Friday, November 27, 2009

This Week in Bank Failures

How much money did banks get from governments and central banks at the height of the financial system breakdown late last year? The Bank of England revealed on Monday that it had provided emergency loans of £61.6 billion (about $100 billion) to two British banks. The loans were repaid in January, but were kept secret until this week to avoid causing alarm. In the United States, the Fed routinely makes emergency loans to banks, but keeps them secret, not wanting the public to have any idea how frequent bank runs are. This year, as Congress has considered measures to audit the Fed, Fed chair Ben Bernanke has said loudly and repeatedly that this would cause substantial harm to the banking system, and this is probably the effect he is referring to.

Developments this week: A U.K. government report recommends that banks disclose the number of employees they pay £1 million or more per year. Previous salary disclosure discussions had focused only on executives, but the report estimates that more than 1,000 other employees are also paid more than £1 million a year. ◾ Dubai World suggested yesterday that it might miss payments due in December for $60 billion in debt. The idea of a Dubai insolvency has stirred fears of a new global financial meltdown simply because of the financial size of Dubai’s activities. Dubai World owes much of its debts to banks worldwide and to Japanese construction companies. Dubai’s liquidity has been hurt by last year’s decline in world oil prices and by the decline in value of $10 billion in U.S. real estate it purchased in 2006–2007. ◾ Banks made a tiny profit in the third quarter. Total earnings for FDIC-insured banks were less than $3 billion. During the same period, bank assets declined by $54 billion, or 0.4 percent, and staffing was cut by by 23,655, or 1.1 percent. Nearly all categories of bank loans are falling: real estate loans, down 2.7 percent from the previous quarter; commercial loans, down 6.4 percent; credit card balances, down 1.3 percent. ◾ When Colonial Bank and Taylor, Bean & Whitaker failed in August, Bank of America failed to maintain custody of at least $1 billion in collateral that it was holding as trustee in deals involving the two companies. That’s according to lawsuits filed separately by BNP and Deutsche Bank against Bank of America this week.