In The News

A Year to Forget

By: Bill Poquette

The best news of 2009 may be that financial Armageddon was successfully averted. While not functioning “normally,” markets were functioning — especially the stock market, which, as measured by the Dow Jones Industrial Average, climbed to 10,462.89 as of Dec. 15 from 8,564.53 a year earlier.

Bankers could count other blessings. The most onerous proposals for new regulation were watered down and/or delayed until next year. A workable compromise was reached on FDIC assessments. In the third quarter, earnings were three times the year-ago quarter and net interest margins reached a four-year high. Community banks here and there were having record profit years.

On the other hand, 2009 was a year of considerable trauma and bad news for the industry. Problem banks reached totals not seen since 1990s. The FDIC struggled to maintain the solvency of the Deposit Insurance Fund. At Sept. 30, the quarterly net charge-off rate and the percentage of noncurrent loans and leases were at the highest levels in 26 years.

BankNews, as it has for more than 100 years, recorded the industry’s travails — and a few triumphs — through 2009. Following is a brief, month-by-month chronology of events of interest, some major, some minor, summarized from the magazine’s pages.

JANUARY
The target range for federal funds remained at 0 to 0.25 percent, after the Federal Open Market Committee at its December meeting lopped off 75 basis points from the 1 percent range it set in October.

Six banks failed, one each in California, Illinois, Florida, Maryland, Utah and Washington.

FEBRUARY
The FDIC board adopted an interim rule imposing a 20-basis-point emergency special assessment on the industry on June 30, 2009. The interim rule would also permit the board to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary.

Permanently raising the deposit insurance limit to $250,000 was addressed in a bill approved by the House Financial Services Committee. The measure also increased borrowing authority from the federal government with FDIC’s limit rising from $30 billion to $100 billion.

The bank failure total for the year climbed to 16 as regulators closed institutions in Georgia, California (2), Oregon (2), Illinois (2), Nebraska, Florida and Nevada.

MARCH
Commercial banks and savings institutions insured by the FDIC reported a net loss of $26.2 billion in the fourth quarter of 2008, a decline of $27.8 billion from the $575 million that the industry earned in the fourth quarter of 2007 and the first quarterly loss since 1990.

Let sick banks fail — including those currently labeled “too big to fail” — it was suggested by Thomas M. Hoenig, president and CEO of the Federal Reserve Bank of Kansas City, speaking in Omaha.

Directors and officers of institutions that are in a weakened financial condition are expected to oversee the operations of these institutions in a way that stabilizes the risk profile and strengthens the financial condition, bankers were told by Sandra L. Thompson, director of the FDIC’s Division of Supervision and Consumer Protection, in a Financial Institution Letter. “Aggressive asset growth strategies or reliance on non-core liabilities to fund riskier asset classes will result in heightened off-site monitoring and on-site examinations that are more extensive than those applicable to other institutions. Such strategies, in specific circumstances, may result in higher deposit insurance premiums,” Thompson wrote.

The failure of two affiliated banks in Kansas and Colorado, plus three in Georgia brought the total for 2009 to 21.

National Credit Union Administration officials placed U.S. Central Federal Credit Union, Lenexa, Kan., and Western Corporate Federal Credit Union, San Dimas, Calif., into conservatorship.

Sheldon Stahl, former senior economist at the Federal Reserve Bank of Kansas City, died March 6.

APRIL
April bank closings were reported in North Carolina, Colorado, Missouri, Nevada, Michigan, Georgia, California and Idaho, bringing the total for the year to 29. A credit union was closed in Florida.

MAY
The FDIC board approved a final rule establishing a special assessment of five basis points on each FDIC-insured depository institution’s assets, minus its Tier 1 capital, as of June 30, 2009. “It is probable that an additional special assessment will be necessary in the fourth quarter,” said FDIC Chairman Sheila Bair.

The Credit Cardholders’ Bill of Rights Act was signed by President Barack Obama. The legislation bans double-cycle billing and retroactive interest rate hikes on existing balances.

Seven FDIC-insured institutions were closed, bringing the 2009 total up to 36. The banks were in Illinois (2), Florida, Georgia, New Jersey, Utah and Washington. A Michigan credit union was liquidated.

The FOMC said it would maintain the target range for fed funds at 0 to 0.25 percent.

L. William Seidman, 88, former FDIC chairman, died May 13 in Albuquerque, N.M.

JUNE
FDIC-insured institutions earned $7.6 billion in the 2009 first quarter. This was a decline of $11.7 billion (60.8 percent) from the $19.3 billion that the industry earned in the first quarter of 2008, but up from the 2008 fourth-quarter net loss of $26.2 billion.

In one of its final decisions in the current term, the U.S. Supreme Court on June 29 ruled that state attorneys general cannot issue their own subpoenas in investigations against national banks, but that an attorney general can get a court to issue subpoenas in an investigation into national banks.

Nine banks were closed and Silverton Bridge Bank, created after the May 1 failure of Silverton Bank, Atlanta, will be liquidated, the FDIC announced. The closed banks, in California (2), Illinois, Georgia (3), Kansas, Minnesota and North Carolina, brought the year’s total to 45.

The FOMC kept the fed funds target rate at 0 to 0.25 percent.

