FDIC, Fed Rulings Could See Five “Too-Big-to-Fail” Wall Street Firms Broken Up by 2018

Truthout:

Federal regulators announced Wednesday morning that Dodd-Frank-mandated resolution plans of five “too big to fail” banks were “not credible,” setting in motion a process that could see them broken up in thirty months.

The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve on Wednesday announced that plans outlined by the quintet — Bank of America, JP Morgan Chase, Wells Fargo, New York Mellon, and State Street — were inadequate.

Because of the joint ruling, the firms are under pressure to revise their so-called “living wills.” The FDIC and Fed may subject the five banks to more strict regulations and reserve requirements on Oct. 1, if they fail to submit a satisfactory scheme by then. And if they haven’t submitted proper living wills by October 2018, the two agencies “may jointly require the firm to divest certain assets or operations to facilitate an orderly resolution of the firm in bankruptcy,” as the Fed noted onWednesday.

Federal regulators announced that 5 out of 8 big banks do not have credible plans for winding down operations during a crisis without the help of public money

Press Releases

Joint Release

• Board of Governors of the Federal Reserve System
• Federal Deposit Insurance Corporation

For Immediate Release

April 13, 2016

Agencies Announce Determinations and Provide Feedback on Resolution Plans of Eight Systemically Important, Domestic Banking Institutions

The Federal Deposit Insurance Corporation and the Federal Reserve Board on Wednesday jointly announced determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important, domestic banking institutions.

The agencies have jointly determined that each of the 2015 resolution plans of Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street, and Wells Fargo was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the statutory standard established in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The agencies have issued joint notices of deficiencies to these five firms detailing the deficiencies in their plans and the actions the firms must take to address them. Each firm must remediate its deficiencies by October 1, 2016. If a firm has not done so, it may be subject to more stringent prudential requirements.

The agencies jointly identified weaknesses in the 2015 resolution plans of Goldman Sachs and Morgan Stanley that the firms must address, but did not make joint determinations regarding the plans and their deficiencies. The FDIC determined that the plan submitted by Goldman Sachs was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, and identified deficiencies. The Federal Reserve Board identified a deficiency in Morgan Stanley’s plan and found that the plan was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code.

Neither agency found that Citigroup’s 2015 resolution plan was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, although the agencies did identify shortcomings that the firm must address.

The deadline for the next full plan submission for all eight domestic, systemically important financial institutions is July 1, 2017. The agencies will evaluate all eight of the full plans submitted in 2017 under the statutory standard.

The agencies are issuing Resolution Plan Assessment Framework and Firm Determinations (2016), which explains the resolution planning requirement, and provides further information on the determinations and the agencies’ processes for reviewing the plans. Further, the Federal Reserve Board is releasing the feedback letters issued to each firm. Each letter details the deficiencies and shortcomings of each firm’s plan, as well as the specific remediation required of each firm. Additionally, the agencies are releasing new guidance for the July 2017 submission of all firms.

Read on.

Morgan Stanley to pay $63 million U.S. mortgage bond settlement: FDIC

Morgan Stanley has agreed to pay nearly $63 million to resolve claims over the sale of toxic mortgage-backed securities to three banks that later failed, the Federal Deposit Insurance Corp said on Tuesday.

The settlement resolves lawsuits the U.S. regulator filed as receiver for the three failed banks against Morgan Stanley and other defendants over what the FDIC said were misrepresentations in the offering documents for the mortgage-backed securities.

Morgan Stanley declined comment on the settlement. It was the latest step by the Wall Street bank to resolve U.S. government claims stemming from the sale of mortgage bonds before the financial crisis.

Read on.

Ex-FDIC Auditor Files Brief

Interesting…

Eric Mains, former FDIC Auditor who quit to defend his home and go after the banks for the “culpable” actions has filed a brief worth reading. Anyone following this blog should read it carefully.

The banks use the Rooker Feldman doctrine, res judicata, collateral estoppel and a variety of other devices to convince judges that any action for damages or other relief is barred if a judgment has been entered against the borrower. It is a cloud of legal fantasy that often obscures the vision of the court.

Among the points that are well made is that if the relief sought by the homeowner would not set aside or disturb the judgment that was entered, and the homeowner is complaining of external culpable actions that led the to the entry of the judgment, then the homeowner has in fact raised issues that can be heard in Federal or State Court or in Bankruptcy Court. It is simple logic based upon long-standing law.

see RESPONSE Brief Chase and Citi-Highlighted

Source: Livinglies website

FDIC Sues Citi, US Bank Over $695M Mortgage Security Loss

Law360, New York (August 20, 2015, 12:11 PM ET) — The Federal Deposit Insurance Corp. on Wednesday sued Citibank NA and U.S. Bank NA alleging they failed in their roles as trustees for residential mortgage-backed securities held by a failed bank that contributed to a $695 million loss to the regulator’s insurance fund.

