BankThink

Editor's Note ...Morning Scan is taking a break for the holidays next week. We'll publish next on Tuesday, Jan. 3.

Receiving Wide Coverage ...It's Not True, and If It Is, It's Not Our Fault: Bank of America agreed to pay $335 million to settle government charges that Countrywide overcharged minorities and steered them into subprime loans, in the largest residential fair-lending settlement in history. The bank denied the Department of Justice's allegations (we've seen the boilerplate "neither admitted nor denied" line in some news stories, but in the proposed consent order there's a flat-out denial right there on page 4). Yet at the same time B of A "took pains to distance itself from the accusations levelled at Countrywide," which it bought in 2008, the FT says. "Bank of America's practices are not at issue," a spokesman tells the paper. (The consent order includes an acknowledgment by the government that it's all about Countrywide.) This was the first steering case brought by the DOJ, but more are expected, the Journal says. The paper's "DealJournal" blog tallies all the various Countrywide-related settlements and other legal and credit costs B of A has incurred from the acquisition; they well exceed the $4 billion the bank paid for the mortgage company. And Fox Business/Dow Jones writer Al Lewis cites a separate, ongoing lawsuit against B of A from another arm of the government, the Federal Housing Finance Agency, which says that before the acquisition "the top executives of Countrywide...complained to each other...that BOA's appetite for risky products was greater than that of Countywide." Lewis is amazed: "Imagine that. Bank of America doing mortgage deals that even Mozilo found shocking. This would be like Frankenstein convincing Godzilla that he is the bigger monster." Wall Street Journal, Financial Times, New York Times, Washington Post, Los Angeles Times, Huffington Post, Fox Business,

American Banker's Security Watch blog is being discontinued to allow us to better focus our attention on building a broader and better risk management section. Our reporting on security topics will remain a prominent part of our coverage.

An online poker site operator pleaded guilty to conspiracy to commit bank fraud.

Occupy Wall Street will enlist the aid and support of B, C, and D-list celebrities in numerous REO takeovers around the country. And other bold predictions.

Receiving Wide Coverage ...The TBTF Quarantine: The Journal leads its story about that package of Dodd-Frank rules proposed by the Fed yesterday with one that came as a surprise to the industry: limits on the top six banks’ exposures to each other. Goldman Sachs’s net credit exposure to JPMorgan, for example, would be capped at 10% of the former’s regulatory capital, and vice versa. The story quotes an analyst as suggesting this may be “a back-door way” to shrink the banks’ capital-markets businesses. A shadow Volcker rule, if you will. (Or a stealth Glass-Steagall, perhaps. Maybe a veiled Vickers. How about a Trojan Tobin?) Restricting interbank credit among those with $500 billion or more in assets could, of course, hurt market liquidity, but this is a price the Fed’s willing to pay to reduce interconnectedness among the megabanks, and thus keep any one of them from threatening to “punch a hole in the fabric of the universe” (in Matt Taibbi’s memorable phrase) a la AIG. The FT’s story, however, notes two surprise concessions to the banking industry from the Fed, both in the area of liquidity. First, the Fed said it would rely on banks’ internal modeling, rather than its own, to gauge the banks’ liquidity needs. And the central bank proposed to allow Fannie Mae and Freddie Mac mortgage-backed bonds to count as “highly liquid securities,” alongside cash and Treasuries. This was notable, the FT says, since “global regulators sought to limit the amount of Fannie and Freddie securities that could be used to meet liquidity rules.” (Those bureaucrats must be anti-American! And anti-homeownership to boot. Figures, these fancy Europeans, renting cold water flats and living their entire lives inside the same square mile, running down the block once in a while for a bottle of wine and a baguette and parking their puny SmartCars perpendicular to the curb...) Where were we? Oh, right … As expected, the Fed’s 173-page proposal includes a capital surcharge for the top eight banks, consistent with Basel III. There’s a lot more in here, including ongoing stress tests and remediation requirements for banks that show lapses. Wall Street Journal, Financial Times, New York Times, Washington Post

Nothing lasts forever as evidenced by the short term marriage of Hollywood stars. Differences in attitudes, status and in some cases just irreconcilable differences often cause breakups following many years of being together. One of fraying relationship is the 100 year plus association between the 6,000 plus smaller community banks and the nation's largest banks. This long standing relationship between big and small is on the rocks as the two groups have drawn apart, rarely working together or supporting one another anymore.

First Premier Bank has for decades offered credit cards with higher rates and fees than almost any other bank. For instance, if you borrowed $250 on one of their cards and held that balance for a year, you'd pay roughly 75% of that amount, $187.50, in finance charges and fees—assuming no late payment or other charges.

A classic psychological theory, Maslow's Hierarchy of Needs, sheds light on consumers' prioritizing credit card bills over mortgage payments.

After several years of bank merger activity trending down, there are signs that the activity level may revive. As this subject may not have been a front burner topic for bankers in recent years, it is useful to consider how changes in the last few years have altered certain strategic priorities for considering mergers.