Regulators Question Banks on Business Lending Risks

Submitted by webadmin on Thu, 2013-06-13 00:00

ABI Bankruptcy Brief | June 13 2013

June 13, 2013

NEWS AND ANALYSIS

REGULATORS QUESTION BANKS ON BUSINESS LENDING RISKS

U.S. regulators are grilling banks over lending standards and warning them about mounting risks in business loans, the Wall Street Journal reported today. Lending to companies has been a bright spot for banks searching for revenue amid slow economic growth and historically low interest rates. But regulators worry that banks have sweetened loan terms too much, which could put them in jeopardy if corporate borrowers can't repay. Bank examiners are pulling out more loans for inspection, questioning loan officers more thoroughly about credit standards and studying other underwriting functions more closely than they have in years, according to bankers, consultants and regulators. In private meetings with bankers in recent months, regulators from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve Board have all focused heavily on commercial lending. Looser lending standards are part of a wave of risk-taking that is sweeping through the capital markets, from stock investors loading up on margin debt and piling into high-yield and investment-grade corporate bonds, to private-equity firms ramping up leveraged buyouts. Read more. (Subscription required.)

HOUSE PASSES BILL TO LIMIT CFTC'S CROSS-BORDER SWAPS AUTHORITY

House lawmakers passed legislation yesterday that would curb the U.S. Commodity Futures Trading Commission’s authority to oversee the $633 trillion global swaps market, Bloomberg News reported today. The bipartisan bill’s approval came as a majority of CFTC commissioners have signaled they want to delay final action on how new derivatives rules apply to foreign banks and the overseas affiliates of U.S. banks and hedge funds. Chairman Gary Gensler insists the agency should take its final vote on the guidance by July 12, when the current deadline expires. While the bill is not expected to be introduced in the Senate, the House vote could increase pressure on Gensler to agree to a delay. The CFTC will decide how to press forward after the Securities and Exchange Commission last month outlined a different approach to regulating swaps that it oversees, which hews closer to industry viewpoints. The House bill would exempt foreign banks from CFTC rules if their home countries have broadly similar regulations and would force the CFTC and SEC to reconcile their approaches. Read more.

FORECLOSURES JUMP AS BANKS BET ON RISING U.S. HOME PRICES

Home repossessions in the U.S. jumped 11 percent in May after declining for the previous five months as rising prices and limited inventory for sale across the country spurred banks to complete foreclosures, Bloomberg News reported today. Lenders took back 38,946 homes, up from 34,997 in April, according to Irvine, Calif.-based data firm RealtyTrac, which tracks notices of default, auction and seizures. Thirty-three states had increases in the number of homes repossessed, RealtyTrac said in a report today. The biggest annual jumps in states with more than 1,000 home repossessions occurred in North Carolina, up 60 percent from the previous month, followed by gains of 44 percent in both Wisconsin and Illinois, 23 percent in Colorado and 19 percent in Michigan, according to RealtyTrac. Read more.

COMMENTARY: GOVERNMENT'S GSE OVERHAUL EFFORTS REFLECT FEW LESSONS OF HOUSING CRISIS

Nearly five years after the government took over mortgage giants Fannie Mae and Freddie Mac, Congress is gingerly approaching the process of how Americans buy homes, according to a commentary in the New York Times DealBook blog yesterday. Sens. Bob Corker (R-Tenn.) and Mark R. Warner (D-Va.) have been working on a bill that would create a government insurance operation, similar to the Federal Deposit Insurance Corporation, that would insure mortgage-backed securities. Private investors would have to shoulder the first losses, probably about 10 percent. Taxpayers would not have to bail out those investors should things go south. If the Corker-Warner proposal were to go through, the private companies that have pole position would be the private mortgage insurers. However, private mortgage insurers were quietly a major part of the problem after the housing bubble burst, according to the commentary. They were woefully undercapitalized and have been operating almost as zombie institutions. Read the full commentary.

