Banking Law Prof Blog

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

A Comment on the "Sound Bite" Approach to Dealing with Crisis

Here's a comment I want to highlight from Roger Hood:

"Your point is well-taken, especially with "toxic assets" - which sounds like what an errant banker would try to sell to the regulator ("Gee, I tried to do good, but these darn loans turned out to be toxic.")  "Legacy Loans" is an example of a meaningless phrase floated as a trial balloon, an overcompensation to "Toxic Assets," no doubt. 

Your suggestions are much more descriptive, accurate, unwieldy, and hence, useless as sound bites.  As I know you understand, a catchphrase in contemporary public discourse cannot contain more than 4 words, or the words have more than 3 syllables, unless it can be reduced to a cute acronym (e.g., RICO), or a deceptive name (e.g., "Superfund").

To add to the discussion, let me suggest "Challenging Mortgage Assets" or more poetically, "Foggy Collateral."  Perhaps more in keeping with its origins, we could call it "Shmallateral" (as in "Collateral, shmallateral.")"

Thanks to RH, May 27, 2009

More About Banking Law

Check out Bank Lawyer’s  Blog:  http://www.banklawyersblog.com/

This informed commentary  about banking issues by a colleague and friend is a blog with a bite.

(ag) May 26, 2009

What Bankers Are Worried About

The Federal Reserve Survey of Senior Loan Officers gives us a gloomy picture of the future.

Link to Story:
http://blogs.wsj.com/economics/2009/05/05/bankers-worry-worst-is-yet-to-come/

(ag) May 26, 2009 In Economy

What Bankers Are Complaining About

The FDIC has posted its Ombudsman's Report:

http://www.fdic.gov/regulations/resources/ombudsman/feedback/message0409.html

(ag) May 25, 2009 in Federal Banking Agencies/FDIC

Bank Failure Basics for Borrowers

The FDIC has a new “Borrower’s Guide to an FDIC Insured Bank Failure,” which provides information about:

·          Bank Failure generally

·         FDIC’s policy to return assets (loans are bank assets) to the private sector as quickly as possible

·         How FDIC communicates with borrowers about loan servicing, including who to pay and the advice to seek new financing promptly if possible

·         What a borrower should do when experiencing financial difficulty

·         FDIC policies about lines of credit, construction & development financing, and additional funding requests

·         What to expect when FDIC sells a loan

·         How to contact the Ombudsman

 

(ag) May 25, 2009 In Lending Issues/Federal Banking Agencies-FDIC

 

Maximum Deference

When I recently presented some of my research ideas on “Updating the Chevron Doctrine and Judicial Deference to Agency Action”  to a group of the Texas Tech University Law School faculty, my colleague Professor Arnold Loewy reminded me to take a closer look at the Supreme Court’s opinion in FCC v. Fox Television Stations (April 28, 2009).

Link to case:  http://www.supremecourtus.gov/opinions/08pdf/07-582.pdf

My related articles: 
• Chevron Lite:  How Much Deference Should Courts Give to State Agency Interpretation?  68 LA. L. REV. 1105 (2008). 
• Searching for Chevron in Muddy Watters:  The Roberts Court and Judicial Review of Agency Regulations,  60 ADMIN. L. REV. 229 (2008).
(ag) May 24, 2009

Not Enough Competition in Public Equity Markets

The Committee on Capital Markets Regulation concludes that “continued erosion in competitiveness of U.S. public equity markets was among the few clear trends during 2008 market chaos.”

Link:  http://www.capmktsreg.org/pdfs/09-Mar-24_CCMR_Q4_2008_competitiveness_update.pdf

(ag) May 23, 2009 In “Economy”

Another Gripe: “Toxic Assets” and “Legacy Loans”

Why don’t we just call these balance sheet items what they are:  “Mortgage loans and Mortgage-related securities that have lost value” and “Delinquent mortgage loans”?  The catchy phrases we have substituted obscure the true nature of what we are dealing with.

 (ag) May 22, 2009  In “Economy”

No Magic Kingdom In This Economy

Even The Walt Disney Company’s profits were way down for the second quarter of 2009.
Link to 10-Q:   http://www.sec.gov/Archives/edgar/data/1001039/000119312509100081/d10q.htm

(ag) May 22, 2009 In “Economy”

Bored on the Trading Floor

You’re not going to believe this – or maybe you will.  The Wall Street Journal reports that NYSE traders have so little to do these days that they are watching movies and playing gin rummy.  Two questions:  Who is paying them for this?  And would the U.S. economy have been better off if they had been doing this all along?

Link to story:  http://online.wsj.com/article/SB124139512869981763.html

(ag) May 21, 2009

U.S. Now on the Receiving End of Economic Advice

The U.S. has long dispensed economic advice to other countries.  Japan is now returning the favor.  And it’s just what your depression-era grandparents had to say.  The U.S. must reduce household debt. 

Link to story:  http://www.telegraph.co.uk/finance/economics/5212044/Bank-of-Japan-governor-says-US-must-tackle-household-debt.html

(ag) May 21, 2009 In “Economy”

Economy Joke

Recognizing that the title of this post is redundant, I’m sharing the following:

Friend One:  You are a walking economy.
Friend Two:  What do you mean by that?
Friend One:  Your hair line is in recession, your waistline is in inflation, and as a result, you are in a deep depression.

Okay, okay, this is my last attempt at humor here.

(ag) May 21, 2009

“Assessing the G-20 Stimulus Plans”

The Brookings Institution has posted an informative report, “Assessing the G-20 Stimulus Plans:  A Deeper Look.”  Our integrated world economy demands a global address to current economic problems.

Link:  http://www.brookings.edu/articles/2009/03_g20_stimulus_prasad.aspx

(ag) May 20, 2009 In “Economy”

British Report on Reforming International Financial Regulation

Highlights of the 120-page Report include proposals to:
• Reform Bank Capital and Liquidity Requirements
• Establish Counter-Cyclical Capital Buffers
• Build  Capital in Good Economic Times
• Regulate “Shadowbanking” Activities and Hedge Funds
• Regulate  Credit Rating Agencies
• Regulate Executive Compensation to Discourage Excessive Risk-Taking

The head of the U.K.’s Financial Services Authority said, "If an activity looks like a bank and sounds like a bank, we have to regulate it like a bank."

Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2009/05/05/AR2009050504018.html
(ag) May 20, 2009

Fallout from Swine Flu

My plans to teach “”Global Issues in Financial Institution Regulation” in Texas Tech’s Summer Law Institute in Guanajuato, Mexico, have been postponed until next summer.  Between now and then, the course content may change radically – for the better, we hope!  I’m the eternal optimist.

(ag) May 20, 2009