Fannie Follow Up: Change In Lending Rules To Non-US Financials Leaves Ten Banks In The Cold

The latest on the Fannie situation, via Market News:

Traders said that amidst all the rumors, market sources have cited a Fannie Mae business change that was said by sources to involve Fannie Mae restricting its non-US-bank lending in the fed funds rate market to the following list of 10 banks (US banks not
changed): Deutsche Bank, ING, BNP, Barclays, Lloyds, RBS, Scotia, Ntl Bank of Canada, RBC and Toronto Dominion. Thus it would be "substantially reducing" its list of banks by "what was thought to be dozens" of banks, said a trader; it appeared there was no reason given.

However Mkt News has not seen this letter but this is what we are led to believe by several market sources at different banks. Sources also stressed that this was not believed a credit-related event but more rather a tidying up so to speak of the balance sheet exposures such as perhaps removing unused credit lines that would a contingent liability.

And also some of the names not on the list were also said to be of top credit quality, said sources.

Comments

[AnonymousMonetarist]

HYPOCRISY

goingconcern.com

In late 2004, the Federal Reserve Board, Federal Deposit Insurance Corporation and the Office of Thrift Supervision decided that asset-backed commercial paper put into special purpose vehicles known as conduits would not have to be consolidated for purposes of calculating capital requirements. And the regulators decided that banks need only reserve against 10 percent of the amounts put into conduits even when they guaranteed that investors would be repaid if there were a run on the conduits. Previously, securitizations typically put investors on the hook for that risk.

The research, originally published in May 2009 but revised in late January and entitled “Securitization without Risk Transfer,” found that the amount of subprime assets securitized through such vehicles soared in the wake of the exemption, even though the liquidity guarantees extended to investors meant that little or no risk had been transferred to them.

“Regulation should either treat off-balance-sheet activities with recourse as on-balance sheet for capital requirement and accounting disclosure purposes, or, require that off-balance sheet activities do not have recourse to bank balance sheets,” the authors, Viral V. Acharya and Philipp Schnabl of New York University and Gustavo Suarez of the Federal Reserve, conclude. “The current treatment appears to be a recipe for disaster, from the standpoint of transparency as well as capital adequacy of the financial intermediation sector as a whole.”

PUNDITRY

American Securitization Forum:

The role that securitization has assumed in providing both consumers and businesses with credit is striking with currently over $12 trillion of outstanding securitized assets, including mortgage-backed securities, asset-backed securities and asset-backed commercial paper.

ComplianceWeek.com
April 8, 2008

FASB Chairman Robert Herz said the concept has been so stretched in recent years he “wholeheartedly” endorses elimination of QSPEs. “The crescendo has been the latest round of very problematic assets securitized using this approach,” he said, involving “hundreds of billions, if not trillions, of dollars in assets.”

LEGACY

Smells Fargo 09/30/09 

Total Qualifying Special Purpose Entities: $1,796,209,000,000

Citigroup 06/30/09

Total Qualifying Special Purpose Entities: $828,300,000,000 

J.P. Morgan 06/30/09

Total Qualifying Special Purpose Entities: $574,000,000,000 

Goldman Sachs? Oh hell, you tell me... trying to get clarity on their book is like lookin' for celibacy in a house of ill repute. 

Oh and don't forget the grandaddy of all blackholios, FANRON...

On Christmas Eve Timmy G popped the cap and a week later Fannie wound up all of their QSPE trust funds bringing about 2,500,000,000,000 back on their balance sheets!

DESTINY

Countdown to Convergence
Date: 2010-03-01
Garp.com (Global Association of Risk Professionals)

By Lamoreaux, Matthew G

In November, FASB and the LASB reaffirmed their commitment to a 2006 Memorandum of Understanding (MoU) that outlines major convergence projects scheduled for completion by June 2011.

(June 2011? -AM)

For two major accounting standard setters to complete such a ... project in less than two years would be unprecedented. The June 2011 deadline, however, has been affirmed by the Group of 20 (G-20) leaders; former Federal Reserve Chairman Paul Volcker, who chairs the President's Economic Recovery Advisory Board; the SEC; and the Financial Crisis Advisory Group that was set up to advise FASB and the IASB on how they should respond to the financial crisis.

FASB's main change was the elimination of qualifying special- purpose entities, or QSPEs. Eliminating the QSPE requirements potentially could cause many entities applying U.S. GAAP to retain more assets and liabilities in their statement of financial position. 

SYNCHRONY

WIKI:

In 1981 Armstrong formed Princeton Economics and, in 1998, he established a hedge fund in partnership with Magnum Global Investments.

During that time he developed a financial prediction model called the "pi-cycle model" and published long term forecasts which are still monitored by the financial press. In the United Kingdom, for example, a popular financial magazine Money Week published an article on Martin Armstrong on March 27, 2007, titled "The strange case of the jailed market genius". In that article they highlighted the model had predicted a major top in financial markets for February 27, 2007, with the next major bottom being June 18, 2011.

(June 2011? Move along nothing to see here. THEY will NEVER let that happen... right? -AM)

[Lux Fiat]

From  http://hnn.us/articles/1849.html

"Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged private lenders from investing in home loans. Fannie Mae was established in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing."

