Another Friday, Another Failure (or Seven)

With the 4th of July holiday looming, Black Friday came early this week -- the FDIC shuttered seven banks at the close of business Thursday. Six of these failures were in Illinois, bringing the state's total to 12 since January 2008 and moving the Land of Lincoln into second place behind Georgia (14) in the failure race.

The story behind this week's Illinois failures is that all six banks were controlled by the same family and had purchased huge volumes of trust preferred securities. The failures were a result of the forced writedown of the investments and the family's inability to raise enough outside capital to prop up the banks. Three other banks owned by the same family are struggling to stay afloat.

Show me your CAMELS, Mr. Lewis!

Last Thursday, the House Committee on Oversight and Government Reform released documents related to the Bank of America / Merrill Lynch fiasco. Included in these documents was a "restricted" internal Federal Reserve document that mentioned BofA's CAMELS rating. Those of us who have heard FDIC or other examiners give the boardroom speech about the "highly confidential nature of the CAMELS rating" know how serious regulators are about the secrecy of bank ratings, and with good reason. If the ratings were public, a bank with a less than satisfactory rating might be exposed to an old fashioned "run on the bank" -- something we all want to avoid.

Should it be a surprise that our elected officials can't keep a secret? It's no wonder why the CIA and FBI don't like dealing with the Hill!

As a result of this security breach and the witch hunt attitude echoing through the halls of Congress (not that the attitude is completely unjustified) over the financial crisis of 2008, look for less cooperation among the various regulators and their policitcal overlords in months to come. Add to the mix current attempts by the Obama administration to reform and rearrange the regulatory deck chairs and you get one very murky witches' brew in Washington.

By the way, BofA's CAMELS rating was a 2 (on a scale of 1-5, where 1 is best). Nothing to be ashamed of, but Bloomberg managed to make it sound bad, quoting a college finance professor as saying "For a big bank, a CAMELS of 2 is a questionable rating". Yet another reason the regulators don't want the ratings disclosed... (I wonder how many examination reports this finance professor has read lately?)

For more on the disclosure, see
http://www.bloomberg.com/apps/news?pid=20601087&sid=abkxoZue_3uo and
http://www.bloomberg.com/apps/news?pid=20601208&sid=adfHHDDmHmgU

(I have no idea how long these links will work.)

Welcome to my Blog

It took me a while to get into the blog bit, mainly because I don't have any desire to tell the world what I had for breakfast. Then I realized that I needed an easy place to post things that I had written for my clients, and that my corporate websites were not well set up for quick and easy updates. So here I am. I'll be posting some existing writings soon, then will try to keep the site reasonably current with things more important than what I had for breakfast.

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