More Failed Banks and Office Building Demolitions Likely Before Real Estate Problems End, Warn Two Federal Agencies

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More Failed Banks and Office Building Demolitions Likely Before Real Estate Problems End, Warn Two Federal Agencies

By Pam Martens and Russ Martens: March 21, 2024 ~

Federal banking oversight agencies are in agreement: U.S. banks are facing a potential tsunami of problems with commercial real estate loans in the office space sector.

Last June 1, the Office of Financial Research (OFR), (the agency created under the Dodd-Frank financial reform legislation of 2010 to warn about financial stability risks), explained why the vacancy rate in office buildings is in dramatic contrast to the actual occupancy rate, and thus bodes poorly for the future demand for renewing office leases. OFR writes as follows:

“The health of the CRE [Commercial Real Estate] office sector is not only measured by the amount of space leased and rent paid today, but also by how much space will be required in the future. In addition to space available for sublease, we can estimate the amount of space currently occupied by employees by measuring card key swipes using the Kastle Back to Work Barometer.

“Unfortunately, future demand for office space appears weak. In addition to the growth of office space available for sublease, the amount of office space occupied by tenants remains stubbornly low…Although the current office vacancy rate is 16.4%, the average occupancy rate measured by the Kastle Back to Work Barometer is 49.8%. (Note that this represents a weekly average; daily occupancy varies). This implies a structural vacancy rate of 50.2%. Prior to the COVID-19 pandemic, office occupancy averaged close to 100%. This means that on average, firms are paying rent for twice as much space as their employees are currently using. If occupancy of existing office space remains low, current office tenants will probably renew their leases for less space—reducing office demand over time.”

The chart above accompanied the assessment. The same chart also made it into OFR’s 2023 annual report, which predicted office building demolitions were likely to occur for the less desirable office space. OFR wrote:

“High-quality space will likely outperform as the flight to quality continues, with high rents and low vacancy rates for best-in-class assets. However, second-generation space will struggle to backfill, with an increase in demolitions and conversions.”

A key entity that OFR keeps apprised of financial stability risks is the Financial Stability Oversight Council (F-SOC). It was also created under the Dodd-Frank financial reform legislation of 2010 to address the fact that financial regulators were wearing blinders when the 2008 financial crisis on Wall Street left the U.S. economy in tatters, with millions of Americans losing their jobs and their homes to foreclosure from tricked-up mortgages. F-SOC is chaired by the sitting U.S. Treasury Secretary and includes every federal banking and securities regulator. F-SOC wrote the following in its 2023 annual report:

“Commercial real estate (CRE) loans totaled almost $6 trillion as of the second quarter of 2023, and CRE represents a significant portion of the assets of many financial institutions. Banks hold a significant market share of CRE loans at 50 percent, with the rest held by various financial institutions such as insurance companies, holders of commercial mortgage-backed securities (CMBS), and debt funds. CRE is the largest loan category among almost one-half of U.S. banks, and more than one-quarter of U.S. banks have CRE loan portfolios that are large relative to the capital they hold.”

And this:

“The prices of office properties have deteriorated much more than those of other major property types in recent quarters, with an index of office property prices more than 30 percent below its pre-pandemic level as of September 2023.”

There is widespread agreement among federal banking regulators that commercial real estate in the office sector is a serious financial risk to banks. However, there is divergent opinion among two key regulators as to whether this risk is at the smaller banks or includes the largest banks — which pose an exponentially greater threat to financial stability.

On March 7, Fed Chair Jerome Powell appeared before the Senate Banking Committee to deliver his Semiannual Monetary Policy Report. In the Q&A that followed, Senator Catherine Cortez Masto (D-NV) raised the question with Powell about troubled real estate loans as a financial risk to banks.

Powell played down the real estate threat at the largest banks, stating: “There will be bank failures, but this is not the big banks. If you look at the very big banks, this is not a first order issue for any of the very large banks. It’s more smaller and medium size banks that have these issues.”

Powell might have his own agenda in playing down the risks to the mega banks on Wall Street. According to Senator Elizabeth Warren, who also sits on the Senate Banking Committee, Powell is leading the charge behind the scenes to overturn federal regulators’ proposal to require the largest banks to hold larger amounts of capital to prevent a replay of the taxpayer and Fed bailouts of these mega banks that occurred in 2008.

On the same day that Powell was testifying before the Senate Banking Committee, the Chair of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, was holding a press conference to release the FDIC’s latest quarterly “Banking Profile.” Gruenberg boldly revealed a serious real estate problem inside the largest banks, stating the following: (Go to 5 minutes and 12 seconds at this link.)

