http://en.wikipedia.org/wiki/Keating_five

The Keating Five (or Keating Five Scandal) refers to a Congressional scandal related to the collapse of most of the Savings and Loan institutions in the United States in the late 1980s.

Following the deregulation of the banking industry in the 1980s, savings and loan associations (also known as thrifts) were given the flexibility to invest their depositors' funds in commercial real estate. (Previously, they had been restricted to investing in residential real estate.) Many savings and loan associations began making risky investments. As a result, the Federal Home Loan Bank Board, the federal agency that regulates the industry, tried to clamp down on the trend. In so doing, however, the FHLBB clashed with the Reagan administration, whose policy was deregulation of many industries, including the thrift industry. The administration declined to submit budgets to Congress that would request more funding for the FHLBB's regulatory efforts.

In 1989, the Lincoln Savings and Loan Association of Irvine, Calif., collapsed. Lincoln's chairman, Charles H. Keating Jr., was faulted for the thrift's failure. Keating, however, told the House Banking Committee that the FHLBB and its former chief Edwin J. Gray were pursuing a vendetta against him. Gray testified that several U.S. senators had approached him and requested that he ease off on the Lincoln investigation. It came out that these senators had been beneficiaries of $1.3 million (collective total) in campaign contributions from Keating.

This allegation set off a series of investigations by the California government, the United States Department of Justice, and the Senate Ethics Committee. The ethics committee's investigation focused on five senators: Alan Cranston (D-CA); Dennis DeConcini (D-AZ); John Glenn (D-OH); John McCain (R-AZ); and Donald W. Riegle, Jr. (D-MI), who became known as the Keating Five.

After months of testimony revealed that all five senators acted improperly to differing degrees, the senators continually said they were following the status quo of campaign funding practices. In August 1991, the committee concluded that Cranston, DeConcini, and Riegle's conduct constituted substantial interference with the FHLBB's enforcement efforts and that they had done so at the behest of Charles Keating. The committee recommended censure for Cranston and criticized the other four for "questionable conduct."

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The only member of the Keating Five still in the U.S. Senate is John McCain.


FDIC - IndyBank Fails
http://www.fdic.gov/bank/individual/failed/IndyMac.html

Failed Bank List since 2000
http://www.fdic.gov/bank/individual/failed/banklist.html

Looking to quell investor fear over the solvency of both Fannie Mae (FNM: 10.25, -22.35%) and Freddie Mac (FRE: 7.75, -3.12%), Treasury chief Henry Paulson said Friday morning that no bail out was in the works, contrary to press reports Friday that had suggested that adminstration officials were considering conservatorship for one or both GSEs.
http://www.housingwire.com/2008/07/11/paulsons-remarks-on-gses-reel-in-mbs-prices-no-confirmation-of-investor-fears/


The ratio is calculated by dividing a bank's non-performing loans, including those 90 days delinquent, by the company's tangible equity capital plus money set aside for future loan losses. The number basically measures credit problems as a percentage of the capital a lender has available to deal with them.
http://www.housingwire.com/2008/02/01/occ-community-banks-cre-exposure-a-concern/

FOR IMMEDIATE RELEASE
May 22, 2008 Contact: Robert M. Garsson
(202) 874-5770
Comptroller Dugan Tells Lenders that Unprecedented Home Equity Loan Losses Show Need for Higher Reserves and Return to Stronger Underwriting Practices
http://www.occ.treas.gov/ftp/release/2008-58.htm


MarketWatch is reporting Bank failures to surge in coming years.

"At this point in the crisis, you can't stop bank failures," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business, who has studied past financial crises.

At least 150 banks will fail in the U.S. during the next two to three years, according to a projection by Gerard Cassidy and his colleagues at RBC Capital Markets.

If the current economic slowdown deteriorates into a recession on the scale of those from the 1980s and early 1990's, the number of failures will be much higher this time around -- probably as high as 300 of them, by RBC's reckoning.

Cassidy and his colleagues have developed an early-warning system for spotting future trouble at banks called the Texas Ratio.

The ratio is calculated by dividing a bank's non-performing loans, including those 90 days delinquent, by the company's tangible equity capital plus money set aside for future loan losses. The number basically measures credit problems as a percentage of the capital a lender has available to deal with them.

Cassidy came up with the idea after covering Texas banks in the 1980s. Until the recession hit that decade, many banks in the state were considered some of the best in the country. But as problem assets climbed, that view was cruelly challenged, Cassidy recalls.

The analyst noticed that when problem assets grew to more than 100% of capital, most of the Texas banks in that precarious position ended up going under. A similar pattern occurred in the New England banking sector during the recession of the early 1990s, Cassidy said.

