All items from Credit Slips

Last December the FDIC put out for comment a proposal for a Single-Point-of-Entry (SPOE) Strategy to implement its Orderly Liquidation Authority (OLA) under Title II of Dodd-Frank. Single-Point-of-Entry has gotten a lot of policy traction. The Treasury Secretary supports it and there’s huge buy-in from Wall Street.  And it’s an approach that is likely to ensure financial stability in the event that a systemically important financial institution gets into trouble.  There’s just one problem with it.  SPOE means “No Bank Left Behind”.  

Posted 21 hours 19 min ago

Thoughts on cramdown and "make whole" call provisions, over at Dealb%k.

Posted 4 days 38 min ago

Mark Fogarty has a nice write-up in National Mortgage News of a book chapter about duties to serve in housing finance that I wrote with Jannecke Ratcliffe for a volume entitled Homeownership Built to Last (Brookings/Joint Center on Housing Studies 2014).  It's a real pleasure to realize that someone has actually read our chapter! 

Posted 6 days 42 min ago

Financial crisis litigation has been going on for several years now and has been resulting in lots of piecemeal settlements. As a result, it's easy to miss the big picture.  There's actually been quite a lot of settlements covering a fair amount of money.  (Not all of it is real money, of course, but the notionals add up).  
By my counting, there have been some $94.6 billion in settlements announced or proposed to date dealing with mortgages and MBS.  This count excludes things like CDO litigation and Lehman Brothers litigation. I've also likely missed some settlements (although not the big ones), and the terms of some settlements are private. I'm also excluding things like the National Mortgage Servicing Settlement (another $25 billion, although a lot isn't cash payment) and OCC/FRB consent orders. Any PMI settlements are also excluded. On the other hand, I'm including some multi-billion proposed MBS trustee settlements that have not gone through yet. In other words, what I'm trying to cover are settlements for fraud and breach of contract against investors/insurers of MBS and buyers of mortgages.
Settlements aren't the same as litigation wins, and I don't know the strength of the parties' positions in detail in many of these cases, but $94.6 billion strikes me as rather low for a total settlement figure. Of course, financial crisis litigation hasn't all run its course yet.

Posted 6 days 18 hours ago

The latest consumer financial product to come under the regulatory microscope is subprime auto lending, which has seen a boom in the last few years.  The subprime auto market's boom underscores a real problem in consumer financial regulation: different consumer financial products have developed different substantive regulatory regimes that are not justified by differences in the products. Most fundamentally, we have an ability-to-repay requirement for mortgages, a different ability-to-pay requirement for credit cards, and nothing else for other products. In light of the changes in all consumer finance markets, in which securitization and sweatbox lending have undermined the traditional lender-borrower partnership that encouraged responsible lending, it is time to consider a universal ability-to-repay requirement for consumer credit. 

Posted 1 week 1 day ago

Nothing to see hereSo Argentina plans to ditch Bank of New York Mellon, deposit funds with a local payment agent, invite bondholders to swap into local law and local payment bonds, etc. Not an optimistic sign for those hoping for a quick resolution. And such a transparent violation of the injunction that there really isn't much to say about it. Here's Judge Griesa anyway, from yesterday's hearing: "I want to be very clear, and I want to state it right now. This proposal is a violation of the current orders of this Court and of the Second Circuit.

Posted 1 week 3 days ago

I commend to Slips readers Alex Tabarrok's post over at Marginal Revolution entitled "Ferguson and the Modern Debtor’s Prison." 

Posted 1 week 4 days ago

President Cristina Fernandez de Kirchner has proposed a law authorizing the executive to reroute payments on the restructured bonds out of New York, and to offer all bondholders local-law bonds on 2010 exchange terms. All the buzz has been about the swap. But there is no swap on the table, no capacity to execute a swap, and no more details about the swap than there have been in the press for months. We have even had a hearing about this swap (no, Judge Griesa did not like the idea--though he will have more to say soon, I am sure).

Posted 1 week 4 days ago

Here is the proposed law rerouting payments under the restructured, now-defaulted Argentine bonds away from New York. Contrary to reports, the big news is not the swap, but the unilateral attempt at firing Bank of New York Mellon and substituting Banco Nacion in Buenos Aires (or an alternative, if voted by the bondholders). Bondholders could then show up in Buenos Aires or wherever Nacion sends their money to get paid. The proposal would also reopen the 2010 swap to the remaining holdouts.*Correction/Clarification*: Everyone would be invited to go into the swap on 2010 terms under Argentine law and jurisdiction. Since 2010 terms are old news and local law FX bonds are subject to the injunction pending appeals, I am not sure how this helps ... not to mention the transaction costs. (HT Vladimir WerningKatia Porzecanski)
Although the ultimate beneficial holders are not bound by the court orders, it is hard to see how most would get their hands on the FX without the help of entities that would either be clearly bound by or worried about New York court orders (banks, payment and clearing systems with a presence in New York). Some might show up in BA, but I am not holding my breath for a large turnout.

Posted 1 week 4 days ago

Post OfficeMehrsa Baradaran (University of Georgia) has a short piece in Slate tracing the history of the U.S. Postal Banking system. In sum, post offices once were banks, the system was in place for over 50 years, and post offices can be banks again. Indeed, at its height, the postal banking system was used by millions of Americans. Then banks moved into the majority of cities and towns and offered customers a more attractive option than using postal savings depositories. But when these banks began leaving low-income neighborhoods in the 1970s, the postal banking system already had died a quiet death, leaving the market open to payday lenders and check cashing operations.

Posted 1 week 6 days ago