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HomeFDIC “Kicks the Can”
Posted by Larry Doyle on June 24th, 2010 9:31 AM |
How secure do you feel about your bank deposits? They are insured, right? Well, how secure would you feel about your health insurance if your provider was not collecting badly needed premiums?
I am not pulling any fire alarms, but a recent announcement from the FDIC in regard to its insurance premiums collected from depository institutions speaks volumes about the current state of our banking system and our overall economy.
Recall that the FDIC’s insurance fund was exhausted late last year (Sense on Cents commentary: FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance). To replenish its fund, the FDIC had banks prepay estimated assessments of $45 billion, and also imposed higher premiums to rebuild the fund.
While Wall Street banks were in a position to pay out approximately $140 billion in 2009 bonuses, we now learn that the banking system is not in a position to begin paying the higher premiums to the FDIC. (more…)
European Bank Stress Tests? Nein, Danke!!
Posted by Larry Doyle on June 1st, 2010 8:58 AM |
How do you think the wizards in Washington are feeling about the European bailout structured two weeks ago at their behest? In those two weeks, the Euro has plummeted another 5%, equities continue to suffer, and credit spreads continue to widen.
Our Washington wizards are looking back into their bag of tricks and now recommending another of their ’shell game’ proposals to their European counterparts. Which proposal might this be? How do you spell charade? Try, bank stress tests.
Treasury Secretary Geithner is pressuring European central bankers to perform and release bank stress tests as a precursor to restoring financial health and stability into the European system. The Wall Street Journal highlights Geithner’s recommendation this morning in writing, U.S. to Push Europe on Stress Tests:
The U.S. intends to urge Europe to disclose publicly the results of bank stress tests as a way to calm jitters over the health of the Continent’s financial system, U.S. officials said. (more…)
The Muammar Gaddafi of Regulation
Posted by Larry Doyle on May 26th, 2010 9:14 AM |
Does anybody still read Time magazine?
I would expect that Time is likely now relegated to 9th grade Civics classrooms given the depth of reporting embodied in the recent cover article, The New Sheriffs of Wall Street.
If Time would like to be considered a serious publication, they should dig a little deeper prior to reporting this sort of powder puff commentary. Time rightfully does address the fact that Wall Street has been a bastion of male domination. Additionally, they pay proper respect to FDIC Chair Sheila Bair and Tarp watchdog and consumer advocate Elizabeth Warren, but they fall woefully short in their characterization and review of SEC Chair Mary Schapiro.
In this article, Schapiro would clearly like to portray herself as tough as nails on Wall Street while protecting the interests of investors. As Time highlights: (more…)
Elizabeth Warren Calls for New Bank Stress Tests
Posted by Larry Doyle on February 11th, 2010 9:34 AM |
The initial Bank Stress Tests run by Treasury Secretary Geithner were largely a sham. I questioned as much last April in writing, “Bank Stress Tests: Major Sham?”:
As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically.
What does the FDIC, led by Ms. Bair, have to say about the upcoming Bank Stress Tests? The New York Post provides a CHILLING perspective: (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.
(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…)
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…)
FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance
Posted by Larry Doyle on September 18th, 2009 12:27 PM |
It was only a matter of time before both the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC) would walk over to the U.S. Treasury and ask for a ‘bigger allowance.’ That time has come, despite what some officials may say. High five to MC for bringing the FHA story to my attention.
The Wall Street Journal highlights the FHA’s predicament in writing, FHA Tightens Credit Standards, Sees No Bailout:
The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.
The agency, a growing source of funds for first-time home buyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17% of FHA borrowers were at least one payment behind or in foreclosure, compared with 13% for all loans, according to the Mortgage Bankers Association.
Rising defaults mean the FHA’s reserves may sink below the 2% mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.
Please recall that FHA-insured loans require only a 3% down payment. In writing a previous blog post focused on the FHA, a well informed reader shared with us that builders will often offer rebates which effectively cover that down payment. What is the result? Homeowners purchasing properties with no money down, otherwise known as ‘no skin in the game.’ This practice was prevalent throughout the irresponsible stage of sub-prime lending. Make no mistake, plenty of this is continuing today with the support and backstop of Uncle Sam . . . all in hopes of filling that growing hole in the housing dike.
The FHA will certainly need more capital unless and until mortgage delinquencies, defaults, and foreclosures stabilize and decline. None other than Wells Fargo CEO John Stumpf shared the other day that he does not see a slowing on those fronts.
In regards to the FDIC, the insurance fund has exhausted the bulk of the initial $50 billion which it had prior to bank failures starting in 2008. The costs of these failures have far exceeded that $50 billion figure. How so? Some very large profile failures were brokered to stronger hands with FDIC support but without the FDIC having to make an initial outlay of funds.
The WSJ highlights the current dire straits of the FDIC in writing, FDIC Mulls Borrowing from Treasury:
Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.
