Receiving Wide Coverage ...

How Justice Built Its Case Against JPM: The $13 billion civil settlement JPMorgan Chase reached with the Justice Department on Tuesday, the largest penalty a single company has ever paid to the government, started with the Justice Department's discovery of a 2006 meeting in which bank executives decided to continue selling shoddy mortgage securities despite major red flags, according to the Wall Street Journal. As part of the civil settlement, JPMorgan acknowledged it told investors the mortgage loans in securities it packaged and sold complied with underwriting guidelines, while bank employees knew that many of the loans in question didn't. A team of government officials poured through documents detailing loans so weak they likely didn't even qualify as subprime mortgages — some had overstated income, inflated appraisals and skewed loan-to-value ratios. And a cooperating former employee warned her bosses the bank was vastly overstating the quality of the loans being securitized and sold in the run-up to the financial crisis. The New York Times' Dealbook take on the settlement focuses more on the negotiations between the bank and the government. The bank's CEO, Jaime Dimon was a "familiar number" on the cellphone of Tony West, a top Justice official. West repeatedly pressured the executive for more money to settle the case; the $13 billion is about half the bank's annual profit. "Mr. West's negotiating tactics underscore a broader strategy shift at the Justice Department, where prosecutors are seeking to hit Wall Street where it hurts most: the bottom line," Dealbook wrote. (Meanwhile, a recent issue of the New Yorker imagined a chummy conversation between Dimon and Eric Holder during settlement negotiations. What will become of that $13 billion? According to the Financial Times, about $4 billion will actually go to struggling homeowners. The rest will be divided between the Department of Justice, attorneys general from states including New York and California, the National Credit Union Administration and the Federal Housing Finance Authority.

Bernanke Shares Upbeat Take on Economy: As he prepares to step down in January, Fed chairman Ben Bernanke offered a perky view of the economy on Tuesday. At a speech to the National Economics Club, Bernanke said he expects that "labor market conditions will continue to improve and that inflation will move toward the two percent objective over the medium term." The Fed is holding short-term interest rates near zero to reduce borrowing costs for businesses and consumers. It is also buying $85 billion a month of Treasury and mortgage-backed securities to further reduce borrowing costs. Some of the Fed's policymakers would like to wind down the bond buying. Job growth and inflation have remained low, signs of poor economic health, the Times points out. "After the speech, when a member of the audience suggested that the Fed's efforts were largely unavailing, Mr. Bernanke responded, 'I hate to shock you but I don't agree with that. The Fed is making an important contribution to middle class and lower income folks' welfare,'" Bernanke said." Bernanke also said Tuesday short-term interest rates may stay near zero "well after" the jobless rate falls below 6.5%, the Wall Street Journal reports.

Wall Street Journal

Two financial services regulators are raising new objections to regulations implementing the Volcker Rule, a portion of the Dodd-Frank Act that would limit banks' ability to trade for their own books. This makes it unlikely that regulators will be able to meet the Obama administration's year-end deadline for implementing the Volcker rule. The Journal reports that at the SEC, newly installed Democratic commissioner Kara Stein, a former congressional staffer who helped draft Dodd-Frank, believes the rule allows banks to sidestep its purpose. For instance, she believes an exemption for hedging should be more clearly defined. Outgoing CFTC Chairman Gary Gensler, meanwhile, has told officials working on the rule he is concerned that it doesn't crack down hard enough on proprietary trading. However, Treasury Secretary Jacob Lew said Tuesday that he is "optimistic" regulators will complete the Volcker rule by year-end. "It's a complicated process but it has to come to closure," he said. "The processes cannot go on forever."

Financial Times

The head of China's biggest bank, Industrial and Commercial Bank of China, has warned that bad loans will inevitably rise in the country and weaker lenders will be wiped out as the government relaxes its grip on the economy. But Jiang Jianqing, chairman of the bank, also said ICBC is prepared for the challenges and should not be held to impossibly high standards. He said the bank's current non-performing loan ratio of 0.91% was "excessively good" and was bound to increase as it extends more credit to riskier borrowers such as small companies and households. China's banking industry has an overall bad loan ratio of less than 1%.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.