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One of the most influential policymakers at the Federal Reserve, Daniel Tarullo, publicly debated options yesterday for ending bailouts of big banks considered too big to fail, the Washington Post reported today. The proposals attempt to limit the risks the nation’s largest banks can pose to the financial system, and ultimately taxpayers, if they collapse. Tarullo, the head of bank supervision at the Fed, yesterday stopped short of calling for permanently abolishing government backstops for banks, but he laid out policies to contain the problem, some of which would require fresh legislation. "The policy aim has got to be to confine the problem substantially more than it was in the years running up to the crisis," he said. "That seems to inexorably call for a set of complementary policy measures" to Dodd-Frank.

Bondholders who extended pension payment money to San Bernardino, Calif., urged its bankruptcy judge to keep the city's chapter 9 case alive, enabling city leaders to make spending cuts deep enough to restore its financial health, Dow Jones DBR Small Cap reported today. After analyzing the city's finances, several bondholder groups said that the city needs the power of bankruptcy to cut back on the overly generous salaries and benefits it promised to its employees.

R. Charles Loudermilk, the founder of furniture rental company Aaron’s Inc., was sued by the Federal Deposit Insurance Corp. over $21.8 million in bad real estate loans made by the failed Buckhead Community Bank, Bloomberg News reported yesterday. Loudermilk, the bank’s founder and former chairman, and other directors and officers "knowingly or recklessly" approved commercial real estate loans that violated the bank's underwriting policies, the FDIC said in a complaint filed Nov. 30 in federal court in Atlanta. Buckhead Community Bank was started by Loudermilk in 1998 and failed on Dec. 4, 2009, the FDIC said. The FDIC is seeking $21.8 million in compensatory damages from the defendants.

JPMorgan Chase & Co. won dismissal of some claims in a lawsuit by the Massachusetts attorney general, who sued the bank and other lenders over foreclosure practices, while a judge ruled that part of the case could proceed, Bloomberg News reported yesterday. Judge Judith Fabricant of Suffolk County Superior Court in Boston granted part of JPMorgan's motion to dismiss the lawsuit and said the motion was "otherwise denied," according to a docket entry dated Nov. 30 and filed today. JPMorgan was sued last year by Massachusetts Attorney General Martha Coakley, who accused the bank and four other lenders of using fraudulent documents in home foreclosures, foreclosing without legal authority, undermining public land records and misrepresenting loan-modification programs.

Members of ABI's Chapter 11 Reform Commission said yesterday pointed to labor and benefits being key issues likely to surface during a host of public hearings beginning early next year, Reuters reported. "We'll be hearing from both labor and management about the way the bankruptcy code treats collective bargaining agreements, pension issues and the like," said Commission Co-Chair Robert Keach Bernstein Shur Sawyer & Nelson on an ABI media teleconference. In the handful of hearings so far, the commission has heard largely from lenders, many of whom have expressed concern that the commission would look to limit the use of secured credit. Commission members have said they are not looking to curb the use of secured credit so much as improve its transparency. The commission will also consider changes to rules that exempt derivatives contracts from certain bankruptcy rules and the effects on bankrupt retailers of a 2005 law that changed rules on treatment of leases in bankruptcy. About six or seven hearings will be held throughout the country next year. Read more: http://www.reuters.com/article/2012/12/03/bankruptcy-commission-idUSL1E…

To listen to the ABI media teleconference, please click here:
http://news.abi.org/educatonal-brief/teleconference-to-look-at-chapter-…

Bank of New York Mellon Corp.'s victory in a lawsuit challenging its $312 million lien on the assets of bankrupt Sentinel Management Group Inc. was canceled without explanation by a U.S. appeals court, Bloomberg News reported yesterday. A three-judge panel of the U.S. Court of Appeals in Chicago on Nov. 30 withdrew its prior ruling affirming the lender's entitlement to the lien in a two-sentence decree. "The opinion of this court issued on Aug. 9, 2012, is withdrawn and the judgment is vacated," a three-judge panel of Daniel A. Manion, Ilana Diamond Rovner and John D. Tinder said. "This appeal remains under consideration by the panel." After the Northbrook, Ill.-based cash-management firm filed for bankruptcy in 2007, liquidation trustee Frederick Grede sued the New York-based bank alleging that its employees knew Sentinel was improperly using investor assets as collateral for its own line of credit and sought to disallow or subordinate BNY's lien. Following a 2010 trial, U.S. District Judge James B. Zagel in Chicago rejected Grede’s claims. After Manion, Rovner and Tinder upheld that decision, Grede’s lawyers petitioned for a rehearing by the full court.

As the U.S. economy inches toward the "fiscal cliff," the country's small banks are approaching a cliff of their own, in a development that could pinch short-term lending rates, the Wall Street Journal reported yesterday. On Jan. 1, a program that insures an unlimited amount of money in non-interest-bearing accounts will expire unless Washington moves to extend it. Without the Transaction Account Guarantee program, an insurance cap resets to $250,000, affecting about $1.6 trillion in deposits. And without insurance protection, depositors may be compelled to move amounts above $250,000 to other venues deemed safer, leaving the banks with less business. J.P. Morgan estimates that, of that total, $579 billion could be on the move.

Martin J. Gruenberg and Thomas M. Hoenig were officially designated last week by the President as the Chairman and Vice Chairman of the FDIC, according to a press release. On November 15, 2012, the Senate confirmed both for their respective positions. President Obama recently signed the orders making the confirmations official. Both were confirmed by the Senate for six-year terms as members of the FDIC Board of Directors on March 29, 2012. Gruenberg has served on the FDIC Board of Directors since August 22, 2005, and has served as the Acting Chairman since July 8, 2011. He previously served as Acting Chairman from November 15, 2005 to June 26, 2006. Prior to serving on the FDIC Board, Hoenig was the President of the Federal Reserve Bank of Kansas City and a member of the Federal Reserve System's Federal Open Market Committee from 1991 to 2011.

Bank of America Corp. has shelved plans for new fees that could have hit at least 10 million customers by the end of this year, skirting a potential replay of a 2011 uproar over consumer-banking charges, the Wall Street Journal reported today. The decision to hold off on new checking-account fees at least until late next year comes amid a sweeping review of the bank's retail-banking business. Many other big banks, including JPMorgan Chase & Co. and Wells Fargo & Co., have rolled out plans that aim to raise fee revenue or push customers to do more business with them as low interest rates, slow economic growth and tough new rules limit bank profits. But the fees are unpopular with customers, regulators and many legislators, who see them as aimed at consumers who lack for low-cost options in handling their finances.

America's rarely used municipal bankruptcy law is presenting unexpected risks for investors in the $3.7 trillion U.S. tax-free bond market, Reuters reported on Friday. The largest U.S. pension fund, the California Pension Retirement System (CalPERS), this week sued San Bernardino, Calif., in a bid to halt its bankruptcy, creating fresh uncertainties for municipal bond buyers. At stake for San Bernardino is much more than the few million dollars that it owes in arrears for pensions - a token amount in comparison with the $241 billion managed by Calpers. Similarly, bankruptcy experts and bond investors are closely watching the judge handling the year-old $4.23 billion chapter 9 case filed by Alabama's Jefferson County that may affect risk assessments and interest rates for tax-free revenue bonds.