Bank of America ranked first among U.S. commercial banks on the most recent Fortune 500 list. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Phrases like “bank bailout” and “too big to fail” have left a sour taste in the mouths of consumers. The results are easy to see in recent consumer confidence polls, suggests Bankrate. The question “Do you trust your bank?” posed by banking consultants BAI & Finacle in their biannual Index of Bank Sentiment survey received negative replies from consumers. Not only that, but the survey shows that bankers’ assessment of consumer confidence is entirely out of whack.

The divide between consumer and banker opinion

The Index of Bank Sentiment survey polled a large group of bankers and more than 2,500 U.S. banking customers. According to the results, the gap between consumers who trust their bank (77 points on the survey scale) and bankers who believe consumers trust them (121 points) suggest a cavernous divide, rather than a mere difference of opinion. A mark of 100 points for either side would have indicated reasonable confidence.

Some financial experts believe that the rise of non-traditional consumer credit products like payday loans supports the findings of the BAI & Finacle survey. If the answer to the question “Do you trust your bank?” is no, it is not surprising that a consumer would look to other financial institutions for small loans.

Trust versus perception

Curiously, while the Index of Bank Sentiment survey indicates that most consumers didn’t trust their banks (63 percent), 64 percent of consumer respondents still indicated that their primary bank has a “good image and reputation.” Forty percent felt their bank wasn’t looking out for their best interests.

In terms of bank fees, a whopping 85 percent of consumers voiced their expectation that they should not have to pay for a checking account. Only 44 percent found current bank fees to be reasonable.

Commercial banks on the Fortune 500 list

While community banks and credit unions have become increasingly popular with consumers, large commercial banks still reign supreme when it comes to capturing consumer business. According to the recently released Fortune 500 list, 20 commercial banks cracked the list of top U.S. companies, with seven in the top 100. Bank of America Corp. ranked first among commercial banks, and ninth overall on the Fortune 500. JPMorgan Chase & Co. (13 overall), Citigroup (14), Wells Fargo (23) and Goldman Sachs Group (54) rounded out the top five.

US consumer opinion of other financial service companies

A world of financial service companies does exist beyond banks, from investment brokers to payday loan companies. Expanding upon the BAI & Finacle survey, The Edelman Trust in U.S. Financial Services Survey found that almost half of consumers polled trusted their financial service company less in 2010 than the previous year. Forty-six percent of respondents attributed the erosion of trust to corporate greed, while 20 percent felt that the financial services industry exacerbated the country’s financial meltdown.

Sources

Bankrate.com

Shared Financial Success

Author Ramit Sethi on ways banks nickel and dime you

Large banks may soon pay more into the FDIC deposit insurance fund – and small banks may pay less. (Photo Credit: CC BY-SA/MBisanz/Wikipedia)

Big banks are going to have to wait before doling out annual bonuses, reports the Associated Press. In order to minimize risky transactions that could damage the United States’ ongoing economic recovery, the Federal Deposit Insurance Corp. voted Monday on a rule that would require half of bankers’ bonuses to be postponed by at least three years. The rule would apply to financial institutions with $50 billion or more in assets.

Big banks to pay bigger insurance fees

In addition to the proposed banker bonuses provision, a clause within the Dodd-Frank Act will require the same large U.S. financial institutions to contribute more in insurance costs to the FDIC in order to protect bank deposits nationwide. Those banks that hold the most in assets – rather than deposits – minus tangible equity will contribute more to the deposit insurance fund. In general, those institutions that pose the greatest risk to the U.S. financial system due to high-risk assets and less stable liquidity will be charged more.

Startlingly, the insurance fund has run in the red for some time, going as low as $15.2 billion in the hole during the height of bank closures and bailouts. On the bright side, by the end of the third quarter 2010, the deficit had been cut nearly in half to $8 billion.

Smaller banks will pay less

According to small bank trade group the Independent Community Bankers of America, 98 percent of banks that possess less than $10 billion in assets will pay less money into the insurance fund, thanks to various rule changes. The ICBA says this will save smaller U.S. banks $4.5 billion over the next three years.

