Banks die too fast for regulators (BANK RUNS???)

Banking regulators across the country are struggling with a new phenomenon: Banks are failing with accelerating speed, exposing holes in the regulatory infrastructure designed to catch collapsing institutions. . . .

Of the 25 banks that failed in 2008, nine toppled before regulators publicly cracked down, including IndyMac Bank and the banking operations of Wahington Mutual Inc., two of the biggest seizures in U.S. history. . . .

The problem illustrates a fundamental weakness in the country’s regulatory infrastructure. The government is positioned to help banks if there is erosion in their capital levels, referring to the cushion banks hold against unexpected losses.

But that isn’t what happened last year. Instead, many banks faced a liquidity crisis as customers and business partners lost faith, shutting off the banks’ access to short-term cash. [Have we already had runs on various banks?]

“In 2008, we have seen institutions fail with greater velocity than in prior years,” says Scott Polakoff, senior deputy director at the Office of Thrift Supervision. “That greater velocity is driven by liquidity crises, not capital crises.” . . .

“For the most part, I think it was a tidal wave,” says Rob Braswell, the top bank regulator in Georgia, where five banks failed last year. Only one was under a public enforcement action at the time. [If last year was a tidal wave, what will this year be since the loses are now seen as much, much greater]. . .

Liquidity kills banks faster than anything, and regulators just don’t have time to issue cease-and-desist orders and take formal enforcement actions,” says Jaret Seiberg, a Washington analyst at Stanford Group, a financial-services company. “We’ve seen banks die within a matter of days and weeks, You go from having a cold to buried.”

The Money, Banking, and Financial Markets Ping List.

"Money, not morality, is the principle commerce of civilized nations."
—Thomas Jefferson

FR Keywords: moneylist, bankinglist, financelist

Please tag all relevant threads with the aforementioned keywords.

This can be a very high-volume ping list at times.

Ping list jointly pinged by rabscuttle385 and TigerLikesRooster.

To join the ping list:
FReepmail rabscuttle385 with the subject line add moneylist.
(Stop getting pings by sending the subject line drop moneylist.)

A top economist who predicted the banking crash says another $2.5 trillion in loses are coming, making the U.S. banking system insolvent:

“A couple of years ago, when Nouriel Roubini, New York University Professor, predicted that U.S. financial-system losses would total $1 trillion, everyone thought he was insane. He has since revised his estimate. Now he’s looking for $3.6 trillion, suggesting the banking system is ‘effectively insolvent’

“’I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,’ Roubini said at a conference in Dubai today. ‘If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.’”

http://finance.yahoo.com/tech-ticker/article/160553/Roubini:-U.S.-Banking-System-Insolvent,-Another-$2.5T-of-Losses-Coming

Here is Roubini again in a 1/15/09 video where he gets specific about a wide range of economic metrics and investments. Also, a Nobel prize winner on the same show says it’s not wise to disagree with Roubini since he’s been so right in the past: http://www.youtube.com/watch?v=a5102wsJY94

Here’s an edited WSJ article saying that ETNs at failed banks will lose all value:

Trouble at Barclays Raises ETN Worries:
Potential for Steep Loses if Bank Defaults

With Barclays PLC’s share price sliding, worries have spread about one product that recently seemed like a hit with Main Street investors: its iPath exchange-traded notes.

In a little over a week, speculation that the British bank could be nationalized sent its U.S.-traded shares down to $3.39 at Thurday’s close from $11.19 on Jan. 12. That raises questions for holders of its ETNs – debt securities designed to track benchmarks of stocks, currencies or commodities – which could face steep losses if Barclays ever defaults on its debt.

Herb Morgan, president of Efficient Market Advisors LLC in Camino Del Mar, Calif., bought iPath Dow Jones-AIG Commodity Index Total Return ETN late last year as part of a tax-planning move for his clients, but he recently made sure he’d completely sold the position.

“I’m really glad we did,” he says. “I think the odds of Barclays getting nationalized are low, but real. Right now, I wouldn’t take my chances with the ETN of any issuer.”

Barclays says investors shouldn’t have cause for concern. The firm recently put out a statement saying it knows no justification for the sharp drop in its stock price and that it expects to post a before-tax profit for 2008.

Barclays adds that iPath ETNs have continued to pull in new money and that issuance is at an all-time high, in part because investors find ETNs are easier to trade and have more predictable risks than swaps contracts do.

Exchange-traded notes, which Barclays invented in 2006, closely resemble exchange-traded funds, except holders of ETNs never own an interest in the investments’ underlying assets as they would with an ETF or a conventional mutual fund.

Instead, an ETN is essentially a promissory note of the bank that issues it, and if the bank defaults, ETN owners must get in line with other creditors.

While Barclays iPath ETNs have been a hit, collecting billions in assets and drawing a number of imitators, the credit risk inherent in ETNs has been a lingering worry ever since Bear Stearns Cos., which also issued ETNs, collapsed last year.

“People are more hesitant to use the ETN structure,” says Morningstar analyst Paul Justice. “At the end of the day, you only get paid back if the bank is solvent.”

While ETNs are supposed to play a role in investors’ portfolios by making it easier to own such difficult-to-hold assets as commodities or Indian stocks, Mr. Justice thinks that case is hard to make in the current climate.

Most holders want that kind of exotic investment to diversify their portfolios. But with ETNs’ value ultimately tied to the credit of a particular issuer, they are getting the opposite: concentrated exposure to a single financial services stock.

“The ETN structure loses its appeal,” he says.

http://online.wsj.com/article/SB123268099044509029.html

Back when the Wachovia merger was due to take place, I went to take some cash out of my Equity Line, just in case I needed it. I spoke with a bank manager who said in the summer they had reduced some people’s Equity Lines. I was only registered for 1/5th my equity so was not affected. He also said they expected the merger to go well, so I ended up only taking 1/2 the amount I had planned.

It is unbelievable what the CEO’s of these organizations are paid. I checked “Forbes Executive Compensation” and have this information for 5/3/07, just before the big meltdowns began. It is no wonder they are going broke. Here is the CEO pay in salary and (shares).

- Wachovia, $11 Million, (38 million shares)
- Citigroup, $18M, (8M)
- Wells Fargo, $72M, (135M)
- Lehman Brothers, $52M, (754M)
- Bank of America, $100M, (145M)
- Merrill Lynch, $36M, (114M)

It is no wonder they are going broke paying those salaries. I tried to find the stock values for 5/3/07, but was unable. If anyone else can I would love to see them and have the link.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.