BankThink

You should be able to move your money as fast as you can make it. But the banking system today works about as speedily as the Post Office.

Use eminent domain to refinance unaffordable mortgages, cut through the mire of servicers, home equity investors and trustees. Protect homeownership and communities while respecting everyone's property rights.

Receiving Wide Coverage ...Regulatory Reform Redux: The New Yorker’s financial columnist, James Surowiecki, frames the Libor-rigging scandal as a textbook example of the financial industry’s inability to regulate itself. Reputation risk has proven an insufficient incentive for bankers to behave, he writes; an “intrusive and overbearing” approach is “exactly what the financial industry needs.” But Reuters’ blogger Felix Salmon finds Surowiecki’s new-sheriff-in-town prescriptions (jail time for fraudsters and preventive measures inspired by urban policing strategies) a bit naïve. Noting that prosecutors and regulators face “serious institutional and legal constraints” that prevent them from being as tough as Surowiecki and others would like them to be, Salmon seconds John Kay’s call for a deeper restructuring of the financial industry itself. (That’s John Kay the economist, by the way, not the singer from Steppenwolf.) In the Journal, columnist Francesco Guerrera says the armies of on-site examiners stationed at banks “are fast becoming an anachronism that should be ended or at least sharply downsized.” Instead, more regulatory resources should be allocated to data-driven, industrywide supervisory methods, Guerrera writes, citing the “success” of the recent stress tests. “Successful” how, though? “No amount of stress testing would have caught the mortgage lending practices that caused the meltdown,” says a Journal reader in the comment thread. “Regulatory agencies continue to expand their stress-testing rigor, at enormous cost to the banking system — but a stress-testing exercise provides little or no insight into how the bank is actually conducting its business.” (Warning: you have to wade through a lot of predictable knee-jerk reactions from people who apparently didn’t read past the headline — e.g. “of course, let's turn all the banks loose to do whatever they want. We don't have enough banking scandals” — to get to that more nuanced criticism of Guerrera’s thesis.) Similarly, Tony Hughes of Moody’s Analytics, writing on American Banker’s BankThink blog, doubts that the stress tests, as currently designed, would have flagged the dangers of WaMu’s mortgage binging in time to prevent its failure. Hughes recommends that the stress-test exercise be reconfigured to reflect, among other things, the reality that no bank is an island — “collective actions by many banks can dramatically increase the odds of failure of any individual bank,” and “not only does the economy affect the banking sector; the reverse is also true.” The Journal also reports today that Fed Governor Sarah Bloom Raskin wants a tougher version of the Volcker rule with narrower exemptions than the draft interagency proposal issued last year. Finally, don’t judge a magazine by its cover. The latest issue of The Freeman bears the headline “CASINO BANKING,” with an illustration of a Las Vegas-style neon sign that says “Welcome to Fabulous Wall Street.” Is this an Occupy pamphlet? The New York Times Sunday business section, perhaps? Not quite. The article, which focuses on JPMorgan’s multibillion-dollar trading loss is by Gerald P. O'Driscoll, Jr., a senior fellow at the libertarian Cato Institute, and the magazine is published by the Foundation for Economic Education, which has been flying the don’t-tread-on-me flag longer than Cato. What gives? Shouldn’t these be the last people to care about a private company’s stumbles? “Some commentators have argued that politicians and the public have no business in Morgan’s losses,” O’Driscoll writes. In this view, “only Morgan’s stockholders, who saw its share price drop over 9 percent in one day, and senior management and traders who lost their jobs should have an interest. But in fact losses incurred at major financial institutions are the business of taxpayers because government policy has made them their business.” To O’Driscoll, big banks are the result of government intervention, not of its absence. “If ordinary market forces were at work, these institutions would shrink to manageable sizes and levels of complexity. Ordinary market forces are not at work, however. Public policy rewards size (and the complexity that accompanies it).”

Consumer advocates, regulators and others are encouraged when companies take a "we want to design the best product" approach rather than a "we want to meet a minimum threshold" approach.

Jim Purcell, chief executive officer of State National Bank of Big Spring, spoke during one of the hearings House Republicans organized to examine Dodd-Frank’s impact. But he "had a hard time answering certain questions from Democrats," writes American Banker’s Kevin Wack.

Recessions do not cause bank failures. It is banks causing booms that cause recessions that cause banks to fail.

Receiving Wide Coverage ...Europe (Again): It might be taking on the sound of a broken record at this point, but the banking-sovereign-cultural crisis that has been wracking the continent for months has reached yet another “first-ever” crescendo. “Spain’s borrowing costs reached a new euro-era high on Monday as fears about the country’s wilting economy and government finances outweighed the eurozone’s approval of loans to help Madrid recapitalise its banks,” reports the Financial Times. Catalonia’s addition to a list of the Spanish regions that may tap aid from the central government in Madrid, spurred Spanish 10-year yields to surge above 7.5% for the first time from a previous peak of 7.285%, according to Bloomberg. “The problem in the region is profound, but the pace that it has been dealt with was slow,” John Stopford, head of fixed income at Investec Asset Management, told Bloomberg. “The bank bailout for Spain is far from sufficient to deal with the country’s problems.” Over in Greece, another showdown is looming with the planned arrival in Athens Tuesday of Greece’s troika of international creditors—the European Commission, the European Central Bank and the International Monetary Fund. “They will face down doubts that the country can meet its bailout commitments and reluctance among euro states to put up more funds should it fail,” Bloomberg reports. German coalition politicians over the weekend torpedoed the possibility of renegotiating the terms of Greece’s agreement. The problems in both countries raise anew questions of whether Europe can shrink its bloated economies back to prosperity—or whether the medicine is making the patients sicker still. “Austerity measures imposed on a frail economy are too pro-cyclical, and the EU’s relaxation of Spain’s deficit target to 6.3% of output this year brings little relief,” writes the FT’s Lex column. “Yet, seemingly the stronger Madrid’s policy responses to Brussels’ commands, the greater the disconnect with investors.” Financial Times, Bloomberg

Mortgage lending can be a strategic game-changer for progressive credit unions. Here are a few things to consider.

The year was 1997, and as federal credit unions meet this week it seems a fine time to look back and mark the 15th anniversary of the two-year period that forever changed those little financial co-ops in the U.S.

It is clear that our new reality is a business environment that will require each of us to be vigilant against continuing competitive challenges to our market position. Sitting on the sidelines is simply not an option if we want our industry to continue to thrive.