I’m mesmerized by this JPMorgan research chart showing that big banks shouldn’t be broken up […]
The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn’t want the bag to be heavy, or as they put it:
The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses.
So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.):
So … not loaned then. But that’s not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here’s what they get:
Corporate venture capital has begun to rival “traditional” venture capital and angel investing in its importance as an investment source for healthcare industry innovation. However, unlike VCs and angels, there is a dearth of information on how the various players in the corporate venture sector operate.
The Wall Street Journal today discovered that universal banks that lend money to companies for cheap tend to want investment banking business in return for that lending and I guess that’s a scandal:
As the market for technology IPOs revs up and the biggest banks seek to capitalize on the size of their balance sheets, the practice of selecting underwriters that also provided loans is coming under focus, spurred by Facebook’s IPO process.
Critics of the practice say the choices aren’t accidental and reflect the “you-scratch-my-back-I-scratch-yours” way that Wall Street works.
Bankers, for their part, say they aren’t allowed to make loans on the condition that they receive other business, but borrowers can use the loans as a factor in choosing underwriters. Some bankers say that lending is just one of the many services they offer companies.
At Facebook, the credit line played a role in the batting order for underwriters, said a banker who worked on an underwriting pitch to the company.
When I was young and naive and pitching for underwriting business against banks that did lots of lending, I always thought that banks “aren’t allowed to make loans on the condition that they receive other business, but borrowers can use the loans as a factor in choosing underwriters” thing was ripe for a scandal. I still sort of think that: I just do not believe that no client coverage banker has ever said “we’ll be in your credit facility but only if you promise us underwriting or M&A business.” (Some people agree with me!) And, as the Journal notes, that would be a criminal violation of the antitrust laws, which is unspeakably weird but there you go.
But if you ask a banker who has been carefully and recently briefed on anti-tying regulations, he will probably tell you something like “we don’t demand underwriting business to provide a loan. Companies demand loans to get underwriting business.” And, as the Journal says, that’s not illegal.