The FDIC was hit with RMBS losses totaling $695 million after taking over Guaranty Bank in 2009, according to three suits filed against the securities’ trustees. (Credit: FDIC) The complaints, filed in federal district court in Manhattan, came soon after a late filing…

Source: Law360

Former Tifton Banking CEO indicted for fraud

Interesting this bank CEO has been indicted for fraud and not the big bank CEOs or board of directors!

WASHINGTON –Former Tifton, Ga., bank president Gary Patton Hall Jr. has been indicted by a federal grand jury on six counts of bank fraud and one count of major fraud against the United States, federal officials have announced.

#Hall, 49, was charged Thursday for his role in a bank fraud scheme in which he is accused having hidden underperforming and at-risk loans from the bank and the Federal Deposit Insurance Corporation (FDIC), Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Michael J. Moore of the Middle District of Georgia, jointly announced.

#Hall was indicted Thursday.

#According to allegations in the indictment, Hall was the president/CEO of Tifton Banking Company from August 2005 until June 2010. During that time, prosecutors allege, Hall was engaged in a long running scheme to mislead the bank and its loan committee about loans the bank made to local people and businesses.

#As part of the scheme, Hall allegedly hid past-due loans from the FDIC and the Tifton Banking loan committee, which resulted in the bank continuing to approve and renew delinquent loans and loans for which the collateral was lacking. Several of the borrowers eventually defaulted on the loans, resulting in millions of dollars in losses to the bank and others.

Read on.

BofA, Merrill Lynch Settle Out Of FDIC’s $110M RMBS Case

Law360, New York (November 17, 2014, 5:34 PM ET) — Bank of America Corp. and Merrill Lynch have settled a Federal Deposit Insurance Corp. suit over their alleged role in the demise of United Western Bank, the parties said in a document filed Monday,

The FDIC claimed they, and Morgan Stanley and RBS Holdings USA Inc., sold $110 million in fraudulent residential mortgage-backed securities to United Western, which lost value.

“The parties have reached an agreement to settle the FDIC’s claims against the Bank of America defendants in this action,” they told the court.

Morgan Stanley…

Source: Law360

The only federal regulator to become a government whistleblower

Meet Dwight Haskins…

My travesty of justice deserves an outcry

I provided numerous whistleblower disclosures to the FDIC Chairman, Chief Auditor, Ombudsmen, Inspector General and others in the years leading up to the financial crisis in 2006 and 2007; during the 2008/9 financial crisis; and after the crisis when TARP was implemented. I was ignored and stonewalled which led me to petition the FDIC Board to be made aware of my whistleblower complaints and to authorize an independent investigation. I continued to be ignored and muted.

Sadly, had my disclosures been taken to heart by top FDIC officials, the trajectory of the crisis would have changed demonstrably. In fact, the mortgage/bank crisis may have been diverted entirely. I warned about faulty accounting by the banks; suspect actions and violations of regulations pertaining to toxic loan sales; improper approval of bank acquisitions and golden parachutes subsequent to the bailout; unsafe and unsound activities; and discriminatory lending practices by large banks.

Despite all my evidence, such as emailing copies of my disclosures to the FDIC chairman, ombudsmen, inspector general and others, I was unable to get the Merit System Protection Board (MSPB) administrative judge to rule that I was a government whistleblower. The administrative judge ignored nearly all of my evidence — finding my evidence too difficult to believe in light that the administrative judge somehow surmised that agency officials surely would have been disciplined or punished in light of my disclosures. (He had the evidence of such but stillrationalized that supervisors would have been disciplined right away if my account were so.)

Most shockingly, the administrative judge never considered that two consecutive ombudsmen resigned or took “early” retirement before they could complete their investigations of my complaints. My second-level supervisor and his supervisor took “early” retirement. The director of my division of supervision took early retirement as did the number two official in the division. An unbiased individual could see that the agency had made a clean-sweep of key officials so as to contain any fallout or reputation damage the agency might encounter should my allegations gain traction. Either that, or key officials had a guilty conscience and sought new beginnings at the same time.

It should be noted that government whistleblowers are entitled by law to have a hearing to present their evidence when they prove that the MSPB has jurisdiction over their whistleblower allegations. In my case, the MSPB had jurisdiction over my complaints as I proved they had jurisdiction, yet, miraculously the MSPB still objected to me being designated as a government whistleblower. The government watchdog authority used politics instead of judicial authority to decide the merits of my case. It knew any evidence I had could cause a public uproar should it find out how regulators helped cause the banking crisis.

