report on 8/6/09 on the failure of the National Bank of Commerce. NBC
went toast on 1/16/2009. The principal source of its collapse was its
investments in Fannie Mae Preferred Stock. They owned $98mm of that
swill. When they wrote it off they had no tier-one equity left and had
to be shuttered.
The report exonerated both the banks management and the supervisory effort by OCC. From the report:
“All
things considered, we believe that NBC acted in good faith when it
invested in the GSE securities. Additionally, we have no reason to
fault OCC’s supervision of the institution as it relates to NBC’s
investment practices. Current law and regulatory standards permit banks to purchase GSE securities without limitation.”
Is the Treasury IG suggesting that there should be a limit on banks investing in GSE securities? You betcha they are:
"The lesson to be taken from the NBC material loss is that banks and regulators need to be cognizant that securities that are not backed by the full faith and credit of the U.S. government do entail risk, and high concentrations of such holdings elevate that risk."
Hello
there! Fannie Mae and Freddie Mac have $3.5 Trillion of MBS
outstanding. Not one penny of it is expressly guaranteed by Treasury or
the Fed. The IG's recomendations:
“We are
recommending that OCC (1) conduct a review of investments held by
national banks for any potential high risk concentrations and take
appropriate supervisory action, and (2) reassess examination guidance regarding investment securities, including GSE securities.”
This
report is a kick in the head for everyone involved. Fannie and Freddie
look bad. Who would want to own the GSE paper with this warning from
Treasury? It makes Treasury look silly. They hold the Government Pref.
issued by the Agencies. If they guy down the hall is saying don’t buy
the debt he is certainly saying don’t buy the equity. The Fed looks the
worst of the lot in light of this. They are in the process of buying
$1.25 Trillion of Agency MBS. I wonder what the Treasury IG would have
to say about that level of concentration.
The only one looking
good on this are the Chinese. They have sold their Agency MBS back to
the Fed. Take a guess who will be the loser on that trade.
Link to the OIG report:http://www.treas.gov/inspector-general/audit-reports/2009/oig09042.pdf
When we look at GOLD as we all like to do, WHO has the MOST?
The short answer, is here...
http://en.wikipedia.org/wiki/Official_gold_reserves
Here is a real RE US National total value number in 2005 dollars.
$23.5T
http://realtytimes.com/rtpages/20020725_homeowners.htm
Macro food for thought.
As for China selling their Agency S early, the question becomes what kind of a hit did they take on that sell?
http://en.wikipedia.org/wiki/Agency_Securities
Oh and by the way, how much GOLD does China have, looking at the link above?
Bruce....thank you for bringing this matter to the forefront. Great stuff that adds to the collective knowledge base. I appreciate the info and your efforts.
OK here is my question:
Is it possible for the Fed to fail? I mean after all, it is a bank, no? I suppose if every country in the world stopped accepting dollars, then the Fed would fail, eh? Is that the only condition it could happen?
[The only one looking good on this are the Chinese. They have sold their Agency MBS back to the Fed.]
Right in the middle of QE? What does that say about their expressed concern about the dollar and Treasury debt?
Waterdog: I wonderd that too. This is what the IG says:
Our review is mandated under section 38(k) of the
Federal Deposit Insurance Act, as amended.
This report is titled 09-042. I take that to mean that there are others that look something like this just this year. It is a required Post Mortum.
Here a link to another one:
http://www.scribd.com/doc/13112159/Audit-Report-Oig09033-Safety-and-Soun...
Waterdog: I wonderd that too. This is what the IG says:
Our review is mandated under section 38(k) of the
Federal Deposit Insurance Act, as amended.
This report is titled 09-042. I take that to mean that there are others that look something like this just this year. It is a required Post Mortum.
Here a link to another one:
http://www.scribd.com/doc/13112159/Audit-Report-Oig09033-Safety-and-Soun...
When I go to the site, I get the FNB audit report.
The wrap-up at the beginning of this audit report appears to suggest that the FDIC may have reported the extreme risk in its reports, but that the Comptroller of the Currency failed to take some type of positive action.
In this case, the balance sheet of this banking entity was known to be high risk back in early 2000.
I was once a state bank examiner. Our mission was to determine the validity of the assets used in the calculation of required reserves for every banking day since the last examination.
For the majority of state banks, an adjustment to the daily asset balance sheet greater than $2mm would trigger a fed funds purchase requirement: Imagine a $98mm.
Without having to read the law requiring the IG to audit the FDIC for every failed bank, it would appear that the IG is going to audit every failed institution that required FDIC funds to be paid out to depositors. Thus, if the FDIC can get someone to take over a bank in whole, the IG would not be required to audit the FDIC examination reports.
But Bruce, the Fed is buying agency MBS precisely BECAUSE Fannie and Freddie don't have full faith and credit, not despite the lack of it.
This goes directly to the post TD had yesterday about the move out of agency debt by the FCBs. No one BUT the Fed will buy their paper without a significant haircut.
But that haircut would mean higher mortgage rates for everyone.
So the Fed, in a violation of its mandate, is supporting fiscal and social policy by supporting two failed companies.
And Treasury's solution to the ongoing Fannie and Freddie mess? We won't know until Feb (notwithstanding regular trial balloons leaked through WaPo).
What a blackholio.
Maybe the new AIG can sell CDS on the GSEs to Treasury.
Goldie will make sure that position is hedged.
More bad news. More chicanery. More muck up.
Thanks for the research.
NOW i see why the money is running into these POS stocks
Some group (perhaps a taxpayer funded group) moving HFT money --- into these....while at the same time supporting the crappy banks that own these toxic assets, and are no doubt, selling into this unprecedented strength before the off balance sheet junk is forced back on in January...or the courts allow disclosure--dont hold your breath on that one....
NOW i see why the money is running into these POS stocks
Some group (perhaps a taxpayer funded group) moving HFT money --- into these....while at the same time supporting the crappy banks that own these toxic assets, and are no doubt, selling into this unprecedented strength before the off balance sheet junk is forced back on in January...or the courts allow disclosure--dont hold your breath on that one....
sleazy linking practices; borderline fraud ..http://www..
hat tip: gay porn and deceitful, slimy operators
The worse shape the banks are in, the better the GSEs look.
The US gov isn't going to backstop any more banks, so if things are in dire straits you know who will still be standing in a few years time.
The IG was auditing the FDIC's prior bank examinations of NBC to determine if the FDIC completed the examinations according to procedure. It could care a rat's banana what happened to NBC or why. The IG protects the Department from its employees.
It found that the FDIC followed agency procedures during the audit. It then stated (between the lines)that current audit procedures made it inappropriate to list in the FDIC examination reports the concentration of the security.
The IG then recommended that the department make changes to its audit reporting procedures to insure that the agency understands and properly reports the changes to a bank's investment portfolio that occurred between audits.
I wonder how many more times the IG is going to get involved in a bank failure?