“ICBA led the charge throughout the Wall Street reform debate to create fairness within the deposit insurance system so that Main Street community banks can continue to serve their customers and keep money where it belongs — in the community,” said chairman James MacPhee.

The need to improve

With the assistance of greater deposit insurance contributions, Bair believes that the FDIC will be able to bring the fund back to a positive balance. Once that happens, banks should be able to depend upon more predictable rates for unsecured loans.

“The financial crisis provided ample evidence of the need to improve the assessment system,” said Bair. “The banking industry, the Deposit Insurance Fund and the financial system will benefit from this rule in both the short and long term.”

Sources

Associated Press

Housing Wire

Imagine all the bankers living for less pay

Wall Street pay is rising fast, while taxpayer salaries are stagnant or sinking. (Photo Credit: CC BY-SA/dforian 1980/Flickr)

Total compensation and benefits for publicly traded Wall Street banks and securities firms hit a record of $135 billion in 2010, a 5.7 percent increase over 2009, reports the Wall Street Journal. While more salary is deferred than before, the increase in base Wall Street pay more than compensates.

Wall Street salaries a ‘Get Out of the Recession Free’ card

The Wall Street Journal’s survey of 25 large financial firms that posted full-year results reflected a significant revenue rebound. Overall, revenue reached a record $417 billion. That 1 percent increase is a sign that things are getting back on track for the recipients of taxpayer-funded bank bailouts.

“Things are shifting back to where they were before,” said corporate law professor J. Robert Brown of the University of Denver.

But not everything will be the same. Federal regulation and pressure from shareholders have changed the culture of the Wall Street pay. Criticism over large Wall Street bonuses was impossible to ignore. In 2009, one-third of Wall Street salaries were delivered in manner that allowed them to be deferred. However, as New York pay consultant Alan Johnson of Johnson Associates Inc. estimates, half of Wall Street salaries were deferred in 2010.

Wall Street revenue drives record salaries

Wall Street pay is driven by what is known as the compensation ratio, the percentage of total revenue that Wall Street directs to employees. The average Wall Street salary was up by 3 percent (to $141,000), and the compensation ratio reached 32.5 percent last year. Deferred or no, those are hard numbers for the average U.S. taxpayer to swallow, considering that salaries off Wall Street have stagnated and consumers are looking to short term credit like installment loans to make up for deficiencies in pay.

Runs on hiring Wall Street executives have also contributed to the higher overall salary level. Investment bank Greenhill & Co. increased salary by 16 percent to $159.9 million after a three-year hiring binge. This occurred despite a less than impressive fourth quarter last year. Meanwhile, top executives such as Bank of America’s Brian Moynihan and Goldman Sachs’ Lloyd Blankfein received huge raises. Moynihan’s 2010 salary was 67 percent higher than the previous year, while Blankfein tripled his salary and received a stock-based raise of 40 percent.

Sources

Reuters

Wall Street Journal

‘It Takes a Pillage’ to pay Wall Street

Mississippi banks took millions of dollars in short term loans from the Federal Reserve. (Photo Credit: CC BY-SA/Charlie Brenner/Wikipedia)

The Associated Press reports that the Federal Reserve released a report in December that shed additional light on the banks that accepted bailout money – and how much each took. According to the Mississippi-based newspaper The Dispatch, three banks in that state received millions of dollars in Federal Reserve short term loans in order to maintain stability.

Fed upped its short term loans after Lehman collapse

After Lehman Brothers disintegrated in September 2008, the Federal Reserve began issuing short term loans to banks at what can be called a manic pace. Trillions of dollars were pumped into the financial system over the course of 21,000-plus transactions nationwide. Banks, financial corporations and foreign central banks were all beneficiaries of U.S. taxpayers’ largess, whether those taxpayers realized it or not. While credit did not dry up completely, the Federal Reserve’s short term loans did not create a vigorous credit market via stimulus dollars.

