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Inside Washington (01/06/2010)
* WASHINGTON (1/7/10)--Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said Tuesday that the Fed needs to consider how to break up banks considered to be “too big to fail” so they don’t pose a systemic risk to the economy (American Banker Jan. 6). One way to define such institutions is to take firms with more than $50 billion in assets or $100 billion or more of assets under management. He spoke at an American Economics Association panel ... * WASHINGTON (1/7/10)--A Federal Housing Finance Agency rule may mean more members for the Federal Home Loan Banks, but is not expected to boost the agency’s bottom line. The rule will allow community development financial institutions (CDFI) to join the banks. The expansion comes after the banks posted a $165 million loss during the third quarter (American Banker Jan. 6). Most CDFIs have an average size of $21 million, so it’s unlikely they will be big borrowers. In 2008, Congress mandated that CDFIs are allowed to access the banks as a part of the Housing and Economic Recovery Act ... * WASHINGTON (1/7/10)--Regulators and industry representatives fear that a spike in interest rates could pare down institutions’ abilities to weather a boomerang effect on funding costs (American Banker Jan. 6). Rates have remained low so banks can build their balance sheets, but representatives expect the rates to increase. The Federal Deposit Insurance Corp. (FDIC) is scheduling a conference on the matter Jan. 29. John Douglas, former FDIC counsel, said there is a legitimate concern about how rising interest rates could affect some banks’ balances sheets. He pointed to the crisis of the early 1980s, which “decimated” the thrift industry. Donald Musso, president/CEO of FinPro Inc., a consulting firm, said while there may be exceptions, the industry is in a much better position to deal with changing rates than in the 1980s ...

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