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It is tempting to view the financial downturn as a closed chapter whose primary causes have been resolved—perhaps not perfectly, but fairly comprehensively—by the Dodd-Frank Act’s reregulation of the financial services industry. But big banks continue to have a governance problem, which poses significant risks not just to them but potentially to the entire economy during the next downturn.
It is well-known that many banks were nearly wiped out in 2008 by a global financial cibo fort myers they helped cause. Since then most of them have been nursed back to health, biggest bank failures in the world lots of help from taxpayers and central bankers. Yet despite the reregulation, they remain complex, opaque institutions in the business of taking enormous risks. Figuring out how to oversee them successfully—to keep their risks in check while allowing them to be profitable and economically productive—is a continuing unmet challenge for boards, regulators, and society as a whole.
Upgrading bank boards is one way to take on the challenge. Since the crisis, boards at major banks have revamped their membership and substantially increased their time commitments. This movement could be taken even further: Robert C. Pozen has suggested (“The Case for Professional Boards,” HBR December 2010) that board membership at a big bank should be a full-time job. But even smart, experienced, full-time board members would struggle with the staggering complexity of the biggest banks. Without a way to cut through this complexity to the core issues and drivers, they’d have little hope of steering their institutions in a risk-sensitive fashion.
The main tool with which boards and regulators have managed risk at banks in recent decades is the capital ratio. The logic is biggest bank failures in the world the higher the capital ratio—that is, the more money set aside against potential losses—the lower the risk. This is simple enough in theory but wildly complicated and confusing in practice. It’s not at all clear what the right amount of capital is; in fact, it’s not even clear how capital should be measured. At any given board meeting, bank directors will hear about GAAP capital, capital as measured under the current Basel regime (international standards set by bank regulators), capital as measured under the coming Basel regime, and the bank’s own view of the right amount of capital, often called economic capital. Within these categories are various subcategories, including Tier 1 capital, tangible capital, and total capital. These capital measures often fail to keep up with market events. Also, the calculations can be shaped by banks’ own assessments of risk, regulators’ assessments of banks’ risk models, and ratings from rating agencies—all of which are subject to underlying biases, to put it mildly.
So the capital ratio clearly isn’t the answer. Boards need simple and commonsense—but powerful—tools to cut through the complexity and push management behavior in the direction of responsible risk taking. Here are four that, if adopted widely, could help a lot: 1:
Pay Executives with Bonds as Well as Stock
Management compensation is a powerful driver of corporate behavior. But the debate over how best to use this tool in financial services has been clouded by emotion and popular outrage—and action on compensation has been limited primarily to adjusting the mix of bonus and salary and of cash and stock.
Management compensation is a powerful driver of corporate behavior. But the debate over how best to use this tool in financial services has been clouded by emotion and popular outrage.
Since the crisis, regulators and boards have gravitated toward increasing the amount of stock-based compensation and lengthening the mandatory holding period to induce senior banking executives to behave properly. Underlying this seems to be a belief that if a bank’s CEO—let’s call him Handsomely Paid—earns and holds $40 million worth of stock in his bank, rather than earning $20 million in cash and holding $20 million in stock, he will lead his institution in a more risk-sensitive manner. Don’t be too sure about that.
Multiple academic studies done since the financial crisis have shown a strong correlation between “shareholder friendly” governance and compensation policies and financial distress during the crisis. The financial company executives with the biggest equity stakes at the end of 2006 were James Cayne, of Bear Stearns; Richard Fuld, of Lehman Brothers; Stan O’Neal, of Merrill Lynch; Angelo Mozilo, of Countrywide; and Robert J. Glickman, of Corus Bankshares, according to Rüdiger Fahlenbrach and René M. Stulz, the authors of one of these studies. Not exactly a great advertisement for increasing stock-based compensation.
