Banks lobbying to make bailouts permanent

[patientrenter]

[quote=CA renter]…limiting collateral calculations to a LT average…[/quote]

Thanks, CA renter. The period used for the long term average is hard to pick perfectly, but it should be long enough to always cover at least the full length of the last upswing and the last downswing. In So Cal, that tends to be 10-20 years, so I chose 15.

Of course, my suggestion will not be implemented. Why? Because it would be very effective in limiting bubbles, and it would limit the upswing profits of the finance and RE industries, and would give homeowners no hope of big future gains on their live-in money generators.

[CA renter]

Agree with all you’ve said, PR.

[CA renter]

Agree with all you’ve said, PR.

[CA renter]

Agree with all you’ve said, PR.

[CA renter]

Agree with all you’ve said, PR.

[CA renter]

Agree with all you’ve said, PR.

[davelj]

[quote=ucodegen]

(1) Ratchet up capital requirements as banks pass certain asset-size thresholds. Citigroup, for example, should carry at least TWICE as much capital (on a percentage basis) as a plain vanilla community bank. Currently all the banks are treated equally from a capital standpoint.

I don’t agree with this one. The small banks pose a risk if there are regional and systemic problems in the system. The large banks only pose a risk when the problem is systemic. Many of the large banks who got TARP funds are starting to recover, but several of the small banks who got TARP funds are looking like they may never recover. Larger capital requirements would also place them at a disadvantage.. and you might start seeing the gaming of this by having bank holding companies… which hold ownership in smaller banks (sized just under the threshold)[/quote]

Yes, but the dollar amount involved with any single Big Bank dwarfs the cumulative dollar amount involved with even a large collection of community banks. For example, the dollar amount of failures in any one region will be a fraction of the dollar amount involved in the WAMU failure. So, yes, a lot of small banks will fail – probably 500 or thereabouts – but the damage to the FDIC Insurance Fund will be small relative to a single Big Bank failure. And if larger capital requirements place the Big Banks at a disadvantage, then so be it – that’s part of the price they should pay for being “too big to fail.”

[davelj]

[quote=ucodegen]

(1) Ratchet up capital requirements as banks pass certain asset-size thresholds. Citigroup, for example, should carry at least TWICE as much capital (on a percentage basis) as a plain vanilla community bank. Currently all the banks are treated equally from a capital standpoint.

I don’t agree with this one. The small banks pose a risk if there are regional and systemic problems in the system. The large banks only pose a risk when the problem is systemic. Many of the large banks who got TARP funds are starting to recover, but several of the small banks who got TARP funds are looking like they may never recover. Larger capital requirements would also place them at a disadvantage.. and you might start seeing the gaming of this by having bank holding companies… which hold ownership in smaller banks (sized just under the threshold)[/quote]

Yes, but the dollar amount involved with any single Big Bank dwarfs the cumulative dollar amount involved with even a large collection of community banks. For example, the dollar amount of failures in any one region will be a fraction of the dollar amount involved in the WAMU failure. So, yes, a lot of small banks will fail – probably 500 or thereabouts – but the damage to the FDIC Insurance Fund will be small relative to a single Big Bank failure. And if larger capital requirements place the Big Banks at a disadvantage, then so be it – that’s part of the price they should pay for being “too big to fail.”

[davelj]

[quote=ucodegen]

(1) Ratchet up capital requirements as banks pass certain asset-size thresholds. Citigroup, for example, should carry at least TWICE as much capital (on a percentage basis) as a plain vanilla community bank. Currently all the banks are treated equally from a capital standpoint.

I don’t agree with this one. The small banks pose a risk if there are regional and systemic problems in the system. The large banks only pose a risk when the problem is systemic. Many of the large banks who got TARP funds are starting to recover, but several of the small banks who got TARP funds are looking like they may never recover. Larger capital requirements would also place them at a disadvantage.. and you might start seeing the gaming of this by having bank holding companies… which hold ownership in smaller banks (sized just under the threshold)[/quote]

Yes, but the dollar amount involved with any single Big Bank dwarfs the cumulative dollar amount involved with even a large collection of community banks. For example, the dollar amount of failures in any one region will be a fraction of the dollar amount involved in the WAMU failure. So, yes, a lot of small banks will fail – probably 500 or thereabouts – but the damage to the FDIC Insurance Fund will be small relative to a single Big Bank failure. And if larger capital requirements place the Big Banks at a disadvantage, then so be it – that’s part of the price they should pay for being “too big to fail.”

[davelj]

[quote=ucodegen]

(1) Ratchet up capital requirements as banks pass certain asset-size thresholds. Citigroup, for example, should carry at least TWICE as much capital (on a percentage basis) as a plain vanilla community bank. Currently all the banks are treated equally from a capital standpoint.

I don’t agree with this one. The small banks pose a risk if there are regional and systemic problems in the system. The large banks only pose a risk when the problem is systemic. Many of the large banks who got TARP funds are starting to recover, but several of the small banks who got TARP funds are looking like they may never recover. Larger capital requirements would also place them at a disadvantage.. and you might start seeing the gaming of this by having bank holding companies… which hold ownership in smaller banks (sized just under the threshold)[/quote]

Yes, but the dollar amount involved with any single Big Bank dwarfs the cumulative dollar amount involved with even a large collection of community banks. For example, the dollar amount of failures in any one region will be a fraction of the dollar amount involved in the WAMU failure. So, yes, a lot of small banks will fail – probably 500 or thereabouts – but the damage to the FDIC Insurance Fund will be small relative to a single Big Bank failure. And if larger capital requirements place the Big Banks at a disadvantage, then so be it – that’s part of the price they should pay for being “too big to fail.”

