BankThink

The Dimon Senate hearing was a missed opportunity to spotlight the criticality of risk management practices. When banks get into trouble, you can follow the trail back to a lack of governance, process and controls.

Many so-called consumer advocates doubt consumers can make responsible decisions about credit and believe they should be "protected" from certain financial products. We did not sense this sort of patronizing viewpoint from the new agency.

Receiving Wide Coverage ...All Dimon, All the Time: Yesterday’s two-hour Senate Banking Committee hearing on the JPMorgan Chase trading losses, starring CEO Jamie Dimon, dominates the morning papers’ banking coverage. Given the complexity of the topic and the competing interests and personalities involved, the contradictions in the storyline are probably inevitable, but still striking:

Receiving Wide Coverage ...JPM Hearing Previews — The Script: This morning Jamie Dimon will testify before the Senate Banking Committee on “what went wrong” that led to JPMorgan Chase’s recent $2 billion trading loss. The lawmakers should probably go straight to Q&A and skip his prepared remarks (which you can read unfiltered right here), because the testimony has already been parsed six ways from Sunday. Media outlets either play up the contrition (e.g. the Associated Press headline, “Dimon to Apologize…”), emphasize his insistence that the beaching of the London Whale was “an isolated event” (the Times: “JPMorgan Chief Is Expected to Play Down Trade Risks at Hearing”), or lead with the CEO throwing his subordinates under the bus (the FT begins by saying he’ll tell the senators that “the bank’s chief investment office was instructed to reduce its risk exposure last year but did the opposite”). Wall Street Journal, Financial Times, New York Times, Forbes, Bloomberg, Associated Press, American Banker

Financial institutions and technology companies are working hard to bring location-based advertising to life, but research in psychology suggests those same offers may be draining a limited resource: our willpower.

It's too easy to blame the agency. With a job as complex as the FAA's, but less than a tenth of the staff, the OCC for practical and philosophical reasons relies on banks to manage and monitor risk.

Receiving Wide Coverage ...Europe: An IMF report gave “a clean bill of health” to Spain’s two largest banks, BBVA and Santander (which both have significant operations here in the U.S.), according to the FT. That, combined with about $124 billion of emergency loans to Spain’s otherwise ailing banking sector, calmed nerves in the industry, the paper says, although markets remain jittery, as shown by a widening of Spanish and Italian government bond yields, a development the Journal calls “ominous.” (Yes, Italy is the new focus of economic agita, according to the Times.) Germany’s Bundesbank warned that the proposed integration of the European Union’s banking systems, through cross-border supervision and deposit insurance, could indirectly subsidize the borrowing costs of weaker countries, curtailing “market discipline” for those governments. (The French central banker, however, favors such a union, and lays out the case for it in a Journal op-ed.) In the Times, “DealBook” prodigy Andrew Ross Sorkin argues that the Spanish bailout won’t work. One more FT story says the continent’s securitization industry is trying to rebrand itself with a Good Housekeeping-style seal of approval. Asset-backed bonds would have to meet certain criteria for “quality, transparency, simplicity and standardization” in order to rate as “Prime Collateralized Securities.” This project is funded by two financial trade groups in Europe and managed by a “PCS Secretariat,” whose name sounds like something out of a right-wing dystopian fantasy. But then one could argue that Europe today is such a fantasy, come true. …

The Basel III capital requirements must be applied consistently across borders. It'll do a lot more to deter reckless risk-taking than micromanaging banks through measures like the Volcker Rule.

Receiving Wide Coverage ...Consumer Finance: The Times on Saturday reported that while corporations are eagerly taking advantage of ever-falling interest rates, consumers by and large are not. Business borrowing in the first quarter grew the most since the 2008 financial crisis, while household debt levels kept shrinking. The consumer deleveraging is partly voluntary, as cautious households pay down and avoid taking on debt in a fragile recovery, and partly involuntary, as homeowners claiming spotless credit complain that no lender will refinance their underwater properties. Still, refi volume is up, and a story in today's FT says the surge "is divisive, benefiting the largest who issue most new mortgages, but hurting smaller rivals and investors who own the original loans, that are being repaid." Megabanks, which dominate originations, will reap the gain-on-sale income, while thrifts that held the old mortgages will be hit with prepayments that erode their net interest margins, since the principal cannot be reinvested at such high rates.

Partnerships between cooperatives and credit unions are highlighting how like-minded member-owned organizations can work together to create win-win scenarios that provide solutions, enhance business and create new opportunity.