Mississippi bank handouts

The AP indicates that the Federal Reserve’s transparency report names several Mississippi banks. Tupelo-based BancorpSouth, which is the largest bank based in the state, with $13.6 billion in assets, received eight short term loans – also known as Term Auction Facility (TAF) loans – from the Fed that ranged from $50 million to $300 million. Trustmark National Bank ($9.4 billion in assets) of Jackson, Miss., received short term loans by the dozen, ranging from $50 million to $150 million. Sycamore Bank, which is based in Senatobia, Miss., received a single $5 million short term loan from the Federal Reserve.

Mississippi banking customers shouldn’t worry

According to Howard McMillian, the dean of the Else School of Management at Millsaps College in Jackson, Miss., banking customers needn’t make a run on the bank to withdraw funds. The Federal Reserve assures that all short term loans granted to Mississippi banks were backed by collateral and paid in full plus interest.

“(The TAF program) was created to meet some short-term liquidity needs, and it had nothing to do with a shortage of capital reserve or anything like that,” said McMillan to the AP. “There’s really no cause for concern.”

Source

Associated Press

The Fed is leading a group of investors trying to force Bank of America to buy back $47 billion in bad mortgage bonds. Image: CC Shannon Clark/Flickr

The foreclosure crisis could be coming home to roost on the banks that caused the housing crisis. The Federal Reserve Bank of New York joined a group of the largest bond investors in the U.S. Wednesday to demand that Bank of America buy back bad mortgage loans packaged into securities. Other mortgage bond investors are expected to follow suit, along with lawsuits that could lead to big losses for big banks.

Fed improves odds for jilted investors

Investors who took a bath in the housing crisis want to recoup losses on mortgage bonds from the banks that sold them. Bloomberg reports that the fight over who will ultimately take the hit got more interesting Wednesday when the Federal Reserve Bank of New York threw its weight behind a bid to force Bank of America to buy back $47 billion in bad mortgage debt packaged and sold by its subsidiary Countrywide Financial Corp. The Fed joined a group including Pacific Investment Management Co., BlackRock Inc. and Freddie Mac. An investment analyst told Bloomberg that the Fed’s involvement increases the odds that the group may prevail.

B of A seeks to evade responsibility

Bank of America said it refuses to be held responsible for the losses. Reuters reports that in a conference call with analysts, Bank of America Chief Executive Brian Moynihan said investors can’t justify the claim that his bank sold them bad mortgages. He compared it to people saying they bought a Chevy but they want a Mercedes in return. A representative for the group of investors told Reuters that it was a case of “buying a Vega and getting a Vega.”

Bank bailout 2.0

With the largest bond investors in the U.S. trying to force the largest mortgage lender in the U.S. to give them their money back, “expect a tidal wave to begin,” said Daniel Indiviglio at The Atlantic. Banks, even though they’re sitting on tens of billions of dollars in cash, will lose big if investors are successful. Banks may lobby Congress to pass a law that lets them off the hook. That just might happen because if the banks are forced to face the consequences of their actions, the financial industry could melt down once again.

Sources

Bloomberg

Reuters

The Atlantic

On the community level, smaller banks and credit unions give back to the people who need financial help.

You’ve seen it in the news and you’ve experienced it firsthand. Banks have cried to the government for bailout money to continue operating, they received billions of taxpayer dollars and what did they do with that money? High salaries and executive bonuses are still common in America’s big banks, and the American people are fed up. They use payday loans when they need quick cash, but what about long-term solutions? The Financial Crisis Inquiry Commission (FCIC) and well-informed panel members like Heather Murren are on the right track, pursuing bank CEO with probing questions about regulatory matters. But what can average consumers like yourself do with your money if you no longer want to support big banks and their greed and treachery? You can Move Your Money!

Community banks and credit unions build communities

Move Your Money is a grassroots effort that is designed to shift power “away from Wall Street and to Main Street,” according to MoveYourMoney.info. In a recent article, Phil Britt points out that the movement is supported by The Huffington Post, which is a significant organization to have in one’s corner. No more Goldman Sachs, Morgan Stanley, JP Morgan/Chase, Citibank, Bank of America or Wells Fargo, says Move Your Money. They all “took billions in taxpayer money and have cut lending to businesses by $100 billion.” Post founder Ariana Huffington identifies this as “populism at its best… a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest.” If the American people do not take a stand, big banks will continue to control your money (and likely mismanage it).

