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« The Latest Stories From Live Beat (17 Since Friday) | Main | Sen. Bunning Tells Bernanke: "You Are The Definition Of A Moral Hazard; The AIG Bailout Alone Is Reason Enough To Send You Back To Princeton" (Video & Transcript) »
Monday
Dec072009

Off-Balance Sheet Nightmares Set To Begin Costing Banks: Sheila Bair May Give Banks Reprieve On Capital Requirements As New FASB Rules (166, 167) Take Effect

“We support bringing all this back on balance sheet,” Bair said.  “It should have been on, frankly, all along.  And we know that now.”

FDIC's Sheila Bair Interview on Financial Regulation

Video: Dec. 3 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair talks with Bloomberg editors and reporters about efforts to overhaul regulation of the U.S. financial system and the outlook for higher capital requirements for banks. Bair, speaking in Washington, said she may give banks a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets. Bair also discusses plans to jump-start the securitization market, mortgage modifications and her career outlook.

Click to hear the interview on Bloomberg >>

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And some context below from the accompanying print piece:

Dec. 3 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said she may give banks including Citigroup Inc. and JPMorgan Chase & Co. a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets.

“Giving some breathing room in terms of when they can transition in is acceptable to us,” Bair said in an interview at Bloomberg News’s Washington bureau today. Bair said she wants the FDIC to vote on the issue at a Dec. 15 board meeting even as “we don’t completely have agreement yet among the regulators.”

Agencies including the FDIC and the Federal Reserve are considering financial industry requests to permit a phase-in of capital requirements, which rise starting next month under a change approved by the Financial Accounting Standards Board. The rule, passed in May, eliminates off-balance-sheet trusts known as Qualifying Special Purpose Entities, forcing banks to move billions of dollars of assets and liabilities onto their books.

“We support bringing all this back on balance sheet,” Bair said. “It should have been on, frankly, all along. And we know that now.”

Banks should be given three years to raise capital to offset assets and liabilities brought onto balance sheets, Citigroup Chief Financial Officer John Gerspach said in an Oct. 15 letter to regulators. Requiring banks to “assume the risk- based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.

New York-based Citigroup argued that the FASB rule would lead the bank to cut financing for securitizations that fuel credit-card lending, residential mortgages and student loans. Additional consumer loans will be cut as well, the bank said.

‘Negative Impact’

The capital requirements “will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks,” JPMorgan Managing Director Adam Gilbert said in an Oct. 15 letter to regulators. “We strongly support a phase-in period for the rule changes.”

Investors are wary of a company’s unknown obligations after the world’s biggest banks and brokerages reported more than $1.7 trillion in writedowns and credit losses since the start of 2007, some stemming from losses in off-balance-sheet vehicles.

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And here's background on FASB 166 & 167, the rule changes causing the consternation for banks still playing off-balance sheet liar's poker:

Banks Need To End The $1 Trillion Game Of 'Hide and Seek'  (Bloomberg)

Citigroup, JPMorgan Urge Relief From Higher Capital Requirement  (Bloomberg)

Bringing It Back On Balance Sheet (FT Alphaville)

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Reader Comments (4)

I'm curious. Does anyone here have money in an account at Citi, BofA, JPM, or Wells? Better question: Why does ANYBODY have accounts at these institutions. 1.) You could lose some money (depending on how much you have in the account). 2.) You would almost certainly experience some serious hassle and worry if the bank were taken over by FDIC. And 3.) Why in God's name would you want to support these TARP banks, anyway?

My only regret is that I didn't have a shitload of money in one of these banks so that I could have the pleasure of asking for all of it. NOW! Demand those deposits, people. Put them into a nice, safe credit union or small, well-run community bank.
Dec 8, 2009 at 1:02 AM | Unregistered CommenterJames H
ALL SHUT and credit union now..................

WAR MACHINE ECONOMY:This war can't end! It just

This war can't end! It just can't! Its been too profitable for the military industrial complex. What, eight years of gigantic orders for choppers, tanks, cruise missiles, ships, guns, bullets, explosives, casings, clothing, armor, binoculars, meals-ready-to-eat, tents, maps, compasses, radios, computers, toilet paper, felt in-lines for boots, little Iraw and Afghanistan shaped air freshers for latrines, soup ladels, and lots and lots and lots of extra desks and pens for all the strategists who've been paid to do nothing in scattered offices all around the country. (Lemme know if I missed anything on this list.) Basically, its the entire people and economy of Iceland plus the weapons of World War II being paid for by... somebody in the future.

I wonder what the end of year bonuses will be like over here at United Technologies?

Almost 50 years after Eisenhower's warning and the military industrial complex continues to loot one generation after another. The war in Vietnam escalated because of the Gulf of Tonkin lie just a few years after he made his remarks on national television. We've come a long way on the Federal Reserve fraud, but this country's views on foreign policy are still pretty discouraging.

Federal Reserve Exposed
Check out this graphic novel about the Fed
http://www.flickr.com/photos/45356910@N06/sets/72157622953441500/show/

Only a massive tax revolt is the only thing we can do to get our government's attention.

Nothing Less Nothing more.........

OBAMA=CHICAGO MOB SHILL KEEPS SPINNING BANKER TERRORISTS PREPARED SPEECH VIA TELE-PROMPTING MACHINE
Dec 8, 2009 at 11:51 AM | Unregistered CommenterKen
On health care, Reid likens GOP to civil rights foes
http://news.yahoo.com/s/mcclatchy/3372955
DEMOCRATS=DEMON-RATS
REPUBLICANS=REPO-CONS

Sickening bickering.....read on criminal ruler spins
Dec 8, 2009 at 12:09 PM | Unregistered CommenterKen
http://www.nytimes.com/2009/12/08/business/08account.html?source=patrick.net
Board to Propose More Flexible Accounting Rules for Banks
Dec 9, 2009 at 3:03 AM | Registered CommenterDailyBail

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