Bank loans for highly leveraged financing arrangements are larger than ever, and federal bank regulators are openly worried. In an uncharacteristically blunt statement accompanying a proposal for revised regulatory guidance on the subject, the Fed, OCC, and FDIC said that banks were often ignoring underwriting standards and taking excessive risks with leveraged credit. Among the risks that banks are not necessarily considering, the regulators said, is the risk of being left holding the bag if hedge funds or other investors backed out of a financial arrangement that a bank was underwriting -- exactly the kind of scenario that is more likely to occur during a financial crisis or other period of rapid market changes.
Financial distress, shady dealings, and corruption are not news at banks in Iran, but now the Auditor General there says top government officials are in on it, possibly including the president and his chief of staff. At issue are improper letters of credit and fabricated collateral documents. The president’s office has publicly warned that a thorough investigation or audit of the suspicious pattern of banking transactions could lead to a collapse of the country’s financial system. Iran’s finances have been under stress in recent years, mainly because of corrupt activities connected to the country’s security forces.
Four of Spain’s regional banks, which previously combined to form Banca Civica, have now been bought out by CaixaBank to form Spain’s largest bank. The combined bank has €342 billion in assets, deposits of €179 billion, and 14 million customers. The merger occurs after a change in laws designed to speed up bank mergers. The hope is that this will strengthen the banks as Spain enters a new recession. With unemployment already at 23 percent, the economy was expected to shrink 1 percent this year, and that was before this week’s austerity budget announcement. Banks in Spain are in financial distress because of an excess of lending, including €1.8 trillion of bank loans for an economy that is not really functioning on that scale, but officials said today they did not believe another bank bailout would be necessary.
Meanwhile, another Spanish bank, Santander, has begun closing duplicate branch locations in the United Kingdom. It will close 4 percent of its locations to consolidate operations after a series of acquisitions. Santander says there will not be any layoffs as a result of the branch closings.
In Washington, D.C., a former board member of DC Federal Credit Union is barred from working in banking after the NCUA determined that he disclosed confidential financial data. The prohibition order follows a four-month investigation. Leaks of financial data are not uncommon, but the NCUA took quick action in this case after initial reports made it appear that the credit union was bragging publicly using protected information.
Credit card processors are warning banks of a large-scale security flaw or breach, which the Secret Service and security analysts are looking into. Details are vague, but more than 10 million card accounts with transactions that took place in January and February are believed to be affected.
There was one bank failure tonight, Fidelity Bank, based in Dearborn, Michigan, with 15 locations in four counties of eastern Michigan and $750 million in deposits. Fidelity Bank had been tagged by regulators for some time. Its financial distress was blamed on its portfolio of commercial real estate loans in a time of declining values in commercial real estate. The failed bank is not to be confused with the many other banks elsewhere using the Fidelity name.
Deposits have been transferred to Huntington National Bank, which inches closer to its stated goal of becoming one of the three largest banks in Michigan.
The NCUA on Monday liquidated a church-affiliated credit union in Charlotte and Clarkton, North Carolina. Shepherd’s Federal Credit Union had 1,397 members, mostly members of Unity, the Way of Holiness Christian Church. The credit union had been operating for only two years. The NCUA sent checks to members for their insured deposits.