Lending a concern as Flaherty preaches prudence to banks

No ‘dramatic’ spending cuts in the offing, says Flaherty
Any Spending Cuts in the next federal Budget will be smaller than the ones already announced last year, says Finance Minister Jim Flaherty in a year-end interview. For weeks, the minister has been stating that there won’t be any major new spending in the 2011 budget. Now he’s saying there won’t be major new cuts either. Economic confidence? A narrow, stay-the-course Budget would leave the opposition with little new to attack as the three opposition parties decide whether to ...

Budget watchdog lacks credibility, not cash: Jim Flaherty
Jim Flaherty says extra cash for the Parliamentary Budget Office would not fix his ongoing beef with Kevin Page. Disagreements between the Finance Minister and the Parliamentary Budget Officer were a recurring theme throughout 2010. As the year went on, Mr. Page received increasingly terse responses from government in response to some of his main conclusions. Among them, he predicted Conservative crime Legislation will force Ottawa to double its spending on Prisons; he warned there’s an 8...

Irish government takes control of Allied Irish
DUBLIN | Thu Dec 23, 2010 7:54am EST DUBLIN (Reuters) - Ireland's government said on Thursday it would pump 3.7 billion Euros into Allied Irish Banks (AIB) (ALBK.I) setting it on course for nearly 93 percent ownership of what was once the country's largest publicly traded lender. AIB will be required to raise a further 6.1 billion Euros ($8.01 billion) of core Tier 1 capital before the end of February to get its capital ratio up to 14 percent, under the terms of Ireland's Bailout from the Eur...

Irish government takes control of Allied Irish
AIB will be required to raise a further 6.1 billion Euros ($8.01 billion) of core Tier 1 capital before the end of February to get its capital ratio up to 14 percent, under the terms of Ireland's Bailout from the European Union and the IMF. AIB, a former Stock Market darling, will have to cancel its listing on the main Irish and British stock markets and will apply instead for a listing on the enterprise securities market of the Irish exchange to give shareholders access to a trading facility f...

Federal Reserve Raises Asset Exemption on Home Mortgage Reports
The Board of Governors of the Federal Reserve System recently announced that it was increasing the asset threshold that triggers home Mortgage collection and reporting requirements for certain depository institutions. Pursuant to the Federal Reserve’s Regulation C which implements the Home Mortgage Disclosure Act, the Central Bank will raise the asset exemption requirement to $40 million. What this means is that Financial Institutions such as banks, savings and loans, and Credit Unions, wi...

Hockett on the Financial Crisis
There is a growing consensus that our Mortgage markets are fundamentally broken. In a recent article in The American Prospect, Robert Kuttner surveys a number of leading legal academics’ prescriptions for the Foreclosure crisis: Katherine Porter, a Law Professor at the University of Iowa and an expert in Mortgage servicing, recently testified to the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) that according to lawyers for both home-owners and banks, “a...

Allied Irish shares drop ahead of High Court move
DUBLIN (Reuters) - Shares in Allied Irish Banks fell 10 percent on Thursday ahead of a state capital injection that will see the effective Nationalization of what was once Ireland's largest listed lender. AIB's aggressive courtship of property developers proved its undoing when Ireland's Real Estate market bubble burst, triggering huge industry-wide losses that forced the government to seek an 85 billion-euro Bailout from the EU and the IMF. The government was seeking the Irish High Court's app...

Allied Irish shares drop ahead of High Court move
By Carmel Crimmins DUBLIN | Thu Dec 23, 2010 6:03am EST DUBLIN (Reuters) - Shares in Allied Irish Banks fell 10 percent on Thursday ahead of a state capital injection that will see the effective Nationalization of what was once Ireland's largest listed lender. AIB's aggressive courtship of property developers proved its undoing when Ireland's Real Estate market bubble burst, triggering huge industry-wide losses that forced the government to seek an 85 billion-euro Bailout from the EU and the ...

How higher rates boosted home sales
Hooray? Higher Mortgage rates spurred Home Sales uptick Posted by Nin-Hai Tseng, writer-reporter December 23, 2010 3:18 pm The country's economic engine seems to be running in reverse as more expensive borrowing spurs home sales, and an uptick in borrowing sends Mortgage rates back down. Image by magro_kr via Flickr The recent surge in Mortgage rates, by all rational calculations, should have made America's already troubled Housing Market worse off. Instead, higher borrowing costs modestly b...

Eric Falkenstein on leverage regulation
What about leverage as a proxy for this unmeasurable risk? As Proshares is showing with the Ultra (2x leverage), UltraPro (3x leverage), and short products, a security can have double or triple leverage behind it, have positive or negative exposure, and still called a 'stock'. Similarly, a bank with 10:1 ratio but plenty of ninja loans had a lot more risk than a bank with 20:1 leverage but all their Mortgages had 20% down (the bad old days per Alicia Munnell). Facility risk (eg, loan-t...

Eurozone 'mulling' independent rescue fund
Several European countries, including Germany, are working on a permanent euro rescue mechanism that would include the creation of a new and independent funding institution, a press report said Thursday. Germany is considering a "European stability, growth and investment fund," according to a government paper seen by the Sueddeutsche Zeitung daily. The mooted body would exist side-by-side with the European Central Bank, would benefit from the same independence and would be tasked with helping ...

Eurozone mulling independent rescue fund: report
Stumble This! Frankfurt - Several European countries, including Germany, are working on a permanent euro rescue mechanism that would include the creation of a new and independent funding institution, a press report said Thursday. Germany is considering a "European stability, growth and investment fund," according to a government paper seen by the Sueddeutsche Zeitung daily. The mooted body would exist side-by-side with the European Central Bank, would benefit from the same independence an...

