September 21, 2021

Fair Game: Bankers Are Balking at a Proposed Rule on Capital

If the rule goes into effect, it will require the nation’s largest banks, those whose parent companies have more than $700 billion in consolidated assets, to double the amount of capital they have on hand to cover losses. Under the new rule, for example, Chase Bank would have to hold capital equal to 6 percent of its assets, up from the current requirement of 3 percent. Its parent company, JPMorgan Chase, would also have to increase its capital from that level to 5 percent.

Even better, the design of the new capital requirement would be much harder for bankers to game. They did just that with other types of capital rules, such as those issued under the Basel regime, the international system devised by regulators and central bankers.

The proposal, which would raise what is known as a bank’s leverage ratio, was issued jointly by the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Office of the Comptroller of the Currency.

Naturally, the financial sector hates it.

The proposal would “make it harder for banks to lend and keep the economic recovery going,” said Tim Pawlenty, president of the Financial Services Roundtable, in a statement. Not that the banks are lending with abandon now.

Increasing capital will most likely reduce these institutions’ returns on equity, a measure that many stockholders use to judge a bank and that banks’ boards use to calculate top executives’ bonuses.

At the moment, big banks are riding high. On Friday, JPMorgan Chase said its net income for the second quarter was $6.5 billion, up 31 percent from the same period of 2012. The six largest banks will enjoy an average increase of 20 percent in earnings during the second quarter, according to analysts’ estimates.

Over the next two months, regulators will receive and weigh public comments about their proposal. You can be sure that, from now to then, the nation’s largest banks will do whatever they can to weaken it.

JUST getting the proposed capital rule out the door seems to have been tough, judging from one regulator’s public comments. As Jeremiah Norton, a director at the F.D.I.C., said in a statement on Tuesday: “It should not have been as difficult as it has been for the agencies to come together on today’s leverage-ratio proposal, which hardly seems like a seismic shift in capital requirements and represents an attempt to address one of the core causes of the financial crisis.”

But seismic it is to the nation’s biggest bankers. As soon as the proposed rule came out, their representatives began warning about the dire effects it would have on the economy.

Mr. Pawlenty, the former Minnesota governor and candidate for the Republican presidential nomination, trotted out that time-honored claim that is used to undercut so many regulations — that the higher capital rule was a bad idea because it would put American banks at a competitive disadvantage to foreign institutions that needn’t abide by it.

This, by the way, was the same argument that banks made just before the financial crisis. Back then, they were arguing that United States regulators should join their European counterparts in relying solely on the Basel II rules, and not impose additional capital requirements. The big banks liked those rules because they leaned heavily on bankers’ own, rosy risk models and allowed the institutions to compute capital based on the supposed risks in various assets.

This so-called risk-weighting approach was an abject failure. For example, the assumptions characterized the sovereign debt of Greece as risk-free, requiring that banks set aside no capital against those holdings for possible losses. The risk-weight system also determined, incorrectly, that highly rated mortgage securities fell low on the risk scale.

That’s what’s so beneficial in the leverage-ratio rule proposed last week: it allows for much less subjectivity in analyzing risks on a bank’s balance sheet. It also has the benefit of including more of a bank’s off-balance-sheet holdings — like derivatives — in the capital calculation. That helps give investors a truer picture of a bank’s financial position.

“The reason our banks, with their much larger exposure to toxic mortgage securities, fared better than their European counterparts during the crisis was that the U.S. regulators had already required them to meet a leverage ratio on top of the Basel requirements,” said Joshua Rosner, an analyst at Graham Fisher in New York. “Where other countries merely used Basel — which proved to be a loose belt — we required suspenders as well.”

If the new rule goes into effect, it will trump the heavy reliance on risk-weighting that remains central to the Basel rules. Once again, that would put United States banks in a better position than their foreign peers to survive future downturns.

“The United States has the opportunity to lead the world in bringing forward a financial system that is sounder in the long run,” said Thomas M. Hoenig, vice chairman of the F.D.I.C., in an interview last week. “With stronger capital, banks still have the ability to make loans, but if they do have losses they can absorb those losses without imploding the economy.”

THE regulators concede that increasing capital at these large and powerful institutions may increase the costs of borrowing. But they note that the societal benefits to increased capital — fewer expensive bailouts — will far outweigh the possible rise in borrowing costs.

