“We’re talking about huge sums of money going to bail out large foreign banks,” said Senator Bernard Sanders, the Vermont independent who wrote the provision in the Dodd-Frank Act that required the Fed disclosures. “Has the Federal Reserve become the central bank of the world? I think that is a question that needs to be examined.” — Senator Bernard Sanders
As Lord Turner, the chairperson of the United Kingdom’s Financial Services Authority, defended his approach to overseeing the £140-billion in exposure of United Kingdom (UK) banks to the battered Irish economy, doubts were raised about whether the Europe-wide “stress tests” of more than 90 banks published in July had been thorough enough.
The results of the tests, overseen by the Committee of European Banking Supervisors (CEBS), were intended to demonstrate to investors that banks did not need to raise more capital. Two of the Irish banks, Allied Irish Banks and Bank of Ireland, that are now waiting for bailouts from the European Union and International Monetary Fund (IMF), were given a clean bill of health.
Robert Talbut, the chief investment officer of Royal London Asset Management, said: “Experience shows the stress tests were not as stressed as they should have been.”
Share prices of banks across Europe have been under pressure as the terms of the Irish bailout are hammered out because of the exposure many banks have to the country and the fear of default. Source
The Jig Is Up!
It was known for years and in the news that banks were hanging it all out and underwriting bubble driven loans faster than trees could be felled to make the paper. The warnings were loud, but the banking industry was under not only less regulation (begun under Clinton, and deepened by Shrub) but also much less scrutiny (Shrub).
“You are a den of vipers! I intend to rout you out, and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning.”
—President Andrew Jackson (1829-1837)
The so-called stress test is really how banks SHOULD be run at all times. There can be no confidence if there is no recurring review to compliance by independent examiners. And these results need to be certified and absolutely made public for the sake of shareholders and market confidence.
The recent US real estate bubble was in part due to the lack of reserve requirements in some investment vehicles (hedge funds in particular). This allowed banks to expose themselves to unheard of leveraged lending – fueling the bubble further in an insane competition to make junk mortgages of $500K to borrowers who could not qualify for an ordinary $250K mortgage – or even $100K.
Capitalism, oddly enough, depends on capital. Very large banks must be held to a very stringent standard of prudence. (You would not let an airline operate without inspections to conformity). The real problem with these stress tests now, is that they are occurring now and not 5 years ago.
Federal Reserve May Be `Central Bank of the World’ After UBS, Barclays Aid by Bradley Keoun and Hugh Son
Federal Reserve data showing UBS AG and Barclays Plc ranked among the top users of $3.3 trillion from emergency programs is stoking debate on whether U.S. regulators bear responsibility for aiding other nations’ banks.
UBS was the biggest borrower under the Commercial Paper Funding Facility, with $74.5 billion overall, more than twice as much as Citigroup Inc., the top U.S. bank recipient, according to the data released yesterday. London-based Barclays Plc took the biggest single amount under another program that made overnight loans, when it got $47.9 billion on Sept. 18, 2008.
U.S. Representative Mike Pence, an Indiana Republican, said he planned to introduce a “European Bailout Protection Act” to restrict the flow of International Monetary Fund loans to European countries. He said he was responding to reports that U.S. officials might bolster a European fund designed to deal with this year’s debt crisis, which has spread from Greece to Ireland.
Edwin Truman, a former Fed official who is a senior fellow at the Peterson Institute for International Economics in Washington, said any push to confine the Fed’s role to U.S. banks would create a “massive exercise in financial protectionism.”
“It would lead to retaliation, so U.S. banks in London or Tokyo would expect the same kind of treatment,” Truman said. William Poole, senior economic adviser to Merk Investments LLC and a former Federal Reserve Bank of St. Louis president, said he was surprised by the extent of non-U.S. bank borrowing. Source
What is confusing is that the “First World” Euro countries get IMF money at 5.2% (Greece) to 5.7% (Ireland) interest and the so called “Third World” poorer countries get IMF loans at greater than 6% interest with similar austerity conditions attached that have significantly more disastrous effect on the average population because they are already a poor nation/people and they have no way of ever paying this money back so are held in virtual bondage for a very long time.
The situation in most cases of the “Third World” countries were self inflicted by their corrupt mis-managed governments, but the same can be said of Greece & Ireland as well (sub the words governments with “governments & banksters”). Indeed, there seems to be a double standard by the IMF (as if we needed more proof) but should not be a surprise as the IMF is really staffed by “First Worlders” and their is no way they are letting their buddies go under.