BankThink

In the depths of the financial crisis, the FDIC under Chairman Sheila Bair extended 100% insurance coverage to non-deposit transactions balances of all banks. Known as the Transaction Account Guarantee program, this extraordinary extension of FDIC insurance coverage to all transaction balances was a good idea at the time, but should be allowed to expire at the end of the year.

Sales officers and pricing desks frequently misjudge customers' sensitivity to rates and overpay for deposits. Similarly, banks that underestimate duration leave money on the table.

Receiving Wide Coverage ...Class Is in Session: Ben Bernanke reprised his old role as college professor in the first of an unusual (for a sitting Fed chairman) series of economics lectures at George Washington University. While taking care to note he wasn’t giving a policy speech, the Journal emphasized the window the lecture offered on Bernanke’s thinking. He noted the Great Depression is often thought of as two recessions, the second one brought about by premature monetary tightening — suggesting he’s in no hurry to raise rates as the current recovery continues to gather strength. The Times depicted the lecture as part of Bernanke’s campaign to burnish the Fed’s public image, while the Post made much of his dated cultural references (“It’s a Wonderful Life,” Life magazine) that went over the heads of his undergraduate students. And in a year when the presidential campaign has raised Ron Paul’s stature, Bernanke explained the problems with the gold standard, noting it did not prevent financial panics and actually promoted booms and busts. It took us way too long to find the 50 slides from his talk — a Google search turned up a lot of clutter — so we’ll spare you the trouble by linking to them right here. Coverage in the Wall Street Journal, New York Times, Washington Post.

Is it inevitable? Will community banks as we know them cease to exist over the next 10 years, with large, regional and multi-state banks along with credit unions left to fill the gap?

The current U.S. tax code represents decades of political manipulation rather than any grand design, and can certainly be improved upon, but only a tax neutral pro-growth tax reform can prevent the deficit from spiraling out of control. Hence tax reform should favor saving over consumption and productive work over leisure, but otherwise be neutral, allowing capital and labor to flow to their most productive use.

Receiving Wide Coverage ...Goldman Reflections: Columnists and bloggers keep parsing Greg Smith’s bombshell op-ed in the Times last week, in which he announced he was quitting Goldman Sachs because in his view the firm had ditched “customer focus” for a profit-at-all-costs mentality. The Journal’s Francesco Guerrera has a somewhat jaded reaction: “Those who venture on Wall Street should, by now, expect to be treated more like counterparts than clients.” Goldman erred by denying this reality and publicly insisting it puts clients first, Guerrera argues; its executives would have done better by dropping such pretenses and “explain[ing] how the business of finance really works.” In the FT, Tom Braithwaite compares Smith’s broadside to the campaign waged by a group of former Morgan Stanley executives and directors against its then-CEO Phil Purcell seven years ago. Smith’s “fretting over the ‘toxic’ culture at Goldman appealed to the consciences of his banks’ stakeholders; the Morgan Stanley group appealed to their wallets,” and largely for this reason Smith probably won’t have as much impact, Braithwaite writes. He also reminds readers that despite the portrait Smith painted of Goldman as a ruthless, bloodless profit machine, its recent financial performance has been so-so. CEO Lloyd Blankfein “should worry less about the criticism of Mr. Smith and more about making money,” Braithwaite writes. In the Times, law professor and “White Collar Watch” columnist Peter J. Henning uses the Smith allegations, and a recent court ruling assailing Goldman’s work advising El Paso on its sale to Kinder Morgan (a company in which the investment bank held a large stake), as a springboard to look broadly at how Wall Street firms manage conflicts of interest. The Times separately profiles Three Ocean Partners, a new boutique investment bank that has insulated itself from Kinder Morgan-style conflicts by taking on just one client per industry.

To date, the public dialogue about the Transaction Account Guarantee program has been divided between the political and reputational risks of continuing this extraordinary federal insurance and the potential liquidity crisis that could ensue if the program ends prematurely and abruptly.

Crybaby bankers, when not engaged in weeping over new rules, focus on attacking "shadow banking," whether in the form of payday lending or money funds.

Receiving Wide Coverage ...Clearing Inventory: Private-equity, hedge fund and securities firms are weighing bids on a portfolio of 2,500 foreclosed homes Fannie Mae is auctioning, according to the lead story in today's Journal. Buyers will be required to rent out the properties and refrain from selling them for several years. The auction will be a major test case for the GSEs and for banks, as both groups have generally been selling their repossessed residential properties one at a time. "Selling properties in bulk to large investors could require Fannie Mae to sell at a big discount, leading to larger initial costs. It is unclear which would be least costly ultimately to taxpayers," the Journal says. Banks, meanwhile, "could be reluctant to unload properties in bulk if it means selling for much less" than what they're currently getting. Another Journal story says the Treasury will announce today it turned a profit on mortgage bonds it purchased at the nadir of the financial crisis; it unloaded the last of these GSE-guaranteed securities last week.

In her column, "It's Time for Money Funds to Fess Up About Fluctuating Values," Barbara Rehm seems too intent on promoting regulations "that could make money funds miserable," regardless of their impact on investors, the financial system, and the economy.