Interest Rate Roundup

Friday, March 07, 2008

WSJ: Regulators pushing banks to raise capital

The Wall Street Journal tackles the issues of bank capital, large loan losses, and potential failures. Here is an excerpt from today's story (I shared some thoughts a few days ago, if you're interested):

"With federal regulators prodding banks to raise more capital, Washington Mutual Inc. and other battered lenders have approached private-equity firms and sovereign-wealth funds about possible cash infusions, according to people familiar with the situation.

"It isn't clear if the discussions will result in a new round of infusions beyond those already made at the likes of Citigroup Inc. and Merill Lynch & Co., each of which has raised billions of dollars to stabilize their balance sheets. Much of that money came from government investment funds in the Middle East and Asia.

"But concern that mounting losses on loans and mortgage-related investments could threaten the health of the U.S. banking system is spurring regulatory action. In recent weeks, the Federal Reserve and Office of the Comptroller of the Currency have quietly reached out to a handful of banks with informal instructions: Seek outside capital.

"Seattle-based WaMu, the nation's largest savings-and-loan institution, is one of the biggest lenders looking to line up additional capital, say people familiar with the matter. In the fourth quarter, the thrift, as S&Ls are known, reported a $1.87 billion loss fueled by a sharp increase in its reserve for loan-related losses. A WaMu spokesman declined to comment.

"Regulators are publicly urging even healthy banks to replenish their coffers so that they can keep lending and expanding their businesses if the U.S. economy continues to weaken.

"Those institutions that move more quickly [to raise capital] will obviously be in a stronger position to deal with the challenges, and take advantage of the opportunities, ahead," said Timothy Geithner, president of the Federal Reserve Bank of New York, in a speech yesterday."


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