Can another meltdown happen?; Deutsche Bank loses a big investor
Editor's note: American Banker begins a special 10-part podcast series today on housing blight, examining the threat it poses to communities across the country and the financial system at large. We look at why governments seem powerless to turn it around.
Receiving Wide Coverage ...
Can it happen again?: This weekend's financial press abounds with retrospectives on the 10th anniversary of the signal moment of the global financial crisis, the Lehman Brothers bankruptcy, and the question, Can it happen again? The answer is, unfortunately, quite possibly.
While members of the Federal Reserve seem to agree that bank regulation, not interest rate manipulation, is the best way to ensure that another crisis doesn't happen on their watch, they disagree on when to use it, the Wall Street Journal reports.
One tool, "called a countercyclical capital buffer, can require the U.S.'s largest banks to sock away additional capital during good times so they have more to fall back on when loans go bad during bad times, like socking oil away in the nation's strategic petroleum reserve. But other officials, as well as the banking industry, have questioned why the tool is needed now, when bank capital levels are high and financial stability risks appear in check."
That's the very reason to act now, the Financial Times argues. "Central bankers should make financial markets a more central part of their models. It is amazing that they are not already front and center, given the rise of financialization since the 1980s."
One reason for the lack of action could be that "about 30% of the lawmakers and 40% of the senior staff who crafted Congress' response [to the crisis] have gone to work for or on behalf of the financial industry," the Washington Post reports. "The pattern, which applies about equally to both parties, is a stark illustration of how policymakers sought to profit from the financial sector after dealing with one of the worst financial episodes in U.S. history. Critics of the revolving door say it helps explain why Congress — even as it deployed hundreds of billions of dollars to bail out Wall Street — didn't take tougher steps to rein it in."
"That's not to say that steps taken by Congress, regulators or bankers themselves to prevent a replay of 2008 were in vain," says another Post article. "Banks are better capitalized and less vulnerable to a sudden loss of short-term funding, while some of their more speculative activities have been eliminated or curbed."
But Post columnist Steven Pearlstein says that "the financial system and American economy remain uniquely vulnerable to booms and busts," and points out that "Congress and regulators have allowed the growth of an unregulated 'shadow' banking system that … has undermined the effectiveness of bank regulation, eroded lending standards, increased leverage in the economy and turbocharged market volatility."
A third Post article says we should "be celebrating the bank bailouts of 10 years ago. They stopped a scary downward spiral, averted a longer-lasting depression and quickly led to a recovery that endures today. Instead, the bailouts poisoned American politics, specifically by destroying the then-moderate center of the Democratic Party and shifting the base of the Republican Party into the netherworld of conspiracist paranoia."
Thankfully, easy money to buy a home, one of the causes of the crisis, has not reappeared, although that has created its own problems — namely, buying a home is moving further out of reach of ordinary people, the Journal reports. "Lenders have tightened their standards, and many banks now view mortgages as a side service to offer to a small group of wealthier customers rather than a big-volume revenue generator. What's more, developers have pulled back from building, [which] is pushing up home prices. Home sales are slowing as a result, as many renters have given up on the idea of being able to buy a home, but prices keep rising."
Here's American Banker's look-back at the financial crisis, and how it’s still making trouble for us today.
Silver lining: The "short-term pain" from HNA's sale of its 7.6% stake in Deutsche Bank "should give way to a better longer-term foundation for the stock," the Journal's Heard on the Street column says. "HNA was always an unstable owner for the bank and there has long been a threat that its stake would be unloaded into the market. Getting an unstable owner off the share register will definitely leave the bank in a better position."
Still, the bank's problems are far from over. Deutsche Bank has made "reducing the cost of issuing debt a top priority … after its credit rating was downgraded, its shares continued to tumble and the price of insuring its debt doubled on fears of contagion from political crises in Italy and Turkey."
Follow the money: Money laundering has been much in the news of late, notably with the scandals at ING and Danske Bank. Why so many all of a sudden?
"The global response remains trenchantly national, hindered by complex cross-border mutual legal assistance treaties and a lack of information-sharing," Tom Keatinge, a financial crime expert, writes in an op-ed. "The adage 'follow the money' is often impossible to implement."
Unfortunately, data sharing isn't so cut and dried. "Banks, regulators and law-enforcement agencies are sharing more intelligence through voluntary networks to deter money laundering and terrorism financing," the Journal reports. But "as the practice spreads, so do the risks of data mishandling. As more data is collected, these groups are facing ethical issues of privacy, disclosure and conflict of interest."
Wall Street Journal
What's really the goal?: Former FDIC chairman Sheila C. Bair is "alarmed" by the "lack of transparency" federal bank regulators are showing in their attempt to simplify the Volcker rule. "The opaque process bolsters the view that the simplification effort may be a ruse to weaken the regulation," she writes in an op-ed piece.
"Some folks that softened Congress' crackdown on Wall Street shortly after went to work for the companies that benefited from the softening." — Former Rep. Brad Miller, D-N.C., about the revolving door between Congress and Wall Street.