Bank Repo Market Moves Into Focus
The Wall Street Journal has a nice little descriptive piece on the repurchase transaction market that bank participate in for short term funding. The Federal Reserve is testing this out to get back the cash they have injected into the banking system during the height of the Great Recession to purchase the “toxic assets” from the balance-sheets of all major financial institutions to give them the liquidity needed to operate.
I am still skeptical that they will do this in a timely manner if it would threaten the solvency of any banks. Many of these assets are non-performing and will require write-downs which have been coming very slowly as of late. This is more symbolic to show the Fed is doing something in my honest opinion. On the other hand, the FDIC has been talking about the lack of write-downs of the home equity lines and helocs that defaulted or will never be paid back, those are more likely to cause real harm in the banking system.
Wall Street Journal - The revelation that Lehman Brothers used repo shenanigans to hide its true weakness is bringing more attention to the repo market–and not a minute too soon. The repo market is huge, critically important to the banking system and, as indicated by last week’s bankruptcy-court examiner’s report, subject to abuse. Yet it’s little understood or scrutinized.
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U.S. debt credit rating is danger of losing triple A status
According to Moody’s in their quarterly report cited the rising federal budget as a reason why the United States debt rating has continued to be under review. Going forward we can assume that either a significant increase in taxes is coming, large reduction in spending (not likely in the current climate) or issuance of more debt & currency (very likely). In the latter scenario, the U.S.’s rating would be under review and likely will experience a reduction.
Fortune - The United States isn’t in jeopardy of losing its gold-plated credit rating, though by one measure America is closer to the ratings-downgrade danger zone than Spain.
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Ex-Park Avenue Bank Chief Antonucci Accused of Fraud
Glad to see we are hearing about fraud in the TARP program. We put a massive amount of money go into many financial institutions and if history proves to repeat itself, fraud always happens in large government programs. The alleged transaction sounds very fishy and should be investigated.
Business Week - Charles Antonucci, the ex-president of the Park Avenue Bank in Manhattan, closed by regulators last week, was arrested and charged with lying in an application for federal bailout funds and scheming to gain control of the bank.
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SF Fed’s Janet Yellen contender for Federal Reserve’s vice chair
This is most likely the best choice available to the Fed. Janet Yellen is a known quantity and should do a good job at the Vice Chairmanship. Ms. Yellen will have a huge job ahead of her, we have a massive amount of liquidity in the U.S. banking sector that will need to be withdrawn or we will see inflation on the rise when all that cash goes into some asset class.
Reuters, Washington D.C. - San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be nominated by President Barack Obama as vice chair of the central bank, a senior administration official said on Friday.
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Bank of America to End Overdraft Fees on Debit Cards
This is great news and I applaud BofA for taking to the essence of the credit card reform bill and ended this predatory type of fee. Even myself, was under the impression that the reason we enter our pin number for debit purchases was to authorize a purchase and at that moment the terminal checked to make sure sufficient funds were in the account before running the transaction. I learned this was not the case and realized that a debt card holder could be charged thousands of percents of interest for the smallest transaction based on the fee that was charged on an annual basis. I hope to see more banks step up and do away with these fees and focus more on core banking tasks and true financial innovation to produce profits and value.
New York Times - In a move that could bring an end to the $40 cup of coffee, said on Tuesday that it was doing away with overdraft fees on purchases made with debit cards, a decision that could cost the bank tens of millions a year in revenue and put pressure on other to do the same.
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New York Fed to expand list of banks for reverse repurchases
This is a good sign to see this liquidity drained from the system but the big question is what will happen to the banks taking back the “toxic assets” that were purchased during the crisis. First off, some real accounting will need to be made on the actual values of those securities.
The real estate market is no where near the peak so most of those will require write-downs to reflect the fair-market value (FMV). We will need to follow this closely to see how this arrangement is handled and see what the banks are putting on their balance-sheets.
Reuters, New York - The U.S. Federal Reserve is taking an additional measure to lay the groundwork to drain excess bank reserves, as it seeks to remove some of the $1 trillion in cash it injected during the global credit crisis.
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First American Offers Flat Fee on REO Management Service
This looks to be a good program for the REO market at the moment. With the large shadow inventory in the U.S. Fees for doing real estate transaction can really become a nuisance if a property does not sell quickly.
First American Outsourcing and Technology Solutions is offering a flat-fee package for managing, maintaining and selling REO property, in what they say is a first for the industry.
The business-outsourcing provider is a member of the First American Corp.. Depending on the mixture and prices of the assets in the portfolio, the fixed price on the referral fee could push down expenses even further, according to First American.
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