BankThink

Sheila Bair says we should prohibit examiners from quitting to work in the private sector, to keep them from gaining unjustly favorable regulatory treatment for the banks that later employ them. But the worse abuse runs the opposite way.

President Obama's reelection has given his administration a "do-over" opportunity in housing.

Receiving Wide Coverage ...Basel: Following U.S. regulators' delay in implementating Basel III, the Journal presents two different views on the international capital standards' applicability in this country. In the "Heard on the Street" column, David Reilly focuses on the Basel III requirement that capital calculations include unrealized gains or losses on securities. Community banks want to be exempt from this rule (along with the rest of Basel III), arguing that since they intend to hold most securities to maturity, counting paper gains and losses would paint an unnecessarily volatile picture of capital. But Reilly argues that granting this particular exemption would be a mistake. "As many banks learned during the financial crisis, market storms have a way of swamping intentions. A bank facing a funding crunch may be forced to sell holdings, and recognize losses, even if it didn't originally plan to do so." Transparency is particularly important now, as banks try to compensate for low rates and squeezed margins by loading up on ever-longer-dated securities, Reilly says. An editorial in the Journal, on the other hand, says the U.S. should follow FDIC director Thomas Hoenig's advice and scrap Basel altogether. The writers take particular issue with the capital standards' complexity and incentives for banks to invest in particular instruments, such as sovereign debt. "What banks should own are assets that are judged safe by markets, not by politicians or regulators. The world has already run the latter experiment, with disastrous results" (i.e., the mortgage bubble, which previous iterations of Basel are said to have abetted by encouraging banks to pile in to supposedly safe triple-A-rated mortgage securities).

Internal governance policies should define for shareholders, employees and the public how the bank plans to effectively manage the stated risk appetite.

Federal Reserve Board Gov. Elizabeth Duke doesn't want to see new mortgage rules driving community banks out of the origination market. Exhibit A: balloon mortgages. They may have been abused by other lenders, but are a mainstay of community bank mortgage lending.

There have been some new twists in the strange case of an alleged attempt to blackmail Mitt Romney for $1 million in bitcoins, raising additional legal questions about the digital currency.

The old concept of real interest rate return is virtually nonexistent. Banks face temptation to reach for extra yield by taking more risk.

The Dodd-Frank Act, sold to the public as the tamer of the Wall Street titans, may well end up having a disproportionate impact on smaller institutions, thanks to the costs of capital implications of being "not too big to fail" and the advent of the CFPB, writes Cato's Louise Bennetts.

The terms 'unbanked' and 'underbanked' perpetuate the erroneous notion that everyone needs a bank account and inhibit discussion of better ways to serve the financial needs of non-traditional consumers.

Receiving Wide Coverage ...Burying the News 101: It's a PR trick as old as Wall Street. If you're going to release ugly news, do it when nobody's watching. That appears to be the play Citigroup (NYSE:C) called late Friday when just before Veteran's Day weekend it disclosed that its recently ousted chief executive, Vikram Pandit, will receive $6.7 million in pay for 2012. That's on top of $8.8 million for 2011, bringing Pandit's two-year total north of $15 million, notes the Financial Times. Pandit's right-hand man, John Havens, who was forced out at the same time from his position as Citi's president and chief operating officer, will receive $6.8 million for the current year. Pandit's payout is the latest upswing in what has proven a highly volatile paycheck during his Citi tenure. The banking company paid $800 million for the former money manager's hedge fund, Old Lane Partners (which it promptly shut down), prior to naming him CEO. Pandit later agreed to work for $1 in 2010 as Citi struggled to survive with the help of a $45 billion government bailout. As CEO, Pandit shrank and stabilized Citi'’s operations but was also criticized for a number of miscues. They included submitting a request to pay a shareholder dividend that was rejected by regulators. His own pay package was also rejected by Citi shareholders earlier this year. Citi Chairman Michael O'Neill was widely credited with orchestrating an October surprise and firing Pandit and Havens one day after the company released its quarterly earnings. On Friday, O'Neill said in a written statement that "Vikram steered Citi through the financial crisis, realigned its strategy, bolstered its risk-management processes and returned it to profitability ... We remain grateful for [Pandit's and Havens'] contributions and wish them well." To the extent that they're noticed, the payments to Pandit and Havens are likely to bolster Citi's reputation for miscues within its senior ranks and boardroom. Just a year ago, Citi's directors awarded Pandit a multimillion-dollar pay package to ensure he'd remain at the helm for at least four more years, the Journal notes. Since Pandit's departure "the mood among some senior executives has been grim," the New York Times reports, citing several people close to the bank. "The executives felt that the board's actions last month were particularly brutal and humiliating to Mr. Pandit, considering his role in reviving the bank." It seems the mixed messages from Citi are destined to continue. Pandit received nearly $7 million in performance pay for the current year, but he will forego severance and is prohibited during the next year from working for 13 rivals. They include Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC). New York Times, Wall Street Journal, Financial Times