Friday, April 5, 2013

This Week in Bank Failures

A parliament report says the economic troubles of 2007–2008 are not to blame for the collapse of HBOS in September 2008. The bank’s aggressive lending strategy led to losses large enough to sink the bank even in an ideal economy, the report says, while its executives were oblivious to the bank’s financial stress. The report recommends that three executives be banned from future work in banking.

A new plan for Libor would have to involve government regulation, and the first regulations went into effect this week. There will be fewer Libor rates, covering only five currencies. Banks’ reports to the Libor panel will be published for the first time, though with a three-month lag.

The abortive EU plan to turn most Cyprus bank depositors into stockholders had apparently been in the works for years. Worried economists this week latched onto documents published in December 2012 that spell out in surprising detail how such a process would work. The EU apparently intended to experiment with this process, and one wonders if officials might have pushed Cyprus’s banks into insolvency prematurely in order to test their new bank resolution theories. If that was the case, however, the EU experiment did not go as planned, as the scheme to replace deposits with illiquid and possibly worthless securities was rejected by the parliament in Cyprus.

A bankruptcy court today approved the liquidation of MF Global. The trustee said he believed all customer money would ultimately be returned. Unsecured creditors such as hedge funds, though, will get 34 percent or less on their claims.

U.S. regulators did such a sloppy job of foreclosure reviews that they were forced into an unfavorable settlement with the Wall Street banks on foreclosure procedures. That is the conclusion of a GAO inquiry released this week. The report noted that more than half of the foreclosures that auditors looked at were defective in some way.

The U.S. job market is suffering from the federal government’s austerity budget. An astonishing 500,000 workers are estimated to have dropped out of the labor market in March, in most cases because they decided not to look for a new job after being laid off. This reports bodes poorly for the U.S. economy and sent stock prices down today. Globally, banks are providing more than their share of job cuts, a trend that continues with new announcements this week.

State regulators closed a bank in Arizona. Gold Canyon Bank had $44 million in deposits. First Scottsdale Bank is taking over the deposits and purchasing the assets. It will continue to use the Gold Canyon Bank name for the two branches.