“We are carefully considering all options” including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.
Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said.
Individually, the FHA and FDIC stories are both significant. However, in the midst of bailouts of other institutions (large banks, Freddie and Fannie, AIG, GM, and Chrysler), the funds likely to be injected into these entities are treated as merely adding another leaf to Mom’s dining room table for Thanksgiving dinner.
Is the American public grateful for the undisciplined and greedy lending practices that have crippled the FHA and FDIC? Perhaps I should rephrase that question: are these institutions grateful for the American public putting their taxpayer dollars on the line?
LD
Wall Street Supercop
Posted by Larry Doyle on July 24th, 2009 9:55 AM |
Regulating Wall Street is not a job for mere mortals. This is a job for Supercop!!
Pardon my lighthearted manner to a truly serious issue, but certain topics just lend themselves to breaking out my Irish wit and this is one of them.
Recall that under President Obama’s initial plans to revamp the financial regulatory structure, the Federal Reserve was to be designated as the uber-regulator or Supercop for Wall Street. Well, the best laid plans do not necessarily play out that way, as the Associated Press reports SEC, FDIC Heads Want New Council to Be Supercop:
Key regulators on Thursday broke with the Obama administration, reaffirming their belief that some new powers to monitor big institutions against financial threats should go to an interagency council, not the Federal Reserve.
Some Republican lawmakers also continued to warn against endowing the Fed with new powers in an overhauled system as Congress slogs through a complex deliberation that could reshape the financial landscape in the wake of a historic crisis.
Under the administration’s financial overhaul proposal, the central bank as “systemic risk regulator” would be able to duplicate and even overrule other regulators.
But Securities and Exchange Commission Chairman Mary Schapiro and Sheila Bair, head of the Federal Deposit Insurance Corp., stressed to the Senate Banking Committee that crucial role should be played by the new stability oversight council. The body would include the Treasury Department, the Fed, and the two independent agencies headed by Bair and Schapiro.
I am not necessarily for more government bureaucracy and I hope this supercop council is not merely a layer of red tape. I would be very concerned if the Federal Reserve were designated as the sole supercop. Why? I think it would likely hinder the Fed’s ability to be viewed as totally independent. I already believe the Fed has a credibility issue on that front. Being designated as Wall Street’s supercop would only further jeopardize the Fed’s claim of independence.
Make no mistake about it, though, the efficacy of a proposed supercop is ultimately a question of transparency and integrity. I addressed these points in writing “Future Financial Regulation: Not A Question of Sufficiency, But of Transparency and Integrity.”
I am heartened by the fact that the FDIC under Sheila Bair would be able to play a prominent role in this supercop council. I hold Ms. Bair in high regard. As the AP reports:
Bair testified that an interagency council with strong and extensive authorities “will provide for an appropriate system of checks and balances.” A council “with real teeth … would be highly effective,” Bair said. It would be “tremendous” power to invest in a sole regulator, she said.
Bair also endorsed the proposed creation under the Obama plan of a consumer finance protection agency to oversee areas such as mortgages and credit cards — an idea fiercely opposed by the financial industry.
How will this play out? Sense on Cents will be monitoring developments. Regulating Wall Street is not a job for mere mortals. This is a job for Supercop!!
LD
Related Commentary
Don’t Call the Fed Independent; June 17, 2009
Sheila “Bair”s Her Mind
Posted by Larry Doyle on June 14th, 2009 12:43 PM |
Sheila Bair, Head of FDIC
I have always held Sheila Bair in high regard. Why? I believe she has no agenda other than what is best for our country. I find her to be tough, but fair. I think she prioritizes integrity, transparency, and reputation–all of which we badly need, but are in short supply.
Ms. Bair is currently engaged in an active debate about potential management changes at Citigroup. She is no shrinking violet in taking on any and all Wall Street heavyweights. I commend her for that. Additionally, she is giving “no quarter” in defending her positions on financial regulatory reform.
Ms. Bair recently spoke with Forbes, Bair Cautions Banking Crisis Is Not Over. Ms. Bair does not pull any punches or play the pandering games regularly seen in Washington and on Wall Street. As such, I think it is prudent for all of us to listen closely to what she has to say. Forbes reports:
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said Friday that while the crisis that swept through the financial world last year has subsided somewhat, it was far from over and there would be “many more bank failures” ahead.
“I think there’s still some challenges, I think we need to be realistic. There are still some troubled assets on the books and we still have an economy that’s under significant stress.”
How many other government officials are equally as blunt? How many regulators will openly address the fact that the toxic assets are still very much an issue and that the economy is under ’significant stress’? Our country is screaming for some good old-fashioned truth combined with straight talk. Ms. Bair provides it. Let’s go back for some more. What does Sheila Bair think about the economy? Green shoots? Turning the corner? Bair provides sobering commentary: (more…)