Most equity investors focus on the upside: How high can the stock go? Over what (preferably brief) period of time? Why can’t it go up even faster? When I was the chief financial officer at Citigroup, I sat in meetings with equity investors who literally rolled their eyes when the CEO projected a growth rate they thought was too low—even when it was multiples of GDP growth. This impatience has only risen as stock ownership periods have declined, shrinking investors’ time horizons. In contrast, fixed-income investors focus most on limiting the downside: Can interest payments be made? Can principal be returned? In other words, equity investors tend to be more risk-seeking and debt investors more risk-averse.
A simple but powerful way for boards to alter the risk appetite of senior bank executives would be to add fixed-income instruments to the compensation equation. Any shift in this direction would have an impact, but the most logical end point would be a compensation mix that mirrors the bank’s capital structure. Thus, as bank financial leverage (and therefore financial risk) increased, senior executives would be motivated to become more risk-averse.
An example: If Handsomely Paid’s financial institution had $1 of debt for every $1 of equity, his $20 million in compensation (down from $40 million because of pressure from shareholders) would be paid as $10 million in debt and $10 million in equity, and his risk tolerance would probably remain relatively robust. If the capital structure shifted to $39 of debt for every $1 of equity—a hugely risky position—his compensation would be paid as $19.5 million in fixed-income instruments and $500,000 in equity, and the CEO’s attention to risk would be heightened. He would most likely focus on enabling repayment of the debt in a timely fashion, rather than on increasing the upside for the $500,000 in equity. This structure would thus provide an automatic brake on the bank’s risk taking.
Note that debt market values move up and down according to a variety of factors, including interest rates. Boards would want to put in place a mechanism, such as CEOs’ holding the debt to maturity or receiving principal at a specified date, to negate this impact and keep executives focused on repayment of the debt. 2:
Pay Dividends as a Percentage of Earnings
Boards can also adjust dividend policy to moderate capital risk. When earnings begin to deteriorate, management teams (and boards) are usually too slow to cut dividends, which sap capital when it is most needed. It is human nature to recognize meaningful inflection points only gradually (as obvious as such changes always appear in hindsight, according to the pundits). It is also human nature to see backing down on a commitment as an admission of failure.
When earnings begin to deteriorate, management teams (and boards) are usually too slow to cut dividends, which sap capital when it is most needed.
Changing human nature is too tall an order; changing conventions around dividends shouldn’t be. Today dividends are declared as a set dollar amount. Many boards evaluate them internally as a percentage of earnings, but when they commit to a payout, it’s always expressed biggest bank failures in the world, say, $0.15 a share.
A more risk-sensitive approach would be to pay dividends as a percentage of reported earnings. At a stated 15% payout rate, shareholders would get $0.15 a share if earnings came in at $1 but only $0.015 if they fell to $0.10. This approach would provide a capital buffer by naturally reducing dividends in a downturn (even as boards and management failed to foresee the downturn’s length and severity) and would pass strong earnings along to shareholders during an upturn. The additional layer of protection would have been meaningful in the most recent downturn.
Shareholders might well be skeptical of having dividends paid out as a percentage of earnings rather than a fixed dollar amount—but the financial crisis would have been a perfect opportunity to make such a change, given that during it many banks stopped paying dividends entirely. A percentage is better than nothing, after all. Regulators and the industry have so far missed this opportunity, with more and more banks resuming or increasing their dividends. Over time that could be bad news for taxpayers and investors of all stripes. 3:
Don’t Judge Managers (Just) by Earnings
Bank executives’ performance is typically evaluated in large part on the basis of earnings. But as the financial crisis brought home, not all bank earnings are created equal. Those driven by additional business from satisfied customers are worth much more over the medium to long term than those achieved by trading, expense cuts, or increases in banks’ net interest income. The first leads to a sustainable earnings stream. The others, by their nature, do not grow the underlying business over time. In the wake of the financial downturn, much ink has been spilled on the subject of trading income and its risks. But net interest income, with its disproportionate impact on the bottom line, is perhaps the least understood of banks’ earnings streams.