The FDIC had highlighted 76 banks that it considered troubled at the end of 2007. That's up from 50 at the end of 2006, which was the lowest level for at least 25 years.

Texas Ratios from the article

• UCBH Holdings (UCBH) Texas Ratio jump to 31% at the end of the first quarter from 4.7% in 2006, according to RBC.
• Colonial BancGroup (CNB) Texas Ratio jumped from 1.5% in 2006 to 25% at the end of March.
• Sterling Financial Corp. (STSA) had a Texas ratio of 1.9% in 2006. It was nearly 24% at the end of the first quarter.
• National City Corp. (NCC) had a Texas Ratio of 40% at the end of March though the bank did raise $7 billion in new capital in April.
• IndyMac Bancorp (IMB) has a whopping Texas Ratio of 140%

Liquidity challenged banks offer some of the highest rates on CDs. IndyMac actually tops the list on one one year CDs according to the article. The irony is that money flows to the weakest banks taking the biggest risks instead of the strongest ones taking minimal risks, all because of government guarantees. This is one of the perverse "moral hazard" effects of FDIC.

If this was up to me, I would phase FDIC out over a period of time on CDs and savings accounts, keeping it only for checking accounts for which banks would be required to have 100% reserves. If people want guarantees they can buy US treasuries. Instead of having huge numbers of failures periodically, bank failures would be very widely scattered and people would care where they put their money instead of chasing the latest deal at banks that are destined to fail.

OCC Mortgage Metrics Report,
http://www.occ.treas.gov/ftp/release/2008-65a.pdf
Here are six key findings.
First, one somewhat surprising finding is that the overall mortgage servicing portfolio of the nine banks reflects credit quality that is relatively satisfactory and relatively stable. For example, the number of current and performing loans remained at about 94 percent over the entire six-month period. Serious delinquencies, which we define as bankrupt borrowers who are 30 days delinquent and all delinquencies greater than 60 days, increased just one tenth of a percentage point during the period, from 2.1 percent to about 2.2 percent. This overall quality and stability likely reflects the differences in the national bank servicing portfolio that I described above.
Second: Among the three segments of loans, we found, not surprisingly, that the majority of serious delinquencies was concentrated in the highest risk segment  subprime mortgages. Though these mortgages constituted less than 9 percent of the total portfolio, they sustained twice as many delinquencies as either prime or Alt-A mortgages.
The third finding concerns loss mitigation actions, which for purposes of this report include only loan modifications and payment plans. Consistent with other reports, payment plans predominated, outnumbering loan modifications in March by more than four to one. But loan modifications increased at a much faster rate during the period.
-7New Comprehensive OCC Report on Mortgage Performance
Servicers also indicated they are working with Fannie Mae, Freddie Mac, the Federal Housing Administration, and private investors to develop and offer new loss mitigation options. In fact, mortgage servicers reported several alternative loss mitigation actions not included in this analysis that we plan to include in future reports, including HomeSaver Advance, FHASecure, partial claims, new subsidy programs, and refinances with principal forgiveness. These actions provide banks additional alternatives to mitigate their risks and work with troubled borrowers.
Fourth: Although subprime mortgages made up less than 9 percent of the portfolio, they accounted for 43 percent of all loss mitigation actions at the end of March. Indeed, for these borrowers in that month, total loss mitigation actions exceeded newly initiated foreclosure proceedings by a margin of nearly 2 to 1.
Fifth: As in other studies, our report confirms that foreclosures in process are plainly on the rise, with the total number increasing steadily and significantly through the reporting period from 0.9 percent of the portfolio to 1.23 percent. Interestingly, the number of new foreclosures has been quite variable. While one month does not make a trend, new foreclosures in March declined to 45,696, down 21 percent from January


H3 Statistical Release- last released Thursday, July 10, 2008http://www.federalreserve.gov/datadownload/Choose.aspx?rel=H.3

Recent Declines in Nonborrowed Reserves
2008-02-07

The H.3 statistical release indicates that nonborrowed reserves of depository institutions have declined substantially since mid-December to a level that is now negative. This development reflects the provision of a large volume of reserves through the Term Auction Facility (TAF) and has no adverse implications for the availability of reserves to the banking system. By definition, nonborrowed reserves are equal to total reserves minus borrowed reserves. Borrowed reserves are equal to credit extended through the Federal Reserve's regular discount window programs as well as credit extended through the TAF. To maintain a level of total reserves consistent with the Federal Open Market Committee's target federal funds rate, increases in borrowed reserves must generally be met by a commensurate decrease in nonborrowed reserves, which is accomplished through a reduction in the Federal Reserve's holdings of securities and other assets. The negative level of nonborrowed reserves is an arithmetic result of the fact that TAF borrowings are larger than total reserves.