2013: The Year in Retrospect

2013: The Year in Retrospect

January brought with it the expiration of the Transaction Account Guaranty Program (TAG). TAG added unlimited insurance coverage to “noninterest-bearing transaction accounts” (like checking accounts) regardless of the balance of the account. As of January 1, 2013, deposits are subject to a $250,000 insurance limit regardless of whether they are checking or savings or interest-earning or not. Anything over $250,000, per depositor per bank or credit union, is not federally-insured.

February’s monthly TARP report to Congress showed that taxpayers had recovered $389 billion, or 93% of the total $418 billion that was disbursed in all programs. While many programs lost taxpayer money, the bank programs were in the black and still bringing in money. Of $245.1 billion initially invested in the bank programs, banks had repaid $268.2 billion to date, for a $23.1 billion gain.

March: Outrage ensued when we learned that senior executives of Ally Financial were earning much more than the $500,000 cap suggested in the guidelines. Ally Financial (formerly GMAC) was one of 18 bank holding companies required to submit to stress testing. (It did not do well on the latest one.) It was also one of just seven TARP recipients  that, due to the amount and nature of their bailouts, were  classified as “Exceptional Assistance Recipients”.

Ally received TARP funds as part of the Automotive Industry Financial Program, not as part of the Capital Purchase Program (CPP) for banks (which  made money). It received over $16 billion from the Treasury, which still owned about 80% of the company. Total direct compensation of its 20 “most highly compensated employees”,  ranged from $1.9 million to $9.5 million. Granted, much of this is in stock and may not be  transferable until TARP is repaid.

Originally scheduled to start circulating in February 2011, a new $100 bill was finally unveiled in April and made its debut on October 8, 2013.

May: President Obama nominated long-time supporter, prominent fundraiser, and friend, Penny Pritzger, to be Secretary of Commerce, a position that had been vacant for almost a year. If her name sounds familiar, don’t be surprised. You may have heard the Pritzger name right here in the pages of JRN. The Pritzger family owned 50% of Superior Bank FSB, Chicago, which failed in July 2001. Penny Pritzger had stepped down as chairman in 1994, but her influence still permeated the bank.

The FDIC ended up going after Pritzger (and others) for the failure. Without admitting culpability, Penny Pritzger settled for $460 million, far more than the $255.5 million she initially pledged to recapitalize the $2.1 billion asset thrift. In spite of that, Pritzger was confirmed and began serving as the 38th Secretary of Commerce on June 26, 2013.

A Consumer Financial Protection Bureau report released on June 11th found that consumers who signed an opt-in agreement for the “courtesy” of being allowed to overdraw their account paid average account fees of $196 in 2011. Those who did not opt-in paid just $28.

Stricter capital rules Hit U.S. Banks in July. A proposed regulation aims to make the biggest banks also the strongest by making Big Banks have a minimum leverage capital ratio of at least 5% for the holding companies and 6% for the associated banks. The new ratios also address off-balance sheet items, like derivatives, in their calculations.

The final rules for community banks include a new Common Equity Tier 1 Capital (CET1) Ratio requirement of at least 4.5% (6.5% for a Well-Capitalized designation) + a 2.5% buffer. This new ratio will also be used to determine the need for Prompt Corrective Action. A new risk-weighting system has also been proposed with a Tier 1 risk-based capital ratio requirement of 6%  instead of 4%.

August: Vice Chair Janet Yellen earned Bauer’s recommendation for next Fed Chairman. In 1996, with Alan Greenspan at the helm, Yellen helped to usher in a near perfect economic soft-landing. She also saw the writing on the wall long before this latest financial crisis hit.

It became official in September: Foreign Deposits are Not FDIC Insured. A Final Rule issued by the FDIC on the subject:  “Deposits in branches of U.S. banks located outside the United States are not FDIC-Insured deposits.” FDIC insurance is intended to maintain public confidence in our nation’s financial system. In order to do that effectively, it must, above all else, protect the Deposit Insurance Fund (DIF).

Note: The Final Rule does not apply to deposits at U.S. military facilities in foreign countries. They continue to be insured as they have been.

October: Janet Yellen gets nod from President. President Obama nominated Janet Yellen, the current Vice Chair of the Federal Reserve’s Board of Governors, to replace Ben Bernanke at the helm when his term expires at the end of January. Her confirmation vote is scheduled for January 6th.

President of the Federal Reserve Bank of San Francisco from 2004-2010, Dr. Yellen has lots of experience as a bank regulator. The institutions in that district range in size from very small community banks to very large holding companies with Wells Fargo & Co. being the largest.

November: As the cry to end “Too Big to Fail” (TBTF) gets increasingly louder here at home in the USA, it is actually a global problem. The International Financial Stability Board is taking a different approach than the US, however. Instead of trying to end TBTF, it is creating policies to address systemic and moral hazard risks associated with these Globally Systemically Important Banks (G-SIBs).

December: The stock market hit a new record high and the dollar climbed against a number of foreign currencies, all because Federal Reserve Chief Ben Bernanke signaled a change to its massive bond buying  practice. Beginning in January, the FOMC will only add $75 billion in bonds to its holdings per month instead of $85 billion.