Tha Banksters Strike Again... And Again Using YOUR Money.

Joined: 06 Jul 2003 Posts: 8380 Location: Central CA

Joined: 26 Aug 2008 Posts: 306

In the meantime we have the Federal Reserve mandating rediculous capital standards on community banks, not allowing them to lend at all until they meet these crazy ratios. Until community banks can start lending (community banks are the banks that lend to small business) we'll not get out from under this mess.

Barney Frank has been a blathering idiot through all of this, but he finally has taken note of what the Federal Reserve is doing to the community banking industry and has told the Fed to leave the community banks alone and let them go about thier business, and allow them to lend. I have a copy of the letter he sent to the Fed on my computer at work I'll post tomorrow.

Here is the real aggravating thing about this whole mess, and I will use the bank I work for as a example. We're a small community bank, with 6 branches. We specialize in small business lending and year after year are the top bank in our county for SBA lending, we double the SBA loans done by BoA, US Bank, and Wells Fargo combined. For 2008 we made a profit, that is until you add in what we paid for FDIC insurance for 2008, a whopping $2 million compared to the $200K we paid in 2007. For 2009 we will pay in over $2million. So, strictly due to the morons at the larger banks that chased these shady loans, everyone pays. We would be free and clear of even the new asset ratios that the Fed is requiring if it weren't for us having to bail out all of these failed banks. And when I say everyone pays, I mean banks and customers alike. Just 1 year ago banks paid out around 5% on a 12 month CD, right now, you are lucky to find 2%, and it keeps going down. Banks can't afford to actually pay out interest to customers. Truth be told, banks right now don't want your CD money, they can't afford it while trying to hit the Fed's ratios.

Joined: 06 Jul 2003 Posts: 8380 Location: Central CA

And people like me, who live from check to monthly check might as well keep our money in a sock. Providing we can afford a sock to keep it in. In my case, t will definitely be gone before I need to wear the sock anyway.

Joined: 26 Aug 2008 Posts: 306

Joined: 26 Aug 2008 Posts: 306

Here is the text of the letter sent from Barney Frank to the Federal Reserve. It shines the light on the problems facing banking right now, in particular, community banks. We have the President and Congress asking banks to increase lending, and the Federal Reserve making it impossible to do so.

Dear Chairman Bernanke, Chairman Blair, Comptroller Dugan, Chairman Matz and Acting Director Bowman:

It is now recognized that the vast majority of problem sub-prime loans were originated by non-bank lenders. Yet, it is the already highly regulated traditional depository banks that are feeling the greatest regulatory pressure as a result of the current economic crisis. In particular, one of the biggest challenges faced by community banks (but shared by all banks) is how to respond to calls from Congress to increase lending to stimulate the economy and to work with troubled borrowers on foreclosure mitigation, while dealing with the increasingly stringent directives from regulators that can preclude banks from doing just that.

Community banks became strong and viable players in the financial services industry because they fill an important need, and it would be short-sighted to weaken that role through over-zealous regulatory actions - actions based not on wrong-doing or poor management practices at these banks, but on changes in the economic enviornment and toughening regulatory standards.

It is critical now more than ever that regulatory personnel out in the field apply a measured approach to examinations that is directed by agency leadership rather than subject to arbitrary decisions in the field. Examiners that are now being inappropriately tougher in thier analysis of asset quality and are consistently requiring downgrades of loans whenever there is any doubt about the loans condition are acting counter to the kind of balanced approach required in the current economy.

Worsening conditions in many markets have strained the ability of some borrowers to pay on thier loans, which often leads regulators to insist that a bank make a capital call on the borrower, impose harmful amortization schedules or obtain additional collateral. These steps can set in motion a "death spiral" based on fire-sale prices for assets to raise cash, a drop in the comparable sales figures the appraisers use, which results in market devaluations of other assets. These actions are directly counter to the message from Congress calling for banks to work with borrowers to help them through these difficult times and to make credit available.

While there is no question that regulatory gaps and other regulatory short-comings were a significant contributor to the economic crisis, those gaps were largely with the non-bank lending market and Wall Street banks.

We call on regulators to show some temperance in thier regulation of traditional banks. Not to jeopardize core safety and soundness principles, but to show some restraint in the immediate enforcement of new rules that may prove to be excessive at a time when the community banks are least able to respond. A self-fulfilling prophecy of community bank failures, shrinking credit availability and a slower economic recovery can all result from a regulatory over-reaction to the current crisis.

