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Tag >> FDIC
It seemingly happens every Friday evening.
Federal regulators announce that some small bank cannot continue on its own and a rival is brought in to take over the assets and continue as if nothing had happened.
Even as companies begin to show signs of optimism in the state of the economy, and as the Fed announces the investment of a further $600 billion into quantitative easing, it is important for businesses to remember that the US banking markets are still at risk, and to manage that risk accordingly.
Of the more than 7,000 banks that make up the smaller banking market in the US, there have already been 139 failures this year, according to data from the FDIC, highlighting the importance of actively monitoring risk with your banking partners.
Timothy Ryan, president and CEO of the Securities Industry and Financial Markets Association (SIFMA), explained in a piece Wednesday on The Huffington Post some of the challenges that face regulators in the long and complicated process of implementing regulatory reform.
That process is fraught with potential pitfalls and challenges. The question is how those that are responsible for implementation will roll it out and what it will mean for all the companies and industries that will be affected.
The FDIC and SEC are working hard to enact government-mandated regulatory reform for the US ABS markets as called for in Dodd-Frank. However, the two agencies, along with four other agencies that oversee the ABS markets in some way, each have proposed specific guidelines that interpret how market reform should be implemented.
Last week, the FDIC Board of Directors approved the establishment of an Office of Complex Financial Institutions, or CFI, as it began executing its obligations under the Dodd-Frank Wall Street Reform and Consumer Protection Act. "The FDIC plans to vigorously implement its new authorities under the Dodd-Frank Act, which ends the presumption of ‘too big to fail', for the largest and most complex financial institutions," said FDIC chair Sheila Bair, in announcing the shift.
As part of the financial overhaul, federal banking agencies have jumpstarted the process of finding alternatives to using credit ratings for calculating banks' capital levels. But alternatives are few and far between and some could be expensive too.
The various bank agencies - the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision - are seeking to gather information and comments on alternatives and on a set of criteria considered important to evaluate creditworthiness standards such as risk sensitivity, transparency, consistency and simplicity.
Congress is finally working on a bill on covered bonds, hoping to boost investor demand and give banks another route to fund some of their loans. But if passed in its current form, the bill will have some flaws, including insufficient overcollateralization and inconsistent regulatory regimes for different types of issuers.
The House of Representative Financial Services Committee sent the United States Covered Bond Act of 2010 to the floor of the House last week.
The Federal Deposit Insurance Corp.'s proposed treatment of assets transferred to bank-sponsored securitization vehicles in case of receivership or conservatorship is the latest move by regulators that raises questions about the viability of the securitization market.
The FDIC's so-called safe harbor rule legally isolates bank-sponsored securitization from the sponsoring bank's failure, and allows the securitization vehicles to be rated on the basis of the quality of the underlying assets and the securitization structure rather than the stronger rating of the sponsoring bank. As a result, investors will bear the brunt of losses.
Posted by Ron F in Risk, Lehman Brothers, Goldman Sachs, financial crisis, FDIC, Banks, banking reform, Banking, bank lending, bank failures, bailouts
The banking crisis may have made the phrase "moral hazard" a household term, at least in finance quarters. But there's actually a theoretical argument against the idea that providing banks with taxpayer subsidies encourages them to take risks they wouldn't otherwise shoulder.
The theory that subsidies do not (emphasis on "not") create moral hazard rests on the notion that banks will actually take less risk as a result of such guarantees against failure because taking more would jeopardize the future value of their banking charters.
Yes, that sounds strange to me, too. But there's a body of academic research that supports the idea. And it smacks of the same logic behind other theorizing about so-called "real options."
We're taken the bankruptcy reform law Congress passed five years ago to task for encouraging speculation in credit default swaps by creating a safe harbor for derivatives.
Until the law was enacted in 2005, that is, swaps were subject to the automatic stay from creditors' claims, so counterparties had to line up with other creditors to seek seek cash or collateral to make good on their contracts. That changed when the law created a process known as "close out netting," so counterparties to swaps could force a failed company to make good on its claims even in Chapter 11.
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