GRUENBERG: “The increase in noncurrent loan balances was greatest among CRE [Commercial Real Estate] loans and credit cards. Weak demand for office space has softened property values and higher interest rates are affecting credit quality and refinancing ability of office and other types of CRE loans. As a result, the noncurrent rate for nonowner occupied CRE loans is now at its highest level since first quarter of 2014, driven by portfolios at the largest banks.” (Bold emphasis added.)

According to the chart below and accompanying data provided in an Excel spreadsheet by the FDIC, past due loans on commercial real estate at the largest banks (those with more than $250 billion in assets) as of December 31 of last year are at 4.11 percent. That’s 1.66 percent higher than at the end of the fourth quarter of 2008 when banks were exploding all over Wall Street during the financial crisis. As the chart below indicates, commercial real estate problems quickly became a lot worse at the largest banks, with the past due rate reaching 7.97 by the end of the first quarter of 2010.

That 4.11 percent past due rate at the biggest banks on December 31, 2023 compares with a past due rate of 1.35 percent at banks with $10 billion to $250 billion in assets, according to the latest FDIC bank profile data. Banks with $1 billion to $10 billion in assets have a negligible past due rate of 0.64 percent.

According to a report at CommercialEdge, Central Business District (CBD) office buildings “have been hit the hardest by the changes.” They cite a Washington, D.C. 13-story building with ground-floor retail space that “sold for $18.2 million in 2023, down 70% from its 2017 price tag of $61.8 million.”

https://wallstreetonparade.com/2024/03/more-failed-banks-and-office-building-demolitions-likely-before-real-estate-problems-end-warn-two-federal-agencies/

Watchdog, Better Markets, Investigates the Bank that Has Lost 65 Percent of Its Market Value in Two Months and Was Downgraded to Junk by Moody’s

 

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Watchdog, Better Markets, Investigates the Bank that Has Lost 65 Percent of Its Market Value in Two Months and Was Downgraded to Junk by Moody’s

By Pam Martens and Russ Martens: March 4, 2024 ~

The widely respected banking and Wall Street watchdog, Better Markets, has a new report out on the latest teetering bank holding company, New York Community Bancorp (ticker NYCB). The title of the well-researched report pretty much says it all: “A Frankenstein Monster Federal Regulators Created.”

NYCB has lost 65 percent of its stock market value year-to-date and was downgraded to a junk credit rating by Moody’s after the stock market closed on February 6. Moody’s wrote in its downgrade that a third of the bank’s deposits lack FDIC insurance.

NYCB’s rapid share price descent began on January 31 when the bank filed an 8K form with the SEC indicating a $260 million net income loss in the fourth quarter; a dividend cut from 17 cents to 5 cents; and a $552 million provision for credit losses on commercial real estate – an area of growing concern by the credit rating agencies.

The facts in the Better Markets report are astonishing in terms of what passes for federal bank regulation today. The Better Markets researchers write as follows:

“In late 2022 and early 2023, the federal banking regulators inexplicably approved not one, but two, mergers for NYC Bancorp in rapid succession. First, in December 2022, Flagstar was acquired by NYC Bancorp and at the same time Flagstar acquired [New York Community Bank]. Then, only about 100 days later, Flagstar was selected as the winning bidder by the FDIC to acquire the failed Signature Bank (‘Signature’). A bank acquiring and integrating any one of these transactions in isolation would be challenging under the best of circumstances, it is inexplicable that the banking regulators allowed them in tandem under extremely stressed conditions.”

And this:

“…over the course of just two quarters, Flagstar’s two acquisitions quadrupled its asset size, from $25 billion on September 30, 2022, to $123 billion on March 31, 2023. It also more than doubled its employee count, from about 2,800 in September 2022 to 6,800 in March 2023.”

It should be noted that rapid asset growth was cited by federal banking regulators as a key factor in the collapse of Silicon Valley Bank, which set off a banking panic and bank runs in the spring of last year. That panic resulted in the second, third and fourth largest bank failures in U.S. history.

The Better Markets investigation points the finger at the federal regulator of national banks, the Office of the Comptroller of the Currency (OCC), as a key player in the making of this Frankenstein bank. (National banks are those allowed to operate across state lines.)

What happened was that when this bank didn’t initially get merger approval from its primary federal regulator, it simply switched its primary regulator to the OCC and got its merger approved.

Better Markets calls this “shocking and literally unbelievable,” writing as follows:

“…The American people rely on the banking regulators to protect them, and the broader financial system and the facts related to this situation suggest unacceptable failures in these areas.

“The apparent lack of regulatory coordination and the ability of a bank to switch regulators and receive a different decision on a merger application is shocking and literally unbelievable. However, what is worse is the apparent willingness of regulators to overlook all that and racial discriminatory conduct by merger participants on multiple occasions in approving the final merger transaction. The American people deserve better from their financial regulators, and financial stability depends on it.”

