TV News LIES

Friday, Dec 02nd

Last update05:20:13 AM GMT

You are here News Economy How the Fed let small banks take on too much debt, then fail

How the Fed let small banks take on too much debt, then fail

E-mail Print PDF

The FED let small banks failThe Federal Reserve Board, chastised for regulatory inaction that contributed to the subprime mortgage meltdown, also missed a chance to prevent much of the financial chaos ravaging hundreds of small- and mid-sized banks.

In early 2005, at a time when the housing market was overheated and economic danger signs were in the air, the Fed had an opportunity to put a damper on risk taking among banks, especially those that had long been bedrocks of smaller cities and towns across the nation.

But the Fed rejected calls from one of the nation's top banking regulators, a professional accounting board and the Fed's own staff for curbs on the banks' use of special debt securities to raise capital that was allowing them to mushroom in size.

Then-Chairman Alan Greenspan and the other six Fed governors voted unanimously to reaffirm a nine-year-old rule allowing liberal use of what are called trust-preferred securities.

This was like a magic bullet for community banks that had few ways to raise capital without issuing more common stock and diluting their share price. The Fed allowed the banks to count the securities as debt, even while counting the proceeds as reserves. Banks were then free to borrow and lend in amounts 10 times or more than the value of the securities being issued.

The Fed supervised about 1,400 bank-holding companies, the bulk of them parent companies of community banks.

More...


Most Recent Related Stories...


Trump's Carrier Victory Is the Economy's Loss

Trump carrier dealDonald Trump has scored a political victory by persuading Carrier Corp., a maker of air-conditioning and...

Wells Fargo faces new restrictions from banking regulator

Wells Fargo A federal banking regulator has imposed tighter restrictions to Wells Fargo & Co.'s settlement regarding the...

Carrier agrees to keep 1,000 jobs in Indianapolis

Carrier Carrier Corp. is staying in Indianapolis after all. Nearly nine months after announcing it would relocate its...

Ford CEO warns Trump's 35% car tariff would harm the economy

Mark FieldsFord Motors CEO Mark Fields said Tuesday that a 35% tariff on cars and trucks imported...
 
America's # 1 Enemy
Tee Shirt
& Help Support TvNewsLIES.org!
TVNL Tee Shirt
 
TVNL TOTE BAG
Conserve our Planet
& Help Support TvNewsLIES.org!
 
Get your 9/11 & Media
Deception Dollars
& Help Support TvNewsLIES.org!
 
The Loaded Deck
The First & the Best!
The Media & Bush Admin Exposed!