Friday, July 27, 2012

This Week in Bank Failures

One of the biggest transaction processing disasters ever hit U.K. consumers when Nationwide building society mistakenly debited customer accounts twice for debit card purchases on Tuesday. The bank correctly debited the transactions on Tuesday, then processed the same transactions again on Wednesday. About a million customers were affected, and 50,000 customers’ accounts were wiped out, giving them no access to their money until accounts were corrected last night. In a statement, the bank blamed the problems on “human error” without elaborating. “Human error” may be an accurate description of the cause, but the bigger question is about the security lapses that allowed millions of false transactions to be processed and then to go undetected for hours. A security hole that large is a sign of a bank that is not being actively managed all day long.

A management reorganization at JPMorgan could be paving the way for the eventual departure of its CEO and other top executives. Separately, JPMorgan will pay $100 million to customers who say they were tricked into transferring credit card balances to the bank just before it raised its minimum monthly payment from 2 percent to 5 percent. Under the terms of the proposed settlement, the bank will refund almost half of the balance transfer fees it earned in those transactions.

Public bailouts of giant banks in Greece are consistent on the surface with antitrust rules, a European regulator decided today. This is only a tentative ruling, and a more detailed probe could lead to changes in the structure of the bailout. Regulators said it might be necessary to wind down Nea Proton Bank, if it is able to operate only because of state support.

Bank profits in Spain are down by more than half because of the real estate slump and slowing economy. Real estate values could fall much farther in Spain; it is one of at least eight large Western economies where the ratio of real estate values to household incomes is higher than any sustained historical pattern.

The U.K. Serious Fraud Office (SFO) has opened a formal investigation into Libor fraud, promising criminal indictments if it can come up with solid enough evidence.

With the news hole surrounding the Olympics, low-profile bank failures may go all but unnoticed for the next few weeks. There was one bank failure at closing time tonight, Jasper Banking Company in Georgia. It had three locations and $213 million in deposits. Minnesota-based Stearns Bank is taking over the deposits and purchasing the assets.

State regulators in Colorado placed Trinity Credit Union into conservatorship. The NCUA will manage the credit union temporarily in the hope of restoring it to sound financial condition. The credit union serves 1,100 members in Las Animas County.