The grimy fingerprints of the OCC were also at play when it approved the purchase of the failed First Republic Bank by the riskiest and largest bank in the United States – JPMorgan Chase – on May 1 of last year.

On July 12 of last year, Senator Elizabeth Warren, Chair of the Senate Banking’s Subcommittee on Economic Policy, held a hearing on “Bank Mergers and the Economic Impacts of Consolidation.” Warren had this to say during the hearing:

“When First Republic Bank collapsed in April, the bank was ultimately sold to the biggest bank in America, JP Morgan Chase. That sweetheart deal cost the Federal Deposit Insurance Fund $13 billion. Meanwhile, overnight, the country’s biggest bank got $200 billion bigger. And what happened to the regulators? The Acting Comptroller of the Currency, Michael Hsu, rubber stamped the deal in record time. When I asked Mr. Hsu at a hearing in May to explain how this merger was approved, he was unable to provide a clear answer.

“But the overall picture gets worse. Instead of inattentive regulators who don’t use their tools to block increasing consolidation, leaders within the Biden Administration seem to be inviting more mergers. In a May 2023 statement before the House Financial Services Committee, Acting Comptroller Hsu reassured banks that the agency would be ‘open-minded’ while considering merger proposals….

“Treasury Secretary Yellen recently warned that the banking ‘turmoil’ from the collapse of Silicon Valley Bank, Signature Bank, and First Republic might lead to more mergers and that regulators would be – quote – ‘open to’ them. Then the New York Times also reported that Secretary Yellen privately told big banks that she would, and I quote, ‘welcome more mergers.’ ”

At the hearing, Warren called this lax position by regulators to be “stunningly wrongheaded” and “courting disaster.”

Tens of millions of Americans are sleepwalking their way to the next banking crisis. If you agree with Wall Street On Parade that the current banking structure in the U.S. represents a threat to national security and economic stability, please contact your U.S. Senators today via the U.S. Capitol switchboard by dialing (202) 224-3121. Tell your Senators to hold immediate hearings on the Fed’s non-stop bailouts of the banking sector and demand the restoration of the Glass-Steagall Act to separate Wall Street’s trading casinos from federally-insured commercial banks.

https://wallstreetonparade.com/2024/03/watchdog-better-markets-investigates-the-bank-that-has-lost-65-percent-of-its-market-value-in-two-months-and-was-downgraded-to-junk-by-moodys/

The Fed Has a Dirty Little Secret: It’s Been Allowing the Wall Street Mega Banks to Calculate their Own Capital Requirements

 

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The Fed Has a Dirty Little Secret: It’s Been Allowing the Wall Street Mega Banks to Calculate their Own Capital Requirements

By Pam Martens and Russ Martens: January 29, 2024 ~

Michael Barr, Vice Chair for Supervision, Federal Reserve 

On July 27 of last year, the Vice Chair for Supervision at the Federal Reserve Board of Governors, Michael Barr, made the following statement as part of the proposed new capital requirements for mega banks in the U.S. – revealing the stunning news that the serially-charged mega banks on Wall Street have been allowed to use their own internal risk models to tell the Fed how much risk-weighted assets they have and, thus, how much capital they need to hold. Barr stated:

“For a firm’s lending activities, the proposed rules would end the practice of relying on a bank’s own individual estimates of their own risk and instead use a standardized, but risk-based measure of credit risk. Standardized credit risk approaches do a reasonably good job of approximating risks, while internal models are prone to underestimate such risks.

“Second, for a firm’s trading activities, the proposed rules would adjust the way that the firm is required to measure market risk, which is the risk of loss from movements in market prices. These changes are intended to correct for gaps in the current rules.”

Relying on the mega banks that have been regularly charged with criminal acts and manipulating markets and who brought the U.S. economy to its knees with their financial crash of 2008, because their risk models were as helpful as a row boat in a tsunami, is yet one more clear indication that federal banking regulators have been completely captured by the Wall Street mega banks.

According to the Fed, the newly proposed capital rules will not stop federal regulators from relying on the mega banks to provide the information that sets their capital requirements, it will just change the models. The Fed and its fellow bank regulators wrote as follows about their so-called Basel III reforms:

“Under the proposed expanded risk-based approach, banking organizations would calculate total risk-weighted assets using (1) a new standardized approach for credit risk; (2) the revised approach for credit valuation adjustment (CVA) risk; (3) a new standardized approach for operational risk; and (4) the revised approach to market risk.”

