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HomeNew York Fed and Treasury Tell Banks to Hold Cash
Posted by Larry Doyle on March 10th, 2010 2:36 PM |
How often have Americans heard politicians screaming at banks for not providing credit? How often have those same politicians and bank regulators informed us that they are working to have banks inject money into the economy to support Main Street?
Regrettably, America deals with this pandering and posturing from our political leaders and regulators all too often. While Americans are being told one thing, what are the regulators telling the banks? Hold cash.
I am not shocked, but certainly disappointed, that American financial periodicals failed to run this story detailing these recommendations from our bank regulators. The London based Financial Times highlights this bombshell in writing, Regulators Tell U.S. Banks to Hold Funds: >>>> (more…)
Two Sets of Books Require Two Sets of Accounting Standards
Posted by Larry Doyle on December 8th, 2009 2:43 PM |
What was at the core of the current economic crisis?
The financial transactions embedded in the SIVs (structured investment vehicles) located off-balance sheet within our major financial institutions brought our country to its knees. As the securities housed in these SIVs plunged in value, Uncle Sam was forced to ride to the rescue and bail out Wall Street.
Uncle Sam’s bailing required not only billions in dollars but also the coordination and complicity of the accounting industry. The Federal Accounting Standards Board (FASB) knows that Congress, supported by Wall Street, jammed revised accounting standards in place in order to facilitate Uncle Sam’s bailout.
The FASB, in an attempt to save face and a degree of integrity, has pushed back on Wall Street by passing FAS 166 and 167 which would require investments in off-balance sheet vehicles to be brought on-balance sheet. The implementation of FAS 166 and 167 is imminent and would require financial institutions to set aside increased capital against selected assets.
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Time to Reinstitute Glass-Steagall
Posted by Larry Doyle on December 3rd, 2009 3:16 PM |
A car needs gas to run. An engine needs steam. A factory needs power. The fact is without a steady source of energy nothing can operate. Welcome to the Uncle Sam economy circa 2009.
You may be thinking, wait a second LD . . . the Federal Reserve is flushing the system with liquidity. Money is easy and it is propping the markets. While availability of credit may be tight, the demand for credit is also weak. So what am I talking about?
Thanks to RM for providing the FDIC Third Quarter 2009 Banking Profile (a link to the full document is provided at the end of this commentary). For those who care to rip apart the inner workings of our banking system, this report is the owner’s manual. The report highlights the following:
> Industry Posts Net Profit of $2.8 Billion
> Increased Revenues, Lower Securities Losses Offset Higher Loan-Loss Provisions
> Net Interest Margins Improve at Most Institutions
> Troubled Loans Continue to Rise, But Rate of Growth Slows
> Loan balances Decline by 2.8% in the Quarter
Based on this overview, it would appear that the banking industry is slowly recovering. In aggregate, perhaps that may be the case. But what doesn’t this report tell us? (more…)
I’ll Gladly Pay You Tuesday…
Posted by Larry Doyle on December 3rd, 2009 9:26 AM |
Postponing losses in hopes that one can trade out of them is a game very rarely won. In similar fashion, not acknowledging losses in hopes that the situation improves and the loss is mitigated is also a recipe for disaster. All one needs to do is look eastward to Japan to realize that. Ultimately, a loss not only must be realized, but paid. “I’ll gladly pay you Tuesday for a hamburger today …” may be cute in cartoons, but in the real world that approach never works. That said, this ‘delay to pay’ is the exact approach being utilized by Uncle Sam and, in large measure, by private industry.
Bloomberg’s Jonathan Weil once again distinguishes himself and provides great insight on this dynamic in writing, Fudging Losses is Easy When the FDIC Does It Too:
No wonder so many banks are delaying their losses. The Federal Deposit Insurance Corp. keeps showing them how, by doing the same thing with its own.
Last week the FDIC, led by Chairman Sheila Bair since 2006, said its insurance fund’s liabilities exceeded assets by $8.2 billion as of Sept. 30. That marked the first time since 1992 that the industry-financed fund had shown a deficit. There’s plenty of reason to believe its financial health is much worse.
How much worse? (more…)
Meredith Whitney’s Outlook on Banking
Posted by Larry Doyle on November 20th, 2009 7:22 AM |
Meredith Whitney
Having provided an overview from three top rated banking analysts in my commentary, “2010 Outlook for Banking,” I welcome the opportunity to offer the thoughts from the most highly rated banking analyst on Wall Street, Meredith Whitney.
