BankThink

How entertaining is your credit union's website?

The article by Frank J. Diekmann entitled, "Credit Unions? Snobs Who Are Based in Timbuktu" published in the May 21, 2012 edition of the Credit Union Journal raised some excellent points for consideration by credit unions and their trade associations.

True markets are transparent, competitive, regulated and fair. None of these adjectives accurately describes the CDS business.

When the going gets rough, you find out who your friends are. In Jamie Dimon's case, they're legion. He's recently been endorsed by, among others: Spencer Bachus (chairman of the House Committee on Financial Services), Richard Fisher (CEO of the Dallas Fed) and even Brian Moynihan (his competitor).

"I wouldn't want to be buying a foreclosure, then have the title examiner find that a robo-signer had participated in the process," says Massachusetts' register of deeds.

Banks and governments have not been required to account for the way in which, when important firms fall deeper into distress, implicit and explicit taxpayer guarantees absorb much of the markdowns that would otherwise have to occur.

Receiving Wide Coverage ...Capital Punishment: "Shocked" is what bankers were on Thursday by a decision to force even the smallest lenders to comply with elaborate Basel III bank-capital standards. That was the Wall Street Journal's take, anyway. Our own view is that among close followers of the banking world, the Federal Reserve's decision to apply international capital standards to all 7,300 U.S. banks was about as shocking as finding gambling going on in a casino. What's beyond dispute is that the Federal Reserve Board's unanimous approval of the capital standards set by the Basel Committee on Banking Supervision is a big deal; it proposes setting a minimum capital requirement for all banks of 7%. The Fed estimates the banking industry would face a capital shortfall of almost $60 billion if the proposed capital buffers of Basel III were in effect today, according to Bloomberg. That compares with a Basel committee survey's finding that the largest global banks would confront a $640 billion shortfall if forced to have a 7% core capital buffer last year. Regulators anticipate U.S. banks could meet their requirement — which will be fully in place by 2019 — by retaining earnings rather than raising capital. Fed Chairman Ben Bernanke on Thursday described the proposal as an "attractive package." Community bankers — who broadly believe Basel III is punishment for the misdeeds of far larger peers — used less glowing adjectives to describe the new capital requirements. The 7% capital requirement "feels like an awful lot of capital held by institutions that, by and large, have done an excellent job in this crisis of managing their problems and their capital," Cathleen Nash, chief executive Citizens Republic Bancorp, a midsized institution headquartered in Flint, Mich., told the Journal. In addition to the main capital rules, the Fed unveiled a proposal that would reduce the role of credit ratings in how banks measure risks in their assets. That proposal calls for swapping in risk classifications developed by the Organization for Economic Cooperation and Development to evaluate the debt issued by other countries. Another set of new rules proposes that banks hold more capital against over-the-counter derivatives and would apply only to the large, internationally active banks or those with significant trading activity. The Fed's action opens up a 90-day comment period during which banks of all sizes are likely to pressure regulators to make changes to the details.

Given the recent developments in Europe, investment managers are wondering when the euro will come crashing down. Challenges are likely to fall upon operations and technology departments within investment management firms. The steps to limit risk should be taken now.

I urge travelers to San Francisco to take a tour and visit some of the many startups, disruptors and success stories in the area.

Receiving Wide Coverage ...J.P. Mea Culpa: At yesterday’s Senate Banking Committee grilling, er, hearing, Comptroller Thomas Curry confessed “it does not appear” his office’s examiners at JPMorgan Chase “met the heightened expectation” for supervising large banks. Fed Governor Daniel Tarullo told lawmakers that the Volcker Rule, had it been in effect, would have required JPMorgan to document for regulators how its ill-fated trades qualified as hedges. As usual, Matt Levine of the blog “Dealbreaker” wrote our favorite headline on the matter: “Volcker Rule Would Have Required JPMorgan Whale to Look Himself in the Mirror and Ask ‘Is This Really What I Want to Do with My Life?’” Levine reads Curry’s testimony as “a reminder that, even without the Volcker Rule, the OCC, Fed and others had pretty complete access to data on JPMorgan’s whale-sized positions, and basically signed off on them as a hedge until Bloomberg [News] suggested there might be a problem,” which was about a month before JPM disclosed the big trading loss. Democratic Senator Robert Menendez admonished the panel of regulators (who all look really uncomfortable in the hearing photos, even by Congressional witness standards) that “if huge trading losses happen at banks after Volcker, the blood will be on all of your hands.” If you think that sounds hyperbolic (money being recoupable, unlike a life), remember he’s from New Jersey. Even Republicans on the committee walked away from the hearing talking about the need for higher capital requirements. Wall Street Journal, Financial Times, New York Times