BankThink

Yasmin Zarabi discusses steps financial institutions can take to prepare for social media compliance with impending regulation from the Federal Financial Institutions Examination Council.

The Consumer Financial Protection Bureau released a bulletin on Thursday warning indirect auto lenders that they could be violating fair-lending laws if they do not stop auto dealers who often mark up the loans they issue.

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

To the detriment of consumers, innovations in banking tend to be conservative, late, and incremental, despite top talent and plenty of ideas. Is regulation backfiring?

More needs to be done to reduce the compliance burden so these banks can fully serve their communities.

Federal Deposit Insurance Corp.'s Vice Chairman Thomas Hoenig said in a speech Wednesday that because bankers effectively corresponded with consumers leading up to the end of the Transaction Account Guarantee program, there was little impact.

American Banker's Editor at Large Barbara Rehm has an answer to the financial industry's hot button issue of "too big to fail."

All mortgage lenders should prepare themselves for a minimum decline in refinance activity of 75% and make sure their capital plan, liquidity plan and budget all reflect this.

Receiving Wide Coverage ...Bernanke on Fed Policy … and TBTF: The Federal Reserve issued its latest policy statement yesterday and, as expected, plans generally remain the same. The central bank will keep short-term interest rates low and continue buying $85 billion a month in Treasuries and mortgage-backed securities indefinitely. But both the Journal and the Times posit the Fed is eyeing a wind-down. Per the Journal: "Fed Chairman Ben Bernanke … said the central bank would vary the amount of its monthly bond purchases depending on how the economy is performing. This means it could slowly dial them down from the current pace as it becomes more convinced that the job market is improving." Per the Times: "Bernanke's remarks suggested that the Fed would reduce its asset purchases if job growth continued at the current pace." The Times article goes on to note, however, that the change is at the very least "a few months away." Meanwhile, Bernanke did spice up what many believed would be a "boring" press conference by saying he agreed with Sen. Elizabeth Warren's stance on "Too Big to Fail" banks. "It's a major issue," Bernanke said. "I never meant to imply that the problem was solved and gone. It's still here."

Money was never meant to be a method of supranational identity tracking. Its use in that way could signal law enforcement desperation. When all other tactics fail, surveil the finances.