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A proposed new accounting rule could force bank loan-loss reserves to be increased by 50%, says...
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Thursday, December 20, 2012, 3:39 PM ETA proposed new accounting rule could force bank loan-loss reserves to be increased by 50%, says FASB head Leslie Seidman, after taking comment from lenders. Even though it could be years before the rule takes effect, profits could begin taking a hit right away as banks stop cutting loss reserves in anticipation.
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Let's just stop pussyfooting around, and dictate to banks that they must stuff all cash into mattresses.
Oh, but, of course, let's lament the anemic economic growth, tepid expansion of credit, and complain about bank management, too.
So instead of creating a system for unwinding TBTF when they do fail, let's slap them on the butt for taking any economic risk.
Then when reality sets in they jack up reserves, claim to be losing money hand over fist, stop lending, and tank the economy.
Why not require the banks to set up 5% loan loss reserves when they make the loans? Then they can relieve the reserve when they can prove that they're getting paid better than that.
We have become so risk averse and anti-bank in the post-2008 period that we're intent on slapping on ever more regulation and safety nets at the expense of building the economy. Then, ironically, we complain about those same banks not lending enough or having too-tough credit standards.
It's just not possible to have no risk and growth, too. Moderate risk is preferable to hamstringing the entire economy.
We can stop slapping the banks with more regulation and more safety nets when they demonstrate an ability, a willingness and an active desire to perform their role as financial intermediaries, rather than operating as parasites on the real economy.
None of the big five are anywhere near that.
This all reminds me of that expression: "The beatings will stop when morale improves."
Try "The beatings will stop when compliance is secured."
These bankers are very slow to figure it out, that what is actually desired is for them to serve the real economy. It's so much quicker and easier to manipulate Libor and profit by trading in derivatives, while the rest of the population suffers. Much faster and more efficient to issue massive quantities of bogus mortgages and pass them down the line to unsuspecting pensions and mutual funds.
Even massive legal bills as seen for Bank of America are a minor annoyance, it's still better to continue their sleazeball behavior.
I have previously (and correctly) identified the big banks as a rogue industry. Here's a link:
http://seekingalpha.co...
Just today CNBC is asking whether UBS has an outlaw culture. I previously identified CS as a rogue bank. So much for Switzerland, that land of fiscal probity.
Our own US banks are well in step with their European peers, if not several steps ahead.
You can't issue a statement like 'Banks should do what's good for economy and country' and expect them to fall in line. Life doesn't work that way, except under Stalin's guns and in fairy tales.
The key is to issue and enforce regulations that promote good behavior. United States has not been able to do so in its remote history (early 1900s) and more recently. Nothing that has happened since 2008 indicates that this has changes.
Under an expected loss model, a bank would be expected to book a loss whenever it makes a loan based on the assumption that some types of loans incur losses. So you have "day one" losses for each loan a bank writes under the assumption that some loans will go bad and others will perform. This results in earlier recognition of loan losses.
The expected loss model is at odds with how companies account for other types of losses, and is generally messed up in my view.
This whole thing is being driven by the Europeans.