Friday, February 28, 2014

This Week in Bank Failures

Bitcoin is quite possibly dead after a criminal group nullified the largest bitcoin exchange and drove it into bankruptcy. Analysts who talk about this event as one of the growing pains for bitcoin are mistaken, I believe. If the technical flaws in bitcoin are large enough that criminals can wipe out arguably the most sophisticated bitcoin operation in the world, then ordinary bitcoin holders don’t stand a very good chance of success with bitcoin transactions either. Possibly bitcoin could be recalled and reissued, but it is hard to understand how that could happen, and even if the technical and legal hurdles could be overcome, the replacement currency would not be the old bitcoin but something new.

And if bitcoin is so easily targeted, then another cryptocurrency of sorts, the card transaction network, is equally at risk. Though highly sophisticated, it has many of the same weaknesses, and has many more players and more weak points for criminals to exploit. No one should be shocked if one evening a major card processing operation is wiped out in a few hours in similar fashion.

The former president of Ukraine, who abandoned his post under mysterious circumstances last weekend and is now considered a fugitive, is being investigated for money laundering among other offenses. Viktor Yanukovych and his son Aleksander Yanukovych have had assets frozen in several countries and prosecutors in Geneva seized documents from a company owned by Aleksander Yanukovych.

A U.S. Senate report describes a startling degree of subterfuge used by Credit Suisse to help U.S. taxpayers hide money from the IRS, including a secret elevator and hidden offices in an airport. The bank says it put a stop to these practices and is exercising more vigorous oversight over its employees. So far the U.S. Justice Department has indicted 108 employees and customers at Credit Suisse, and more indictments are expected.

A coordinated “boiler room” sweep has yielded 110 arrests in Europe and the United States today. Equipment, money, and luxury items were seized by police at more than 30 locations. The criminal organizations involved are said to have sold fake and nonexistent securities by telephone. They also are said to have laundered money and smuggled guns and narcotics. Relatively few specifics have been released as the police operation is apparently continuing at this hour.

February almost went by without any U.S. bank failures, but there were two as the month draws to a close. These were small, and came in states that haven’t seen a lot of bank failures.

  • Sterling, Virginia (near Dulles Airport): Millennium Bank, NA, 2 branches, $122 million in deposits. Successor WashingtonFirst Bank plans to eventually close the Sterling branch, but will keep the branch in Herndon. The failed bank opened in 1999.
  • Horsham, Pennsylvania (a suburb north of Philadelphia): Vantage Point Bank, $63 million in deposits. Successor is New Jersey-based First Choice Bank. The failed bank opened in December 2007 and had problem real estate loans from day one.

In both cases the acquiring banks paid a premium to the FDIC for the deposits.