The five largest U.S. banks have a substantial exposure to Europe, according to an analyst report released yesterday. This could lead to a decline in the banks’ stock market value, affecting their access to capital, as investors grow skittish about a possible monetary crisis in Europe. If investors were nervous already when the week got started, their nerves are frayed after two days of volatile stock market trading.
Banks aside, the stock market appears to have hit a peak last week, and if a sustained decline follows, it could wipe out the profits of many of the giant banks. For the most part, they have been reporting losses from operations for the past five quarters, but have made up for their operating losses with trading gains.
A financial regulation reform measure is starting to take shape in the Senate, with agreement in principle on an amendment that would prevent the Fed and FDIC from making the kinds of loans that prevented the collapse of several giant banks and related institutions in 2008. As of last week, the Senate bill included only token reforms in the regulation of banks, but changes being discussed would add some substantial steps that would limit the risks that banks could take. Most of the experts testifying before the Senate committee have suggested ways in which the proposed measure could go farther, either in requiring disclosure or limiting the risky activities of banks and related businesses. Among senators, there appears to be a plurality of support for measures that would either require the largest banks to shrink or put them at a competitive disadvantage compared to other large banks.
The NCUA liquidated a credit union last weekend. The NCUA had put St. Paul’s Croatian Federal Credit Union into receivership, and after looking at its books, it determined that the credit union was too far in the hole to rehabilitate. Checks are being sent to the credit union’s members for the amount of their deposits.
Bank of America announced a settlement of a securities lawsuit against Countrywide Financial. Once the largest U.S. mortgage lender, Countrywide collapsed at the beginning of 2008 and was acquired, along with its problems, by Bank of America. Under the terms of the settlement, Countrywide will pay $600 million and its auditor will pay $24 million to settle allegations of securities fraud and insider trading. The settlement does not cover three executives, who still face an SEC securities fraud action.
There were four small bank failures tonight, each with less than $300 million in deposits:
- 1st Pacific Bank of California, 6 locations, based in San Diego. City National Bank is taking over the deposits and purchasing the assets.
- The Bank of Bonifay, 5 locations, based in Bonifay, Florida. First Federal Bank of Florida is taking over the deposits and is purchasing 32 percent of the assets.
- Towne Bank of Arizona, one location, Mesa, Arizona. Commerce Bank of Arizona is taking over the deposits and purchasing the assets.
- Access Bank, two locations, Champlin, Minnesota. PrinsBank is taking over the deposits and purchasing the assets.