Ok, so I don't work on Wall St., and I'm not a bond market or intra-bank lending market expert, but what is FMN doing in the fed funds rate market in the first place? 

Or am I misunderstanding, and they will no longer accept money from these banks to put to use for mortgage origination?

[knukles]

To extinguish a contingent liability?  Bolderdash!

A purchase or sale of Federal Funds does not constitute a Contingent Anything.

Moreover regulations, unless having been modified, limit participation in the Federal Funds markets to "banks".  Are we now suggesting that Fannie and Freddie are Banking Institutions?  Or have they been partaking inappropriately?

You got some answerin' to do, Luci! 

[Anonymous]

From my time as a Fed Funds Dealer, Fannie Mae would lend money to us (Banks) in the one month, overnight, etc as they seemed to be flush with cash and I'm talking huge amounts. I was at a US bank though not sure about Europeans.

[Anonymous]

From my time as a Fed Funds Dealer, Fannie Mae would lend money to us (Banks) in the one month, overnight, etc as they seemed to be flush with cash and I'm talking huge amounts. I was at a US bank though not sure about Europeans.

[bingaling]

is there some kind of behind the scene financial war going on ? from Trichet saying IMF wont get into greece , to the germans wanting to know short positions ,Deustche Bank being downgraded, to this , seems like something is brewing

[pocomotion]

Bingaling, I have that same erie feeling.  The EURO was made to compete with the dollar.  Forcing IMF on the Greeks was a way into the EU to undermine and CONTROL the EURO to affect trade policy differnences, imho.

Now that IMF was rejected now look for the pissing contest.  This could get very ugly and tip the world into big depression.  I think this is FED make or brake.

[SDRII]

go back and look at the reluctance of Trichet to play ball with bernanke and his ZIRP idiocy

[bingaling]

I don't know about that but the Greece saga got the 10y US treasury prices up(yields down) . End of the world is when a 10 year auction fails in the US or is perceived as failing and the US10YR yields seemed to be climbing fast. If the EURO falls apart yields on US10YRS t-bills sure are gonna be low for quite some time .On the otherhand , the market would tank and all capital flow would probably go east into Asia real fast .I guess we will see ...maybe it's manipulation on all fronts for the "greater " good where we don't end up back in the middle ages ????

[MarketTruth]

For what i have gathered from sources, there is indeed a battle going on between the USA Fed (JP Morgan) and Goldman Sachs. Seems there are some disagreements to what GS has been doing and the Fed's retail arms are not happy about it and cleaning up GS' mess. Can only imagine what the Fed has to do to (monetary exchanges and goodness knows what else) to clean up the GS mess.

[bingaling]

My assumption was the Fed was in collusion with GS on all fronts . It would be nice to get the full picture here . It sucks when you only have 3 pieces to a 200 piece puzzle .

[Anonymous]

bingaling, interesting theory, linking the events, could be a Financial Cold War been played out by proxy

[Anonymous]

I don't think there is anything nefarious going on here. Fannie (as well as Freddie and the Federal Home Loan Banks) have huge amounts of cash on their balances sheets earning nothing. They use the fed funds market to augment cash yields, plain and simple. Most of the transactions are short-term - either overnight, one-week, or one-month terms. Not sure why they are removing some counterparties but my best guess would be to lower exposure to unsecured creditors, since in essence fed funds transactions are unsecured. It might actually be a good thing, believe it or not, that Fannie is trying to lend with more credit worthy banks.

[perchprism]

But you see the rumor is exactly that some of the banks delisted were extremely credit worthy.

It smells like "pre-positioning" to me, ahead of something else.

[bingaling]

You beat me to it. Why delist banks w/ excellent credit ? Something just isn't right here .

[Lux Fiat]

Thanks for a clear, concise and rational explanation.  The past two plus years have lifted a lot of veils for some of us, and made us aware of relationships and motives that went far beyond cozy and ethical.  But sometimes, folks, including bureaucrats, actually try to make good policy decisions and changes.  I hope that this is one of those instances.

[Anonymous]

RBC Bank President Gordon Nixon - Salary $11.73 Million

$100,000 - MISTAKE (FISHERMEN'S LOAN)

I'm a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.

There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn't familiar with these type of loans. She never informed me verbally or in writing about this new criteria.

Phone or e-mail:
RBC President, Gordon Nixon, Toronto [phone]
RBC Vice President, Sales, Anne Lockie, Toronto [phone]
RBC President, Atlantic Provinces, Greg Grice [phone] mail to:[e-mail]
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin [phone]
RBC Vice President, Atlantic Provinces, Brian Conway [phone] mail to:[e-mail]
RBC Vice President, Halifax Region, Tammy Holland [phone] mail to:[e-mail]
RBC Senior Manager, Media & Public Relations, Beja Rodeck [phone] mail to:[e-mail]
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail to:[e-mail]
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail to:[e-mail]

http://www.pfraser.blogspot.com

http://www.corporatebully.ca

http://www.youtube.com/CORPORATEBULLY

http://www.p2pnet.net/story/17877

"Fighting the Royal Bank of Canada (RBC Bank) one customer at a time"

[mark456]

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