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Bank Regulators Increase Memorandums of Understanding

erku's picture

The Federal Reserves and the Office of the Comptroller of the Currency have issued more memorandums of understanding so far this year than in all of 2007.

These agreements, meant to remain secret to avoid panic by depositors, can force banks to raise capital, cut back on risky loans and suspend dividend payments.

The FDIC will be updating its list of "problem" institutions today. As of March 31, the FDIC had 90 banks on the list and I suspect the list will only grow larger. Five banks have failed since July 11.

According to the Wall Street Journal article, BankUnited Financial, a Coral Gables, Florida-based bank, disclosed on Monday that its $14 billion banking unit recently entered into an agreement with the Office of Thrift Supervision over concerns over capital levels.

The Bank was apparently stuck in some sort of 2005 time warp as it was ordered by the Office of Thrift Supervision to end its option adjustable-mortgage and alternative mortgage business. How a Florida-based bank that still thinks option-arms are a good idea remains in business today is a mystery. But at least our trusty regulators put a stop to it. Better late than never, I suppose.

Investors have expressed frustration with inconsistency of public disclosures of banks of regulatory scrutiny. "It's frustrating as an investor in bank stocks", Gerard Cassidy, an RBC Capital analyst noted. He claimed that "It would be very helpful in an investor's analysis if they knew that an agreement was already signed."

Naturally, it would make an analyst's job easier, for it would save him many hours of actually looking at a balance sheet and attempting to figure out whether a bank is going to survive based on its financials. But if you need a regulator to tell you that a bank is in trouble, maybe you shouldn't be an investor in bank stocks.

Reported by Mock The Market

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