Over the next two months, the regulators proposing this rule will no doubt encounter a lobbying buzz saw. Mr. Hoenig said he and his colleagues were bracing for that. Bankers, after all, prefer things just the way they are. They can load up on leverage to take risks and reap the rewards. But when losses abound? Well, they’re the taxpayers’ problem.

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DealBook: Regulators Seek Stiffer Bank Rules on Capital

Thomas Hoenig, a Federal Deposit Insurance Corporation official.Yuri Gripas/ReutersThomas Hoenig, a Federal Deposit Insurance Corporation official.

Confronted with large and complex banks, financial regulators have spent years drafting rules that are just as complicated.

On Tuesday, though, regulators signaled that the byzantine approach was inadequate. In a significant shift, the Federal Deposit Insurance Corporation, along with the Federal Reserve and the Office of the Comptroller of the Currency, proposed stricter banking rules that aim for simplicity.

The agencies’ move is part of their continuing efforts to strengthen the financial system and prevent situations where taxpayer-financed bailouts might be required.

The latest regulations focus squarely on capital, the financial cushion that banks have to hold to absorb potential losses. In theory, a bank with higher levels of capital is more likely to weather shocks and less likely to need government aid in a crisis. The proposed rules would raise a crucial requirement for capital held by the largest banks.

“This will increase the overall financial stability of the system,” said Thomas M. Hoenig, vice chairman of the F.D.I.C. “This is an advantage to the banks over the long run, and to the economy. I am confident of that.”

The agencies’ latest push could meet fierce resistance, however. As outlined, the new capital requirements could be costly for the largest banks, which have 60 days to comment on the rules.

The F.D.I.C. estimated that the country’s eight biggest banks would have to find as much as $89 billion to comply with the proposed rules. An analysis of JPMorgan Chase’s books suggested that it might have to bolster its capital position by $50 billion, a number the bank declined to verify.

The added burden for the big banks unnerves some in the industry.

“This goes a little higher than is necessary,” said Tony Fratto, a partner at Hamilton Place Strategies, a research and public relations firm that has represented banking trade groups. Mr. Fratto said the new rules could weigh on the economy and undermine the global competitiveness of the largest American banks. “It’s our view that there has to be a trade-off with greater restrictions,” Mr. Fratto said.

The regulators are acting at a time when some members of Congress are calling for tougher bank regulation because they believe the sweeping overhauls instituted soon after the financial crisis fell short. Senator Sherrod Brown, Democrat of Ohio, and Senator David Vitter, Republican of Louisiana, introduced a bill earlier this year that demanded capital increases exceeding what the agencies are now proposing.

“The Brown-Vitter bill really galvanized the debate about ‘too big to fail’ and capital ratios,” said Camden R. Fine, president of the Independent Community Bankers of America, an industry group that supports the agencies’ proposed rules. “It really focused the regulators’ attention on these capital issues.”

With their latest move, the regulators hope to make the rules clearer and tougher.

After the crisis, American regulators agreed to impose an international banking overhaul known as Basel III. Officials like Mr. Hoenig have criticized Basel regulations because they rely on a method called risk weighting to set capital. With risk weighting, banks estimate the perceived riskiness of assets. They are then allowed to hold less capital, or even no capital, against assets that appear less risky. A bank may have $1 trillion of assets on its balance sheet, for example, but many of those assets could have low risk weightings. As a result, the bank might be able to reduce its total of risk-weighted assets to $500 billion. It would then calculate its needed capital from that lower figure. With a capital requirement of 7 percent, the bank would need $35 billion in capital.

Critics have questioned the risk weighting process, arguing that it can be inconsistent and complex and leave banks short of capital.

The regulations proposed Tuesday are intended to compensate for the shortcomings of risk weighting. Using a yardstick known as the leverage ratio, the proposed rules would not allow the bank with $1 trillion in assets to discount any of that sum. In fact, the bank would have to increase the asset total it uses to calculate capital to reflect risks not readily apparent on its balance sheet.

The agencies estimate that the new calculations would increase the largest banks’ asset totals by around 43 percent. The $1 trillion bank would, in essence, become a $1.43 trillion bank.

The proposed rules would also effectively require the largest banks to hold capital equivalent to 5 to 6 percent of their new asset totals. The hypothetical $1.43 trillion bank would therefore have to hold more than $70 billion. “Risk weighting is based on a very arcane and complicated series of ratios and formulas that are immediately gamed,” Mr. Hoenig said. “The leverage ratio is a check on that.”

