Saturday, December 05, 2009

Chavez 3 more, US 150

Chávez Seizes Three More Banks
Venezuela's government took over three more banks Friday, adding to a growing list of smaller banks in the oil-rich country that have been seized by the government this week on charges that its owners illegally used deposits for their own enrichment.

Many analysts say the interventions aren't a reflection of a larger banking crisis

However, a policy of nationalizing banks can get out of control if not handled with care.

"By themselves, these banks are not big enough to be a problem," said Alberto Ramos, a Goldman Sachs economist who follows Latin America. "But I do not trust this government to manage the process well."

Regulators Pull Plug on Bank
Federal regulators on Friday seized AmTrust Bank, a battered Cleveland thrift kept alive this year after local politicians pleaded with the government for a second chance.

The family-owned AmTrust, with $12 billion in assets and roots back to 1889, had been in trouble for more than a year.

AmTrust's deterioration over the past year likely resulted in the bank selling for a lower price than it would have fetched if the thrift had been seized earlier, said people familiar with the government-led auction.

AmTrust has been riding a regulatory rollercoaster for the past year. Last fall, its primary regulator, the Office of Thrift Supervision, rejected AmTrust's requests for aid through the federal government's Troubled Asset Relief Program.

The OTS then slapped AmTrust with a cease-and-desist order, citing "unsafe and unsound banking practices," and required the thrift shore up its capital, stop making certain loans and rein in the rates being offered for customer deposits.

But AmTrust benefited from the advocacy of politicians, including Rep. Steven LaTourette (R., Ohio), who pleaded with Treasury and White House officials not to kill a second Cleveland bank. Cleveland's Democratic mayor, Frank Jackson -- a critic of National City's forced sale -- also sought to protect AmTrust.

The OTS and FDIC eventually agreed to plans by AmTrust to aggressively shrink its balance sheet, sell branches, and thicken its capital cushions, according to people familiar with the matter.

Some banking experts were surprised, since AmTrust appeared in worse shape than National City. Critics viewed the disparate treatment of the two Cleveland banks as an example of inconsistency by regulators.

People close to AmTrust blame federal regulators for some of the troubles. In recent months, OTS examiners demanded that AmTrust write down the value of loans far more aggressively than bank officials thought necessary, these people say.

The OTS also required AmTrust to beef up its reserves to levels that executives regarded as excessive, these people said.

A total of 130 lenders have collapsed in 2009, the highest number of failures since 1992 as regulators intensified their push to rid the industry of weak institutions.

Requiem for the Dollar
There's no business value in financial safety when the government bails out the unsafe. And by bailing out a scandalously large number of unsafe institutions, the government necessarily puts the dollar at risk. In money, too, the knee bone is connected to the thigh bone. Debased banks mean a debased currency (perhaps causation works in the other direction, too).



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