New EU standards for banks, followed loosely and informally for the last three years, formally went into effect at the start of this year. The new rules focus on two life-and-death issues for banks: capitalization and resolution. The need for the new rules became obvious in the December rescue of four of the larger banks in Italy, in a plan that favored the banks’ largest creditors. The government pushed to complete the deal in 2015, and faced widespread criticism for doing so, because the favorable treatment of large bondholders would not have been allowed under the new EU rules. In theory, the new rules prevent, within the EU, any repeat of the large-scale bank bailouts of the past decade that put sovereign financial integrity at risk.
The NCUA liquidated two credit unions in December, for a total of 11 in 2015: Bethex Federal Credit Union of Bronx, New York, with 6,000 members, member accounts and assets transferred to USAlliance Federal Credit Union; First Hawaiian Homes Federal Credit Union, with 4,000 members, member accounts and assets transferred to Molokai Community Federal Credit Union.
In the bankruptcy case of Sentinel Management Group, an appeals court has ruled that BNY Mellon is an unsecured creditor. The court ruled that the bank knew there were problems at Sentinel when it issued loans to the fund management company prior to its 2007 bankruptcy. The bank should have seen that funds from the loans it was making were likely to be diverted, but looked the other way, so it cannot gain the benefits of being a secured creditor in the bankruptcy proceeding. The bank provided nearly half of the funding for a criminal enterprise that ultimately sent Sentinel’s CEO to jail.
Wilmington Trust Corporation faces indictments after a TARP investigation. The bank repaid its 2008 TARP loan with money from a 2009 stock offering. In the stock offering and in filings with the SEC the bank exaggerated the quality of many of its loans. The bank and four executives are being charged with making false statements in a securities filing.