Anybody who reads this blog with some frequency will notice that I in general am a big fan of blogger Matt Yglesias and his work. That said, I have some deep disagreements with him about his latest article about bank dividends.

The final paragraph really sums up some of the concerns he has been blogging about in regards to the solvency of the finance industry.


But my point—following Admati and Hellweg—is that regulators shouldn’t just look over JP Morgan’s shoulders and second-guess its investment decisions. Regulators shouldn’t let JP Morgan go so deeply into debt. Or, rather, given that JP Morgan is already deeply in debt they should make it get out of debt. Which shouldn’t be difficult. JP Morgan is profitable. Those profits can be used to pay dividends to JP Morgan shareholders. But they could also be used to reduce JP Morgan’s level of indebtedness. Then JP Morgan managers would be playing less with creditors’ money and more with shareholders’ money. That would make it much less likely that any given bad trade would lead to a bankruptcy scenario. It would let us worry less about second-guessing JP Morgan’s trades, and just be more confident that whether or not they screw up the financial system can stay strong and steady. And contrary to banker myth, blocking banks from becoming so indebted wouldn’t reduce their ability to lend—it would reduce their ability to return profits to shareholders.

*emphasis mine.

Yglesias wishes that regulators (the OCC the CFPB or the FDIC) could force a bank to become less indebted. Except that they already do this!

Banks can be issued issued things called, “consent orders“. Basically what these do is state to the public that the offending bank has been notified that it’s behavior in lending or management of funds has been outside the accepted practice for a lending institution, and that they have a certain amount of time to complete a redress of these offenses. In the most severe cases, banks are banned from providing new credit to borrowers until their existing booked loans are up to snuff. That the regulatory bodies of the United States chose not to do this with JP Morgan is an entire issue in it’s own right; however, let’s not act as though those powers are not totally within the wheelhouse of the regulatory officials.

Further, in my opinion, there are ‘banks’ and then there are ‘Banks’. (notice the capitalization).  Small instituions like thrifts (formerly saving and loan associations) or small commercial banks should be talked about differently than the larger ‘Banks’, ie JP Morgan, Wells, BofA et al. Larger banking houses tend to have a larger portfolio and balance sheet because they use many more financial tools and do much more trading with much more sophisticated instruments that require  a lot of supervision (hence the OCC).

Whereas, if a small commercial bank, “Mom & Pop Local Bank” as Yglesias uses in his example, were to give out dividends to stock owners of the bank, and the bank is in a reasonably healthy position then why shouldn’t it make use of the extra cash on hand. Part of keeping the confidence of investors to me seems that investors like knowing they’ll get at least the money they put in the bank back, but that they see a return on that investment. Otherwise, why put the cash in banks at all? Why not invest in another company or industry? Because returns on stock bolsters confidence. Granted, banks shouldn’t always do this, regardless of size, but to be opposed in principle of the idea that people don’t get a dividend despite investing seems a little off to me.

December 16, 2011
Contact: Dean DeBuck
(202) 874-5770

OCC Appoints Receiver for Western National Bank

WASHINGTON — The Office of the Comptroller of the Currency (OCC) today appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for Western National Bank, Phoenix, Arizona.  As of September 30, 2011, the bank had approximately $162.9 million of total assets.

The OCC acted after finding that the bank had experienced substantial dissipation of assets and earnings due to unsafe or unsound practices.  The OCC also found that the bank is likely to incur additional losses that will deplete its capital, and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance.

The FDIC will release information about the resolution of the bank.

OCC Hosts Web and Telephone Seminar on Small Business Investment Companies

WASHINGTON — The Office of the Comptroller of the Currency will host a live Web and telephone seminar from 2 to 3:30 p.m. (EST) on February 15, 2012.

The seminar will focus on how SBA-licensed Small Business Investment Companies (SBIC) work and how they might be a viable investment option for national banks and federal savings associations.

“The SBIC program provides an opportunity for banks to provide capital through privately owned and managed investments funds to small businesses that otherwise might not be able to finance their growth.  SBIC investments may also be positively considered in a bank’s Community Reinvestment Act evaluation,” said Acting Comptroller of the Currency John Walsh.

During the seminar, online and phone participants will hear presentations from, and have an opportunity to pose questions to, panelists Barry Wides, OCC Deputy Comptroller for Community Affairs; Robert McE. Stewart, General Partner, Spring Capital Partners II, L.P.; Sean Greene, Associate Administrator and Special Advisor for Innovation, Small Business Administration; and Carl Kopfinger, Senior Vice President, TD Bank, N.A.

This seminar is part of the OCC’s educational outreach program.  The program provides opportunities for the banking community to interact with the OCC and other governmental experts and industry professionals.  The cost of the seminar is $115 for national banks and federal savings associations and $150 for other participants.

For information or to register online, visit, or call (800) 775-7654 between 7 a.m. and 4:30 p.m. (CST).

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December 13, 2011
Contact: Bryan Hubbard
(202) 874-5770

OCC Chief Counsel Testifies on Efforts to Correct Foreclosure Deficiencies

WASHINGTON — The Office of the Comptroller of the Currency’s Chief Counsel Julie L. Williams provided an update on efforts to correct unsafe and unsound mortgage servicing and foreclosure practices during her testimony today before the Subcommittee on Housing, Transportation, and Community Development of the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Related Links

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November 22, 2011
Contact: Bryan Hubbard
(202) 874-5770

OCC Releases Status Report on Fixing Deficient Foreclosure Practices

WASHINGTON — The Office of the Comptroller of the Currency (OCC) issued a report today on the actions by 12 national bank and federal savings association mortgage servicers to comply with consent orders issued in April 2011 to correct deficient and unsafe or unsound foreclosure practices.

The report, “Interim Status Report: Foreclosure-Related Consent Orders,” summarizes progress on activities related to the independent foreclosure review announced November 1, 2011, as well as other activities to enhance mortgage servicing operations, strengthen oversight of third-party service providers and activities related to Mortgage Electronic Registration Systems (MERS), improve management information systems, assess and manage risk, and ensure compliance with applicable laws and regulations.

While much of the work to correct identified weaknesses in policies, operating procedures, control functions, and audit processes will be substantially complete in the first part of 2012, other longer term initiatives will continue through the balance of 2012.

In addition to the interim report, the OCC also released engagement letters that describe how the independent consultants, retained by the servicers, will conduct their file reviews and claims processes to identify borrowers who suffered financial injury as a result of deficiencies identified in the OCC’s consent orders.  The letters identify the names of the independent consultants conducting the reviews and include language stipulating that consultants would take direction from the OCC throughout the reviews.  This language specifically prohibits servicers from overseeing, directing, or supervising any of the reviews.  Limited proprietary and personal information has been redacted.  The review process being implemented at some companies may differ from that described in the engagement letters because of subsequent coordination with the OCC to ensure a consistent process among the servicers.

Related Links

Per the OCC:

WASHINGTON — The Office of the Comptroller of the Currency (OCC) today released new enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with national banks and federal savings associations.

All Cease and Desist Orders, Civil Money Penalty Orders, and Removal/Prohibition Orders are issued with the consent of the parties, unless otherwise indicated as a Decision and Order issued by the Comptroller of the Currency.

Copies of the final actions are available for download by viewing the searchable database of all public enforcement actions taken since August 1989 at

You may also submit a request electronically to obtain copies through the OCC’s online FOIA site, Fax requests should be sent to (202)-874-5274. You can also obtain copies by writing to the Comptroller of the Currency, Communications Division, Mail Stop 2-3, Washington, DC 20219. When ordering, specify the appropriate enforcement action number.

Link here for more information.