Two economists are now calling out this insanity in a new academic paper. Anat Admati is the Professor of Finance and Economics at Stanford Graduate School of Business. Martin Hellwig is a German economist. The two are co-authors of the newly released and expanded book The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It. To call attention to the lies that bankers and their lobbyists perpetuate to get watered-down or gutted rules from their regulators, Admati and Hellwig have released a paper debunking the 44 flawed claims that bankers have been getting away with. One of those flawed claims goes to the heart of this debate on required capital. The pair write:

“Flawed Claim 29: Assigning risk weights to assets when determining required equity [equity capital] is a way of bringing serious quantitative analysis to bear on bank regulation…

“Proper measurement of the risks to which a bank is exposed would have to consider the counterparty credit risks and their correlations with the underlying risks of the banks. The scope for doing so is limited by a lack of data and by the never-ending changes in risks and correlations that occur when counterparties change their own positions. In practice, the use of risk weights in bank regulation allows banks to be extremely highly indebted, masks important risks, and adds to the interconnectedness of the system. Whereas proponents of the system argue that it is important to require banks to have more equity funding when their assets are riskier, in fact the system allows banks to get away with much less equity funding when they say that their assets are less risky. A uniform ratio of required equity [equity capital] to total assets would provide a lower bound on the banks’ leverage and would enable supervisors to intervene when the ratio is breached before it may be too late. By contrast, because some risk weights are (near) zero, the risk-weighting system allows very high leverage.

“The ability of banks to ‘economize on equity’ is enhanced by their ability to use their own models to assess risks. The scope for manipulation they have is largest for assets in the trading book, which is why they were keen to put mortgage-backed securities and the like into the trading book, subject to mark-to-market accounting rules. Most of the losses in 2007-2009 were incurred on assets in the trading book, where equity often was as low as 1 percent of investments…”

What the Fed and its fellow federal regulators have been effectively doing is turning capital requirements over to the casino. Consider what happened when the 158-year old Lehman Brothers failed in 2008 and filed for bankruptcy. Just five days before Lehman failed, it was sporting a capital ratio of 11 percent, suggesting that it was adequately capitalized. But four weeks after its bankruptcy on September 15, 2008, its debt was valued at only 9 cents on the dollar, suggesting its unsecured creditors were going to lose 91 percent of their money. While the recovery rate improved over time as market values stabilized, there is no question that Lehman’s regulators were in the dark – or chose to be in the dark – about just how highly leveraged this financial institution was in 2008.

Unknown to most Americans, the reckless Lehman Brothers was allowed by its regulators to own two federally-insured banks: Lehman Brothers Bank, FSB and Lehman Brothers Commercial Bank. Together, they held $17.2 billion in assets as of June 30, 2008, 75 days before Lehman went belly up.

Today, four of the largest trading houses on Wall Street own federally-insured banks that rank among the largest seven federally-insured banks in the U.S.: JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs.

Another key problem with allowing the criminally-inclined mega banks to calculate their own risk-weighted capital needs is that only a handful of people inside the bank understand the risks that are hiding in the shadows in the bank’s off-balance-sheet exposures.

On its way to becoming a 99-cent stock in March of 2009 and needing a secret $2.5 trillion bailout in cumulative loans from the Fed between December 2007 and June 2010, Citigroup was using off-balance-sheet SIVs (Structured Investment Vehicles) to boost its profits and hide its risks. When the bank was forced to move these vehicles back onto its balance sheet, its debt was downgraded and its stock tanked further.

Any suggestion that the mega banks on Wall Street have cleaned up their reckless risk-taking is undermined by the number of times they have needed to be bailed out since the crash of 2008 – the worst economic crisis since the Great Depression. (The New York Fed has become the official money funnel for Wall Street bailouts while being, literally, owned by some of the biggest banks on Wall Street.)

The first banking crisis since that of 2008 began on September 17, 2019 – for reasons the Fed has yet to explain with any credibility. In the last quarter of 2019, the New York Fed had to shovel emergency repo loans cumulatively totaling (on a term-adjusted basis) $19.87 trillion into Wall Street banks. As the chart below indicates, just six trading units of the mega banks on Wall Street received 62 percent of that amount. (Unadjusted for the term of the loan, the cumulative total was $4.5 trillion.)

Under the Dodd-Frank financial reform legislation of 2010, the Fed had to release the names of the banks that received these bailouts, and the dollar amounts of each loan, two years after the program began. While mainstream media went to court to get this information in 2008, there was a total mainstream media blackout when the Fed released the data for the 2019 bailouts. (See There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.)

The next banking crisis occurred in March 2020 and was blamed on the pandemic. The share prices of the four largest banks (by deposits) collapsed by as much as 40 to 60 percent between January 2, 2020 and March 18, 2020. The Fed rolled out the same alphabet soup of emergency lending programs that it had rolled out in 2008 – with the New York Fed once again in charge of the bulk of those programs.

Three years later, in the spring of 2023, the second, third and fourth largest bank failures in U.S. history occurred: Silicon Valley Bank and Signature Bank in March and First Republic Bank on May 1.

