ICBA Fears Risk Retention Rule Would Devastate Credit to American Consumers

Independent Community Bankers of America (ICBA) has sent a letter urging the regulatory agencies to re-propose the Risk Retention rule, which includes a proposed definition of a qualified residential mortgage (QRM). ICBA stated that the regulatory agencies should re-propose the rule in a manner that will not so severely restrict credit, yet foster more sound underwriting. The comment letter was addressed to the heads of the Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), Federal Reserve Board (FRB), Office of the Comptroller of the Currency (OCC), Securities & Exchange Commission (SEC), and the U.S. Department of Housing & Urban Development (HUD).

"As community banks are forced to exit the residential mortgage business, only a handful of the largest lenders would remain, those with the flexibility to raise needed capital," said Camden R. Fine, president and CEO of the Independent Community Bankers of America (ICBA) in the comment letter. "The serious contraction that would occur in the mortgage market would significantly limit credit availability. We find it ironic that the lenders that would remain would be those that played a role in the housing bubble through lax underwriting standards and predatory practices, while community banks that did not contribute to the disaster would be forced out."

In the letter, ICBA expresses its support for the exemption for loans sold to Fannie Mae and Freddie Mac from risk retention requirements. The risk retention exemption is key to the stability of the fragile residential mortgage market and the ongoing participation of community banks in it. With this exemption, community banks will be able to continue to offer fixed-rate residential mortgages to their customers. If this exemption were not provided, the vast majority of community banks would have serious difficulty providing the capital needed to support risk retention requirements. As community banks are forced to exit the residential mortgage business, only a handful of the largest lenders would remain.

ICBA also reiterated comments sent to the agencies in December that the QRM should not be defined narrowly. ICBA’s opposition to the proposed minimum 20 percent downpayment requirement is strong and is shared by the broad mortgage lending industry and consumer groups.

“ICBA urges the regulators not to include a specific down payment requirement in any final rule. Rather, a final rule should stress the importance of a down payment requirement that is adequate and appropriate to the specific transaction and its risk profile,” said Fine in the letter.

ICBA also pointed out in the letter that the proposed rule would not permit the use of private mortgage insurance (PMI) to offset downpayment requirements. Community banks have a long experience with mortgage insurance (MI) and its role in helping their customers buy a new home. It has been a beneficial tool in mitigating risk, and community banks want to continue to use it to help borrowers with less cash for downpayments. ICBA has serious concerns that if the use of mortgage insurance is not permitted to offset down payment requirements, the housing recovery will take longer as first-time homebuyers and hard working families find it more difficult to obtain a new mortgage or refinance their existing mortgage.

 

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Denmark Forcing Liquidity Crisis on Banks

Danish state’s refusal to extend guarantees on bank debt beyond 2013 means even healthy lenders will suffer the fallout of a liquidity squeeze that could be avoided, the head of the Local Bankers Association said.
“There’s nothing wrong with helping banks out with their liquidity, it won’t cost the taxpayer,” Bent Naur, the chairman of the Copenhagen-based group, said yesterday in a phone interview. “The state should prolong the guarantee, not for troubled banks, but for those that meet solvency requirements. That will avoid a liquidity squeeze when everybody needs to refinance at the same time.”
Banks in Denmark, home to the European Union’s toughest resolution laws, need to refinance about $35 billion in state- guaranteed debt in the next two years. The government has rejected calls to extend its backing, arguing the industry should instead consolidate. Lenders already face higher funding costs as two regional bank failures since February triggered senior creditor losses. Moody’s Investors Service warned in May borrowing costs for Danish lenders will increase “long-term.”
“When we look at the calendar, 2013 isn’t far away,” said Naur, whose association represents 88 lenders in Denmark, Greenland and the Faroe Islands. Helping healthy banks access liquidity won’t prop up insolvent lenders, he said.
The difference between the three-month Copenhagen interbank offered rate and the equivalent rate for the euro area grew to 8.3 basis points today, the widest since April 20. The spread has averaged 4.4 basis points since June 1.
‘Could Default’
Central bank Governor Nils Bernstein and Financial Supervisory Authority Director General Ulrik Noedgaard have both said lenders shouldn’t expect rescue programs to be extended.
Debate on the need for additional bank support measures has flared in Denmark following the Feb. 6 failure of Amagerbanken A/S and the subsequent collapse in June of Fjordbank Mors A/S. Standard & Poor’s said July 28 a further 15 banks in the Nordic country “could default,” costing as much as 12 billion kroner in the next three years.
Denmark’s first bank rescue package, which provided state guarantees on all interbank lending and deposits, expired in October. Guarantees on debt issued before then apply until 2013.
Nykredit Markets, the investment banking unit of Denmark’s biggest mortgage lender Nykredit Realkredit A/S, is looking into arranging combined debt sales for some of the country’s roughly 120 banks. The plan will help diversify risk and attract investors reluctant to give funds to individual regional lenders, according to Nykredit.
New Bank Bill
The government will this month hammer out the details of a bill that will make it easier for healthy banks to take over their troubled peers after legislation passed in June failed to spur consolidation, Torsten Schack Pedersen, a spokesman for the ruling Liberal Party, said Aug. 2.
In an effort to protect taxpayers, the government will probably ask banks to contribute any further funds needed to stabilize the industry, Schack Pedersen said.
“It’s a shame there hasn’t been more consolidation happening voluntarily,” said Naur. “With funding becoming more difficult, I think it makes a lot of sense” for banks to merge.
The country’s biggest lenders, Danske Bank A/S, Jyske Bank A/S, Nykredit and Sydbank A/S all passed the EU’s stress tests last month. The four exceeded a 5 percent minimum capital requirement, European Banking Authority tests showed on July 15. Results for the Danish lenders ranged from 9.4 percent to 13.6 percent, the EBA said.

