The Fed has proposed the first specific rules limiting counterparty risk in dealings between banks. The proposed rules apply to banks with $50 billion in assets, and prevent a bank from having credit exposure in an amount exceeding 25 percent of capital to any one other party, including a bank. The idea is that the collapse of one giant bank should not lead directly to the collapse of the next, though the rules are too lax to actually have that effect. The abrupt loss of 25 percent of its capital during a time of financial stress would still leave a bank with few options for carrying on business as usual. The only benefit of the proposed rules will come from forcing Wall Street banks to systematically aggregate and track their counterparty risks, something they currently do only in a hit-or-miss fashion.
The European Central Bank pulled out all the stops with a new round of monetary stimulus. This included cutting some rates that were already negative and increasing the rate of asset purchases. It is a high-risk move that should boost spending in some places but will also destabilize the euro zone economy, eating into bank profits, boosting the chances of local recessions, causing deposit flight and capital flight, and speeding the failures of some of the least stable banks.
Regulators in Wisconsin closed North Milwaukee State Bank, transferring the deposits and selling the assets to North Carolina-based First-Citizens Bank & Trust Company. First-Citizens has acquired several small failed banks in recent years. The failed bank had $61 million in deposits. It had been reporting losses every year since 2011. Bank failures have become few and far between. It took until the 71st day of the year to log the first bank failure of the year.