Stock market investors appeared to shrug off the tougher requirements. Shares in the largest banks, which have risen sharply in recent months, were mostly up on Tuesday.

“I am surprised by the market reaction,” said Richard Ramsden, a bank analyst at Goldman Sachs. “It’s a fairly demanding proposal.”

Only two big banks, Wells Fargo and Bank of America, appear to already have sufficient capital to meet the proposed leverage ratio requirements, according to an analysis by Keefe, Bruyette Woods.

But other big banks may be more strongly affected. JPMorgan Chase, the nation’s largest bank by assets, has two large subsidiaries with federal deposit insurance. Those subsidiaries would have to hold 6 percent capital, according to the proposed rules. In theory, this could push up their combined capital requirement to $177 billion from the $127 billion they hold today.

Regulators may favor such an outcome because JPMorgan, like some other large banks, uses its insured subsidiaries to hold most of its derivatives. Derivatives, financial instruments that can be used to hedge risks or speculate, can be a source of losses and instability when markets are in severe turbulence.

The banks have until the end of 2017 to comply with the higher requirements. In the next two months, they are likely to push back hard. But with the economy strengthening and bank profits at record highs, the banks may not find sympathetic audiences.

Advocates of higher capital say it can increase confidence in the banking sector and promote lending.

Mr. Fratto, of Hamilton Place Strategies, is skeptical of that viewpoint. “Do we want to conduct that experiment at a time when we’ve seen banks shedding assets, exiting businesses and pulling back a bit on lending?” he asked.

These days, regulators have more power to press ahead in the face of any opposition. The Dodd-Frank overhaul passed by Congress in 2010 gave regulators added leeway to toughen rules for large banks. The leverage ratio is only one initiative regulators are pursuing. The Federal Reserve, for example, is going to propose a rule that raises capital requirements for banks that borrow heavily in the markets. But even with the flurry of new rules, Mr. Hoenig says he does not think the banks’ hands will be tied.

“They have plenty of flexibility to lend and invest,” he said.

A version of this article appeared in print on 07/10/2013, on page B1 of the NewYork edition with the headline: Regulators Seek Stiffer Bank Rules On Capital.

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Fair Game: In Bank Earnings, Quantity Over Quality

The new high followed a report last week from the Federal Deposit Insurance Corporation, showing record earnings across a wide swath of the banking sector in the first quarter. The F.D.I.C. did not break out individual bank performance, but the data showed that the roughly 7,000 banks whose deposits were federally insured earned $40.3 billion, up from $34.8 billion in the same period last year. That’s a nifty 15.8 percent increase.

There was other good news about the banks in the F.D.I.C.’s report. Returns on assets increased to 1.12 percent, on average, from 1 percent for the same period in 2012. And the number of banks on the regulator’s problem list fell to 612 from 651 at the end of last year. Only four insured institutions failed in the first three months of 2013 — the fewest since mid-2008.

These are all welcome developments, especially after the near-death experience of so many banks and their shareholders during the financial crisis. Clearly, the United States banking industry as a whole is better off than it has been for years.

But, as is often the case, a more nuanced tale emerges when you look more closely at the profit figures. Put simply, there is less to the headline number than some investors may think.

For one thing, the good news wasn’t across the board: only half of the insured institutions reported higher quarterly profits, year-over-year. That was the lowest percentage since the last quarter of 2009.

But the quality of the banks’ earnings — an important consideration for investors — starts to look less pretty when you start examining the data. Once you do that, you can identify one-time gains or other gimmicks that can create ephemeral increases or otherwise make the results appear better than they actually are.

Several red flags pop up in the F.D.I.C. report. The most important appears in its discussion of banks’ net interest income, the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities.

This is a crucial gauge of bank profitability — after all, banks are in the business of lending money — and it is on a downward slide. It declined $2.4 billion, or 2.2 percent, among the banks the F.D.I.C. examined during the first quarter, with the average net interest margin falling to 3.27 percent from 3.51 percent in the same period last year. The most recent figure is the lowest since 2006, the F.D.I.C. said.

This crimp comes courtesy of the zero-interest-rate policy of the Federal Reserve Board. As borrowers pay off older loans made at higher rates, banks can replace them only with lower-yielding loans. Sure, their costs are lower, but the spread between what they earn and what they pay out has become razor thin.

