Friday, December 16, 2016

This Week in Bank Failures

Venezuela recalled 46 percent of its currency. The result is a cash crisis reminiscent of the ongoing crisis in India. The Venezuelan government estimates that half of its national currency is held by speculators overseas, and it says it is attempting to invalidate the overseas currency without having to redeem much of it.

Wells Fargo’s practice of creating ghost accounts for its customers may not have been limited to banking. Prudential Financial on Monday said it had suspended the sale of a specific life insurance policy by Wells Fargo pending an investigation. California insurance regulators will be conducting a formal investigation, the regulators confirmed later on Monday. Regulators worry that the bank opened life insurance policies fraudulently, taking money and personal data from customers’ bank accounts and forging signatures on the insurance applications.

A rescue for Monte dei Paschi will wait until private investors have had every opportunity to fund the bank’s stock offering. The board yesterday extended the stock offering until December 21, but issued an amendment to the prospectus to reflect €2 billion in deposit flight that has occurred in the last two weeks and another €1 billion in deposits expected to be withdrawn before the end of the month. The deposit flight means the €5 billion capital plan, even if investors can somehow be found, may not be enough to meet capital requirements. Given the extent of the problems, some insiders think that a rescue package could come tomorrow rather than next week. On the other hand, action on Monte dei Paschi might have been delayed just to clear the decks for Italy’s largest bank, UniCredit, to shore up its finances by raising €13 billion and cutting 14,000 jobs.

It was a slow year for bank failures in the United States. The FDIC resolved just five failed banks in 2016 with a combined $267 million in deposits. The FDIC budget for 2017 is half of what it was at its peak in 2010, reflecting a steady improvement in the stability and outlook of the banking sector. The NCUA liquidated 11 credit unions that served about 3,000 members, and even that is not as bad as it sounds. Six of the failed credit unions shared the same back office and were resolved on the same day.