The current disconnect between customer dissatisfaction with the banking industry (relatively high) and customer churn levels (relatively low) is simply not sustainable.
Net interest income is a fundamental part of banking. Banks collect deposits in return for paying a certain rate of interest, and they use the deposits to make loans at a higher rate. The spread between those two rates—the net interest margin—fluctuates for a number of reasons, most of which are out of banks’ control. A key factor is the external interest-rate environment. A steep yield curve, on which long-term rates are much higher than short-term ones—as can happen when the Federal Reserve drives down short-term rates with an easy money policy—tends to increase net interest income, whereas a flat one does the opposite.
Suppose a steepening yield curve drives a bank’s net interest margin from 250 basis points (2.5 cents on the dollar) to 350. That added penny on the dollar falls directly to the bottom line. The bank doesn’t have to do any more work, open any more branches, or answer customer calls any more quickly. And when the yield curve flattens, revenue goes down without any associated decrease in costs. So changes in net interest income can have a powerful effect on a bank’s earnings while giving no indication of how well the bank is serving its customers or how likely those customers are to stick around.
Changes in net interest income can significantly mask the underlying strength (or weakness) of a bank’s business, in some cases for years. Indeed, in the recent past a full range of banking “experts” have greatly underestimated the negative impact of falling net interest income (and thus greatly overestimated banks’ earning power) as the interest-rate environment became unfavorable, leading to earnings shortfalls and highlighting poor capital allocation.
In my experience, bank boards and even management teams do not fully differentiate between net interest income and customer-driven net income changes. Boards should take steps to isolate changes in each and evaluate their senior management teams not according to aggregate earnings but according to the elements of earnings they can affect.
Boards would also be well advised to pay close attention to indicators other than earnings. Perhaps the most crucial metric is customer satisfaction. More business from happy customers represents quality earnings. Continuing business from unhappy customers who feel stuck—because of the increasing prevalence of fees to close accounts, the time needed to retype automatic bill-payment addresses at another bank, and confusion about whether another bank’s products are equivalent—represents a real risk for today’s banks and a real business opportunity for competitors and new entrants. The current disconnect between customer dissatisfaction with the banking industry (relatively high) and customer churn levels (relatively low) is simply not sustainable over the long term. 4:
Give Board Scrutiny to Booming Businesses, Too
A board’s scarcest resource is its meeting time. Boards should change how they use it.
Board members usually spend most of their meeting time on governance issues, business updates, and “problem children.” They should focus instead on the businesses that use the most capital.
Most board members will tell you that their meetings are spent on governance issues, business updates, and “problem children,” with well-performing business segments given an affectionate nod. This should be reversed. Boards should actually spend much more of their time reviewing the business segments with the highest returns. In banking—an industry with few copyrights or patents to act as barriers to entry—product and business complexity has historically served as a barrier to entry. If competitors can’t figure out a product, they can’t copy it. This may lead to higher returns for a while, but it means that high-return businesses are often among the most complex—and therefore the riskiest. Certainly not all high-return businesses crash, but variations on the comment “In hindsight, the returns were probably too good and too steady” are all too common in the financial sector. Industrywide, this was true of collateralized debt obligations, which generated spectacular returns before causing spectacular losses. And at Citigroup, before regulators forced the company’s private bank to shutter its operation in Japan owing to improprieties, its returns were at the very top of Citi’s businesses—driven, as it turned out, by those same improprieties.
Boards should also prioritize their business-line review according to capital consumption. Spending time on the businesses that use the most capital, and working to reduce the need for that capital by controlling risk, will deliver a higher payoff. In a postcrisis world, boards must accept that their role has changed. A key to operating successfully is finding and using simple tools to cut through the business’s underlying complexity in order to manage risk. This change in approach is needed to increase customer and shareholder value in the banking system and to protect the broader economy.
A version of this article appeared in the June 2012 issue of Harvard Business Review.