Pro Publica: How Merrill Lynch Traders Helped Blow Up Their Own Firm
Two years before the Financial Crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank's own traders, wanted to buy the supposedly safe portions of the Mortgage-backed securities Merrill was creating. Bank executives came up with a fix that had short-term benefits and long-term consequences. They formed a new group within Merrill, which took on the bank's money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them....

Hooray? Higher mortgage rates spurred home sales uptick
The country's economic engine seems to be running in reverse as more expensive borrowing spurs Home Sales, and an uptick in borrowing sends Mortgage rates back down. The recent surge in Mortgage rates, by all rational calculations, should have made America's already troubled Housing Market worse off. Instead, higher borrowing costs modestly boosted homes sales in November. Before slipping down slightly this week, Mortgage rates had risen for several weeks in a row as yields on 10-year Treasury ...

Property predictions
Will house prices fall or rise in 2011? Expert commentators are divided about whether house prices will fall further, stabilise or even rise during the coming 12 months. In 2010 the property market took a turn, and a brief recovery in prices that had started in 2009 ran out of steam. The severe Rationing of Mortgages continued and, combined with an influx of would-be sellers, this produced a surplus of sellers over buyers. The result was that prices started going down again. Whatever their fore...

Mortgage lending at 20-month low
Have you tried to get a Mortgage? Have you been rejected? Send us your comments and experiences using the form below. ...

Wells Fargo agrees to modify California ARM loans
Wells Fargo Bank has agreed to make $2 billion in loan modifications for California Homeowners with risky pay-option, adjustable-rate Mortgages that Wells purchased from other banks, and to pay $32 million to 15,000 borrowers who had similar loans and lost their homes to Foreclosure, according to an agreement with the California Attorney General's office. "Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not aff...

Expect More Banking Sector Takeovers in 2011
The anticipated wave of U.S. bank consolidations, led in part by Canadian banks, appears to be underway. Canadian institutions have acquired two U.S. banks over the last three trading days. Toronto-Dominion Bank's (TD) $6.3 billion all-cash purchase of Chrysler Financial, announced on Tuesday, came on the heels of the Bank of Montreal's (BMO) $4.1 billion all-stock purchase of Marshall & Ilsley (MI) last Friday. Analysts believe these events may be the start of more Merger and acquisition ...

The big winner at Kananaskis: Little Canada
Last updated Wednesday, Dec. 22, 2010 5:07AM EST So it’s off to the Supreme Court in April for another test of Big Canada versus Little Canada, the issue being the creation of a national securities regulator. Strong countries have one regulator, of course, but in our kingdom of principalities, four provinces – Alberta, Quebec, Manitoba and Saskatchewan – oppose the creation of something national. Their Finance Ministers made that clear again at this week’s gathering in Ka...

Let’s take the CPP – and be creative
There are two dimensions to the problem plaguing Canada’s Retirement-income system: inadequate incomes of the future elderly relative to their working-life earnings, and inefficiency of the available means to save individually for retirement. Of the two, income inadequacy is the bigger issue, and research undertaken since the Whitehorse meeting of Finance Ministers in December of 2009 has improved our understanding of it. A study released last week found that more than 40 per cent of today...

Fresh bail-out knocks AIB shares
Shares in Allied Irish Banks (AIB) have plunged almost 20% as the Irish government gained the right to nationalise the bank. The Irish High Court granted the government permission to pump a further 3.7bn euros ($4.8bn; £3.1bn) into the troubled bank. AIB has already received 3.5bn euros of Irish Taxpayers' money as part of a bail-out package agreed last year. The Irish government itself agreed an 85bn-euro rescue package last month. The money is to come from the European Union and the ...

Greek austerity plan keeps bailout flowing
ATHENS, Greece, Dec. 23 (UPI) -- Greece's Socialist Government passed its 2011 Austerity Budget Thursday, intended to slash the country's Deficit by 2.2 percent of gross domestic product. The Hellenic Parliament's approval of the budget, which includes $18.4 billion in Tax Increases and Spending Cuts, was a key precondition for Greece to keep getting Bailout money from a $144.6 billion European Union-International Monetary Fund package, officials said. Greece was bailed out in May to prevent def...

Irish government nationalises Allied Irish Banks
Ireland effectively nationalised troubled lender Allied Irish Banks on Thursday, after Dublin's High Court approved another state injection of 3.7 billion Euros (4.9 billion US dollars). The court signed off on the new cash injection after Finance Minister Brian Lenihan lodged papers earlier in the day, AIB said in an official statement. This will eventually lift the Irish government's stake to 92.8 percent, from the current level of 18.6 percent, it added. The extra cash will come from the Nati...

On the Gutting of Financial Services Reform
Bloomberg has a well done but disheartening account of the watering-down-to-meaninglessness of Financial Services industry reform, with the case example being Basel III. Basel III is the latest iteration of capital standards for banks, which is hoped to be implemented more or less true to form by various national bank Regulators. Richard Smith has been ably covering the substance of this beat (see here and here for earlier posts) and the details are indeed more that a bit convoluted. However, ...

Does Anyone Really Think Bank Leverage Limits Control Risk?
Email Sent! You have successfully emailed the post. Eric Falkenstein is an expert on Hedge Funds, quantitative finance and the author of Falkenblog. I've seen several posts riffing on Tyler Cowen's American Interest article stating banks tend to go 'short Volatility'. I'm not too interested in it because I think it's a misleading way to put the problem. Banking crises are correlated with business cycles, and business cycles are correlated with volatility. Thus, one could say they have too ofte...