Receiving Wide Coverage ...
Bane of America: The Los Angeles Times reports that Bank of America is calling in the credit lines of struggling small-business customers. "If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had." How many customers is this happening to? The Times interviewed "several" and quotes two by name; a spokesman for Bank of America tells the paper the total number is less than six figures. The bank claims these clients were notified a year in advance that their lines would be cut off, though some of the business owners say they didn't get the memo. Whatever the scope of the bank's tightening, it reflects an underlying tension that many bankers will probably find familiar: regulators are on B of A's case to reduce risk, but there's also a perceived moral imperative to support small enterprises in a weak economy. "If small businesses are going to lead the way out of the economic doldrums we now face in this country, they must have access to capital," the Times quotes a small-business advocate as saying. Are small businesses going to lead the way? It's debatable. But if so, it's fortunate that B of A is an outlier here; according to the Times article, "most other banks, having tightened lending standards in the aftermath of the financial crisis, had eased credit last year as competition for small-business customers heats up, bank analysts say." Indeed, a Journal story cites data showing that, overall, small-business lending is up. Hey, speaking of outliers, we know a way B of A can console its aggrieved clients: give them complimentary front-row seats at the next Malcolm Gladwell success seminar! … In other Bank of America news, the lender suffered a setback in its litigation with the bond insurer MBIA. A New York state judge ruled that to claim damages, plaintiff MBIA need only prove that Countrywide, now a part of B of A, misrepresented the mortgage-backed bonds the insurer provided a credit "wrap" for. It needn't show the misrepresentations caused its losses. The Journal's "Heard on the Street" column notes that MBIA didn't get everything it asked for (the judge denied the argument that B of A should have to repurchase loans that are still performing, for example), but concludes that the insurer has "new leverage" in settlement talks.
Fed Opens Kimono: The Federal Reserve said it would start releasing forecasts for short-term interest rates several years out, reducing the markets' need for Kremlinology about the central bank's thinking. "The forecast could reduce borrowing costs for businesses and consumers by convincing investors that the Fed intends to keep rates near zero for longer than expected," The New York Times says. The decision wasn't unanimous; the minutes of the last Federal Open Market Committee meeting showed some members feared "the public could mistakenly interpret participants' projections of the target federal funds rate as signalling the committee's intention to follow a specific policy path" — confuse predictions with promises, in other words. Wall Street Journal, Financial Times, New York Times
"Three Swiss bankers were charged with conspiring to help US citizens evade taxes on $1.2bn in assets by allegedly persuading them to move their accounts from UBS once the bank fell under scrutiny."
New York Times
A "DealBook" story looks at the struggles of the Office of Financial Research to get off the ground. The agency was created by the Dodd-Frank Act to spot potential cracks in the financial system, but it took the administration 17 months to find a nominee willing to run the office. Now that nominee, Richard Berner, faces a hostile confirmation process, with Senate Republicans viewing the OFR with about as much regard as they have for the Consumer Financial Protection Bureau, another Dodd-Frank creation.
We can't wait to read the letters to the editor that this op-ed generates. A law professor calls for the government to fully insure all bank deposits, to protect the system from runs by large depositors holding more than the current $250,000 FDIC ceiling. "We need to take away the reason for any depositor to fear losing money through an explicit, comprehensive government guarantee," the piece argues. "The government stands behind all paper currency regardless of whose wallet, till or safe it sits in. Why not also make all short-term deposits, which function much like currency, the explicit liability of the government?" The writer also suggests capping deposit rates to end "competition for fickle yield-chasers" and limiting banks' activities to things "that a regulator of average education and intelligence can monitor. If the average examiner can't understand it, it shouldn't be allowed." Undoubtedly, some bankers reading this are already making wisecracks about the limitations of "the average examiner."