Friday, December 27, 2013

This Week in Bank Failures

There were 24 failures of FDIC-insured banks in 2013, a much slower pace than we had seen in the previous five years. Bank profitability also improved this year, and real estate values increased. These effects are related. Speculators poured billions of dollars into U.S. real estate, and that speculative support took some of the financial pressure off of lenders and borrowers. A general improvement in the U.S. economy encouraged all of these trends. Credit union failures have not slowed down as much, but there were only 13 NCUA credit union liquidations in 2013.

U.S. bank regulators are considering adding another loophole in the Volcker rule, this one for collateralized debt obligations backed by trust preferred securities, which banks have routinely used to finance consumer loans along with other activities. Two bank holding companies claim they would have to write down these assets, even though the Volcker rule does not require them to sell the assets at this point. The banks could suddenly appear illiquid, even though no actual financial change took place, as a result of the accounting change that requires them to recognize the risks inherent in these securities.

A payment card data breach at Target is more serious than previously thought. Intruders intercepted PINs for the debit cards among 40 million payment cards that consumers used for purchases at Target between late November and the middle of December. Personal data was also intercepted. The affected debit cards and PINs should be replaced. The data breach occurred as criminals planted malware on many or most of the retailer’s point-of-sale terminals, though it is not clear how that took place. Some banks effectively froze affected debit cards last weekend, apologizing as the move prevented hundreds of account holders from traveling home for Christmas.

In Japan, the chairman of Mizuho will resign in March as part of a plan for change in corporate governance. The bank made hundreds of car loans to criminal enterprises and failed to respond for two years after learning of the problem, leading to a series of regulatory orders late this year.