 

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RBS is planning to lay off thousands of investment bankers

RBS is planning to lay off thousands of investment bankers over the next eighteen months as it concludes its integration of ABN Amro.

The bank could lay off some 2,000 people by the end of 2012 in its global banking and markets division.

But a source told City A.M. that it is not clear exactly where the axe will fall within the business and the final numbers have not yet been decided, so there is unlikely to be a definitive announcement on jobs during its results statement on Friday.

Analysts are expecting a slump in profits for RBS’s investment bank when it unveils its half-year earnings, with some suggesting that it could fall back into the red.

The job cuts at RBS come as rival investment banks also shed thousands of workers due to over-hiring last year followed by a slowdown in trading volumes in 2011.

Credit Suisse is downsizing its workforce by 2,000, with cuts likely to fall most heavily on fixed income and equities. Barclays is expecting to lay off 3,000 people by the end of the year, while Goldman Sachs will reduce its headcount by 1,000. HSBC has said it will cut 30,000 roles over the next two to three years, and thousands of job cuts are also expected at UBS.

At the same time, banks are having to contend with higher fixed costs due to pay regulation on bonuses. Instead of varying bonus pay-outs, banks have had to compete for staff by raising base salaries, making it harder to adjust their costs without lay-offs.

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IMF chief Lagarde faces France finance crime probe

French court gave the green light Thursday for an embezzlement investigation targeting new International Monetary Fund chief Christine Lagarde, in a case her lawyer branded as politically motivated.


A French court gave the green light Thursday for an embezzlement investigation targeting new International Monetary Fund chief Christine Lagarde, pictured in June 2011, in a case her lawyer branded as politically motivated.

Lagarde, who took up her new post last month, has denied any wrongdoing or illegality in a case which resulted in a big compensation payment for a private businessman out of public funds in 2008 when she was France's finance minister.

The IMF's executive board immediately expressed confidence in the 55-year-old, whose immediate predecessor at the organisation, Dominique Strauss-Kahn, resigned after he was accused of attempted rape.

Gerard Palisse, the presiding judge at the Court of Justice of the Republic, said the tribunal had approved "a judicial inquiry concerning Mrs Lagarde," in which magistrates would investigate her role in settling the financial dispute.

Such an inquiry can lead to criminal charges, which in this case would be punishable by up to 10 years in prison and a fine of 150,000 euros ($212,000).

State prosecutors in a statement detailed the charges as "embezzlement of public funds" and "complicity" in falsifying documents, and said prosecutor Cecile Petit would formally request the probe "in the coming days".

Lagarde's lawyer Yves Repiquet said the second charge was related to changes made to legal documents which affected the outcome of the contested financial settlement. Both charges were unfounded, he said.

He complained that the case was driven by "suspicion abusively cast on Christine Lagarde by a handful of opposition members of parliament for political ends" and said he expected the case to be dismissed.

Repiquet also insisted the inquiry was "in no way incompatible" with Lagarde's new role as managing director of the IMF.

The IMF is the global lender of last resort with a key role in calming the effects of the financial crisis on public finances in Europe.

"I have a perfectly clear conscience" about the affair, Lagarde said in June. "Whether the investigating magistrates decide to pursue an inquiry or not, I am just as confident and calm," she added the following month.

Lagarde became the first woman head of the IMF, taking over from her compatriot Strauss-Kahn -- another former finance minister -- after he resigned after being accused of trying to rape a hotel chamber maid.

Opposition politicians in France welcomed the news of the investigation.

Jean-Marc Ayrault, the president of the opposition Socialist group in parliament, said the decision to open the investigation "confirmed the existence of anomalies and irregularities in the management of this dossier."

It was a group of Socialists who asked the court to consider a probe.

"The French have the right to know if decisions have been taken in violation of the public interest," Martine Aubry, a contender for the Socialist nomination for the presidency, said in a statement.

And Francois Bayrou, leader of the Centrist Modem Party, welcomed the development as a "decisive step on the path to the truth".

In a statement after Thursday's announcement, the IMF board said it had already reviewed the issues in the case when it weighed Lagarde's candidacy.

"It would not be appropriate for the board to comment on a case that is currently before the French judiciary," it said.

"However, the board is confident that she will be able to effectively carry out her duties as managing director."

Lagarde has been accused of exceeding her authority by cutting short a legal battle between flamboyant French tycoon Bernard Tapie and the formerly state-owned bank Credit Lyonnais by sending it to private arbitration.

The arbitration panel awarded compensation to Tapie, a supporter of Lagarde's then boss, President Nicolas Sarkozy, in the case, linked to the bank's alleged mishandling of Tapie's sale of sportswear brand Adidas.

The total payment was around 400 million euros ($560 million), though Tapie is thought to have pocketed less.

Under the French judicial system, the magistrates' inquiry could lead to Lagarde being formally charged and possibly tried with a criminal offence. That process would likely take several years.

 

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