Browse Tag: Federal Deposit Insurance Corporation

16 Banks Sued By FDIC Over LIBOR Rigging

A Washington Mutual in Naperville, Illinois pr...

 

It’s hard to find a commercial property lease or purchase finance calculation that doesn’t touch the LIBOR interest rate in some way. The benchmark interest rate is used so commonly, the total transactions subject to it is estimated in the trillions of dollars.

As I’ve written before, LIBOR lurks in so many corners of commercial real estate, it’s big news when the banks responsible for the rate’s publishing are suspected of rigging the number.

And it’s even bigger news when the US government’s biggest insurer of bank deposits — the FDIC — takes those banks where the US Justice Department won’t: to court. Which is exactly what happened this afternoon:

The FDIC, acting as receiver for 38 failed banks including Washington Mutual Bank, IndyMac Bank FSB and Colonial Bank, claimed that institutions sitting on the U.S. dollar Libor panel “fraudulently and collusively suppressed” the U.S. Libor rate. Also named in the suit, filed today in Manhattan federal court, is the British Bankers Association, an industry group.

The failed banks “reasonably expected that accurate representations of competitive market forces, and not fraudulent conduct or collusion,” would determine the benchmark, the FDIC said in its complaint.

Regulators around the world have been probing whether firms colluded to manipulate interest-rate benchmarks including Libor, which affects more than $300 trillion of securities worldwide. Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the U.S. and Europe that they manipulated benchmark interest rates.

The cost for global investment banks could climb to $46 billion, analysts at KBW, a unit of Stifel Financial Corp., said in a report last year. JPMorgan Chase & Co. and HSBC Holdings Plc may face a European Union complaint as soon as next month from the bloc’s antitrust chief.

Better late than never — and with TBTF banking’s massive influence over US and international law, “never” was certainly in the cards.

 

 

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Basel III Rule Approved: TBTF Bank Capital Positions To Be Strenghtened

English: The Marriner S. Eccles Federal Reserv...

The Federal Reserve Board’s revisions to capital rules for big banks, approved today, promise in its 972 pages to hike the capital requirements for large, internationally active banks. At the same time, the new rules treat community banks with less stringent regulations.

The rule implements in the US the Basel III capital requirements reforms from the Basel Committee on Banking Supervision.  The Committee is an international committee that formulates broad supervisory standards and guidelines for supervision of banks.  It has no power itself; it’s an informal forum producing non-binding regulation and recommendations for central banks to either adopt, ignore or adapt.  The Federal Reserve Board’s adoption of Basel III, the US banking community, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have been prompted to review and consider the rules as final interim effective July 9, 2013.  Banks will nonetheless have a significant amount of time to adapt to the new capital requirements, with pahse-in for the largest institutions commencing in 2014.

Many S&L Holding Companies Currently Exempt

As noted in a letter from NAR Commercial Policy Representative Vijay Yadlapati, a interesting change from the Basel III proposal has been approved by the Fed:  savings and loan holding companies with significant commercial or insurance underwriting activities will not be subject to the final rule at this time.  The Federal Reserve will take additional time to evaluate the appropriate regulatory capital framework for these entities.

New Leverage Ratios

If telling banks to not overextend themselves seems like draconian regulation to you, either you have forgotten the 2008 meltdown and subsequent bailout or you’re unaware of what “overextended” actually means in the context of too-big-to-fail banks.  The simplified story: under Basel III, banks are being held to a leverage ratio — a requirement to hold onto a minimum amount of capital calculated by taking the amount of “Tier 1” capital it has on the books (the predominant form of Tier 1 capital must be common shares and retained earnings) by the total average of consolidated assets.

The new rules more or less call for not 60% nor 16% but only 6% of bank capital to be held onto as a minimum.  A nickel and a penny of every dollar to be kept around if things go south again.  Seems reasonable, but then again I don’t work for a bank.  Like a lot of people, I just fund the government that bails out the bank when it loses sight of its basic role as capital allocator.

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