Bloomberg | December 2, 2009 | 19:01 EST
European banks are emerging from the credit crisis bigger than before, posing more risk to their national economies. BNP Paribas SA, Barclays Plc and Banco Santander SA are among at least 353 European lenders that have increased in size since the beginning of 2007, according to data compiled by Bloomberg. Fifteen European banks now have assets larger than their home economies, compared with 10 lenders three years ago. While the European Union has grabbed headlines for breaking up bailed-out banks, regulators haven’t reined in firms that shunned state aid and are too big to fail. European bank assets have grown 25 percent since the start of 2007, compared with a 20 percent increase at U.S. lenders, Bloomberg data show.
“We are sowing the seeds for the next crisis,” said David Lascelles, senior fellow at the London-based Centre for the Study of Financial Innovation, a research group. “What we have been doing in the last two years is making banks much bigger. It really goes against the currents of the time.” Banks expanded their balance sheets during the credit bubble, borrowing cheap money in the wholesale market to fund loans and investments. Royal Bank of Scotland Group Plc’s assets ballooned 2,914 percent in the 10 years through 2008 as it made acquisitions, boosted trading and increased lending. Edinburgh- based RBS spent $140 billion on takeovers during the period, culminating in the purchase of ABN Amro Holding NV in 2007 that triggered the world’s biggest bank bailout. Continue reading
Lawmakers on both sides question power, handling of Wall Street bailouts
The Associated Press | Washington | Nov. 22, 2009 | 2:01 p.m. ET
Suddenly the Federal Reserve is everybody’s punching bag. Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say. The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits. Former Fed Chairman William McChesney Martin Jr. famously said that the central bank’s job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.
The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates — perhaps just ahead of next year’s midterm elections. Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama’s nomination of Bernanke to a second four-year term as chairman. Many economists and Fed watchers say congressional efforts to rein in the Fed’s powers could interfere with the central bank’s ability to help guide the fragile economy to recovery. The Fed’s very independence and its Continue reading
NYT | ERIC DASH | November 19, 2009
The coroner’s report left no doubt as to the cause of death: toxic loans.
That was the conclusion of a financial autopsy that federal officials performed on Haven Trust Bank, a small bank in Duluth, Ga., that collapsed last December. In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses. At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.
What went wrong? In many instances, the financial overseers failed to act quickly and forcefully to rein in runaway banks, according to reports compiled by the inspectors general of the four major federal banking regulators. Together, they have completed 41 inquests and have Continue reading
BBC NEWS | 2009/11/17 | 10:26:48 GMT
Regulators involved in the rescue of AIG may have overpaid other banks when cutting a deal, a report says. The New York Fed paid AIG’s business partners face value for securities so they would cancel insurance-like contracts AIG had written. But officials used a weak negotiating strategy, Special Inspector General Neil Barofsky’s report said. AIG was initially bailed out for $85bn (£50bn), but its total rescue package eventually amounted to over $180bn. The report criticised both the Federal Reserve Bank of New York and the US Federal Reserve for failing to use their “considerable leverage” to force AIG’s counterparties to accept less than the full amount for the assets. As a result, 16 banks, including Goldman Sachs, Deutsche Bank, Societe Generale and Royal Bank of Scotland, were paid more than $62bn. The initial bail-out “was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG,” the report said. It also criticised the New York Fed, chaired at the time by current Treasury Secretary Timothy Geithner, for insisting that all banks be treated equally in negotiations and for not treating US banks differently from foreign institutions. Continue reading
Bloomberg | November 6, 2009 | 00:01 EST
Global leaders and regulators trying to rein in banker pay are proposing everything from clamping down on guaranteed bonuses to recouping compensation from prior years if losses mount. Largely unaddressed is the topic that stirs the most public ire: How much money is too much? Corporate governance and compensation experts say new rules will mostly help eliminate plans like those that tied bonuses to the number of subprime mortgage bonds created, for example, or rewarded trades that later turned sour. The guidelines endorsed by U.S. President Barack Obama and the rest of the Group of 20 nations aim to discourage excessive risk taking by employees in the financial industry. Mark Poerio, a lawyer who tracks compensation issues at Paul, Hastings, Janofsky & Walker in Washington, says proposed rules will better link rewards with behavior that creates long- term success and stability. The restrictions won’t cut pay overall, says Poerio, who advises financial companies. “I would be shocked to see reductions,” he says. Only at seven companies that received extraordinary bailouts are paychecks being trimmed by the government, and just two of those are large banks. Kenneth Feinberg, Obama’s special master on compensation, is ordering that total compensation, with bonuses, be slashed by an average of 50 percent for 25 top executives at these companies. Bank of America Corp., Citigroup Inc. and insurer American International Group Inc. are among those under Feinberg’s oversight.
Feinberg says his pay reductions should serve as a model for the rest of Wall Street. He also says there’s a risk that key employees will flee the seven companies under his review. Poerio says banks such as Goldman Sachs Group Inc. that repaid the government loans they got at the height of the financial crisis are unlikely to follow Feinberg’s lead and cut pay. Creating proper incentives in pay plans is what regulators and Continue reading
BBC NEWS | 2009/10/20 | 22:37:18 GMT
Reforming UK banking through regulation is not enough and a fundamental rethink of how banks are structured is needed, the Bank of England governor has said. Some banks may have to split their core business from riskier practices, so they do not get too big to be allowed to fail, Mervyn King said in Edinburgh. The UK government and G20 leaders want to cut banks’ risks through regulation and making them hold more capital. But Mr. King said it was a “delusion” that this alone would stop failure.
In a speech to Scottish business organisations, Mr. King said that government support for the banking sector had been “breathtaking” at close to £1 trillion. “Never has so much money been owed by so few to so many. And, one might add, so far with little real reform,” he said. And he added that measures taken by the Continue reading
HSBC boss says Banks owe apology
BBC NEWS | 2009/10/07 | 05:12:12 GMT
The entire banking industry “owes the real world an apology”, the chairman of HSBC has said. Stephen Green told BBC World Business Report that a change in culture was needed to improve the public’s perception of bankers. He also said that London was secure as a major financial centre, but would lose market share as Asia developed. Last month, HSBC announced that its chief executive Michael Geoghan would move to Hong Kong from London. But Mr. Green said the bank’s decision did not mean it was turning its back on London. “Two-thirds of our business is in Asia. It’s where we think the centre of gravity of the world’s economy is shifting,” he said.
‘Learn the lessons’
Mr. Green, in Istanbul for the annual meetings of the World Bank and the International Monetary Fund, admitted the banking industry collectively owed the world an apology for the financial crisis. “It also owes the real world a commitment to learn the lessons. Some of them are about governance and ethics and culture within the industry,” he said. “You can’t do all this simply by rules and regulations.” However, commenting on increased regulations for banks, Mr. Green said it was “inevitable” that regulators as well as the banks themselves could learn from the crisis. He added that the industry needed to “pay much more attention to liquidity” than it had done previously. On Monday, the Financial Services Authority in the UK published new rules governing funding standards at banks and building societies, stating that banks should hold more assets that were truly liquid, such as government bonds.