Sanjeev gupta liberty steel
sanjeev gupta liberty steel ” Liberty Steel was last month able to restart operations at its plants in Rotherham and Stocksbridge, both in south Yorkshire, after a partial £50m refinancing. A short introduction of Sanjeev Gupta — an Indian born entrepreneur, educated at Cambridge, whose father started the SIMEC Group (renewables, energy). That was turned down. rice field. Steel tycoon Sanjeev Gupta should still be allowed to control Liberty Steel despite concerns over poor corporate governance and opaque financing at his company, a Government minister has said. The Serious Fraud Office is probing suspected fraud, fraudulent trading and money laundering within the GFG group. LONDON — Commodities tycoon Biggest bank failures in the world Gupta has failed to ensure proper corporate governance and transparency for his family-owned conglomerate, which threatens the future of its British unit Liberty Steel, British lawmakers said in a report. Apr 01, 2021 · LONDON (Reuters) -Liberty Steel owner Sanjeev Gupta cautioned creditors on Thursday against pulling the plug, saying he had garnered huge interest from financiers willing to refinance billions of dollars in debt owed to failed lender Greensill Capital. Mar 26, 2021 · Metals magnate Sanjeev Gupta has requested a £170m government bailout to save his conglomerate, owner of Britain’s third biggest steel group, from collapse. . Greensill, advanced hundreds of millions of pounds to firms linked to Gupta's using a state-backed coronavirus lending Nov 28, 2021 · Sanjeev Gupta’s troubled GFG Alliance has scrapped plans to build a 100-room hotel in Lanarkshire adjacent to the Clydebridge steelworks he purchased in 2016. On the face of it, Former Prime Minister David Cameron has been cleared in a parliamentary inquiry over allegations of improper advancement of the collapsed financial firm Greensill. At 14, he was sent to St Edmund's private school in Canterbury, Kent, and reportedly 'fell in love' with England. Gupta's GFG Alliance conglomerate has 30,000 employees across the world but its Liberty Steel has been rocked by the collapse of Greensill, its Mar 30, 2021 · Sanjeev Gupta standing outside one of the OneSteel mills he bought in 2017. The £15 million hotel was to be Nov 25, 2021 · Greensill was the principal financial firm backing the Liberty group of the dubious steel adventurer Sanjeev Gupta. The Alliance is structured into three core industrial pillars; LIBERTY Steel Group, ALVANCE Aluminium Group and SIMEC Energy Group, independent of each other yet united through shared values and a purpose to create a sustainable future for industry and society. May 18, 2021 · GFG Alliance owns Liberty Steel, which among other sites includes the Dudelange steel plant, which Gupta bought from ArcelorMittal in 2018. Gupta, the founder of Liberty Steel and its sprawling holding company GFG Alliance, sent a letter to government officials late this week to request the cash. Business editor. In a restructuring update, the company said that Roy Chowdhury Aug 05, 2021 · The business, which owns Liberty Steel, has been restructuring amid the collapse of lender Greensill Capital. The BBC reported that Metro Bank asked for early repayment of an £18m Nov 05, 2021 · An influential group of MPs has called into question Sanjeev Gupta’s stewardship of Liberty Steel, Britain’s third-largest steelmaker, after identifying a “series of audit and corporate governance red flags” at the tycoon’s conglomerate. Apr 13, 2021 · Britain is allowing owner Sanjeev Gupta to explore refinancing options for Liberty Steel before offering any potential government support, business secretary Kwasi Kwarteng said on Tuesday. May 14, 2021 · A representative of GFG Alliance, steel magnate Sanjeev Gupta's family conglomerate, said the group had no immediate comment on the matter. Nov 05, 2021 · Liberty Steel owner, Sanjeev Gupta, put senior members of his staff in an unacceptable position by employing them with job titles associated with traditional executive functions in well run Nov 25, 2021 · Greensill was the principal financial firm backing the Liberty