REPORT: STATE BUDGETS ARE ON THE MEND

A new report released today showed that states are climbing out of the deep fiscal hole they fell into during the economic downturn, but the pace of the recovery is expected to slow as federal budget cuts kick in and a valuable tax windfall disappears, the Washington Post reported today. The Fiscal Survey of States found that the fiscal distress that gripped states in the years after the recession has largely eased. The report said that 30 states are on course to enjoy surpluses and that 10 others are right on target with revenue. Meanwhile, 42 governors proposed budgets that increased spending for next year, and many states can begin restoring money to key programs that they were forced to cut in recent years. But the report warned that the fiscal future is uncertain. Analysts are still waiting for states to feel the full impact of the across-the-board federal budget cuts that went into effect earlier this year. Also, although improving, unemployment remains high, creating a drag on revenue while elevating social service spending. Read more.

NEW ABI LIVE WEBINAR ON JULY 15 WILL FOCUS ON THE § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES

Utilizing a case study, ABI's panel of experts on July 15 will explore issues surrounding a lender’s decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel will also walk attendees through the necessary mathematical analyses used to analyze these issues. The webinar will take place from 1-2:15 p.m. ET. Special ABI member rate available! Click here to register.

ABI GOLF TOUR UNDERWAY; NEXT STOP IS THE NORTHEAST BANKRUPTCY CONFERENCE ON JULY 12

The next stop for the ABI Golf Tour is the famed Newport National course in Newport, R.I., in conjunction with the Northeast Bankruptcy Conference on July 12. Final scoring to win the Great American Cupsponsored by Great American Groupis based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! There's no charge to register or participate in the Tour, and women are most welcome.

ABI IN-DEPTH

NEW ABI "BANKRUPTCY IN DEPTH" ON-DEMAND CLE PROGRAM LOOKS AT PRINCIPLES OF PROPERTY OF THE ESTATE: DEMYSTIFYING EQUITABLE INTERESTS

In this 90-minute seminar, Profs. Andrew Kull of Boston University School of Law and Scott Pryor of Regent University School of Law provide an in-depth analysis of a legal principle that has become, in their words, "a long-lost area of the law": § 541 of the Bankruptcy Code. Seeking to demystify what is meant by "property of the estate" and, in particular, the distinction between legal or equitable interests of the debtor in property, Kull and Pryor describe the legal entanglements that ensue when legal title belongs to one person but the equitable title belongs to someone else. The cost of the seminar, which includes written materials and qualifies for 1.5 hours of CLE, is $95. To order or to learn more, click here.

ASSOCIATES: ABI'S NUTS & BOLTS ONLINE PROGRAMS HELP YOU HONE YOUR SKILLS WHILE SAVING ON CLE!

Associates looking to sharpen their bankruptcy knowledge should take advantage of ABI's special offer of combining general, business or consumer Nuts & Bolts online programs. Each program features an outstanding faculty of judges and practitioners explaining the fundamentals of bankruptcy, offering procedures and strategies tailored for both consumer and business attorneys. Click here to get the CLE you need at a great low price!

NEW CASE SUMMARY ON VOLO: PAZDZIERZ V. FIRST AMERICAN TITLE INSURANCE CO. (IN RE PAZDZIERZ; 6TH CIR.)

Summarized by Geoffrey Peters of Weltman, Weinberg & Reis Co. LPA

Affirming the U.S. District Court for the Eastern District of Michigan, the Sixth Circuit Court of Appeals held that claims of fraud that are grounded in tangible property rights such as judgments or promissory notes are assignable under Michigan law. The Sixth Circuit distinguished naked claims of fraud, not based upon a tangible property right, which are not assignable under Michigan law. The Sixth Circuit also held that the assignee of a tangible property right can seek nondischargeability under 11 U.S.C. section 523(a)(2)(B).

There are more than 900 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: A "BOUNDLESS INFORMANT" FOR FINANCIAL SYSTEM COULD END TBTF

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A new blog post speculates that regulators could use the power of data mining and pattern-matching algorithms to seek out triggers of contagion across an interconnected financial system.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Law firms should provide support for law student-staffed bankruptcy clinics for consumer debtors.

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