Loan balances at these banks also fell slightly during the quarter. Total loans and leases shrank by almost $37 billion, or 0.5 percent, a decline fueled by lower credit card balances, home equity lines of credit and residential mortgage loans. Many bankers may be hesitating to make loans, worrying that interest rates will soon rise; when they do, loans made at current low rates will fall in value.

So how did the banks manage to bolster their overall profits so substantially? They searched for income elsewhere, and found it in the annoying and sometimes egregious fees they charge to consumers. Noninterest income at the banks rose by $5.1 billion in the quarter, according to the F.D.I.C., or 8.3 percent.

Cost-cutting at a few large institutions also contributed to the overall brighter picture in earnings. This was evident in the $4.2 billion decline in noninterest expenses in the quarter, a drop of almost 4 percent.

Another red flag is seen in reductions in set-asides for loan losses. Banks have a good deal of leeway in deciding how much money to provide for future losses. If banks play down the risks in their portfolios and reduce the amount to cover potential losses, that additional money makes their earnings look better.

The loan-loss provisions fell to $11 billion in the quarter, a decline of $3.3 billion, or 23 percent, from the same period a year ago. As the F.D.I.C. noted, this provision is the lowest among the banks since early 2007, at the height of the housing bubble. Reduced allowances for losses were reported by 53 percent of the institutions covered by the report.

So is everything rosy in these institution’s loan portfolios? Are their risks much lower? Not exactly. Loans that are delinquent more than 90 days accounted for 3.41 percent of total loans in the first quarter, the F.D.I.C. said. Although this is down from more than 5 percent, a few years ago, it is still high. In 2007, for example, it was 0.83 percent.

Put it all together, and you see the clouds moving in on the sunny earnings report. Banks’ considerable profits seem fueled by cost-cutting and lowered loan-loss provisions. The effects of such tonics only last so long.

Scott A. Anderson, chief economist at Bank of the West, said the F.D.I.C. report showed that scars from the financial crisis remained in the banking system. With banks still reluctant to lend, he said, the nation’s economic recovery was being held back.

If banks don’t make loans, Mr. Anderson noted, our economy can’t expand as it normally does in a recovery. Even six years after credit started to seize up around the world, we are still relying on the Fed to keep the economy moving.

SUCH is the box the Fed finds itself in. Its muscular response to the credit crisis staved off economic disaster. But its continued efforts to keep interest rates low are doing nothing to encourage lending by banks.

“How does the Fed unwind what it’s done over the past five years without disrupting the bond market and interrupting the flow of loans in the banking system?” Mr. Anderson asked in an interview. “How do you do that without reversing some of the positives?”

Taking away the punch bowl at the party has never been easy for Fed chairmen. This time, though, it’s going to be downright treacherous.

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Bucks Blog: Campus Banking Practices Come Under Scrutiny

College students are much sought after as banking customers, since young people are likely to stick with the institutions they choose for their first accounts.

On Thursday, the Consumer Financial Protection Bureau said it was opening an inquiry into bank accounts and debit cards marketed to students through colleges and universities to determine if such arrangements are in the best interest of students.

“The bureau wants to find out whether students using college-endorsed banking products are getting a good deal,” Richard Cordray, the agency’s director, said in a prepared statement.

The Credit CARD Act of 2009 barred banks from aggressive marketing of credit cards on campus, and required that agreements between credit card issuers and colleges be made public.

But, the agency said, less is known about deals for other financial products, including college-affiliated bank accounts, and contracts between schools and banks to disburse financial aid to students. Students, including those attending community colleges, often receive financial aid in excess of tuition, and can use the extra money to pay for textbooks and other costs. The banks often provide a debit card, linked to an account, to distribute the funds, and students sometimes think they are required to use the bank promoted by the school to obtain their scholarship or loan money. Some colleges even issue college-branded student identification cards that double as debit cards.

In some cases, companies providing the debit cards for financial aid have come under fire for charging excessive fees. Higher One, a big marketer of student debit cards, last summer settled allegations by the Federal Deposit Insurance Corporation that it had charged excessive fees to students who overdrew their accounts.

Now, the bureau said it is seeking information from students, colleges and banks on what information colleges share with banks when they enter such agreements; how accounts and cards are marketed to students; what fees students are charged; and how students use the cards and accounts in their day-to-day lives.

Comments will be accepted until March 18.

Rohit Chopra, the agency’s student loan ombudsman, said in a telephone interview that students are already under financial pressure from borrowing money to finance their educations. So it’s important, he said, that they aren’t also subject to excessive fees that can chip away at their finances.