group of biggest bank failures in the world dubious steel adventurer Sanjeev Gupta.is being investigated by Britain's Serious Fraud Nov 05, 2021 · Liberty Steel boss Sanjeev Gupta has been criticised in a report pnc bank flemington nj hours MPs looking into the crisis that engulfed the company, as well as the future of the wider steel sector. Nov 05, 2021 · Sanjeev Gupta must urgently fix these problems if he is to be seen as a fit and proper owner of steel companies in the UK. May 30, 2021 · By AFP. An influential group of MPs has called into question Sanjeev Gupta’s stewardship of Liberty Steel, Britain’s third-largest steelmaker, after identifying a “series of audit and corporate governance red flags” at the tycoon’s conglomerate. He founded Liberty House Group in 1992, while still an undergraduate, as a global commodities trader, growing rapidly across different geographies for over two decades. Jun 20, 2021 · Greensill filed for insolvency protection in April, placing Liberty Steel of Sanjeev Gupta in jeopardy. Nov 05, 2021 · Liberty Steel owner, Sanjeev Gupta, put senior members of his staff in an unacceptable position by employing them with job titles associated with traditional executive functions in well run Liberty steel owner in talks over £200m lifeline. However, the MPs said logix online banking phone number still had concerns over the lack Nov 25, 2021 · Greensill was the principal financial firm backing the Liberty group of the dubious steel adventurer Sanjeev Gupta. GFG Alliance has three core industry brands; LIBERTY Steel Group, ALVANCE Aluminium Group and SIMEC Energy Group. Nov 25, 2021 · Greensill was the principal financial firm backing the Liberty group of the dubious steel adventurer Sanjeev Gupta. ” The committee launched an inquiry into Liberty Steel and the wider May 14, 2021 · A representative of GFG Alliance, steel magnate Sanjeev Gupta's family conglomerate, said the group had no immediate comment on the matter. New Delhi– Sanjeev Gupta’s Liberty Steel is in a loan breach of 18 million pounds with Metro Bank. The MPs on Friday warned Gupta needed to “urgently fix” the problems at GFG Alliance if he was An influential group of MPs questioned the stewardship of Sanjeev Gupta of Liberty Steel, the UK’s third-largest steelmaker, after identifying a “series of audit and corporate governance hazards” in a big conglomerate. Kwasi Kwarteng, the Secretary of State for Business, Energy and Industrial Strategy (BEIS), told MPs he believes the businessman’s May 23, 2021 · 504. Gupta's GFG Alliance has been struggling to arrange refinancing of its global web of operations, including British steel sites, after the collapse in March of its Apr 02, 2021 · Born in Punjab, India, Sanjeev was the latest in a line of Gupta steel heirs. The news of the request for taxpayer funds had sparked concern that Mr Gupta’s Australian businesses, which Nov 08, 2021 · UK MPs say Liberty Steel operations threatened by poor governance. In 2015 Sanjeev started his industrial journey buying and restarting his first steel mill in the UK. The government spoke of an “opaque” structure within Liberty and its parent GFG Alliance. Liberty Oct 31, 2021 · Tags: #British steel industry #Business fraud #GFG Alliance #Greensill #Gupta Family Group (GFG) Alliance #Liberty Steel #Sanjeev Gupta #UK Serious Fraud Office. Bloomberg. Nov 21, 2020 · Over the weekend Sanjeev Gupta’s company announced that Swedish firm SSAB was negotiating with Tata over buying its assets in the Netherlands. The Dudelange site employs around 300 people, out of 35,000 employees group-wide. Liberty steel owner in talks over £200m lifeline. ” Liberty Steel was last month able to restart operations at its plants An influential group of MPs has called into question Sanjeev Gupta’s stewardship of Liberty Steel, Britain’s third-largest steelmaker, after identifying a “series of audit and corporate May 14, 2021 · LONDON -- The business empire of Liberty Steel owner Sanjeev Gupta, including its financing arrangements with bankrupt Greensill Capital U. Jul 20, 2021 · 20 July 2021. Friday’s MP warned that the GFG Alliance issue needed to