To deal with last year’s failures, the Fed did something that it has never done before in its 110-year history. It began accepting underwater bonds as collateral for emergency loans to teetering banks while paying 100-cents on the dollar on that collateral for loans of up to one year in duration. (Historically, the Fed has imposed a haircut on collateral and made overnight loans through its Discount Window.) The Fed called this bailout program the Bank Term Funding Program (BTFP).

In recent weeks, the amounts being borrowed under the Bank Term Funding Program have spiked. The bailout facility had a balance of $121.7 billion as of December 7, 2023. As of its last report date on January 24, 2024, it had soared to $167.8 billion.

Last Wednesday, after weeks of watching banks increasingly tap the Bank Term Funding Program almost a year after the banking crisis was supposed to have subsided, the Fed announced it would cut off any more loans from the BTFP on March 11.

As we have repeatedly stated, and the brilliant Law Professor Art Wilmarth has documented, the only meaningful way to genuinely reform the mega banks is to restore the Glass-Steagall Act, which will separate casino banking from the federally-insured deposits of U.S. commercial banks.

 

 

https://wallstreetonparade.com/2024/01/the-fed-has-a-dirty-little-secret-its-been-allowing-the-wall-street-mega-banks-to-calculate-their-own-capital-requirements/

Everything that’s Dangerous about U.S. Banks Today in One Highly Readable Book

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Everything that’s Dangerous about U.S. Banks Today in One Highly Readable Book

By Pam Martens: January 17, 2024 ~

Anat Admati, Professor of Finance and Economics at Stanford Graduate School of Business, and German economist Martin Hellwig, have performed a public service to all Americans with their newly released, updated and expanded book The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It. It puts the interlocking web of corruption that is mistakenly referred to as the U.S. banking system into a pristinely documented and highly readable book.

Let us first explain those men without pants on the book jacket. That provocative graphic comes from the storyline in the Hans Christian Andersen tale “The Emperor’s New Clothes.” Tailors offer to make the emperor magical clothes that will be visible only to smart people and invisible to the stupid and unfit. When the emperor’s ministers go to inspect the clothes, they see nothing, but they are fearful of being called stupid if they admit this. The emperor, also fearful of being regarded as intellectually lacking, says nothing and tours the capitol in his nonexistent garments. Only a child is brave enough to shout out in the capitol “The emperor has no clothes,” thus breaking the conspiracy of silence.

The authors explain in example after example how corruption has taken over the banking system today but the guardians of our democracy have bought into the “pervasive myth that banks and banking are special and different,” so they have allowed themselves to be socialized to silence out of fear of being “declared incompetent to participate in the discussion.”

As I read that insightful analogy, the image of 60 Minutes’ Lesley Stahl treating JPMorgan Chase’s crime boss, Jamie Dimon, like a revered financial wizard in a televised interview in 2019 flashed through my mind. (Less than a year after that program aired, JPMorgan Chase admitted to another two felony counts brought by the U.S. Department of Justice, bringing its total to an unprecedented five felony counts in the span of six years.)

A key area on which Admati and Hellwig shine much needed sunshine is the accounting gimmickry that allows U.S. banks to hide billions of dollars in losses on bonds by simply labeling them “held to maturity” securities. (For background, see here and here.) The authors write that “Accounting rules should be changed so that banks must apply fair-value accounting to all assets regardless of how long they intend to hold them.”

Admati and Hellwig also provide brilliant new insights into the second, third and fourth largest bank failures in U.S. history that occurred in the spring of last year. Those bank failures resulted in the Federal Reserve creating yet another new bailout program, the Bank Term Funding Program, despite the American people being reassured since 2010 that the Dodd-Frank financial reform legislation ended “too big to fail.”

The authors compare the persistent attack by banks, their lobbyists, and their toadies in Congress that bank regulations impose a “cost” on society to “chemical companies complaining about increased costs when they are prohibited from dumping toxic chemicals into rivers next to their plants.”

This is a spot-on comparison considering that the worst financial crisis in the U.S. since the Great Depression occurred from 2007 to 2010 as a result of the Wall Street mega banks dumping their toxic mortgage securities across the financial landscape of America and imploding a vast stretch of it.

The final chapter of the book, “Above the Law?” is a testament to the encyclopedic banking knowledge of the authors. They have selected some of the most revealing episodes of banking crimes to illustrate how Americans now live under the jackboot of Wall Street banking titans with all avenues of redress locked up tight.

One example cited in the chapter is vital to understanding the perilous nature of how Americans have been stripped of their ability to fight back against the banking cartel – whose tentacles now extend into the courts, the Congress, the Justice Department and federal prosecutors’ offices across the land.

On November 19, 2013 the Justice Department, together with a number of state attorneys general, announced a stunning $13 billion settlement with JPMorgan Chase for “misleading investors about securities containing toxic mortgages.” The Justice Department’s Statement of Facts was so devoid of critical details that it was impossible to unravel the scope of what had gone down.

