Financial Regulatory Forum

BREAKINGVIEWS-FDIC on defensive thanks to imperfect disclosure

– The author is a Reuters Breakingviews columnist. The opinions expressed are her own –

By Lauren Silva Laughlin

DALLAS, Feb 16 (Reuters Breakingviews) – The Federal Deposit Insurance Corp (FDIC) is on the back foot thanks to imperfect disclosure. A web video critical of the U.S. agency’s sale last year of failed IndyMac Bank has elicited a defensive clarification. FDIC could have been clearer when the deal was done.

When FDIC sold IndyMac to OneWest, a bank owned by private equity investors, it agreed to share losses based on the original face value of the loans — while, as the video pointed out, IndyMac’s buyers bought the loans at a discount. The implication was that this structure meant FDIC would over-compensate the buyers for losses on loans.

The video contained errors, including failing to explain that FDIC is only sharing losses on a fraction of the loans bought by OneWest. Moreover, the buyers also have to lose more than $2.5 billion before the agreement kicks in. So the buyers aren’t getting anything like as sweet a deal as the video implied. And without some loss-sharing arrangement, FDIC might have struggled to sell IndyMac at all.

Still, the video gained such traction on the Internet that FDIC felt the need to respond on Friday. The details it clarified weren’t in the initial press release announcing the sale of IndyMac, nor were they presented clearly as more details of the sale were released.

EXCLUSIVE-U.S. Fed group eyes insurance fund for key market

By Kristina Cooke and Elinor Comlay

NEW YORK, Feb 8 (Reuters) – Banks, investors and industry groups last week discussed creating a backstop insurance fund to lessen the risk a distressed dealer could trigger a crisis in the world’s largest funding market.

The discussions took place at a New York Federal Reserve sponsored industry workshop last Wednesday, according to presentations obtained by Reuters.

Participants in the tri-party repurchase market — a key funding source for dealers that briefly seized up during the financial crisis — have been tasked by the central bank with coming up with reforms to strengthen the market which, at its peak, financed more than $2.8 trillion in securities per day.

Bank of England, U.S. FDIC to work closely on banks in distress

LONDON, Jan 22 (Reuters) – The Bank of England said on Friday it had signed an agreement with the U.S. Federal Deposit Insurance Corporation to work more closely when resolving distressed banks with operations in the U.S. and the UK.


U.S. FDIC’s Bair urges banks to take losses on commercial loans

By Karey Wutkowski

WASHINGTON, Jan 20 (Reuters) – A top regulator on Wednesday told banks to stop dragging their feet and recognize losses on commercial real estate loans, a sector that is due to deteriorate in the coming quarters and drive bank failures.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, said banks should try to modify troubled commercial real estate (CRE) loans, but must recognize losses if such a workout does not maximize value.

“The losses need to be recognized,” Bair stressed to a conference of the Commercial Mortgage Securities Association.

BREAKINGVIEWS – Is Conan O’Brien a $40 million bailout recipient?

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Rolfe Winkler

NEW YORK, Jan 19 (Reuters Breakingviews) – Conan O’Brien is expected to receive $40 million for leaving NBC, the media unit of General Electric, itself among the largest recipients of taxpayer help. While it would be a stretch to compare the American late-night talk show host to a Goldman Sachs or Citigroup banker, he’s only a few steps removed.

Though it wasn’t a recipient of direct aid from the Troubled Asset Relief Program, GE availed itself of perhaps an equally important bailout facility, the Temporary Liquidity Guarantee Program overseen by the Federal Deposit Insurance Corp.

US FDIC floats plan to tie bank pay to fee levels

By Karey Wutkowski

WASHINGTON, Jan 12 (Reuters) – U.S. banks whose compensation plans encourage risk-taking would have to pay more for deposit insurance under a proposal floated by the Federal Deposit Insurance Corp on Tuesday.

The proposal is very preliminary and was contentious even among the members of the FDIC board, which is made up of regulators for different-sized financial firms. The board voted 3-2 to seek public comment on the proposal.

The plan would reward pay structures that tie banker pay to long-term performance and include “clawback” provisions to recoup payments.

Special bankruptcy court for banks mulled in U.S. Senate

By Rachelle Younglai

WASHINGTON, Jan 11 (Reuters) – Key U.S. senators are considering the creation of a special bankruptcy court for troubled financial services firms, a person familiar with the plans said on Monday.

Senate Banking Committee members are trying to toughen up parts of a draft bill that overhauls how the financial system is supervised. The draft, introduced by Senate Banking Committee Chairman Christopher Dodd, would create a system to unwind troubled financial firms.

But members of the committee want a more specific and tougher regime to deal with troubled financial firms after the federal government used billions of dollars in taxpayer funds to prop up firms like Bank of America.

U.S. industry sharpens attack on financial reforms

By Karey Wutkowski and Kevin Drawbaugh

WASHINGTON, Dec 8 (Reuters) – U.S. industry is freshening its attack on financial reform, pledging more cash to defeat a new consumer agency and raising concerns over a provision that could force secured creditors to shoulder losses.

The U.S. Chamber of Commerce on Tuesday unveiled a new radio and television advertising campaign that portrays the proposed Consumer Financial Protection Agency as a threat to small business and economic growth.

The push comes just one day before the full U.S. House of Representatives is scheduled to start debating a massive legislative package that would overhaul financial regulation.

Sleeper deposit-insurance cost for big U.S. banks gaining steam

A California National Bank branch employee posts notices that the bank has been taken over, near the bank's ATM machine in suburban Los Angeles October 30, 2009. U.S. authorities seized nine failed banks, including Los Angeles-based California National Bank, that day, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation's banking industry are being crippled by bad loans. REUTERS/Fred Prouser   By Karey Wutkowski
WASHINGTON, Nov 20 (Reuters) – As the biggest U.S. banks clamor to defeat Congressional measures that could break up their firms or slap a big tax on their transactions, another costly proposal is quietly gaining steam.


U.S. banking regulator eyes bank creditor claims

USA/    ISTANBUL, Oct 5 (Reuters) -   Federal Deposit Insurance Corp Chairman Sheila Bair told a group of international bankers on Sunday that officials might want to consider “the very strong medicine” of limiting secured claims to 80 percent, although she said such a proposal would need to be carefully weighed. (more…)