Archive for June, 2009

Anonymous Banker weighs in on Financial Regulatory Agencies: Our Nation’s Ball-less Wonders!

Monday, June 22nd, 2009

The Fed failed us in the past.  What makes us think they will do a better job as the mega-regulator?

In light of Obama’s new Financial Regulatory Reform Plan, I feel the need to reiterate my comments on our financial industry’s regulators, which I refer to as our Nation’s Ball-less Wonders. In this article I explained how our laws are converted to regulations and the responsibility of our regulators to protect our country by actually enforcing these regulations.

The debate should not be over whether the Fed should become the mega-regulator, but rather whether the Fed has, in the past, performed its job to protect this country and our economy by actually enforcing the regulations that exist.

When we evaluate the benefits of a mega-regulator, I would say that any consolidation that reduces expenses and thereby saves taxpayer dollars, is a good plan. That being said, the Fed has failed us miserably in the past and I have no reason to believe that they will perform any better in the future.

My fear is that transferring this authority to one agency only dilutes the systems of checks and balances and reduces the possibility that some agency, any agency, will cry foul and take action when the financial companies fail to follow our laws.  Perhaps the plan might work, if, in addition to the consolidation, the people were also represented by an ombudsman to act as watchdog when the Fed fails to do its job, as it surely will.

Regulators:  Our Nation’s Ball-less Wonders!!

 

 

http://anonymousbanker.com/?p=234

Our regulators were armed with the laws to prevent this financial crisis.  They simply refused to act.    If they would have made an example of even one bank by exercising their power, it would have influenced the entire industry and perhaps prevented the crisis we are in today.Anonymous Banker weighs in on banks violation of law:  Regulation H

 

Recently there has been a lot of talk about the belief that there hasn’t been enough regulation to keep the banks in line.  I, personally, have been blaming Congress for not having enacted laws that would arm the banking regulators with the means to control and monitor the activities of the nation’s banks and the power to impose penalties or take punitive measures when the banks stray from their legally defined mission.  I assumed that the problems that led to our current economic crisis arose from issues that were not addressed – or inadequately addressed – in our laws and regulations.  

 

Bank regulators are our first line of defense:  Office of Comptroller of the Currency, Treasury, Board of Governers of the Federal Reserve System, FDIC, Office of Thrift Supervision. After Congress passes a law they leave it to the regulators to put the law into effect by writing  and adopting regulations.  Our regulators have one, and only one real purpose – to ensure that each and every bank operates in a safe and sound manner.  In order to accomplish this, they send out  teams of examiners – routinely, to every single bank in the country – to delve into the bank’s activities and check them against the requirements of regulations.  This whole procedure, the laws, the regulations and the agencies to examine compliance with the regulations – was put in place to protect the depositors’ money, the banks that hold that money and –  on a national scale, our country’s economic safety and soundness.  This process began 75 years ago, after the banking industry collapsed and led us into the Great Depression.       

 

Well, today I read Federal Reserve Regulation H —   Subpart E entitled “Real Estate Lending and Appraisal”, a regulation born from the Federal Deposit Insurance Corporation Improvement Act of 1991.  My eyes were opened!!!  My premise, that Congress failed to pass laws to protect us, was completely wrong!  This regulation, which has been in place for over ten years – sets forth all the appropriate guidelines and limitations that should have held the banks in check.

  

Now this question begs to be asked:  Who is making sure that our banks are complying with the regulations that already exist?  And when they are not in compliance, what actions are taken against them to bring them into line?

 

What I believe after reading this is that NO ONE is watching as the banks run amok in their quest for profits.  Really…. no one.  Did the controlling authorities  perhaps forget that this regulation existed since they authored it over ten years ago?   Or did they foolishly believe that the greedy bankers would, of their own accord,  grow a conscience and behave in a responsible manner? 