The nonprofit watchdog, Better Markets, was so incensed by the subterfuge that it filed a lawsuit against the U.S. Department of Justice in February 2014, writing as follows:

“…the Executive Branch, through DOJ, acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions. The DOJ assumed this all-encompassing role even though the settlement amount is the largest with a single entity in the 237 year history of the United States and even though it provides civil immunity for years of illegal conduct by a private entity related to an historic financial crash that has caused economic wreckage affecting virtually every single American. The Executive Branch simply does not have the unilateral power or authority to do so by entering a mere contract with the private entity without any constitutional checks and balances.

“Notwithstanding such extensive and historic illegal conduct that resulted in a $13 billion payment, the DOJ did not disclose the identity of a single JP Morgan Chase executive, officer, or employee, no matter how involved in or responsible for the illegal conduct. In fact, the DOJ did not even disclose the number of executives, officers, or employees involved in the illegal conduct or if any of them are still executives, officers, or employees of JP Morgan Chase today. Moreover, the DOJ did not disclose the material details of what these individuals did, when or how they did it, or to whom and with what consequences. The DOJ was even silent as to which specific laws were violated, to what degree, and by what conduct. The DOJ also did not disclose even an estimate of the amount of damage JP Morgan Chase’s years of illegal conduct caused or how much money it made or how much money its clients, customers, counterparties, and investors lost. Remarkably, the DOJ does not even clearly state the period for which it is granting JP Morgan Chase immunity….”

So what happens when a genuinely non-partisan watchdog attempts to stand up for the rights of everyday Americans against the largest and most serially-charged bank in America? The federal court dismissed Better Markets case on the basis that it lacked standing.

The Attorney General at the Justice Department at the time of Better Markets’ lawsuit was Eric Holder, who did not bring one criminal charge against any top Wall Street executive despite the worst financial collapse since the Great Depression and despite the Financial Crisis Inquiry Commission referring nine individuals to the Justice Department for potential criminal prosecutions. Eric Holder and his head of the criminal division at the Justice Department, Lanny Breuer, both hailed from Covington & Burling, the corporate law firm that a federal judge called out for fronting for Big Tobacco for decades. See more from Wall Street On Parade related to Holder’s Justice Department here.

Summing up where we find ourselves today, the authors write:

“In an earlier era, conflicts between aristocrats and ordinary people would be decided in favor of the aristocrats no matter what; judges who were themselves aristocrats took it for granted that people of their own class must prevail. Some of the developments that we have sketched suggest that we may be returning to such a system. This situation poses a fundamental threat to our democracies, which are built on a rule of law in which all people are treated as equal before the law.”

Related Article:

New Court Documents Suggest the Justice Department Under Four Presidents Covered Up Jeffrey Epstein’s Money Laundering at JPMorgan Chase

Bank Regulator Who Approved the Riskiest U.S. Bank Getting Bigger in May, Wants to Do a Survey on Why Trust in U.S. Banks Is Tanking

 

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Bank Regulator Who Approved the Riskiest U.S. Bank Getting Bigger in May, Wants to Do a Survey on Why Trust in U.S. Banks Is Tanking

By Pam Martens and Russ Martens: November 13, 2023 ~

Michael Hsu, Acting Comptroller of the OCC

Tomorrow, the Senate Banking Committee will hold a hearing to question federal banking regulators on what they are doing to restore public trust and financial stability to the U.S. banking system after the second, third and fourth largest bank failures in U.S. history occurred this Spring and caught regulators napping. One of the regulators scheduled to testify is Michael Hsu, the Acting Comptroller of the Office of the Comptroller of the Currency (OCC).

Hsu undermined public trust in the U.S. banking system in May when he allowed JPMorgan Chase, the largest and riskiest bank in the United States, to become even larger and riskier through its purchase of the failed bank, First Republic Bank.

At a July 12 Senate hearing, Senator Elizabeth Warren had this to say about Hsu’s conduct:

“When First Republic Bank collapsed in April, the bank was ultimately sold to the biggest bank in America, JP Morgan Chase. That sweetheart deal cost the Federal Deposit Insurance Fund $13 billion. Meanwhile, overnight, the country’s biggest bank got $200 billion bigger. And what happened to the regulators? The Acting Comptroller of the Currency, Michael Hsu, rubber stamped the deal in record time. When I asked Mr. Hsu at a hearing in May to explain how this merger was approved, he was unable to provide a clear answer.

“But the overall picture gets worse. Instead of inattentive regulators who don’t use their tools to block increasing consolidation, leaders within the Biden Administration seem to be inviting more mergers. In a May 2023 statement before the House Financial Services Committee, Acting Comptroller Hsu reassured banks that the agency would be ‘open-minded’ while considering merger proposals….”