Community banks support them

Berdell Knowles of the Community Development Bankers Association defines the culture gap between average citizens and big bankers. He blogs that “The bank executives who make the decisions on how to use the earnings from your money, whether it be to pay management bonuses or to invest in sub-prime mortgages, will probably know little about you or your community.” The natural alternative is community banks that use their economic power to directly help local economies (rather than funneling it into the gigantic overhead big banks bring to the table).

Not only that, but Knowles acknowledges that a community bank might have better insight into a borrower’s creditworthiness if they’re familiar with the customer. It’s a personal touch that big banks can’t possibly duplicate. Another thing community banks have over big banks is specific community economic funds distributed by the government (federal and state). An example Britt gives is the three percent TARP funds for Small Business Lending. There were $1 billion in assets there, and it was specifically for community banks.

Are people listening to Move Your Money? Yes they are

Credit Union National Association CEO Dan Mica has blogged that “consumers are already voting with their wallets in favor of credit unions.” Two percent credit union membership growth in 2009 is the most that industry has experienced since 2001, so the swing is quite real. Rep. Barney Frank had his finger on the pulse of the people when he said that the mortgage crisis would never have happened if big banks behaved like community banks and credit unions. People see what needs to be done, and Move Your Money is a way to mobilize them. When the people need money, they can use payday loans, but in the long term, community banks and credit unions are much more worthwhile to support that America’s treacherous big banks.

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FDIC borrowing back from banks – coming soon! (Photo: Ryan McFarland)

It would appear that the FDIC is in need of payday loan lenders these days. Maybe they’ll need something even stronger. But here’s a possible scenario that could be in store for the federal organization that has helped insure customer deposits in failed banks: banks will bail out the FDIC.

Scrounging for cash

When you or I need money, payday loan lenders can help. For the FDIC, billions of dollars are necessary to continue to hold the safety net. This recession has been tough, and according to a New York Times story at http://www.msnbc.msn.com/id/32963393/ns/business-the_new_york_times/, senior regulators are considering asking healthy banks for billions. Bankers and their lobbyists are strongly behind the potential deal. It should go without saying that most taxpayers support a plan that doesn’t involve them giving up more money.

Remember when there were people who viewed the bank bailout with clear eyes?

Why do banks like this idea?

They don’t want to have to undergo more Treasury stress tests (they’re very stressful). They also don’t want to have to continue to operate on lines of credit from the Treasury. That’s no way to dig out of financial quicksand.

Why does the FDIC like the idea?

FDIC Chairwoman Sheila Bair doesn’t want to have to ask the Treasury for another line of credit. Apparently, Bair and Treasury Secretary Timothy Geithner aren’t on great terms, so you can imagine how such a thing would go over as well as a meeting between a polecat and a gerbil farm.

Sure, the FDIC does have the right to tap into a credit line of up to $100 billion from the Treasury without permission. That’s guaranteed by current law. But Bair finds the prospect “unpalatable.” Not only is it unpalatable, but Camden Fine of the Independent Community Bankers organization said that “Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help.” Not needing permission wouldn’t mean she wouldn’t have to deal with Geithner.

For the record, the law allowing the FDIC to borrow from the Treasury without permission was put on the books in 1991 during the savings and loan crisis. Banks received government bonds at an interest rate set by the Treasury secretary, and they would be paid by other businesses in the industry.

Why should the American people like this idea?

It keeps the money “in the family,” so to speak. More money from the Treasury would be construed as more taxpayer money going toward bailing out irresponsible institutions. Independent Community Bankers of America Executive VP of Government Relations Karen Thomas agrees that “It is much better for perceptions than having the fund borrow from somewhere else.”