Colleges, he said, also need better information, so they can negotiate agreements with banks that contain appropriate protections for students, who often trust that any college-endorsed product must be beneficial to them.

The agency offers a tool on its Web site to help educate students about the best way to select a bank account.

“We want students to know they can, and should, shop around,” he said. The account promoted by their college isn’t necessarily the best deal for them.

Have you used a college-endorsed debit card? How has that worked out for you?

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Looking Ahead: Economic Reports for the Week of Jan. 14

ECONOMIC REPORTS Data scheduled to be released includes retail sales for December, the Producer Price Index for December, and business inventories for November (Tuesday); the Consumer Price Index for December, industrial production for December and the Federal Reserve beige book (Wednesday); weekly jobless claims, housing starts for December and the Philadelphia Fed index for January (Thursday); and the Thomson Reuters/University of Michigan consumer sentiment index for January (Friday).

CORPORATE EARNINGS Companies scheduled to release quarterly reports include Lennar (Tuesday); Bank of New York Mellon, Goldman Sachs, JPMorgan Chase, Charles Schwab, US Bancorp and eBay (Wednesday); Bank of America, BlackRock, Citigroup, UnitedHealth, American Express and Intel (Thursday); and General Electric, Morgan Stanley, Schlumberger and State Street (Friday).

IN THE UNITED STATES On Monday, the North American International Auto Show in Detroit will open for media previews before opening to the public on Saturday and running through Jan. 27; and Ben S. Bernanke, the Federal Reserve chairman, will speak at the University of Michigan in Ann Arbor about monetary policy.

On Tuesday, the Federal Deposit Insurance Corporation will meet to consider a multiagency rule that would bolster standards for higher-risk mortgages.

On Thursday, Christine Lagarde, managing director of the International Monetary Fund, holds a news conference in Washington, and the Consumer Financial Protection Bureau conducts a hearing in Atlanta about its plans for oversight of the mortgage servicing industry.

OVERSEAS On Tuesday, Abu Dhabi plays host to the World Future Energy Summit conference on renewable energy technologies and companies, which runs through Thursday.

On Friday, China reports fourth-quarter gross domestic product.

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Bucks Blog: Big Downpayments Could Bar Creditworthy Borrowers From Market, Study Finds

er, buiA home for sale in Pleasant Hills, Pa.Associated PressA home for sale in Pleasant Hills, Pa.

Requiring a minimum down payment of 20 percent, or even 10 percent, on home loans would push many creditworthy borrowers into higher-cost loans or out of the mortgage market entirely, a new study says.

Possible down-payment requirements are part of a debate in Congress and among a cluster of federal regulatory agencies, as they develop new rules for mortgage lenders following the housing crash.

As part of the reforms mandated by the Dodd-Frank financial law, the agencies (including the Federal Deposit Insurance Corporation., the Federal Reserve, the Department of Housing and Urban Development and the Federal Housing Finance Agency, among others) have proposed criteria for what constitutes a reasonably safe, high-quality mortgage–a “qualified residential mortgage,” or Q.R.M., in regulatory lingo.

Lenders issuing such mortgages will be able to sell them to private investors and avoid retaining any of the risk associated with a default of the loan on their own books. Loans that don’t meet the standards will be considered riskier, so the lender will have to retain 5 percent ownership. The goal is to encourage banks to thoroughly vet a borrower’s ability to repay the loan.

The agencies have proposed, among other requirements, that mortgages must have a down payment of 20 percent to meet the definition.  This has raised concerns among lenders, builders and housing advocates that such a requirement will unnecessarily hobble a healthy part of the housing market.

(Loans insured by the Federal Housing Agency, which can be obtained with small down payments, are exempt from the “qualified residential mortgage” mandates. Loans guaranteed by Fannie Mae and Freddie Mac, the government-sponsored mortgage companies that are the biggest players in the secondary mortgage market, are exempt. But the concern is that the new definition of a “safe” mortgage eventually will become the standard, applicable to loans backed by Fannie and Freddie too, said Kathleen Day, a spokeswoman for the nonprofit Center for Responsible Lending.)

To see what impact tougher rules for down payments and other criteria might have on borrowers, the University of North Carolina’s Center for Community Capital, Wayne State University and the Center for Responsible Lending examined home purchase loans issued before the housing bubble burst.  In part, researchers examined mortgages issued from 2004-8 that were in good standing as of last February.