be “urgently fixed” in order for Gupta to be considered the … Oct 11, 2021 · Liberty Steel UK, owned by British Indian businessman Sanjeev Gupta, will receive a cash injection of GBP 50-million after its parent company agreed on a financial restructuring plan to revive Mar 27, 2021 · Liberty Steel, a subsidiary of GFG, owns nine steel sites across the UK. His family has/had business interests in trading, and like every good Indian son, he grew his family business to significant heights Biggest bank failures in the world 09, 2021 · “We are not satisfied that Sanjeev Gupta is adequately addressing the many fundamental issues and … this poses a threat to the long-term prospects of Liberty Steel UK,” they said. first published: Oct 31, 2021 10 Nov 08, 2021 · Commodities tycoon Sanjeev Gupta has failed to ensure proper corporate governance and transparency for his family-owned conglomerate, which threatens the future of its British unit Liberty Steel He founded Liberty House Group in 1992, while biggest bank failures in the world an undergraduate, as a global commodities trader, growing rapidly across different geographies for over two decades. Friday’s MP warned that the GFG Alliance issue needed to be “urgently fixed” in order for Gupta to be considered the … Apr 01, 2021 · LONDON (Reuters) -Liberty Steel owner Sanjeev Gupta cautioned creditors on Thursday against pulling the plug, saying he had garnered huge interest from financiers willing to refinance billions of dollars in debt owed to failed lender Greensill Capital. It’s about Sanjeev Gupta and Liberty Group. DUESSELDORF, June 16 (Reuters Nov 28, 2021 · Sanjeev Gupta’s troubled GFG Alliance has scrapped plans to build a 100-room hotel in Lanarkshire adjacent to the Clydebridge steelworks he purchased in 2016. Nov 08, 2021 · Commodities tycoon Sanjeev Gupta has failed to ensure proper corporate governance and transparency for his family-owned conglomerate, which threatens the future of its British unit Liberty Steel, British lawmakers said in a report. K. Nov 05, 2021 · The metals tycoon Sanjeev Gupta should be investigated for potential breaches of his duties as a company director, according to a scathing report by MPs that said his leadership threatened the future viability of Liberty Steel. Sanjeev Gupta is the Executive Chairman of GFG Alliance, a collection of global businesses and investment owned Sanjeev and his family. German steelmaker Saarstahl on Wednesday said it has submitted a bid for two steel plants in France owned by Sanjeev Gupta's Liberty Steel. Evtec, an automotive supplier based in Jun 28, 2021 · Sanjeev Gupta’s GFG Alliance has today replaced Liberty Steel UK’s boss as it continues to overhaul its embattled operations. Gupta sought 170 million pounds by way of a UK government grant to fill the gap created by the Greensill collapse. Jan 18, 2021 · Liberty Steel. Sanjeev Gupta. Britain - Liberty is the third largest steel maker Nov 25, 2021 · Greensill was the principal financial firm backing the Liberty group of the dubious steel adventurer Sanjeev Gupta. The MPs on Friday warned Gupta needed to “urgently fix” the problems at GFG Alliance if he was to be seen as […] Jun 16, 2021 · Jun 16, 2021 6:45AM EDT. The £15 million hotel was to be Nov 24, 2021 · Note to the editors: GFG Alliance is a collection of global businesses and investments owned by Sanjeev Gupta and his family. Britain - Liberty is the third largest steel maker An influential group of MPs questioned the stewardship of Sanjeev Gupta of Liberty Steel, the UK’s third-largest steelmaker, after identifying a “series of audit and corporate governance hazards” in a big conglomerate. Gupta's Bathing suit linda holliday Alliance conglomerate has 30,000 employees across the world but its Liberty Steel has been biggest bank failures in the world by the collapse of Greensill, its Nov 08, 2021 · UK MPs say Liberty Steel operations threatened by poor governance. Aug 05, 2021 · UK-based steel trade baron Sanjeev Gupta-led Liberty Steel has developed a brand new construction for its UK enterprise that focuses Jul 14, 2021 · The Business Committee want answers