Policy officials see this as a two-step process

By borrowing from healthy banks, the FDIC could very well take care of its short-term liquidity issues and preventing the need for payday loan lenders. For long-term needs, an increased fee imposed on banks to help keep the FDIC stocked with cash is under consideration. Considering that the FDIC has seized 94 failed banks since the beginning of 2009, they have to increase their cash stores considerably. They currently have about $10 billion in a general store and $32 billion set aside for the failures that are predicted over the next few months. However, if one large bank goes down, the FDIC is in trouble.

That means bank customers would be in trouble

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While no consensus has been reached yet on what direction the FDIC will go, expect a decision soon. Calling for banks to prepay their 2010 premiums is another idea, but let’s hope the country is out of the recession spiral by then. If it isn’t, we’ll need more than payday loan lenders to fix our financial problems. We’ll need body armor.

Is that a halo or are you just happy to see the bulls running like they did in the old days? (Photo: advancethstruggle.wordpress.com)

Health care reform may be in the political spotlight right now, but there’s a crisis of another color that hasn’t disappeared. It bears the color of money, a color that many believe President Obama has fed Wall Street but kept from the common man. One year after the collapse of Lehman Brothers, the Washington Post reports that the president is pushing his plan to reform the way America regulates its financial system. If things change, who will end up marking “pay day” in their ledger?

Is there an exit strategy?

That’s the major question on the table here. Is it the Obama administration’s indefinite plan to funnel taxpayer money into sagging banks, or will there be a path banks can take to heal themselves? Government spending is at its largest percentage of our national economy (26 percent) than it has been since World War II, state the New York Times. The U.S. Government is also our “biggest lender, insurer, automaker and guarantor against risk for investors large and small.” How long can that continue in a nation that supposedly thrives on competitive balance, where private enterprises have a chance to make hay in a fully capitalist system?

It was a depression

And Obama’s Wall Street plan kept us from total collapse. But we’re in holding pattern time now; the taxpayers must not be the main reason banks keep their doors open. If a recent  AP-GfK poll (see http://news.yahoo.com/s/ap/20090914/ap_on_bi_ge/us_meltdown_ap_poll_3) is indicative of the temperature,  “seven out of 10 Americans lack confidence the federal government has taken safeguards to prevent another financial industry meltdown,” and 80 percent see our economy as  “poor” at this very moment. Politico speculates that financial legislation could be buried by the health care reform debate and opposition by big business groups that have benefitted from the current artificial stimulus. When will relief reach the common man? Is President Obama’s Wall Street plan even geared to perform such a task?

Mr. Obama, Wall Street must change its business practices

A pay day for Wall Street has kept banks going, but the systems which led to the financial meltdown are largely still in place. Sure Wall Street has recovered “more quickly than expected,” writes the Los Angeles Times at http://www.latimes.com/business/la-fi-wall-street14-2009sep14,0,318685,full.story. That’s because their greed-centered profit devices still exist, which are designed to help them in the short run without a thought to defending against future tailspins. Obama and the Wall Street pay day simply gave it a jump start. The engine is still corrupt as it currently stands.

Health care: essential reform that may be all we get

President Obama and Congress may not have the energy (and the public may be completely distracted from) the financial regulation issue. A Washington Post-ABC News poll indicates that the president’s recent health care speech before the joint session of Congress has calmed some of the opposition to his reform plans. The Joe Wilson “You lie” dog-and-pony show may prove to be a last gasp in the fringe right wing’s ability to seriously challenge Obama’s plan. Yet some Democrats continue to give that story life by voting on whether Wilson should make a more formal apology on the House floor. America needs a strong push that takes the health care reform issue to a needed conclusion so that Obama can hit Wall Street and make financial reform an equally important part of the agenda. Both issues are essential to the financial well-being of the American people, even if the health care debate is more “sexy.” Honestly, when columnists like Maureen Dowd write that “For two centuries, the South has feared a takeover by blacks or the feds. In Obama, they have both,” how can news about the financial regulatory crisis compete?

People love to foam at the mouth over matters like racism, whether they are real or invented. Financial stuff simply isn’t going to garner the same audience, largely because most American public schools do not provide students with proper financial education. Get kids up to speed on how the economy works and we’d all be looking at a serious pay day then!

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