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Recent Events Indicate the Light at the End of the Tunnel for Big Banks May Not Be a Freight Train After All
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Recent Events Indicate the Light at the End of the Tunnel for Big Banks May Not Be a Freight Train After All

The Good News, Part 1

Last month, Bank of America reached a $10.3 billion agreement with Fannie Mae and Freddie Mac to resolve claims over questionable Countrywide home loans that led to billions of dollars in losses for Fannie Mae when homeowners defaulted. A separate $8.5 billion settlement between 10 giant banks and regulators over shady lending practices will compensate victims.  Participants included Bank of America, Wells Fargo, and JPMorgan Chase.

At first blush, especially if you are a shareholder, the size of the settlements alone might send you to the medicine cabinet in search of antacid.  The settlements are good news, however, because they put a definite dollar amount on what was a looming liability of unknown size.  As noted by a Washington Post blogger, now that the banks’ legal exposure is a specific number rather than some massive, open-ended liability, they can account for it and move on in their role of supporting economic activity.

The Good News, Part 2

Winds of global change are blowing as well.  The Basel Committee on Banking Supervision (BCBS), an international committee of bank regulators, recently announced that they will relax liquidity rules.  Big global banks will be able to use more low-rated corporate bonds and some stock investments to meet liquidity requirements.  The BCBS news positively impacted big bank stocks in Europe after the news was announced.

There is no doubt that U.S. economic woes and the ongoing global economic crisis have caused a great deal of financial pain and worry. And it’s no secret that popular opinion pins the blame on banks and the economic instability they allegedly fostered.

But while financial stability may be the goal, cramming a heap of tighter regulations down banks’ throats is like cutting off one’s nose to spite the face. Economies can scarcely recover without growth and cash is the fuel that enables growth.  Banks are the traditional source of the cash needed to fuel growth. Relaxed liquidity rules will help make more cash available for economic growth.

If you are a bank or another business facing compliance or litigation issues, consult with legal counsel to help you develop a sound legal strategy.  The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law.  Call us at (818) 888-2220, email us at info@glassgoldberg.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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