 

Federal Reserve Regulation H is a “uniform” regulation.  This means that each of the other three agencies also adopted an identical regulation at the same time.    They are found in 12 CFR 208.51;  12 CFR 34.62, 12 CFR 365 and 12 CFR 560.101.   Links to each of these are provided at the end of this article.  This is some of the content of Reg H and it is directed at all banks.

 

The Real Estate Lending Standards section requires banks to  “adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interest in real estate.  Policies should be consistent with safe and sound banking practices; appropriate to the size of the institution and the nature and scope of its operations; and reviewed and approved by the bank’s board of directors at least annually.”

 

It instructs banks to  monitor conditions in the real estate market in its lending area to ensure that its real estate lending policies continue to be appropriate for current market conditions.

 

And it requires that the adopted policies reflect consideration of the Interagency Guidelines for Real Estate Lending Policies established by the federal bank and thrift supervisory agencies.”

 

The Interagency Guidelines, which are part and parcel of the regulation,  are extensive and I’ve provided links below to the full text document.   But the following quotes will make my point.

 

“Each institution’s policies must be comprehensive, and consistent with safe and sound lending practices, and must ensure that the institution operates within limits and according to standards that are reviewed and approved at least annually by the board of directors. Real estate lending is an integral part of many institutions’ business plans and, when undertaken in a prudent manner, will not be subject to examiner criticism.”

 

“The institution should monitor conditions in the real estate markets in its lending area so that it can react quickly to changes in market conditions that are relevant to its lending decisions.”

 

“Prudently underwritten real estate loans should reflect all relevant credit factors, including—

  • the capacity of the borrower, or income from the underlying property, to adequately service the debt;
  • the value of the mortgaged property;
  • the overall creditworthiness of the borrower;
  • the level of equity invested in the property;
  • any secondary sources of repayment;
  • any additional collateral or credit enhancements (such as guarantees, mortgage insurance, or take-out commitments).”

 

Our regulators were armed with this law and these guidelines.  And yet, when they examined the banks and discovered that they were not applying a credit review process that was  consistent with safe and sound lending practices, in spirit or in fact, they failed to impose penalties that would have brought these horrific lending standards  to an abrupt end.   They had to have known that the  banks  were issuing no-asset and no-income-verification loans, delving into subprime lending markets, selling these toxic loans into the market  and subsequently repurchasing them to hold in their capital accounts.

 

Instead of taking decisive action,  they  merely issued another interagency comment to the banks (see links below for full text), urging them to cease and desist in their unrelenting participation in the subprime lending market. 

 

What should our regulators have done and what did they have the power to do?  Our regulators could have called for the firing of CEO’s of the banks and replaced the Board of Directors.  They also have the power to ban executives that are found to have violated banking regulations from ever working in the banking industry again.  Our regulators could have refused to continue their FDIC insurance for failure to comply.  They can also limit dividends paid to shareholders. If they would have made an example of even one bank by exercising their power, it would have influenced the entire industry and perhaps prevented the crisis we are in today.

 

It is interesting that one of the strongest banks in the nation, JP Morgan Chase,  states quite clearly in their 2007 Annual Report exactly how pervasive the problems were.  And we know already that the other banks behaved equally irresponsibly and equally in violation of the law and Reg H.  Some of these banks no longer exist and others will soon disappear.  After reading the following comments, can one imagine that the regulators were unaware of the banks’ violations these many past years?  Or do you have to conclude, as I have, that it was our regulators, and not Congress, that failed completely in safeguarding our county?  The law was there.  The regulators simply did not exercise their powers to enforce them.

 

JP Morgan Chase 2007 Annual Report  (released approximately one year ago)

… increasingly poor underwriting standards (e.g., loan-to-value ratios up to 100%, lax verification of income and inflated appraisals) added fuel to the speculation and froth in the markets. Many of these poor mortgage products were also repackaged and dispersed widely through various securities, thus distributing the problems more broadly.

 

…we still believe that subprime mortgages are a good product. We will continue to find a prudent way to be in this business. 

