bank run blog

As the dust settles in the government takeover of the Northern Rock Bank in the UK the company reported today that it expects to “not return to profit for at least the next three years” according to the Guardain. Although that is the case, Ron Sandler, chairman of Northern Rock told the Guardian he believes that the “Newcastle-based bank can be returned to private ownership in a slimmed-down form,” cuts that would include a loss of 2,000 jobs. The Guardian describes the personal assurance of the bank’s new leadership,

“It has committed itself to a “competitive framework”, under which it promises not to use its government support to unfair advantage.”

see full article here

The Independent reported today that Mervyn King, the Governor of the Bank of England, echoing US bank regulators recent cries for safe and friendly control over banking institutions, called for;

“radical” thinking about financial regulation and, implicitly, a leading role for the Bank of England, perhaps regaining control over the “prudential” regulation of banks while the Financial Services Authority concentrates on “conduct of business.”

The Independent reported that King said, “It is hard to imagine taking steps either to prevent, or to deal with, the consequences of a financial crisis without the active involvement of the central bank.” Perhaps chastened by a new awareness of the dangers of illiquidity, King speculated, “In the longer term, it seems extremely likely that banks and other ‘near’ banks will be called upon to hold more capital and a greater quantity of liquid assets than hitherto.”

see article;
Independent : Sharp rise in inflation will exceed target, warns King

The top two executives of failed mortgage lenders Countrywide are unlikely to face foreclosure, according to a CNN report :

“Countrywide CEO Angelo Mozilo is set to receive $10 million in stock, and President David Sambol will get about $9 million, according to documents Bank of America filed this week with the Securities and Exchange Commission.Countrywide CEO Angelo Mozilo is set to receive $10 million in stock, and President David Sambol will get about $9 million, according to documents Bank of America filed this week with the Securities and Exchange Commission.

Sambol will receive another $28 million in cash and stock to stay with the combined company, the document states.”

An Associated Press article on the same subject timidly touches on the social and political backlash that such stories are beginning to generate :

“The payments, described as “performance-based” stock rights and grants, are required by agreements the executives struck with Countrywide less than a year before the sub-prime meltdown forced the mortgage lender to sell itself, according to the filing.

Some lawmakers were incensed by the payouts.”

CNN : SEC: Countrywide execs to get millions in stock

Associated Press : Filing: Countrywide CEO to Get $10M

The Bush administration will be publicly announcing its regulatory overhaul on Monday, in what is being interpreted as a pre-emptive strike against more sweeping reforms under discussion in Congress. The Associated Press reports that the Federal Reserve board will become a financial FEMA :

“A plan set for release Monday would give new powers to the Federal Reserve so that the central bank serves as the system’s overarching protector of stability.

The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.”

Meanwhile, securities traders are trusting one of their own to make sure that the oversight doesn’t go overboard :

“Many on Wall Street have viewed increased government regulation of investment houses, including an expanded role for the Fed as a regulator, as a tricky balancing act. The fear among analysts is that too much regulation could hamper the companies’ ability to drive profits, and in turn shift an increasing amount of business to financial centers overseas.

But the trade group representing the securities industry did react positively to news of the administration’s plan, which is expected to be detailed Monday in a speech by Treasury Secretary Henry Paulson, a former Goldman Sachs Group Inc. chief executive.”

Associated Press : Administration Pushes Regulatory Changes

Associated Press : Washington, Wall St. Tangle on Oversight

Details are emerging at this hour about a sweeping regulatory initiative by the Bush administration that will essentially turn the Federal Reserve Board into a market stabilization bureau, consolidating powers that currently reside in an array of federal agencies. For reasons that will probably only become clear later, the Treasury Department plan is being leaked on Friday evening. The New York Times is reporting :

“The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system.

That would be a significant expansion of the central bank’s regulatory mission.

When Fed officials agreed this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to bolster its protections against a collapse.”

Associated Press : Financial Regulation Overhaul

New York Times : Treasury’s Plan Would Give Fed Wide New Power