skewed by other weak banks in a local market.

Link to Final Rule:   http://www.fdic.gov/news/news/press/2009/pr09082.html

(ag) May 30, 2009, in FDIC

FDIC's Quarterly Banking Profile

FDIC's Quarterly Banking Profile for the first quarter 2009, released May 27, 2009, summarizes insured institution performance as follows:

• Net income for the first quarter of 2009 was lower than that posted for the first quarter of 2008 but significantly better than the net loss posted for the last quarter of 2008.
• Non-interest income is rebounding at large banks.
• Aggressive reserve building is not keeping up with the increase in troubled loans.  Charge-offs continue to rise in all major loan categories.
• Industry assets contracted by $302 Billion.
• Twenty-one failures is the highest quarterly total since 1992.

The report notes the death of former FDIC Chairman William Seidman.

Link to report:  http://www2.fdic.gov/qbp/2009mar/qbp.pdf

(ag) May 29, 2009, in FDIC, Economy

Where's the Economy Headed?

National economic forecasts abound but oneof the most concise reports can be found on the Dallas Fed's website.  Calling this the 17th month of recession, the report notes that the pace of contraction seems to be slowing.  Credit markets are thawing slightly and employment declines have lessened somewhat.  However, GDP fell again in the first quarter of 2009.  Labor markets are still a problem.  Financial markets seem to be improving slowly and the single-family housing market shows signs of possible stabilization.

Link to report:  http://dallasfed.org/research/update-us/2009/0903.cfm

(ag) May 29, 2009, in Economy

Abnormal Monetary Policy for Abnormal Times

Federal Reserve Board Vice President Donald Kohn talks about "Interactions between Monetary and Fiscal Policy in the Current Situation" in a May 23, 2009, speech at Princeton University for the Conference on Monetary-Fiscal Policy Interactions, Expectations, and Dynamics in the Current Economic Crisis.

Link:  http://www.federalreserve.gov/newsevents/speech/kohn20090523a.htm

(ag) May 27, 2009, in Economy