Senator Warren said this attitude was “courting disaster.”

The federal agency that is charged with providing an early warning system for serious cracks in financial stability, the Office of Financial Research, has the chart below currently residing on its website. It shows how banks rank in OFR’s Contagion Index.

OFR’s Contagion Index measures the degree to which a default by a specific bank could create systemic contagion in the U.S. banking system as a result of its interconnectedness and leverage. As of June 30, 2023, JPMorgan Chase represented three times the amount of potential contagion as the second largest bank in the U.S., Bank of America.

Hsu’s idea to deal with the collapse in public trust in the U.S. banking system is to – wait for it – conduct a survey measuring public trust in banks. Is it possible that Hsu doesn’t know that the esteemed Gallup organization has been doing just that for more than 40 years?

The most recent Gallup annual survey that measures the confidence that Americans have in key U.S. institutions was conducted between June 1-22 and released on July 6. Banks continued their downward trend, registering just 26 percent of Americans who have “a great deal” or “fair amount” of confidence in banks. That confidence ranking stood at 27 percent last year and at 33 percent in 2021.

Measured against a longer time horizon, today’s public confidence in U.S. banks looks dramatically more dire. In 1979, the Gallup poll showed 60 percent of Americans had confidence in the banks. In the years prior to the Wall Street financial crisis of 2008, which gutted the U.S. economy and also caught regulators napping, roughly half of Americans had confidence in the banks.

Another reason that trust in U.S. banks is setting four-decade lows is that the mega banks on Wall Street continue to function as serial fraudsters with no corrective pushback from their regulators – who frequently make a beeline to get a fat paycheck at the banks after leaving the U.S. government.

In an October 10 letter to the OCC, the nonprofit financial watchdog, Better Markets, wrote as follows:

“Beyond specific periods of panic, trust in the banking system is consistently being undermined by the steady stream of illegal, predatory, dishonest, and deceitful behavior that blatantly harms the American people, particularly the most vulnerable members of our communities. The frequency and severity of cases against the largest banks in the country for engaging in such conduct against their customers is a trust-killer.”

Better Markets included the graph below, showing the number of illegal acts of the six largest banks over the last two decades, along with the $207 billion in fines they have paid.

It summarized the graph’s findings as follows:

“These almost 500 matters and more than $200 billion in fines and settlements are widely reported and visible to the American public. The public not only sees that the banks break the law repeatedly, but that they are never meaningfully or effectively punished. The public also sees puny fines imposed on banks while the bankers just keep pocketing billions of dollars in bonuses while continuing to break the law. Moreover, it’s not just that those banks were all bailed out in 2008 and that not one Wall Street banker went to jail for crashing the global financial system, but it’s equally visible to the public that the banking regulators failed to do their jobs.”

And it’s not just the federal banking regulators that are failing to do their job. The criminal division of the U.S. Department of Justice has been compromised for the past 15 years when it comes to prosecuting Wall Street mega banks and their executives.

In 2013, the PBS program, Frontline, took a hard look at why the criminal division of the Justice Department had not brought one single indictment against any of the executives at the big Wall Street firms that had engaged in peddling fraudulent mortgages in the leadup to the 2008 financial crash. Frontline Producer Martin Smith had this exchange with the then head of the DOJ’s criminal division, Lanny Breuer:

MARTIN SMITH: We spoke to a couple of sources from within the Criminal Division, and they reported that when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.

LANNY BREUER: Well, I don’t know who you spoke with because we have looked hard at the very types of matters that you’re talking about.

MARTIN SMITH: These sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.

On March 11, 2016, the National Archives released a large volume of documents related to the work of the Financial Crisis Inquiry Commission (FCIC) and its investigation of the causes of the 2008 financial crash on Wall Street. After reviewing those documents, Senator Elizabeth Warren sent a September 15, 2016 letter to the Inspector General of the Justice Department and to then FBI Director James Comey seeking to find out why the Justice Department had not prosecuted any of the individuals or banks that were referred to it by the FCIC for potential criminal prosecution.

Senator Warren indicated in her letter to James Comey that her staff had “identified 11 separate FCIC referrals of individuals or corporations to DOJ in cases where the FCIC found ‘serious indications of violation[s]’ of federal securities or other laws consistent with this statutory mandate. Nine specific individuals were implicated in these referrals — yet not one of these nine has gone to prison or been prosecuted for a criminal offense.”