to questions over the structure of the tycoon’s GFG Alliance and the financial future of Liberty Steel. Nov 18, 2021 · Sanjeev Gupta’s GFG Alliance has sold two aluminium parts factories after Jaguar Land Rover (JLR) stepped in to secure a vital part of its supply chain. By Simon Jack. Sanjeev Gupta's beleaguered UK steel business may yet find the help it needs, the BBC understands. Sanjeev Gupta’s under-pressure business empire has settled two disputes with Jul 14, 2021 · MPs slam Sanjeev Gupta over failure to face Liberty Steel questions The Business Committee want answers to questions over the structure of the tycoon’s GFG Alliance and the financial future of Nov 05, 2021 · Sanjeev Gupta must urgently fix these problems if he is to be seen as a fit and proper owner of steel companies in the UK. LONDON: Sanjeev Gupta's Liberty Steel company -- one of the world's largest steel empires -- faces an uncertain future after announcing plans to sell three of its UK plants. He founded Liberty House Group in 1992, while still an undergraduate, as a global commodities trader, growing rapidly across different geographies for over two decades. ” Liberty Steel was last month able to restart operations at its plants in Rotherham and Stocksbridgeboth in south Yorkshire, after a partial £50m refinancing. Nov 05, 2021 · “Sanjeev Gupta must urgently fix these problems if he is to be seen as a fit and proper owner of steel companies in the UK. Nov 28, 2021 · Sanjeev Gupta’s troubled GFG Alliance has scrapped plans to build a 100-room hotel in Lanarkshire adjacent to the Clydebridge steelworks he purchased in 2016. sanjeev gupta liberty steel
Two failed Alberta banks shake Canadians
Canada has had its first bank failures since 1923, both in the western oil province of Alberta. Early this week the federal government shut down the Canadian Commercial Bank of Edmonton and the Calgary-based Northland Bank, saying they ``were no longer viable.'' A Toronto banker described the failures as ``inevitable.''
Big loans to the energy and real estate sectors are banks and post offices closed tomorrow to the collapse of both banks.
Auditors have been appointed to wind up the banks' affairs. Depositors are covered by the Canadian Deposit Insurance Corporation, but only up to $60,000 Canadian ($43,920 US). Ottawa has hinted it will help out those who have larger deposits. ``The government's first priority remains the depositors of the banks,'' says the minister in charge of financial institutions, Barbara McDougall.
Bankers moved quickly to reassure depositors that their money was not in danger. ``Ninety-seven percent of deposit accounts are fully protected by deposit insurance,'' says Robert McIntosh, president of the Canadian Bankers Association. None of the other 12 Canadian banks, or the 57 foreign banks, are in danger, he says.
Still, many depositors are heading for the safety of larger banks. The Canadian Commercial Bank admitted it lost more than $850 million in deposits after problems first surfaced last March.
Although the financial community, centered in Toronto, was not surprised that the two banks went under, it did come as a shock to the average Canadian.
Banking is tightly regulated by the federal government, which decides the type of business banks can do. The Bank Act is reviewed about once every 10 years. Banks were once not allowed to lend mortgage money; that rule changed, and now they dominate the mortgage market.
There are only 14 (soon to be 12) federally chartered banks and 57 foreign banks. The five largest, known as the ``Big Five,'' do more than 84.3 percent of the banking in Canada. Combined assets of the two failed banks were less than 1 percent of the $421 billion in in the Canadian banking system.
The Canadian Commercial Bank (CCB), with assets of $2.8 billion, was 10th largest of the Canadian chartered banks. By comparison, the Royal Bank of Canada, the country's largest, has assets of $93 billion. The CCB had been in trouble for some time. In March it was saved from collapse by a $255 million rescue package put together by the federal and Alberta governments and six chartered banks.
