8 replies to this topic

[mike123]

Fed bends rules to help two big banks
Source: CNN

NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.

The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.

snip

The regulations in question effectively limit a bank's funding exposure to an affiliate to 10% of the bank's capital. But the Fed has allowed Citibank and Bank of America to blow through that level. Citigroup and Bank of America are able to lend up to $25 billion apiece under this exemption, according to the Fed. If Citibank used the full amount, "that represents about 30% of Citibank's total regulatory capital, which is no small exemption," says Charlie Peabody, banks analyst at Portales Partners.

So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.

Read more: http://money.cnn.com.../fortune/eavis...


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You getting this?

The Fed is lending our 2 largest banks up to $50 Billion to support the hedge funds and the brokers who are holding all these bad loans.

This means that if these brokers and hedge funds go under, or if the market takes a turn south, our 2 largest banks could be insolvent.

THIS IS AN EMERGENCY FOLKS!! AND IT BASICALLY MEANS OUR ECONOMY IS ON THE BRINK OF COLLAPSE.

[underabigw]

I'm glad you saw the importance and seriousness of this.

This is the "meat" of the article:

"Citigroup and Bank of America are able to lend up to $25 billion apiece under this exemption, according to the Fed. If Citibank used the full amount, "that represents about 30% of Citibank's total regulatory capital, which is no small exemption," says Charlie Peabody, banks analyst at Portales Partners."

They are supposed to be limited to no more than 10% of capital!!!

BW

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Fed bends rules to help two big banks
Source: CNN

NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.

The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.

snip

The regulations in question effectively limit a bank's funding exposure to an affiliate to 10% of the bank's capital. But the Fed has allowed Citibank and Bank of America to blow through that level. Citigroup and Bank of America are able to lend up to $25 billion apiece under this exemption, according to the Fed. If Citibank used the full amount, "that represents about 30% of Citibank's total regulatory capital, which is no small exemption," says Charlie Peabody, banks analyst at Portales Partners.

So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.

Read more: http://money.cnn.com...s/fortune/eavis...


--------------------------------------------------------------------------------

You getting this?

The Fed is lending our 2 largest banks up to $50 Billion to support the hedge funds and the brokers who are holding all these bad loans.

This means that if these brokers and hedge funds go under, or if the market takes a turn south, our 2 largest banks could be insolvent.

THIS IS AN EMERGENCY FOLKS!! AND IT BASICALLY MEANS OUR ECONOMY IS ON THE BRINK OF COLLAPSE.

[mike123]

All US banks are near bankruptcy if assets are marked to market. Today's new home sales number is suspecious.

[Mtrader]

May be, but the liquidity is enormous. that will allow more loan, more money to buy stock to push to 50K in a couple of years. FED is panic and it is good for the most liquid stuff.

[OEXCHAOS]

VERY Bullish. This is what da Cheif was looking for, or the start of what he was looking for, I suspect. M

[Jnavin]

Consider the other side of this, though. We just don't know how much money has been flushed down the toilet in mortgage-backed securities, commercial paper and the rest of it. 3rd Quarter statements from financial institutions will make this clearer, but until then, there's no way of telling how much money has disappeared. Thus, it's hard to know if such exemptions are sufficient. It's all speculation right here. It MIGHT be bullish, but who knows?

[kaiser soze]

I think it is bearish in the intermediate term to long term. Probably bullish short term. The banks are now going to use depositors money to reliquify those markets that have come to a standstill. That means they buy those securities or lend money to those who will buy these securties (at substantial bargains according to their models) with the intention of selling them off eventually to other investors when confidence returns and the market stabilizes-so that they can get back to their 10% levels. Its a very sophisticated and well-disguised Ponzi scheme. But I dont believe big institutional investors are going to be fooled. Until some fundamental measures are put in place to correct the problem at its root, all these superficial band-aids only look like measures to buy time so that the Big Boyz can make a graceful exit from their highly leveraged positions. Thats why Bill Gross suggested a FDR style new-deal like bail-out initiative. If institutions aren't going to be fooled, who will be ? Retail and foreign investors perhaps. So, yes it is is quite possible that they will fire up equities in a spectacular bubble, draw in as much capital as they can and then exit.

[mike123]

Chinese stoped buying MBS in July even the government quaranteed MBS, let alone subprime MBS. They are starting to sell Treasury too. The house of cards is going to collaps soon. No ponzi scheme lasts forever, especially in the Internet age. Look for Dollar to get hit soon.

[dasein]

Chinese stoped buying MBS in July even the government quaranteed MBS, let alone subprime MBS.
They are starting to sell Treasury too.

Thats interesting - may I ask what the source for this is so I can look into it further?

tia,

klh