By denying me of my lawful right, what the MSPB administrative judge showed was a lack of professional ethics, miscarriage of justice, and misapplication of law. I took my rebuttal next to the MSPB board and asked them for a hearing to reverse the earlier decision. The MSPB board sat on my appeal request for a full eighteen (18) months from July 2011 until Sept 28, 2012, when it finally decided to rule out any hearing for me. Notice the proximity of the Sept 28, 2012, date to the November 2012, Presidential election.

Read on.

AIG isn’t only megabucks case uncovering new facts about 2008 bailouts

Great article by Alison Frankel…

Former AIG honcho Maurice “Hank” Greenberg’s $50 billion Fifth Amendment claims against the U.S. government may be, as New Yorker writer John Cassidy recently said, more of a comic extravaganza than a legitimate case, but there’s no doubt that the Greenberg trial underway in the U.S. Court of Federal Claims will contribute to the historical record of the government’s response to the 2008 economic crisis. Former U.S. Treasury Secretary Hank Paulson testified Monday, and his successor, Tim Geithner, and former U.S. Federal Reserve Chairman Ben Bernanke are also on Greenberg’s witness list. We can all thank Greenberg for muscling their sworn testimony into public, regardless of the crotchety old rich guy’s gall and his long odds of actually winning.

Meanwhile, there’s a much less celebrated case over the 2008 economic crisis underway in federal district court in Washington, D.C. It doesn’t have the glamour of David Boies of Boies, Schiller & Flexner (Hank Greenberg’s lawyer) grilling former Cabinet officials over the AIG bailout, but it involves between $6 billion and $10 billion in real money — and it’s also contributing real facts to what we know about how government officials in the thick of bailout frenzy implemented policies set at the highest levels.

I’m talking about litigation between JPMorgan Chase and the Federal Deposit Insurance Corporation over which of them was left holding the scorching hot potato of liability for Washington Mutual’s misrepresented mortgage-backed securities. As you may recall, as WaMu was collapsing in 2008, the federal government pushed JPMorgan to acquire the Seattle-based bank. One of the many branches of subsequent litigation over WaMu’s failure was a suit by Deutsche Bank, as the trustee overseeing many WaMu MBS, against JPMorgan, asserting that JPMorgan was on the hook to MBS investors for breaches in contractual representations and warranties about the securities. Deutsche Bank said JPMorgan owed WaMu MBS investors as much as $10 billion for their put-back claims.

JPMorgan and its lawyers at Sullivan & Cromwell countered that the FDIC – and not the bank – was liable for put-backs on private-label mortgage-backed securities. It sued in Washington federal district court for a declaration that when the bank paid $1.89 billion to take WaMu off of the FDIC’s hands in late September 2008, liability for MBS representations and warranties was not part of the deal. Those obligations, according to JPMorgan, stayed with the FDIC.

Last Friday, the two sides filed mostly unredacted summary judgment briefs with U.S. District JudgeRosemary Collyer, adding layers of detail to what was previously known about JPMorgan’s WaMu acquisition. Obviously, the briefs center on the limited contractual question of whether the FDIC ditched put-back liability in the WaMu sale, but the hundreds of pages JPMorgan and the FDIC’s lawyers at Hughes Hubbard & Reed have generated on this seemingly straightforward contract interpretation show the loopholes that open when economic chaos looms, as it did when the WaMu deal was being negotiated.

Three of the most interesting revelations involve emails within the FDIC about whether put-back obligations would transfer to JPMorgan, a seemingly contradictory email from the FDIC to the bank, and evidence about the pressure Fannie Mae and Freddie Mac exerted on JPMorgan as the bank tried to make its investment in WaMu begin to pay off.

Read on.

FDIC: Big banks’ living wills not credible and need to be revised

So-called living wills submitted by big banks are “not credible” and have to be revised by next July, federal regulators said on Tuesday.

The Dodd-Frank financial reforms require certain big banks to submit plans detailing how they would wind themselves down in the event of a crisis. The 11 institutions subject to the rule submitted first-round plans in 2012 and revisions in 2013.

The Federal Deposit Insurance Corp. said each bank had specific shortcomings, and that all banks had a few in common—among them unrealistic assumptions and a failure to identify necessary changes in their structures.

Based on its review, the FDIC said “the plans submitted by the first-wave filers are not credible and do not facilitate an orderly resolution under the U.S. Bankruptcy Code.”

The regulator gave the banks til July 1, 2015 to file plans that “demonstrate that the firms are making significant progress to address all the shortcomings identified in the letters,” among other requirements.

Read on.