This summer the CCB was closely scrutinized by William Kennett, inspector general of banks.
The Northland Bank, with assets of $1.3 billion, was the 11th largest bank in the country. Ottawa has given the bank a short time to merge with another bank or close.
The last failure was the Home Bank of Canada, 62 years ago. These two failures are expected to bring in tougher federal regulations. Among other measures, it will give Ottawa the power to decide how much real estate held by the banks is worth. Some banks overvalue real estate to make their loan portfolios look better to regulatory authorities.
Both Alberta banks were founded in the mid-1970s when Alberta was in the midst of an oil and chase bank loan modification forms estate boom. That ended in the early 1980s: The world oil glut combined with disastrous federal energy policies to scupper Alberta's economy.
``They were where the action was,'' said Thomas Starkey, bank analyst with the Capital Group in Toronto. When the economy contracted, ``there were too many regional banks in western Canada.''
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Online lesen The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American
An award-winning reporter chronicles the calamitous story of Washington Mutual, the single-largest bank failure in American history, in a fast-paced, compelling, and gripping saga of greed and excess.During the most dizzying days of the financial crisis, Washington Mutual, a bank with hundreds of billions of dollars in its coffers, suffered a crip?pling bank run. The story of its final, brutal collapse in the autumn of 2008, and its controversial sale to JPMorgan Chase, is an astonishing account of how one bank lost itself to greed and mismanagement, and how the entire financial industry?even the entire country?lost its way as well. Written as compellingly as the finest fiction, The Lost Bank introduces readers to the regulators and the bankers, the home buyers and the lenders who together created the largest bank failure in American history. The result is a magisterial and gripping account of the incredible rise and the precipitous collapse of not only an institution but of trust, fortunes, and the marketplaces for risk across the world.
Top 5 Biggest Bank Failures
Bank failures usually occur during economic downturns, and in recent decades some of those failures have been spectacular. Here are five of the biggest in U.S. history.The worst was Washington Mutual, which went under in 2008 due to the financial crisis. The FDIC seized its assets of $307 billion, then brokered a deal for JPMorgan to buy it for $1.9 billion. IndyMac Bank, with assets of $32 billion and deposits exceeding $19 billion, was another one of 25 banks that closed in 2008 due to the credit crisis. Federal authorities said Senator Charles Schumer sparked the run when he publicly questioned the bank’s viability. In 1981, Continental Illinois National Bank and Trust was the sixth largest U.S. bank, and it had the country’s largest commercial and industrial loan portfolio. The bank collapsed in 1984 with assets worth $40 billion, due to losses stemming from its nonperforming loans. First Republic Bank was the largest to fail during the savings and loan crisis in the 1980s, with $33.4 billion in assets. Its failure stemmed from deterioration in the Texas real estate market, and increases in nonperforming loans. Many of its depositors used wire transfers and ATMs to withdraw their money, dubbing it an “electronic run.” The Bank of New England and two of its sister banks failed in 1991 with assets totaling $21.8 billion. A bad loan portfolio was the culprit. The FDIC insured all of its deposits, even those that exceeded $100,000.
Bank of Ireland fined €24.5m for decade-long IT failure
The Central Bank has fined Bank of Ireland €24.5 million for technology failures the lender took more than a decade to fix.
Handing down one of its largest ever penalties, the Central Bank said IT service continuity deficiencies were repeatedly identified in third party reports from 2008 onwards but that Bank of Ireland only started to address them in 2015, resolving the issue four years later.
The failure at the State's largest bank by assets to have a robust framework and internal controls in place could have left it unable to ensure continuity of critical services and led to adverse effects on customers and the financial system, the Central Bank said.
Bank of Ireland admitted to five contraventions over the 12-year period, and the fine was reduced from €35 million in accordance with a settlement discount.
The Central Bank said steps taken by the lender since 2015 had improved its IT service continuity framework and internal controls.