JULY
The banking industry fully supports effective consumer protection but that creating a new consumer regulatory agency is not the solution to the current economic problems, ABA President and CEO Ed Yingling told Congress.
In testimony before the House Financial Services Committee, Yingling said, “There is no shortage of laws designed to protect consumers. Making improvements under the existing regulatory structures — particularly aimed at filling the gaps of regulation and supervision of nonbank financial providers — is likely to be quicker and more successful than a separate consumer regulator.”

Twenty-four bank failures brought the year’s total failures to 69. A California credit union also was closed.

AUGUST
The target range for federal funds was maintained at 0 to 0.25 percent by the FOMC.

Banks were closed in 11 states, bringing the 2009 failure total to 84. Alabama, Arizona, Georgia and Florida recorded two each, and single banks were closed in California, Maryland, Minnesota, Pennsylvania, Oregon, Nevada and Texas. A Nevada credit union was closed in the fifth credit union liquidation of 2009.

SEPTEMBER
An aggregate net loss of $3.7 billion in the second quarter of 2009 was reported by commercial banks and savings institutions insured by the FDIC. This is a decline of $8.5 billion from the $4.8 billion in profits reported in the second quarter of 2008, and down $11.3 billion from the $7.6 billion earned in the first quarter.

The FOMC said it will maintain the target range for the federal funds rate at 0 to 0.25 percent.

The year’s failed bank total rose to 95 with closures in Arizona, Georgia, Illinois (3), Iowa, Kentucky, Minnesota, Missouri, Indiana and Washington.

Regulators closed two credit unions in California, one in Nevada and one in Pennsylvania and assumed control of a Florida credit union. Seven federally insured credit unions have been liquidated this year.

OCTOBER
Insured institutions will be required to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC board also voted to adopt a uniform three-basis point increase in assessment rates effective on Jan. 1, 2011.

An amendment to the Consumer Financial Protection Agency bill, H.R. 3126, has been introduced by Rep. Brad Miller, D-N.C., and Rep. Dennis Moore, D-Kan. The amendment allows banks with less than $10 billion in assets and credit unions with less than $1.5 billion in assets to be exempt from examination by a new CFPA agency in addition to federal bank regulators.

Twenty bank closings in October jumped the total failures for the year to 115.
Credit unions in California and Texas were liquidated, and the NCUA assumed control of a Mississippi credit union.

NOVEMBER
Agreement between House Financial Services Committee Chairman Barney Frank, D-Mass., and Treasury Secretary Timothy Geithner cleared the way for introduction of a draft bill addressing “too big to fail.” The Financial Stability Improvement Act of 2009 is designed to create a system for monitoring and reducing threats posed by systemically risky firms and establish a process for dealing with large, financially troubled non-bank financial institutions.

The target range for the federal funds rate was maintained at 0 to 0.25 percent by the FOMC.

Draft legislation for financial regulation was introduced by Senate Banking Committee Chairman Chris Dodd, D-Conn. The draft would create a single federal banking regulator, abolish the thrift charter, allow FDIC resolution for systemically significant firms, require large institutions to pre-fund a systemic resolution fund and create a new Consumer Financial Protection Agency. The Fed’s bank supervision and consumer protection role would be transferred to new agencies.

The FDIC has adopted the final rule amending the assessment regulations to require insured depository institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012, on Dec. 30, 2009, along with each institution’s risk-based assessment for the third quarter.

Nine banks were closed. The total at month-end was 124.

The NCUA assumed control of operations at a Mississippi credit union and liquidated credit unions in California and Nevada, the 12th and 13th federally insured credit union liquidated in 2009.

DECEMBER
FDIC-insured commercial banks and savings institutions reported aggregate net income of $2.8 billion in the third quarter of 2009, but loan balances declined by the largest percentage since quarterly reporting began in 1984. Quarterly earnings were more than three times the $879 million the industry earned a year earlier and an improvement over the $4.3 billion net loss in the second quarter. The number of institutions on the FDIC’s problem list rose to 552, its highest level in 16 years.

The U.S. House of Representatives approved The Wall Street Reform and Consumer Protection Act. Provisions of the bill are meant to increase consumer protections, create a financial stability council, end taxpayer bailouts and “too big to fail,” rein in executive compensation, safeguard investors, regulate derivatives, outlaw predatory mortgage lending practices and require registration of hedge funds.

After searching industry-wide since October, Bank of America named an insider to succeed retiring CEO Kenneth D. Lewis. He is Brian T. Moynihan, currently head of consumer and small business operations.

Four banks in Georgia, two in California, Florida and Illinois, and one each in Alabama, Arizona, Kansas, Michigan, Ohio and Virginia were closed to bring the failed-bank total for the year to 140. An Ohio institution was the 14th federally insured credit union liquidated in 2009.

Finally, to close on a brighter note, the FOMC kept the fed funds target rate at 0 to 0.25 percent. And, drum roll please, Bank of America, Citibank and Wells Fargo, the last of the huge banks to repay TARP funds, agreed to pay back $115 billion to the U.S. Treasury.

Happy New Year!

Bill Poquette is editor-in-chief of BankNews.

Copyright © January 2010 BankNews Publications

Back