[davelj]

[quote=ucodegen]

(1) Ratchet up capital requirements as banks pass certain asset-size thresholds. Citigroup, for example, should carry at least TWICE as much capital (on a percentage basis) as a plain vanilla community bank. Currently all the banks are treated equally from a capital standpoint.

I don’t agree with this one. The small banks pose a risk if there are regional and systemic problems in the system. The large banks only pose a risk when the problem is systemic. Many of the large banks who got TARP funds are starting to recover, but several of the small banks who got TARP funds are looking like they may never recover. Larger capital requirements would also place them at a disadvantage.. and you might start seeing the gaming of this by having bank holding companies… which hold ownership in smaller banks (sized just under the threshold)[/quote]

Yes, but the dollar amount involved with any single Big Bank dwarfs the cumulative dollar amount involved with even a large collection of community banks. For example, the dollar amount of failures in any one region will be a fraction of the dollar amount involved in the WAMU failure. So, yes, a lot of small banks will fail – probably 500 or thereabouts – but the damage to the FDIC Insurance Fund will be small relative to a single Big Bank failure. And if larger capital requirements place the Big Banks at a disadvantage, then so be it – that’s part of the price they should pay for being “too big to fail.”

[davelj]

[quote=ucodegen]

(4) Require greater diversification within the loan portfolio (most the Big Banks were allowed to get over-concentrated in certain areas)

I don’t know if I necessarily agree with this. Small banks by their nature are very concentrated when compared to how the larger banks were stuctured. Much of the problem was due to the mis-pricing of risk on sub-prime. The fact that CDS(s) were not regulated as an insurance product contributed to this. I also think that the ‘banks’ need to re-evaluate their models… which seem to be primarily ‘momentum’ based as opposed to fundamentals. This pyramid collapsed when the greater fool could not be located (because the greater fool could not buy in – wages had not kept up with price increases). Up to then, all of the creative financing was to allow the greater fool to buy in at ever increasing prices.[/quote]

Actually, very few community banks will fail due to concentration in sub-prime (those loans were found in large institutions – WAMU and Countrywide, etc. – and securitizations). Community banks are over-concentrated in Construction and Development and CRE. I would ALSO require greater loan portfolio diversification for community banks, don’t get me wrong. Too many institutions – both big and small – are over-concentrated in certain areas.

[davelj]

[quote=ucodegen]

(4) Require greater diversification within the loan portfolio (most the Big Banks were allowed to get over-concentrated in certain areas)

I don’t know if I necessarily agree with this. Small banks by their nature are very concentrated when compared to how the larger banks were stuctured. Much of the problem was due to the mis-pricing of risk on sub-prime. The fact that CDS(s) were not regulated as an insurance product contributed to this. I also think that the ‘banks’ need to re-evaluate their models… which seem to be primarily ‘momentum’ based as opposed to fundamentals. This pyramid collapsed when the greater fool could not be located (because the greater fool could not buy in – wages had not kept up with price increases). Up to then, all of the creative financing was to allow the greater fool to buy in at ever increasing prices.[/quote]

Actually, very few community banks will fail due to concentration in sub-prime (those loans were found in large institutions – WAMU and Countrywide, etc. – and securitizations). Community banks are over-concentrated in Construction and Development and CRE. I would ALSO require greater loan portfolio diversification for community banks, don’t get me wrong. Too many institutions – both big and small – are over-concentrated in certain areas.

[davelj]

[quote=ucodegen]

(4) Require greater diversification within the loan portfolio (most the Big Banks were allowed to get over-concentrated in certain areas)

I don’t know if I necessarily agree with this. Small banks by their nature are very concentrated when compared to how the larger banks were stuctured. Much of the problem was due to the mis-pricing of risk on sub-prime. The fact that CDS(s) were not regulated as an insurance product contributed to this. I also think that the ‘banks’ need to re-evaluate their models… which seem to be primarily ‘momentum’ based as opposed to fundamentals. This pyramid collapsed when the greater fool could not be located (because the greater fool could not buy in – wages had not kept up with price increases). Up to then, all of the creative financing was to allow the greater fool to buy in at ever increasing prices.[/quote]

Actually, very few community banks will fail due to concentration in sub-prime (those loans were found in large institutions – WAMU and Countrywide, etc. – and securitizations). Community banks are over-concentrated in Construction and Development and CRE. I would ALSO require greater loan portfolio diversification for community banks, don’t get me wrong. Too many institutions – both big and small – are over-concentrated in certain areas.

[davelj]

[quote=ucodegen]

(4) Require greater diversification within the loan portfolio (most the Big Banks were allowed to get over-concentrated in certain areas)

I don’t know if I necessarily agree with this. Small banks by their nature are very concentrated when compared to how the larger banks were stuctured. Much of the problem was due to the mis-pricing of risk on sub-prime. The fact that CDS(s) were not regulated as an insurance product contributed to this. I also think that the ‘banks’ need to re-evaluate their models… which seem to be primarily ‘momentum’ based as opposed to fundamentals. This pyramid collapsed when the greater fool could not be located (because the greater fool could not buy in – wages had not kept up with price increases). Up to then, all of the creative financing was to allow the greater fool to buy in at ever increasing prices.[/quote]

Actually, very few community banks will fail due to concentration in sub-prime (those loans were found in large institutions – WAMU and Countrywide, etc. – and securitizations). Community banks are over-concentrated in Construction and Development and CRE. I would ALSO require greater loan portfolio diversification for community banks, don’t get me wrong. Too many institutions – both big and small – are over-concentrated in certain areas.

[Author]

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