Ms. Whitney has become increasingly bearish on the market. Yesterday, Ms. Whitney added further fuel to the fire and provided further specifics to her aggressive call. Bloomberg offers, Meredith Whitney Says Bank Stocks are ‘Grossly’ Overvalued,
Meredith Whitney, the analyst who has no “buy” recommendations on U.S. banks, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.
“The banks are still grossly overvalued,” Whitney said today in an interview on Bloomberg Radio. “People are expecting something great to happen in 2010 and I think they are going to be severely disappointed.” (more…)
2010 Outlook for Banking
Posted by Larry Doyle on November 19th, 2009 9:31 AM |
What does the future hold for our banking industry? Will it be ‘business as usual,’ as some on Wall Street might like? Will the populist rage sweeping the country compel those in Washington to enact meaningful reform? Will credit loosen? Will housing stabilize and support increased lending by banks? How many banks will close? So many questions and so much uncertainty. While we can make projections on all these fronts, let’s tap into the minds of those who monitor developments in banking on a daily basis.
The American Banker is the banker’s bible when looking for cutting edge analysis and perspectives. Today, this fabulous journal brings us over the wall and into the minds of top rated banking analysts on Wall Street. Let’s navigate, 2010 Outlook : Red Tape, Housing Could Impede Banks’ Recovery:
The banking industry may be on the mend, but its recovery could be hindered by heavy-handed regulation and more pain in the housing market, among other things.
That was the consensus of three banking analysts who participated in an American Banker roundtable late last month in New York.
The veteran market watchers — Anthony Polini of Raymond James, David Hendler of CreditSights Inc. and David Ritter of Argus Research Co. — said the worst of the financial meltdown may be over, but banks are still facing heavy losses and depressed profits, particularly if the government gets carried away with financial and other reform efforts.
In my opinion, these analysts provide a mix of thoughtful insights combined with industry bias. That said, the overall review is compelling. Let’s touch on a few major themes. (more…)
Sleepless in Seattle . . . FHLB-Seattle, That Is
Posted by Larry Doyle on November 10th, 2009 4:28 PM |
Having broached expectant difficulties in the Federal Home Loan Bank system last spring, I try to keep a close eye out for news of note on this largely unknown – but critically important – system of banks. To a large extent, the FHLBs have been flying under the radar despite some serious problems within their investment portfolios and loan books.
High five to KD for pointing out that the folks at FHLB-Seattle probably are not getting much sleep these days. Why is that? Insufficient capital will do it to you every time. As the American Banker offers, FHLB Seattle Still “Undercapitalized,” Regulator Says:
The Federal Housing Finance Agency said late Friday that the Federal Home Loan Bank of Seattle remains “undercapitalized” and will not be allowed to redeem or repurchase stock or pay dividends.
At the end of 2004, as the bank struggled with the size of its mortgage purchase program, it said members who wish to redeem their stock must wait five years before receiving their money.
But with that time period almost up, the Finance Agency said it would not allow the bank to begin redeeming stock, fearing it could lower its capital base. (more…)
Mortgage Fraud Deserves Jail Time
Posted by Larry Doyle on November 3rd, 2009 10:34 AM |
Fraudulent actions must have consequences.
How is it that with trillions in financial losses and a variety of financial frauds readily apparent, very few individuals have been held accountable? FL, a loyal reader of Sense on Cents, has banged this drum repeatedly.
Why hasn’t this fraud been more aggressively combated? The influence of the banking lobby, primarily over the federal regulatory oversight of the financial industry.
What a shame. Are there some new sheriffs, those being state attorneys general, getting ready to ride into this mess? It would appear they are. I immediately thought of our friend FL upon reading The New York Times report, States Are Pondering Fraud Suits Against Banks.
The banking industry at large has worked in concert with its lobbyists and trade associations to keep regulators and law enforcement at bay. At the federal level, the banks have largely been successful. That success begs the question as to how deeply embedded the lobbyists are in the regulatory community. (more…)
Sheila Bair Trumps Tim Geithner
Posted by Larry Doyle on October 29th, 2009 9:52 AM |
FDIC Head Sheila Bair
“Too big to fail.”
Do you think the American public is sufficiently sickened by that phrase? No doubt.
How will our ‘wizards in Washington’ handle this monstrous issue going forward? Is there any doubt that the industry itself should be held accountable to provide the necessary capital to unwind firms deemed ‘too big to fail?’ Of course not. However, the execution of that policy is where the rubber meets the road and where we learn who in Washington is truly working for the American public and who is working for the financial industry. How so? Let’s navigate. (more…)