After a year of silence on Warren’s letter, Wall Street On Parade filed its own Freedom of Information Act (FOIA) request to the Justice Department in the matter. To be certain that the Justice Department would not decline our FOIA on the basis that we were seeking too broad a search, we narrowed our inquiry to the three former Citigroup executives whom the FCIC had referred to the Justice Department for potential prosecution: former Chairman of the Executive Committee of Citigroup, Robert Rubin – who served as the former U.S. Treasury Secretary under President Bill Clinton; former Citigroup CEO Charles (Chuck) Prince; and former Citigroup CFO Gary Crittenden. The Justice Department responded as follows:

“This is in response to your request for records on Charles Prince, Gary Crittenden, and Robert Rubin. Please be advised that I have decided to neither confirm nor deny the existence of such records pursuant to Exemptions 6 and 7(C) of the FOIA. 5 U.S.C. 552(b)(6), (7)(C). Even to acknowledge the existence of law enforcement records on another individual could reasonably be expected to constitute an unwarranted invasion of personal privacy. This is our standard response to such requests and should not be taken to mean that records do, or do not, exist. Accordingly, I cannot confirm nor deny the existence of records responsive to your request.”

Read the full Justice Department response to Wall Street On Parade’s FOIA request here.

Until corporate and Wall Street billionaire funding of political campaigns is outlawed by Congressional legislation; until Wall Street’s revolving door is slammed shut; until the U.S. President stops nominating (and the Senate stops confirming) partners at Wall Street’s law firms to run the U.S. Department of Justice, this is the corrupt, predatory banking system that every American will be forced to attempt to navigate.

Related Article:

JPMorgan Chase Paid $1.085 Billion in Legal Expenses in Last Six Months; It’s Still Battling Hundreds of Charges and Legal Proceedings on Three Continents

Another FDIC-Insured Bank Is Teetering, Closing at 27-1/2 Cents Yesterday, Down 96 Percent in a Year

 

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Another FDIC-Insured Bank Is Teetering, Closing at 27-1/2 Cents Yesterday, Down 96 Percent in a Year

By Pam Martens and Russ Martens: September 14, 2023 ~

There may be a lesson here: don’t put the word “Republic” in the name of your bank; don’t hold a lot of uninsured deposits; and don’t have wads of unrealized losses on your investment securities.

If those lessons sound familiar, it’s because they played out in stunning fashion earlier this year when the second, third and fourth largest bank failures in U.S. history occurred.

One of those banks that blew up was First Republic Bank, which was put into FDIC receivership on May 1 and later sold, under much controversy, to the already behemoth JPMorgan Chase, the largest bank in the U.S. (JPMorgan Chase can’t seem to stay away from criminal charges. It thus far has notched five felony counts in its belt and is currently being sued by the U.S. Virgin Islands for “actively participating” in Jeffrey Epstein’s sex-trafficking of minors by providing him with more than $5 million in hard cash over a decade.)

Now, another bank with the word “Republic” in its name is in deep distress. The holding company of the current problem bank is Republic First Bancorp (trading ticker FRBK), whose federally-insured banking unit is Republic Bank.

As of June 30, according to regulatory filings, Republic Bank held $6 billion in assets and had 35 branches in Pennsylvania and New Jersey. More than half of its deposits were uninsured. Its SEC filings are not up-to-date but in its 10-Q (quarterly report) for the period ending September 30, 2022, it had this to say about those uninsured deposits:

“As of September 30, 2022, our 100 largest bank depositors accounted for, in the aggregate, 16% of our total deposits. The majority of these deposits are not insured by the FDIC and could present a heightened risk of withdrawal, if such depositors materially decreased the volume of those deposits, it could reduce our liquidity. As a result, it could become necessary for us to replace those deposits with higher-cost deposits or FHLB borrowings, which would adversely affect our net interest income and, therefore, our results of operations.”

Republic First Bancorp’s stock price has declined by 96 percent in the past 12 months as of yesterday’s closing price. Its stock was delisted from Nasdaq last month and it closed at a stunning 27-1/2 cents in over-the-counter trading yesterday.

Republic First Bancorp is far from the only bank holding company that has suffered huge share price losses over the past 12 months. HomeStreet (ticker HMST) has lost almost 75 percent of its market value. It’s a West Coast bank with 60 branch offices in Washington state, Oregon, California and Hawaii. As of June 30, it had assets of $9.5 billion.

PacWest Bancorp, parent of Pacific Western Bank, has also suffered steep share price losses, losing over 70 percent in the past year. Pacific Western Bank has 77 branches and $38 billion in assets as of June 30.

A much smaller bank holding company, Carver Bancorp, is the parent of Carver Federal Savings Bank, which has 7 branch offices in New York and $713 million in assets as of June 30, according to the FDIC. Its stock has lost 56 percent of its value over the past 12 months.

This is just a tiny sampling of the ongoing wreckage to equity values in the banking sector – raising the very serious question as to how this is all going to shake out before year’s end. 


https://wallstreetonparade.com/2023/09/another-fdic-insured-bank-is-teetering-closing-at-27-1-2-cents-yesterday-down-96-percent-in-a-year/