 

We should have acted sooner and more substantially to reduce the LTV rates at which we lent, given the increased risk of falling prices in a market of highly inflated housing values.  We also should have tightened all other standards (e.g., income verification) in response to growing speculation in the market and the increasing propensity of people to respond to aggressive lending standards by buying houses they could barely afford.

 

In the face of these comments and the banking industries apparent violation of Reg H, instead of being penalized,  banks were rewarded through the TARP program.   Our regulators  have done nothing to ensure that the banks meet their fundamental obligation to lend money.  They have merely asked them to do so.  And finally, our regulators are still not forcing the banks to apply income verification processes to all forms of credit including auto loans and credit cards. 

 

Somehow I don’t think the punishment has fit the crime.    And now that I have the understanding I so desperately sought, I really wish I didn’t look so hard.  I find myself even more saddened to know that while  our country  had the structure and laws in place to prevent this economic collapse, the regulators failed to protect us and the guilty continue to be rewarded for bringing this country to its knees.

 

Sources:   12 CFR 34.62         12 CFR 208.51      12 CFR 365  

Interagency Guidance on non-traditional mortgages

Interagency Guidace on Nontraditional Mortgage Product Risks

    
	     

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Anonymous Banker asks: TALF, Trepp LLC and JP Morgan Chase Connection… is there a conflict of interest?

Thursday, June 18th, 2009

I hate the TALF program.  It is going to come back to bite each and every one of us ….  the taxpayers.  First it was designed to get our securitization market flowing again, presumably to unfreeze the credit markets.  It was to be a mechanism for the Treasury Department to guarantee, with our tax dollars, toxic loans stripped from the Banks’ balance sheets.  It was duplicitous and it was designed to be that way.  Now, in addition to subprime credit cards, subprime auto loans (FRBNY’s words, not mine), student loans, and small business loans, they’ve tagged on Commerical Mortgages.

So I went to the FRBNY’s website to read up on the terms and conditions  and found that the FRBNY has hired a collateral monitor, a company by the name of Trepp LLC.   And I was simply curious to find out if I could find out who really owned Trepp and if it’s involvement is as “arms length” as one would expect it to be.

Here is an interesting interview by CNBC with Tom Fink, senior vice president of Trepp.  I noticed that CNBC never once asked him if there could be any perceived conflict of interest with Trepp accepting this position as “The Feds new Toxic Avenger”.

So, I pose this question to the blogging universe and to our leaders on the Hill and to President Obama: 

How many Commercial Mortgages will Chase Bank be allowed to unload through TALF, a government program that has hired as its collateral monitor  Trepp LLC  whose UK Parent company utilizes, as their stockbroker, a company that is owned 50% by JP Morgan Chase.

Does anyone else see this as a conflict of interest?

Here’s the back up data to this question.  Read it and decide for yourself.  If you think I’m wrong, I’d love to hear you tell me why you think I’m wrong.

About Trepp, LLC  
 

 

 

Trepp LLC, headquartered in New York City, is an established independent provider of CMBS and commercial real estate information, analytics and technology in the securities and investment management industry. Trepp serves the needs of both the primary and secondary markets by providing one of the largest commercially available trading quality CMBS deal libraries, as well as a suite of products for the CRE derivatives and whole loan markets. Trepp’s clients include broker dealers, commercial banks, asset managers, and investors.  

 

 
 

 

 

 About PPR

PPR, headquartered in Boston, is an established provider of independent global real estate research and portfolio strategy services to the institutional real estate community. PPR provides views on markets in North America, Europe and Asia and offers expertise in real estate markets, real estate portfolio analysis, mortgage risk, and the design of real estate investment strategies. Clients include commercial banks, insurance companies, Wall Street firms, rating agencies, government agencies, pension funds, investment advisors, real estate investment trusts, and private investors.

Trepp and PPR are each wholly owned by DMG Information, Inc., the business information division of Daily Mail and General Trust, plc (DMGT).

