Friday, April 15, 2016

This Week in Bank Failures

Settled: Goldman Sachs is paying $5 billion to settle issues with mortgage-backed securities it sold in 2005–2007.

Pressure: Put in a tough spot by a new discrimination law in North Carolina, multiple banks have canceled plans to expand there. Similar laws have been enacted in at least three other southern states.

A do-over: Five Wall Street banks’ resolution plans will have to be redone to close gaps identified by the Fed and FDIC. The rejected plans don’t realistically address how the banks will maintain liquidity through the process of winding down and selling off business units. Resolution plans are supposed to be contingency plans that banks can follow if they find they are running out of money.

Taking losses: Wall Street banks are reporting lower profits as they set aside money to cover problem loans in the energy sector, a pattern that is likely to continue through next year. The largest coal company in the world, Peabody Energy, went bankrupt this week under pressure from low energy prices and falling demand and after potential buyers were unable to obtain loans to finance the purchase of some of its mines.

Green-lighted: A scaled-down rescue fund for Italian banks was agreed to on Monday. The €6 billion fund is too small to do anything if a giant bank stumbles, but it may be able to help recapitalize midsize banks. Plans from last year had to be scaled back to work within new euro zone rules that prohibit state-funded bank rescues.

Indicted: The SEC charged one elected and one appointed official with securities fraud after misleading statements related to the financing of a minor-league baseball stadium in 2010. The SEC is pursuing a separate civil case that also names two other officials and the town they all work for.