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'Extreme' Stress Tests; Ugly FHA Audit; Et Tu, Michael Corbat?

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Stress Tests: The Fed released the scenarios for the next round of modeling exercises mandated by Dodd-Frank for 30 or so large banks. The hypothetical economic shocks this time include a sharp slowdown in China. An industry lobbyist tells the Journal that these theoretical stressors are "the most extreme to date." But Times columnist Peter Eavis wonders why 1970s-style runaway inflation isn't considered in the stress tests. Remote as that scenario may be, "stress tests are meant to capture the unexpected. Remember that housing crash hardly anyone foresaw?" Unlike the last two rounds of stress tests, this time the Fed will let banks whose dividend or share-buyback requests would cause them to fail the tests avoid embarrassment by revising their plans before results are published. Wall Street Journal, Financial Times, New York Times

FHA's Annual Audit: The numbers have been leaking out in advance of today's official release, they ain't pretty, and a taxpayer bailout is looking more likely. Wall Street Journal, Financial Times, New York Times, Washington Post

Wall Street Journal

The OCC will soon hit JPMorgan Chase with a cease-and-desist order telling the bank to improve its anti-money laundering practices and scrutinize past transactions, anonymous sources tell the paper. Last week the agency met with executives and directors of more than a dozen big banks and told them to expect more public enforcement actions on the AML and consumer protection fronts. An anonymouse describes the meetings as "a spanking," and others speculate the OCC is trying to make up for its reputation as a captured regulator and show it can be as tough as the CFPB.

Who needs Shakespeare when you have Citigroup? Before his ouster, former CEO Vikram Pandit traveled to Tokyo for the IMF and World Bank conference with his colleague, and soon-to-be successor, Michael Corbat. Unlike Pandit, Corbat knew what was in store for the two executives when they returned. That's the lead tidbit in this story full of insider gossip and intrigue. If you want to know who's in the running for the president and chief operating officer spot vacated by Pandit pal John Havens and the short list of candidates for Corbat's previous job as head of the Europe, Middle East and Africa region, it's all in here.

New York Times

The protracted legal battle between Bank of America and MBIA over junky mortgage-backed securities concocted by Countrywide is handsomely benefitting the lawyers but doing nothing for the investors and consumers who got hosed, columnist Floyd Norris writes.

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The Seven Largest Sanctions-Related Fines Against Banks

The Justice Department announced a criminal plea and settlement with BNP Paribas on Monday, in which the French bank will pay nearly $8.9 billion to settle charges it willfully continued to do business with countries and entities on the U.S. sanctions list. It was the largest sanctions fine in the Justice Department's history more than four times larger than #2 on the list. The following are the largest penalties paid by banks for sanctions violations.

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