Credibility deficit could doom Bernanke renomination

It might be funny, if the economic crisis wasn't so painful to so many, to hear U.S. Federal Reserve chairman Ben Bernanke complain about efforts in Congress to overhaul the government's financial regulatory system. Bernanke was sharply critical of a Senate proposal to transfer much of the Fed's authority to regulate banks to a new consumer protection agency, according to the New York Times. Bernanke wrote an opinion column on the Washington Post Web site warning Congress and taxpayers unhappy about the nearly trillion-dollar bailout of the financial sector to leave the Federal Reserve system alone. "Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation," Bernanke wrote. But Bernanke, appointed by former U.S. President George W. Bush in 2006 and nominated by U.S. President Barack Obama to a new 14-year term beginning next year, has a lot of explaining to do. Particularly, he needs to explain why the Federal Reserve and executive branch regulators were seemingly asleep at the controls when the financial system tanked. It was fairly obvious even to lay people that the overheated housing market, where financial institutions were allowed to make thousands of bad home loans and then sell those bad loans to other institutions as securities to back even more bad loans, was headed for a crash. So, why didn't regulators -- and Bernanke, the lead expert -- stop such practices before it was too late?

Lessons learned? Federal Reserve asks for some of its billions back

Here we go again! News that the U.S. Federal Reserve had asked some banks to repay money they got from last year's $700 billion financial system bailout would seem to be good news, since it means those institutions have recovered. But what many U.S. banks who are trying to repay the Troubled Asset Relief Program really want is to escape the tighter oversight imposed by the federal government as a condition of receiving taxpayer funds, the Reuters international news service reported Tuesday. Citing an unnamed source, Reuters said nine of the 10 banks that were among the 19 stress-tested in May and found to need additional capital are now clamoring to leave the program, which provided billions in capital to more than 500 banks and a few struggling industrial companies. But the nine, including Bank of America Corp., Citigroup, Wells Fargo & Co. and Fifth Third Bancorp, began to prosper again in no small part due to the restrictions imposed by the program. Requirements for participation included perfectly sensible limits on executive compensation, dividend payouts and share buybacks. If those banks are released from the program, they also get released from those requirements. What is to prevent them from doing the same things that got them into so much trouble? Sure, there are regulators, but there were regulators before and the financial collapse still happened. The 10th bank, GMAC Corp., is not expected to be able to raise capital anytime soon. The 10 banks that passed the June test repaid the government in June and have already left the program, including JPMorgan Chase & Co., and Goldman Sachs Group Inc. Citigroup's situation is different from the other stress-tested banks because the federal government invested billions of dollars in shares of the bank's common stock and trust-preferred securities in an effort to keep it solvent.

Most large banks pass government 'stress test'

$74.6 billion. Seventy-four point six billion dollars. Let's look at that again: it's seventy-four billion, 600 million dollars. Believe it or not, that's what U.S. banks still need, and that's good news. That number that sparked a sigh of relief in U.S. financial circles today because it was a lot lower than many iduustry leaders feared would be needed to prop up the banking system. Today's release of results of the Federal Reserve's so-called stress tests of the 19 largest U.S. banks sent many of the 10 who need more capital scrambling to develop plans to raise it, according to the Reuters international news service. Bank of America, the historic San Francisco banking giant that was purchased by NationsBank of North Carolina in 1998, was found to be lacking nearly $34 billion in reserves, slightly less than half of the entire industry shortfall. "We're going to be watching carefully to make sure they give us credible plans for raising capital and becoming privately owned again," said Ben Bernanke, chairman of the Federal Reserve, referring to the entire group of banks, Reuters reported. Bank of America immediately offered plans to raise most the money it needed through issuance of new stock and asset sales. Other banks identified in the Fed's report, written after more than 150 officials examined the banking institutions' books, issued similar statements, Reuters said. Other banks found wanting included Wells Fargo, which was found to need $13.7 billion; GMAC, the auto and home loan finance company, which was found to need $11.5 billion, and Citigroup, which was ordered to raise $5.5 billion. The federal government expects banks to be able to raise the money privately, Reuters reported, but Bernanke said the United States "stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn." U.S. stock futures were up following release of the figures, but some critics said the Federal Reserve examination was not rigorous enough. "I'm a skeptic," said Robert Andres, president of Andres Capital Management in Philadelphia, Reuters said. "I don't see this as a genuine audit. They have been playing the marketing game strongly lately." The reviews were designed to measure how the banks would be able to perform if the recession worsened, Reuters said.

Obama gets it right on credit card reforms

It's enough to make you think he knows what's going on in the United States. We're talking, of course, about President Barack Obama's effort to restrict the unconscionable growth of interest rates and fees placed on credit cards used by most U.S. residents. After meeting with 13 credit-card industry executives at the White House on Thursday, Obama said he wanted to stop abuses and eliminate the "fine print" in credit-card contracts, according to the Reuters international news service. "We want to preserve the credit card market but we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with," Obama said. The president endorsed efforts in Congress to pass a so-called Credit Cardholders' Bill of Rights, which would convert into law regulations issued by the Federal Reserve in December. The bill would prevent credit card issuers from imposing arbitrary interest rate increases and penalties. A version of the bill is pending in the Senate. Obama said he wanted the Congress to protect consumers from abuses by credit card companies as part of his effort to retool the government's regulation of the U.S. economy, which has been mired in recession. "The days of any time, any reason rate hikes and late fees has to end," Obama said. "No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out." Executives from Bank of America, American Express, Citigroup, Wells Fargo, JPMorgan Chase, Capital One, Visa and MasterCard were invited to the meeting, Reuters said.