Big Banks: "You Will Cancel FASB 166 So We Can Continue Pretending All Is Good... Or We Will Kill Lending Even More"
At first it was just the smaller banks, but now the big boys have joined the collective cry against FASB 166 and 167, according to which beginning January 1, banks will likely see up to $900 billion in off-balance sheet assets being onboarded to bank balance sheets. This would likely mean banks need to dramatically increase their Tangible and Tier 1 Capital to offset the capital needed to account for possible asset deterioration. And that, of course, is unacceptable to banks who know too well the deep shit they still find themselves in.
The irony is that banks, which have already virtually halted lending to those in need of credit, are threatening they will cut any available credit even futher. How anyone could admit to being stupid enough to believe this latest episode of Mutual Assured Destruction courtesy of the US banking system is a mystery. And yet this is precisely the type of "gun against the head" negotiating that Max Keiser was fulminating against, and that the banks are once again perpetrating:
“With any increase in required capital, a banking institution is likely to reduce the amount of lending using such securitization vehicles, as well as other lending,” the American Bankers Association wrote in a letter to regulators. The association, the nation’s biggest banking lobby, suggested that any transition period should be three years at least, with no change in regulatory capital impact in the first year.
Taking a cue from the ABA, the big 3 record earners have decided to join in: last thing one would want is JPMorgan not earning yet another record amount in Q4. First Citi chimes in:
Banks should be given three years to raise capital for offsetting assets and liabilities that must be brought onto their balance sheets, Citigroup Chief Financial Officer John Gerspach said yesterday in a letter to regulators. Requiring banks to “assume the risk-based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.
Then you have record earner JPMorgan:
The capital requirements “will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks,” said the letter from JPMorgan, the New York-based bank that this week reported its biggest quarterly profit since the subprime-mortgage market collapsed in 2007.
“We strongly support a phase-in period for the rule changes,” according to JPMorgan’s letter, which was signed by Managing Director Adam Gilbert. The change would take effect for annual reports after Nov. 15.
And last, Wells Fargo:
The rule “could lead to the result that every $1 billion of additional capital held from newly consolidated assets ‘crowds out’ more than $15 billion in loans,” Paul Ackerman, Wells Fargo’s treasurer, wrote in a letter yesterday to the Fed, FDIC, Office of the Comptroller of the Currency and Office of Thrift Supervision. The comment period ended yesterday.
And just so it is clear it is not just the ABA which is using the "we will stop lending" trump card, here is Citi:
Citigroup, the New York-based bank that yesterday reported a third-quarter profit of $101 million, argued that bringing off-balance vehicles onto its books would lead the bank to cut financing for securitizations that fuel credit-card lending, residential mortgages and student loans. Additional consumer loans will be cut as well, Citigroup said.
“We do not plan to reduce lending in only those businesses specifically impacted by the incremental regulatory capital requirements,” Gerspach wrote.
The FASB has proven it will do anything to enforce the Wall Street kleptocracy in its current state, and will bend any which way to make sure that assets marked-to-myth continue to fool gullible, TV watching idiots into buying bank stocks even as up to $750 billion in current assets may be mismarked from book to fair value. One can, however, be positive that even if the FASB grows a backbone, then the SEC, the FASB and the administration will promptly put any such ossification attempts on the backburner. Expect no bank to be accountable for its share in the nearly $1 trillion of off-balance sheet "assets" until the next president is elected.