Friday, December 4, 2015

This Week in Bank Failures

New Fed rules prohibit emergency lending like the AIG and Bear Stearns bailouts in 2008. The rules prevent the Fed from making emergency loans to select companies. In a crisis, the Fed can still offer “broad-based” credit to solvent borrowers, but it must charge a penalty rate on such loans. Under these rules, in a repeat of the banking crisis of 2007–2009, most of the same banks would have survived, but with little or no value accruing to the prior stockholders.

Cost-cutting: Morgan Stanley has begun laying off senior managers in its fixed-income business in London. The moves are said to be a prelude to 25 percent staffing cuts in the fixed-income business, most to take place next week. The company has not commented on its plans. Separately, Barclays is said to plan to reduce staffing by 20 percent early next year in its investment banking operations, in addition to cuts already announced.

Target has agreed to pay banks $39 million to cover part of the cost of replacing cards compromised by the retailer’s massive in-store data leak in November and December 2013. At least 40 million cards were compromised in the data leak, so in total, Target has reimbursed card issuers and shoppers less than $5 per card.

The U.S. Export-Import Bank is back in business after a charter renewal was approved as part of a transportation funding bill that passed Congress last Friday. The bank was effectively shut down when Congress voted to let its charter lapse in June.

The NCUA liquidated Greater Abyssinia Federal Credit Union, which had 425 members, mainly members of the Greater Abyssinia Baptist Church in Cleveland, Ohio. The NCUA decided it wouldn’t be able to restore the credit union to financial viability. The credit union had less than a million dollars in assets.