BankThink

As leaders of church and national minority business organizations, few of our congregants or constituents understand or care about the Volcker Rule. Most, however, are concerned about the growing gap in compensation between the working poor and that of the CEOs of major banks, such as Citigroup and JPMorgan Chase.

Banks today are searching for ways to increase profitability while also navigating a growing number of regulations that require stronger risk management. The result is that banks are trying to pivot back into growth mode while simultaneously needing to manage their exposure more rigorously.

Receiving Wide Coverage ...Euro-Zone Woes Travel Abroad: The knock-off effects from the continent's worsening financial crisis took a new and troubling turn on Wednesday as rising doubts about whether policymakers can contain Spain's banking meltdown led to a global equities sell-off. World stock markets have lost about $4 trillion this month as the turmoil in Europe was reignited by inconclusive Greek elections and the threat to Spain's finances, according to Bloomberg. The euro, meanwhile, fell below $1.24 for the first time in just under two years. "Most ominously on Wednesday, the yield on Spanish 10-year bonds … rose sharply to its levels of November, before the European Central Bank stepped in with €1 trillion ($1.3 trillion) of lending to banks to ease the crisis," reports the Wall Street Journal. "The market slump—driven by the latest worries over the euro zone's fourth-largest economy—underscored investors' concerns that European policy makers don't have the capacity to cope with the euro-zone crisis. The growing angst has, at least temporarily, bolstered the status of U.S. and German government debt as safe havens; sovereign bond markets posted strong rallies in both markets, with Treasury yields hitting historic lows. Rather than celebrate Uncle Sam's near-zero cost of borrowing, or bask in schadenfreude, President Obama conferred via videoconference with German Chancellor Angela Merkel, French President François Hollande and Italian Prime Minister Mario Monti. Few are taking comfort in the high-tech powwow. "The financial markets wonder what's left in the arsenal," Bill Gross, founder and co-chief investment officer of Pacific Investment Management Co., told the Journal. The worse things get, the louder grow the calls for Europe's notoriously timid and disjointed policymakers to take bold new action. The European Commission, which serves as European Union's executive arm, called on Wednesday for the Euro-zone to consider setting up a "banking union" that would jointly prop up vulnerable banks—-rather than push their home countries into full-blown bailouts, says the Journal. The EC also raised the idea of a pan-European deposit insurance fund, which would further shield individual governments from the cost of bank failures. Just how desperate have things become? So desperate that the famously stingy Germans didn't "rule out allowing European bailout funds to inject capital directly into banks rather than channeling funds via national governments," according to the Journal's Heard on the Street column. World Bank President Robert Zoellick likewise weighed in on Wednesday, calling for euro-zone nations to take larger leaps in policy, such as issuing some version of euro bonds. Zoellick also said direct recapitalization of European banks by the continent's rescue fund—as euro-zone officials are now debating—would help avoid "the drip, drip, drip of bad news and uncertainty." No drip, drip, drip would certainly be a change. Wall Street Journal Bloomberg

The regulators' proposal doesn't consider accounting rules for deciding which trades are proprietary and which ones get the exemption for hedging. That leaves plenty of room for regulatory arbitrage by banks.

What would happen if you took the creativity and user-focused design sensibility of Silicon Valley and applied it to one of the least consumer-friendly industries on the planet — financial services? What is the Apple of budgeting? The Facebook of lending? The Google of bill payment?

DALLAS -- A stunned Joyce Davis opened her door early yesterday morning to a porch crowded with Neighborhood CU leaders handing her a giant $10,000 check with her name on it—representing her winnings in the credit union’s Prize Savings Account.

Receiving Wide Coverage ...Realty Check: The Journal's "Ahead of the Tape" column notes that the Mortgage Bankers Association has boosted its industry forecast for 2012 residential refinancing volume to $870 billion. Volume is still half what it was during the salad days, but loans are more profitable as there are fewer competitors to squeeze gain-on-sale margins. Another Journal story reports that the S&P/Case-Shiller Index of home prices in 20 major markets barely declined in March, and these days a flat report counts as good news on this front. Still another article in the paper says Wells Fargo settled a foreclosure-related discrimination suit from two municipalities in Tennessee by agreeing to spend $7.5 million on down payment and renovation grants as well as financial literacy programs. The bank also pledged to write $425 million of loans in Memphis and Shelby County over five years. Post columnist Michelle Singletary alerts consumers who've lost their homes to foreclosure that the July 31 deadline is fast approaching to have their cases reviewed for errors or improper actions under the federal banking regulators' consent order. And on the commercial side of the mortgage business, a story in the Journal says investors in securitizations are complaining about potential conflicts of interest at "special" servicers. These outfits play no role when things are going well; they're paid to step in when a loan runs into trouble, and to try to work out a restructuring deal or seize the property on bondholders' behalf. Among other complaints, critics say that the special servicers have sometimes sold assets to affiliated companies for less than the properties could fetch on the market.

Politicians and regulators want taxpayers to believe two things: first, that financial crisis had multiple complex causes mostly related to excessive risk-taking, conflicts of interest and deregulation — a view unconvincingly supported by the exculpatory 662 page summary Report of the Financial Crisis Inquiry Commission; second, that public regulation is a sisyphean task requiring the 2313 page Dodd-Frank Act. This diagnosis and prescription are both wrong.

The House Financial Services Committee is set to vote on a bill that would benefit just one institutions: Emigrant Bank, whose CEO Howard Milstein has made contributions to many of the bill's co-sponsors. And people wonder why Americans are cynical about politicians.

JPMorgan's trading loss should send shudders down the spine of shareholders, management and regulators. The once paragon of risk management has turned into a case study of what not to do.