There are more than a few reasons to worry about economic trends in the United States and Europe. Indicators are mixed and the financial sector in particular is in a fragile state. The European Central Bank and now the Fed have announced new monetary policies that are something of a departure from the past. At times, the central banks have taken actions that suggested that they believed keeping the entire financial sector intact was their top priority. The new actions tell us the priorities have changed. In Europe, it is becoming painfully clear that governments cannot go much farther in propping up the banks, and that eventually, several large banks there will collapse. In the United States, the immediate concern is not for the largest banks, but for other important institutions in the financial sector. The failures of MF Global and Peregrine Financial and the scare at Knight Capital Group strongly suggest that we can expect financial companies that may look stable on the outside to fail with some regularity. The central banks’ recent moves may make the financial sector more prepared to handle the sudden market changes that can accompany the failure of a bank, broker, hedge fund, or other institution, but they aren’t likely to prevent any such failure.
One aspect of the Fed’s new bond-buying program is an effort to lower long-term interest rates. The Fed is giving less and less emphasis to the short-term interest rates that are so critical for a bank or other business facing a cash crunch.
Peregrine Financial Group CEO Russell Wasendorf, Sr. is prepared to plead guilty to a shortened list of charges on Monday. He has already surrendered all his assets. Wasendorf is believed to have sent phony bank records to regulators to make it appear that Peregrine Financial Group had more money than it actually had.
There was one bank failure tonight. Missouri state banking regulators closed Truman Bank in St. Louis. The failure follows the bank’s involvement in several failed commercial real estate projects. The bank had been operating under close scrutiny from regulators for four years. Simmons First National Bank is taking over the deposits and purchasing the assets.
