Fed's Minsky Musings, StanChart's Mea Culpa, Cyprus' Cash Crunch ...

Receiving Wide Coverage ...

Fearing a Minsky Moment: The more stable financial markets appear, the more unstable they're becoming. Until a crisis — or Minsky moment — hits, that is, when everyone rushes for the exit simultaneously. Such a moment appears to be on the minds of banking regulators these days. They warned on Thursday about the dangers lurking in the booming market for loans to struggling companies. The controls and quality checks applied by lenders when extending so-called leveraged loans have deteriorated, according to a joint warning issued by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. Regulators questioned whether some banks are doing enough to accurately gauge the risks inherent in such loans. They also declared that they'll closely monitor the underwriting of such credits, which are typically used to finance buyouts or acquisitions, as well as the ability of firms to manage their lending and withstand loan-related losses. Certain debt agreements include features that wind up weakening lender protections by excluding meaningful maintenance covenants (sometimes known as covenant lite), or include features that limit a lenders' ability to take action in the event of a weakened borrower performance. Additionally, regulators characterized as "aggressive" the capital and repayment structures for some transactions. "Financial institutions unprepared for such stressful events and circumstances can suffer acute threats to their financial condition and viability," according to a quote from regulators cited in the Wall Street Journal. The updated guidance covers transactions by borrowers whose leverage exceeds industry norms. It focuses on several areas, including establishing a sound risk management framework; improving underwriting standards; accurate reporting and analytics; and realistic risk-rating of leveraged loans. "It is important that banks provided leveraged financing to creditworthy borrowers in a safe and sound manner," regulators said. The guidance comes amid a broader debate at the Fed over how the financial system is responding to it's efforts to keep interest rates near zero and whether the resulting risk-taking may also threaten financial stability, noted the Journal. It's the sort of question Professor Minsky would have lauded. Wall Street Journal, American Banker

So Sorry: "A humiliating apology" is how the FT characterized a Thursday mea culpa from Standard Chartered Chairman Sir John Peace. The retraction relates to a March 5 press conference during which Sir John stated that StanChart was guilty of "no willful act to avoid sanctions. You know, mistakes are made. Clerical errors." Mistakes were made, Sir John? That characterization did not ring quite true to the U.S. Department of Justice and New York district attorney. Not in the wake of StanChart's earlier acceptance of a deferred prosecution agreement and $667 million payments to settle charges by state and federal officials that it defied U.S. sanctions and laundered hundreds of billions of dollars for customers in Iran, Sudan, Libya and Myanmar between 2001 and 2007. "Standard Chartered was required to retract the statement or be subject to prosecution," the DOJ said. Faced with that prospect, Sir John on Thursday declared his earlier comments "both legally and factually incorrect" and retracted them. "Standard Chartered Bank unequivocally acknowledges and accepts responsibility ... for past knowing and willful criminal conduct in violating US economic sanctions laws and regulations," he said. StanChart's settlements with federal and state regulators require it to detail plans to ensure compliance with U.S. rules governing money laundering and to prevent violations from recurring. Financial Times, American Banker