Here are some examples of problem areas that have been brought to our attention by constituents:

1. "Unofficial" Capital Requirements-the official regulatory standard for being "Well capitalized" is basically 5% for Tier One Capital and 10% for Total Risk Base Capital. Some bankers indicate that individual examiners have in some cases unofficially moved these numbers to as high as 8-9% and 12% respectively. The impact is that many community banks have to restrict thier growth (lending activity) in order to shrink thier balance sheets and meet these requirements. Restricting lending activity, especially to small businesses - is counter productive to helping the economy recover.

2. In many cases the traditional "CAMELS" rating exercise for banks appears to have become an "A" - asset qualtiy-exam. We have always understood that weakness in asset quality in a institution could be mitigated by strength in other areas such as Captial, core earnings and liquidity. Examiners now seem to say that if asset quality is bad all the other components are also unsatisfactory.

3. Valuation of assets - Banks are being forced to write assets, loans and other Real Estate Owned, down to current "market" value. The problem is that there is virtually no market for some of these assets (developed lots for example) at present, leading to artificially low prices for those assets that have to be sold under duress. However, many of these markets are expected to recover in the future, and the forced writedowns to "fire-sale" values are making the banks' capital crunch artificially and unnecessarily worse.

4. Discouragement of the use of short term borrowings from Federal Reserve, Federal Home Bank, or CDARS reciprocal CD's, etc. Regulators seem to be re-establishing thier old aversion to a bank funding its operations with anything but deposits. The pressure in this area is often applied by lowering liquidity grades on exams for those banks that do make use of what examiners deem "excessive" borrowing. This "message" is in turn causing some institutions to artificially constrict lending in order to reduce thier amount of borrowings to please the regulator.

These are just a few examples, but the overall message is clear. While our regulators need to uphold proper safety and soundness standards in this difficult economy, unnecessarily aggressive decisions made in the field by individual examiners or teams intended to require banks to hold or acquire capital in excess of the official regulatory standard for being "well capitalized" must be avoided, to prevent more banks from failing unnecessarily. We are calling upon you to take the long view, use thier wisdom and experience to guide thier field staff toward a more appropriate application of the core principles of safety and soundness regulation in order to enable our banks to assist fully in our economic recovery.

Signed: Barney Frank and Walt Minnick.

In a nutshell, what they are telling the Fed is what I have been saying for some time. Stop imposing rediculous capital ratios that one examiner to the next is imposing at different levels. They are forcing community banks to stop lending, shed assets (loans) and are forcing banks into deposit only accounts to try and increase capital ratios. We've got two mesasges out there, the government telling us to lend, and the Federal Reserve only allowing those large bailed out Wall Street banks to do so as they got infused with Free Capital, which they are now bonusing themselves with. Large Wall Street banks won't deal with small business where for a community bank, small business is thier lifeblood. And it's small business that drives our economy, hires us, provides the benefits etc. Anyone can lend to Domino's Pizza for whatever they need the cash for, but it's only the small community banks that will take the risk lend to Joe's Pizza Palor, and work with Joe during difficult times.

Joined: 08 Jul 2003 Posts: 6309

Little Timmy must have cried to his boss -$$$ for my cigar smoke filled backroom deal making buddies. They're entitled don't you know...

Joined: 26 Aug 2008 Posts: 306

Here's something else that's killing community banks right now. On top of the fact the Federal Reserve is doing what I outlined above ( not letting us lend, de-valuing our current loans and making us shed them) the FDIC insurance rates have absolutely gone through the roof. In my state, Washington, the FDIC has told us there will be no more bank closings through the end of the year... the FDIC is out of money. My bank is small, 6 total branches and we're located all in 1 county. Our FDIC insurance in 2007 cost us $200K for the year. In 2008 our rates jumped up to $2million. For 2009, we will pay in well in excess of $2million. Just imagine what a bank with 50 branches is paying, or 100....

Because Wall Street banks played craps with the US economy, the Federal Reserve is acutally rewarding them while at the same time punishing the depository banking system for Wall Street's infidelity.

Joined: 08 Jul 2003 Posts: 6309

The big corporate national banks have all the pull and get the payout afte their payoffs wether it's PACs or the threat ' if we fail '. It's sorta like a rich fat guy who has no need for food fighting to get his way into a shelter for a free meal.

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