Friday, June 24, 2011

This Week in Bank Failures

The NCUA this week started court proceedings against JPMorgan and RBS. The lawsuits claim the two investment banks sold mortgage-backed securities to credit unions by using misleading descriptions of the securities. Five wholesale credit unions failed because of their investments in derivatives based on mortgages. The NCUA is seeking close to $1 billion in damages.

JPMorgan says it is a defendant in 10,000 court cases, but probably the largest claim is the $19 billion sought by the bankruptcy trustee representing the victims of the Madoff investment fraud. In an amended complaint filed this week, the trustee alleges that JPMorgan profited from Madoff’s scheme and took steps to cover up irregular financial transactions.

New rules next month require debit card transaction fees to be reasonably related to banks’ costs. The fees will fall by about three fourths, which means retailers will be paying banks a lot less, at least $100 million less per day. As banks adjust to the loss of revenue, they will be discontinuing debit-card loyalty programs and experimenting with account maintenance fees and other fees related to debit cards and checking accounts. Some banks have already imposed transaction limits on debit cards as low as $300 per day, making them too limiting for consumers to use on payday shopping trips. Expect many consumers to switch from debit cards to cash during the next year to avoid fees.

Tonight, Georgia state bank regulators closed a small bank, Mountain Heritage Bank, with $90 million in deposits and two offices in Clayton and Dillard, villages in far northern Georgia along the North Carolina border. The successor is First American Bank and Trust Company. The failed bank had been in business for 8 years and was under a cease and desist order for nearly a third of that time.