Finance Space

The Fed to Congress: Don’t take away our small banks.

Top Federal Reserve officials are waging a public campaign to persuade lawmakers that their long-standing authority to regulate banks around the country – including small and mid-size ones – is integral to keeping the central bank attuned what is going on across the U.S. economy.

Chairman Ben S. Bernanke articulated that message Saturday morning in a speech to the Independent Community Bankers of America in which he argued that the Fed is better able to monitor the U.S. economy because of its role overseeing 5,000 bank holding companies and 850 state-chartered banks around the country.

The trans-Atlantic ambitions of Barclays, the British bank, are moving to another level. Barclays became a big player on Wall Street by snapping up Lehman Brothers’ American operations after the firm collapsed in September 2008. The revelation that it is interested in buying a United States bank suggests it wants to become a familiar face on America’s Main Street, too.

Pressure is growing on U.S. banks to ease terms for distressed homeowners on home-equity loans and other second-lien mortgages.

Rep. Barney Frank, chairman of the House Financial Services Committee, last week sent a letter to the four biggest U.S. banks demanding “immediate steps to write down second mortgages.”

The Massachusetts Democrat sent the letter to the chief executive officers of Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. Meanwhile, the Obama administration is preparing to launch long-planned initiatives aimed at addressing obstacles to restructuring mortgages.

The US Federal Reserve, America’s central bank, has extended the run of its temporary discount window of cheap financing for investment banks until the end of January 2009.

The Dow Jones industrial average rose 166.5 points to 11,564.1 following the Federal Reserve’s announcement.

The Fed’s Primary Dealer Credit Facility — known as the discount window — opened to securities firms in March in a bid to boost confidence in Wall Street banks as losses from the housing crisis snowballed, depleting their capital reserves.

Madhuri, an avid investor claimed that she had an investment portfolio of Rs 10 lakh built over a period of two years of savings. She narrated her feat to Amrita, an investment analyst. Out of curiosity, Amrita asked her what was the return on the same. Madhuri was bewildered. She had never computed returns! Amrita explained to her that what is important is not the cost of the investment but its current value.

An investment portfolio has to be valued based on the current market price of securities, to which you add interest/dividend earnings and reduce expenses/ interest on borrowed funds.

Putting your money in the bank, as in opening a savings account or a certificate of deposit, is a perfectly smart thing to do. Investing in the bank, as in buying its stock, is something else entirely.

That many banks are shaky is a measure of how deeply the housing crisis is rattling the financial system. Institutions involved in the slicing and dicing of mortgages issued to people who couldn’t afford them and that overextended themselves in home equity loans are paying a heavy price. The latest to hand its chief executive a golden ticket out of town: Wachovia (WB), joining the ranks of Citigroup (C) and Washington Mutual (WM).