And here’s information on the parent company:  Daily Mail and General Trust , plc (DMGT)

 and their “stockbrokers”

 Stockbrokers
JPMorgan Cazenove Ltd
20 Moorgate
London
EC2 6DA
Great Britain
http://www.cazenove.com/

Cazenove Group is a private company, registered in Jersey, which holds the 50% interest in J.P. Morgan Cazenove, the joint venture with J.P. Morgan.J.P. Morgan Cazenove is one of the UK’s leading investment banks. Jointly owned by J.P. Morgan and Cazenove, it combines innovative and impartial advice with a broad range of capabilities and proven execution skills.

 

 
 

 

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Anonymous Banker says TALF is laundering bank bad debt with our taxdollars

Wednesday, June 10th, 2009

I’ve written extensively on the TALF program.   And while I always suspected as much, I now have come to the certain conclusion that TALF is the goverment’s way of laundering new and existing subprime auto loans subprime credit cards loans, that are currently on the books of the banks or their investment bank subsidiaries, with our taxdollars.  The program is complete thievery.  And shame on everyone for not being up in arms about what is happening.  Journalists… I’m putting you all on the top of that list.  You are failing this country miserably.

I, for one, don’t want my tax dollars used to purchase sub-prime car loans and credit card loans.  I don’t even want to hear the word sub-prime again, in my lifetime.  I want the banks to be responsible lenders and verify income and debt when they issue a credit card or an auto loan.  And I don’t want my office computer spurting out a pre-approved offer of a credit card to any customers.  Yes, this is still happening and will continue to happen because our Regulators are allowing it to happen in direct violation of all the laws governing safety and soundness in bank lending.  And why are the banks still willing to grant credit in this irresponsible manner?  Because they know they can sell these toxic assets off through the TALF program and any losses on these bad loans will be paid for by our taxes and the taxes paid by our children and our grandchildren, and for generations that follow.

If a bank is allowed to sell its toxic assets through the TALF program, and if the TALF program is funded with TARP funds,  then any bank that sells its assets through TALF is still benefiting from TARP.  Therefore, any bank that is selling their bad assets off through TARP  should still be subject to executive compensation limits and restrictions on dividends, among other rules.  If  banks want to be truly independent of our government’s meddling, then let them live and die by their bad lending practices and eat all the sub-prime credit card and auto loans they granted and continue to grant. 

The government has set aside $200 Billion dollars to fund the TALF program.  On June 2nd, the banks laundered $3.3 Billion dollars in auto loans and $6.2 Billion dollars in Credit Card loans (out of a total of $11 Billion dollars in total loans laundered in just that day). 

In light of President Obama’s wonderful new plan for “transparency”, I think the TALF program should publish, along with the list provided above,  the dollar amount sold by each bank in each category.    Let’s see which of our banks are truly  independent and unconcerned and don’t need to be bailed out.  Does anyone believe that JP Morgan Chase, American ExpressCo., Goldman Sachs Group Inc., U.S. Bancorp, Captial One Financial Corpl, Bank of New York Mellon Corp., and State Street Corp are NOT participating in the TALF program?  Then prove it to me.  Tell me which banks are selling these assets through TALF!!!!! 

TALF program rules require that  the “ABS have a long-term credit rating in the highest investment-grade rating category”.  How does our government dare to defend this term in light of the fact that they are using TALF to strip SUB PRIME credit card and auto loans off the banks’  balance sheets.  I’m not guessing at this.  It is on the TALF website.

Please, join me in my outrage.  Reach out to your Congressional leaders, IN PERSON.  Challenge them on these decisions.  Bring them a copy of this blog and ask them to defend the actions I’m describing.  Make them accountable for the programs they are approving.  Write to your journalists.  Demand that they give these issues the media attention deserved and needed to inspire our people into action.  Each and every one of us must take responsibility and become part of the solution.  They are counting on us to quietly follow, like sheep.  Show them that the people of this country have back-bone and will stand up for what we believe in.   If you fail to do this, then, in my opinion, you have relinquished your right to bitch.

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