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Thousands of small U.S. banks are feeling a financial pinch from the government's efforts to punish executives and directors of banks that collapsed during the height of the financial crisis, the Wall Street Journal reported today. Insurance premiums that cover directors and officers are rising sharply as the Federal Deposit Insurance Corp., seeking to replenish funds paid out to depositors of collapsed banks, accelerates its legal pursuit of officials from failed community lenders. The FDIC's efforts have brought the agency hundreds of millions of dollars in legal settlements, well short of the billions in losses from bank failures, but that is cutting into banks' bottom line when many still are struggling.

HSH Nordbank AG, the German regional lender, settled a lawsuit it filed against UBS AG over losses on a collateralized debt obligation linked to the U.S. subprime-mortgage market, Bloomberg News reported yesterday. HSH Nordbank, based in Hamburg, sued UBS in February 2008 over losses on a CDO called North Street 2002-4. HSH Nordbank said in the suit that its predecessor, Landesbank Schleswig- Holstein, lost almost all of the $500 million it invested in the CDO in March 2002. HSH Nordbank is one of a group of regional German lenders that have sued in New York courts over mortgage-backed securities. It sued Bank of America Corp. in New York State Supreme Court in December over $218 million in such investments, and has filed suits against Barclays Plc, Goldman Sachs Group Inc. and Morgan Stanley in the same court.

Revel AC Inc. will file for bankruptcy sometime in the last two weeks of this month, less than a year after its Atlantic City, New Jersey, casino opened, Bloomberg News reported on Friday. The resort will remain open during the court case and the company is in the final stages of preparing the filing, which was pre-arranged with creditors. The company and a majority of creditors plan to use bankruptcy to cut about $1 billion in debt, Revel said last month.

U.S. banks have enough capital to withstand a severe economic downturn, the Federal Reserve said on Thursday, with all but one major bank passing the annual health check of the financial sector, Reuters reported yesterday. A stronger economy and banks’ efforts to boost their capital since the 2007-09 U.S. financial crisis helped all 18 participating lenders except Ally Financial meet the minimum hurdle of a 5 percent capital buffer in the Fed's “stress test.” The tests give regulators a view into how the banking sector would respond to a severe recession. The firms in the test represent more than 70 percent of total bank holding company assets in the U.S. Of the four largest U.S. banks, Bank of America, Wells Fargo and Citigroup saw improvements in their minimum tier 1 common capital ratios, compared to last year’s similar test, while JPMorgan Chase was steady at 6.3 percent. Citigroup had the highest ratio of the top four at 8.3 percent. Two Wall Street banks, Morgan Stanley at 5.7 percent and Goldman Sachs at 5.8 percent, showed the two lowest outcomes above the 5 percent threshold. Stress testing has become a central part of U.S. regulators' efforts to shore up the financial sector after the crisis. The 2010 Dodd-Frank financial oversight law called for the tests to ensure that banks have big enough capital cushions to survive a severe recession or other economic jolt.

U.S. Sen. Elizabeth Warren (D-Mass.) asked regulators how egregiously a bank could break laws before they’d weigh pulling its charter, citing HSBC Holdings Plc (HSBA) providing services to drug cartels and skirting sanctions against Iran, Bloomberg reported yesterday. “What does it take?” Warren asked a panel of banking regulators testifying at a Senate Banking Committee hearing yesterday. “How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?” Comptroller of the Currency Thomas Curry and Federal Reserve Governor Jerome Powell explained that a charter revocation process would depend on a bank being convicted of a crime, for which Powell said the Justice Department has “total authority.” London-based HSBC settled for $1.92 billion in December and promised to fix its operations. Attorney General Eric Holder said in a March 6 hearing that criminal charges against one of the biggest banks—something that could threaten its existence—may also endanger the national or global economies. That has “made it difficult for us to prosecute” some of those institutions, Holder said.

Bank of America has been underestimating its legal risks for years, and brazenly so, according to the The New York Times Dealbook yesterday. The Fed is set to release figures today on how much capital the nation’s biggest banks must have to cover a “stress” situation. Investors will find out next week whether those banks will be able to return more of their capital to shareholders by paying dividends or buying back stock. Last year, the Fed passed most of the big banks and let them pay out billions. Bank of America, sensing that a request would be unwelcome, didn’t even ask. This year, however, Wall Street expects that Bank of America will get the green light, even though the bank continues to face gargantuan payouts to clean up legal disputes from the bubble years. A lawsuit now suggests that the bank’s mortgage portfolio could cost it tens of billions more than it had planned. In one big case, if things go wrong, Bank of America may be required to make good on many more billions’ worth of bad mortgages from Countrywide Financial, which the bank acquired in 2008.

The Obama administration has asked Gary Gensler to serve a second term as the top U.S. futures-industry regulator, the Wall Street Journal reported today. Gensler, who heard from the White House in January, has not decided whether he will stay as chairman of the Commodity Futures Trading Commission. Instead, some insiders say that he is interested in taking on a role as a senior economic official elsewhere in the administration. The leadership limbo has cast a shadow of uncertainty over the agency, complicating its efforts to write rules for the Dodd-Frank financial-regulatory law, among other work. Top Senate aides and CFTC commissioners say that they believe Gensler will leave the agency later this year.

A federal judge in California has sentenced Philip Horn, a former Wells Fargo broker who pleaded guilty to defrauding more than a dozen clients, to two years in jail, the New York Times DealBook blog reported yesterday. Horn was a broker for Wells Fargo in Los Angeles. For more than two years, he executed and canceled trades in clients' portfolios, pocketing the profits. Wells Fargo uncovered the fraud in the fall of 2011. Last year, Horn pleaded guilty to two counts of wire fraud.

MF Global and its creditors have resolved a dispute with JPMorgan Chase & Co. over the value of intercompany claims within the bankrupt brokerage's estate, eliminating what could have been a sticking point in MF Global's creditor repayment plan, Reuters reported yesterday. The effect of the settlement, a result of court-ordered mediation, is essentially to enhance JPMorgan's recovery, according to a statement yesterday by Louis Freeh, the trustee liquidating the broker's estate. Under the deal, MF's parent entity will subordinate $275 million of its $1.887 billion claim against MF Global's finance unit below JPMorgan's $1.2 billion claim against the estate.

British bank HSBC made some progress yesterday in shrinking its consumer loan portfolio in the United States, which has been a drag on its earnings, the New York DealBook blog reported yesterday. HSBC agreed to sell a portfolio of personal unsecured loans and mortgages to Springleaf Finance and the Newcastle Investment Corp. for $3.2 billion in cash. HSBC also said that it was selling Springleaf its loan servicing facility in London, Ky.