The researchers found that imposing a 10 percent down payment requirement would eliminate 38 percent of creditworthy borrowers from the traditional mortgage market and that at a 20 percent down payment threshold, 61 percent would be excluded. The report also found that such down payment requirements disproportionately affect blacks and Latinos.

The added benefit of reduced foreclosures, the study found, did not “necessarily outweigh the costs of reducing borrowers’ access” to mortgages.

Simply restricting access to the riskiest type of loans that caused big problems during the housing mess, like interest-only loans or those issued with no income documentation, would reduce defaults while making loans available to a broader pool of creditworthy borrowers, the study found.

“While higher down payments do result in fewer defaults, the payoff is small relative to the number of creditworthy households who could be shut out of the market, the study shows,” said a statement from the Center for Responsible Lending.

Do you think a mandatory 10 percent or 20 percent down payment is reasonable, even if it bars otherwise creditworthy borrowers from qualifying for a home loan?

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Fair Game: In a WaMu Settlement With the F.D.I.C., Slapped Wrists

Worse, most of the money didn’t even come from the former executives’ pockets. Instead, it came from directors’ and officers’ liability insurance policies paid for by the bank.

The deal, agreed to by the Federal Deposit Insurance Corporation, requires that the men, among them Kerry Killinger, WaMu’s former chief executive, forgo claims for insurance coverage and some past compensation that they had requested from the bankruptcy court.

To anyone familiar with WaMu’s Wild West lending practices — “The Power of Yes” was the bank’s motto — the agreement might seem like yet another example of the minimalist punishment meted out to major players in the credit boom and bust.

Here are the particulars: Mr. Killinger paid $275,000 in cash. He also agreed to forfeit claims against his WaMu retirement accounts with a face amount of $7.5 million.

These sums are a pittance when set against the $88 million in compensation that Mr. Killinger received from the bank from 2001 to 2007.

Stephen Rotella, WaMu’s former president, paid $100,000 in cash and gave up a claim to $11.5 million in compensation. David Schneider, its former home loans president, paid $50,000 and forfeited a claim to $5.8 million.

Mr. Rotella and Mr. Schneider were able to hang on to other claims that they have filed in the WaMu bankruptcy: Mr. Rotella retained a retirement account valued at $5.4 million, while Mr. Schneider kept a $1.9 million claim. It is unclear whether WaMu will pay these claims, of course. If it does, the executives will have to pay taxes on them.

“Pretty soft,” is how Senator Carl Levin, the Michigan Democrat who heads the Senate’s permanent subcommittee on investigations, characterized the settlement in an interview on Friday.

“Washington Mutual Bank epitomizes everything that went wrong with the banking industry and contributed to the financial crisis, so the F.D.I.C. was right to go after the bank’s leadership,” Mr. Levin said in a statement issued on Tuesday. “Former WaMu executives Killinger, Rotella and Schneider are truly the 1 percent: they got bonus upon bonus when the bank did well, but when they led the bank to collapse, insurance and indemnity clauses shielded them from paying any penalty for their wrongdoing.”

Officials at the F.D.I.C. said they were pleased with the settlement and that it maximized its recoveries. The $64.7 million will be combined with $125 million that WaMu’s holding company agreed to relinquish to the regulator.

Although the settlement probably disappoints anyone hoping executives might be held personally accountable, it does illustrate what regulators are up against when litigating these matters.

For starters, the F.D.I.C. faced a time constraint. The insurance policies being tapped by the regulator were declining steadily in value as others making claims against the bank were paid.

The F.D.I.C. also had to confront the circular nature of the continuing WaMu bankruptcy and the claims being made against the institution. If the regulator had asked for higher payments from the former executives, the men could have turned around and requested that the bankrupt company pay the amounts under its indemnification policies. If the company did have to cover the F.D.I.C.’s requests, it could reduce the $125 million that WaMu has agreed to give the regulator.

Given these risks and the costs of continuing litigation, the F.D.I.C. said, it made sense to complete the $64.7 million deal.

Lawyers representing Mr. Killinger and Mr. Schneider did not respond to requests for comment.

Mr. Rotella issued this statement through a spokesman: “I believe the facts clearly demonstrate that during my brief tenure at WaMu, my efforts substantially reduced risk and addressed highly challenging business problems that predated my arrival. I continue to strongly dispute the F.D.I.C.’s allegations and regret that we did not have more time to finish restructuring WaMu successfully.”

