Friday, June 27, 2014

This Week in Bank Failures

The Bank of England did not take long to use its new power to limit mortgage lending. The new rules on October 1 allow a lender no more than 15 percent of its mortgage portfolio in loans with a loan-to-income ratio (LTI) of more than 4.5 years. It is a flexible rule, applying to the portfolio rather than any one loan, and it should not have much immediate impact in a market where the average LTI on a new mortgage is around 3.5 and where barely 10 percent exceed 4.5. Nevertheless, the rule will prevent any sudden decline in underwriting standards at banks. It is hoped that this will limit the scale of a predicted housing bubble, particularly in London.

U.S. law prevents Argentina from making payments to U.S. creditors on its restructured debt, a court decided, making a sovereign default all but assured. The country has notified the United Nations that a default is likely in the coming days.

Accused: Barclays, of intentionally misrouting trades in its dark pool to maximize its transaction fees. There are reports of major banks and investment funds withdrawing from the dark pool after yesterday’s fraud lawsuit filed by New York State.

Update: The FDIC reports one very small bank failure tonight: The Freedom State Bank, with its office in Freedom, Oklahoma. The bank had $21 million in deposits. Alva State Bank & Trust Company is assuming the deposits and purchasing most of the assets.