IMF says banks are back from the brink, but still face more debts; FDIC to demand banks prepay for insurance fund; Associated offers new commercial banking security option; M&I extends foreclosure moratorium
IMF says banks are back from the brink, but still face more debts
Risks to the global financial system have subsided as a result of unprecedented governmental policy actions and, more recently, a nascent global economic recovery, according to the International Monetary Fund’s latest Global Financial Stability Report (GFSR).
However, the IMF’s semiannual report cautions that the road to financial rehabilitation is unlikely to be straight and that there will be significant policy issues ahead.
"We are on the road to recovery, but this does not mean that risks have disappeared," said José Vials, director of the IMF’s Monetary and Capital Markets Department.
The report points to the need to further repair bank balance sheets to enable the institutions to make loans needed to support the economic recovery. Without this step, downside financial and economic risks could reemerge, the report said.
"If we fail to meet the challenges still being faced by the financial system in the present crisis, we risk reigniting systemic risks and even derailing the economic recovery now in train. As you know, that is something we simply cannot afford," Vials told a press briefing in Istanbul, Turkey, where the IMF released the report ahead of its annual meetings.
Wide-ranging government policy actions since mid-2007 to inject liquidity into markets, stabilize bank balance sheets and restore credit market functioning have allowed financial markets to regain their footing, the report said. As a result, risk appetite has rebounded, leading to a powerful rally in risk assets such as stocks.
A gradual reopening of capital and funding markets to banks and a recovery in their earnings are signs that banking systems have stepped back from the brink of collapse, the IMF said.
For both banks and other financial institutions, the GFSR calculates that actual and potential write-downs from bad assets such as loans and securities have fallen by some $600 billion over the past six months – from about $4 trillion to $3.4 trillion, as a lessening in financial stress has narrowed spreads.
Nevertheless, banks still confront substantial challenges. The GFSR estimates that commercial banks have already recognized $1.3 trillion through the first half of 2009, but face another $1.5 trillion of potential asset write-downs ahead. Hence, overall, banks have recognized slightly less than half of their expected losses. U.S. banks have recognized slightly more than have those in the United Kingdom and euro area.
Even though bank earnings are recovering, they are not expected to be big enough to offset fully the anticipated write-downs over the next 18 months. The insufficient earnings, combined with continuing deleveraging pressure, means banks will have to raise more capital. Additionally, banks must refinance a massive amount of maturing debt over the next two to three years. An unprecedented $1.5 trillion in bank borrowing is due to mature in the euro area, the United Kingdom, and the United States by 2012.
The GFSR suggests that although their balance sheets have been stabilized, some of it because governments have injected capital, banks are not yet in a strong position to lend support to the economic recovery.
FDIC to demand banks prepay for insurance fund
Facing an epidemic of failing banks across the nation, the board of the Federal Deposit Insurance Corp. (FDIC) today recommended that its member banks pay in advance three years worth of deposit insurance premiums in order to meet the agency’s ballooning needs to protect customers of failed banks.
Without the advance premiums, the FDIC said that its Deposit Insurance Fund, which repays customers with deposits of as much as $250,000 when a bank fails, would face a liquidity crunch early next year, and that it will be operating in the red by the end of this month.
The FDIC said that the prepayments would raise an additional $45 billion for the fund. The board estimates that total bank failure losses could reach $100 billion by 2013.
The FDIC said 95 banks have failed so far in 2009, up from 25 during 2008 and only three in 2007.
FDIC Chairman Sheila Bair said, "First and foremost, bank customers should know that their insured deposits have and always will be 100 percent safe, no matter what. This commitment to depositors is absolute. The decision today is really about how and when the industry fulfills its obligation to the insurance fund. It’s clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem. In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer. This proposal is a vote of confidence for the banking industry’s resilience and will continue to recover its strength as we work through the significant challenges ahead."
Associated offers new commercial banking security option
Green Bay-based Associated Bank has introduced a new product that will provide its business banking customers with additional protection from fraudulent attacks against live online banking sessions. Out-of-band authentication (OOBA) has been touted as the answer to advanced types of fraud.
Some criminals are using real-time technology that is often seen in social and networking sites, allowing them to get around some of the roadblocks that companies have put in their way. OOBA verifies the identity of the user after they login with their user name and password by calling them on their landline or mobile phone and requiring the user to enter another personal identification number into their phone.
“In today’s environment every customer has to be security conscious,” said Associated Senior Vice President and Director of Treasury Management Todd Adler. “We are pleased to offer a leading-edge solution that helps protect our business customers and their accounts. This convenient automated solution utilizes technology that our customers have in place and are comfortable using. OOBA means greater protection and quicker detection if someone attempts to compromise our customers’ systems.”
M&I extends foreclosure moratorium
Milwaukee-based Marshall & Ilsley Corp. announced it has extended its foreclosure moratorium an additional 90 days – through Dec. 31, 2009.
The initial moratorium was announced on Dec. 18, 2008, as part of M&I’s Homeowner Assistance Program.
The moratorium is on all owner-occupied residential loans for customers who agree to work in good faith to reach a successful repayment agreement. The moratorium applies to applicable loans in all M&I markets.
M&I’s Homeowner Assistance Program also features streamlined assistance programs for potentially distressed homeowners who are identified in advance and proactively offered assistance. The program also offers a foreclosure abatement program that features several refinancing options, including term extensions and reduced rates that can be used, as necessary and applicable, to reduce monthly payments.