Mr. Levin’s dismay over the settlement probably arises from his deep knowledge of WaMu and its practices. After all, he led the Senate’s 2010 investigation into the origins of the financial crisis, producing a 650-page report on actions taken by WaMu, Goldman Sachs and the credit ratings agencies, among others.

Mr. Levin’s office referred the findings to prosecutors for possible follow-up. Not much has happened since.

The damning report detailed WaMu’s questionable operations as well as those of its regulator, the Office of Thrift Supervision. That feckless agency was responsible for overseeing three of the biggest disasters in mortgage lending history: Countrywide Bank, IndyMac Bancorp and WaMu. Mercifully, the Dodd-Frank law put an end to the O.T.S., folding it into the Office of the Comptroller of the Currency.

ARE the WaMu executives out of the woods? They’re getting close. Last summer, the Justice Department shut down its criminal investigation into WaMu and its officials, concluding that the evidence it had amassed “did not meet the exacting standards for criminal charges in connection with the bank’s failure.”

Mr. Levin noted that the O.C.C. could still act against WaMu’s former executives.

“There are some real possible enforcement actions they can take to go after civil money penalties,” he said. “They have the ability to go after securities violations for securities WaMu issued that were defective or misleading, unsafe and unsound practices, breach of fiduciary duty, general disregard for banking regulations — there’s still a way to get more accountability.”

Asked whether the O.C.C. would pursue such actions, a spokesman declined to comment.

Unfortunately, the agency’s history does not suggest that it will act aggressively on this matter. If past is prologue, the accountability deficit that many Americans find so disturbing is likely to grow even larger.

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Economix Blog: Podcast: WaMu’s Settlement, the Cost of Law School and the Pain of the Financial Crisis

The demise of Washington Mutual in 2008 was the biggest bank collapse in United States history.

But despite a settlement last week in the case, the bank’s executives have not been held accountable for their company’s disastrous performance, Gretchen Morgenson says in the new Weekend Business podcast and in her column in Sunday Business. She says that the settlement, with the Federal Deposit Insurance Corporation, should be supplemented by further action by other agencies.

The top law schools are expensive, but should all law schools be? Accreditation requirements contribute to the high cost of many lower-tier schools, says David Segal, who reports on the issue on the cover of Sunday Business.

And in a separate conversation, Christina Romer, the University of California, Berkeley, economics professor who was the chairwoman of President Obama’s Council of Economic Advisers, says an aggressive policy response can blunt the severity of the downturn that comes after a financial crisis.

Expansionary monetary and fiscal policies by the Federal Reserve and the government are desirable in the current situation, she writes in the Economic View column in Sunday Business.

And in my Strategies column, which I discuss in the news section of the podcast, I point out that economic predictions have often been off-base over the last few years. Navigating the economy has been like driving in a dense fog. Caution is advised.

You can find specific segments of the podcast at these junctures: Gretchen Morgenson on WaMu’s settlement (27:25); news headlines (21:41); the expenses of law school (19:08); Christina Romer on the financial crisis (10:05); and the week ahead (1:17).

As articles discussed in the podcast are published during the weekend, links will be added to this post.

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

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Ex-Bank Executives Settle F.D.I.C. Suit

Former executives at Washington Mutual have reached a $64 million agreement to settle a civil lawsuit with the government, according to officials with the Federal Deposit Insurance Corporation, which pursued the case after the savings and loan collapsed in 2008.

The deal is one of the larger amounts recovered in a financial crisis case, though only about $400,000 in total will be paid by the executives, according to a person briefed on the settlement but not authorized to discuss it. The F.D.I.C. initially sought $900 million in the case, which it filed in March.

Much of the settlement will come from insurance policies the company took out for the executives, who are also releasing Washington Mutual’s estate from some financial claims they have against it. The money in the settlement will be distributed among Washington Mutual’s creditors. It will not benefit the F.D.I.C. fund because the fund did not lose money when Washington Mutual foundered and was sold in part to JPMorgan Chase Company, according to F.D.I.C. officials.

The settlement, which was reported in The Wall Street Journal on Tuesday, is expected to be formally announced within the next week, the officials said.

The executives in the suit are Kerry Killinger, the company’s former chief executive; Stephen Rotella, its former president; and David C. Schneider, its former home loans president.

The F.D.I.C. accused the executives of pushing Washington Mutual, which was based in Seattle, to the brink by making risky bets to reap short-term profits for themselves. In an unusual move, the F.D.I.C. also accused the wives of Mr. Killinger and Mr. Rotella of helping them shield some of the compensation from the company from legal claims. The wives will also be released from the suit as part of the settlement.

The executives will neither admit nor deny wrongdoing in the settlement, according to another person briefed on it but not authorized to discuss it. The government has faced recent criticism over its willingness to settle cases without extracting admissions of guilt. In November, a federal judge in New York denounced that practice when he refused to approve a settlement between Citigroup and the Securities and Exchange Commission.

The Justice Department has already closed its criminal investigation into officials at Washington Mutual, saying last summer that its investigators had “concluded that the evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure.”

After Washington Mutual collapsed, Mr. Schneider stayed on as a mortgage servicing executive at JPMorgan. Mr. Killinger, who ran Washington Mutual for nearly two decades, is retired. Mr. Rotella, who joined the company in 2005 to try to turn it around, is now a consultant.

In March, Mr. Rotella wrote in an e-mail to friends, which was circulated in the media, that he felt the suit was unfair and that he and other managers had been working to put Washington Mutual on a better footing by decreasing exposures to risky mortgages.

Lawyers for the executives declined to comment on Tuesday. A spokesman for JPMorgan, which is not involved in the settlement, declined to comment.

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Wealth Matters: In Commodities World, Safe and Secure Sometimes Isn’t

It wasn’t supposed to work that way. Commodities firms are required to keep clients’ money separate from the firm’s capital.

In the commodities world, these segregated accounts had been seen as stronger than the deposit insurance offered by banks that are members of the Federal Deposit Insurance Corporation and the protection on securities, like stocks and bonds, given by the Securities Investor Protection Corporation.

But regulators suspect that MF Global did not keep its clients’ money separate in its chaotic waning days, using some customers’ money, they believe, to meet its own obligations. And if the firm violated the rule requiring segregated accounts, investors say they are now concerned about the viability of commodities trading as it has been conducted in the United States for more than a century.

“If they’re not going to uphold segregated funds, this can happen again tomorrow to anyone,” said Paula Pierce, a commodities lawyer in Virginia. “The question is whether anyone is going to do anything about it.”

R. David Gary, a spokesman for the Commodity Futures Trading Commission, which was MF Global’s main regulator, said the commission planned to review the rule governing segregated accounts at a meeting on Dec. 5. Michael Shore, a spokesman for the CME Group, which owns the main exchanges where MF Global traded, said: “It’s important to understand this was an unprecedented situation for our industry and that the shortfall in total customer segregated funds occurred at the firm level, not at the clearinghouse level.”

The regulators attribute some of the delay in returning clients’ money to what the court-appointed trustee has described as sloppy bookkeeping at MF Global, which has made it difficult to find what is left and where it is. But lawyers representing clients who have lost access to their money do not accept this argument. They say that segregated accounts are sacrosanct and that the money in them should have been immediately returned to their clients.

“It hasn’t worked out well for anyone yet, even the people who had positions move over early on,” said Timothy Butler, a partner at Tibbetts Keating Butler in Darien, Conn., who represents 10 clients with accounts ranging from $6,000 to several million dollars. “I had one person who got no margin transferred and was virtually wiped out. He had a $250,000 gold position, and he only got back $50,000 after it was liquidated.”

Nor are the issues raised by the MF Global bankruptcy simply about the safety and security of money in segregated accounts at commodities brokerage houses. They also raise questions about the safety of investments at other types of firms.

ARE YOU PROTECTED? Just because there is protection in place does not mean you will have access to your money quickly — or that anyone will care if this poses a hardship.

Jerome Beazley, president of TimeTech Capital Management, a commodities trading adviser in Esmont, Va., had all of his clients’ money with MF Global. He may eventually get his clients’ money back, but until then he is out of business.

He declined to give the exact amount at issue but said he had put it all into cash a few weeks before MF Global collapsed. But because only money backing open futures positions has been transferred so far, he has no access to the money.

He said he was upset that the trustee did not immediately move the commodities accounts to another firm, as happened when other clearinghouses he used went bankrupt. “There is a wall between the creditors and the segregated funds,” he said. “That’s like vault money. When you touch it, you’ve destroyed the credibility of Wall Street.”

Jack Lucentini, a science writer, has also been hurt by what he considered a safe play — having extra cash in his MF Global account. “I had this obsession with never having to get a margin call,” he said. “I thought I’d be able to sleep like a baby by having so much money in there.”

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