Tag Archives: Bank

What’s going On Online, Bank of America?

Nothing to see here, move along… Yeah, right! We’ve heard that one a couple of times before… Now, the customers of Bank of America is having trouble signing into their accounts in the past six days, but BoA still refuse to give an explanation to why the banks website is in trouble.

“When outages occur, companies need to keep customers updated.”

Jacob Jegher

Bank of America is the largest US bank by deposits and has about 29 million online customers. During the past week these people have been forced to go to a nearby branch or an ATM to do their banking business. Why? Nobody really knows – and Bank of America is certainly not telling.

A message on its home page says most of the website was working normally, but customers may experience “occasional delays.”
A spokeswoman for Bank of America Corp., Tara Burke, says the company doesn’t disclose the causes for website problems and noted that online banking was now available. She declined to say how many customers may still be experiencing slowness signing in, The San Francisco Chronicle reports.

“Given the last few days, we are rigorously monitoring our online banking system and chose to continue deploying an alternate home page to ensure that customers get to the right destination quickly,” Burke says.

The website delays mean customers who normally bank online may have had to head to a branch or ATM to access their accounts in recent days.

The bank’s customers also had difficulty accessing their accounts in January and March.
In both those instances, the problems resulted from “routine system upgrades,” according to the company.
(Heard that one, too..quite a few times..)

Shawn White, vice president of Keynote Systems Inc., which monitors the performance of company websites, says banks in recent years have invested heavily in promoting the convenience and safety of their online services.
Adding that the length of Bank of America’s latest outage could seriously damage customer confidence in the company’s services.
White says that Keynote’s monitoring system detected slowness in Bank of America’s online service in 10 cities as recently as Wednesday afternoon.

When outages occur, companies need to keep customers updated, says online banking analyst Jacob Jegher with research firm Celent.
That’s especially true for banks because of the sensitive nature of the information they’re handling, he adds.
Even if the bank doesn’t give an explicit reason for the outage, Jegher points out, companies’ participation in social media has led customers to expect a greater level of communication.
“We’re in an environment now where electronic banking is a mainstream channel. Any extended outage is unacceptable – particularly for a bank with this many customers,” he concludes.

(h/t: modernsurvivalblog.com)

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The Sociopathic Banking System of Europe

In spite of the recently conducted stress test of European banks, concluding that most of them have enough core capital to weather a “worst case scenario,” we now learn that they will need at least EUR 200 billion more to be on the safe side – and probably more. Here at the EconoTwist’s we’re not the only ones who think this is getting way out of hands: It seems like no one is really sure of the banks real risk exposure, not even the banks themselves, the stress test have once again proved to be a joke, and who the Hell do they think they are? – the IMF and the banking associations who think they just can demand the euro zone governments to fill up their bottomless buckets?

“This is the second time it has happened.”

 Elena Salgado

Yesterday, the IMF leaked its calculations of required capital for a recapitalization of the banks in the euro zone, well ahead of the publication of IMF’s financial stability report later this month. This amount is now  EUR 200 billion. And of course it has triggered a debate within the euro zone. But the discussion is also rather skewed: the main issue is the actual number, 200? 300? Who cares? The real problem is that we still don’t know the health of our financial system – three years after the crisis hit!

The staff at the International Monetary Fund  have triggered another fierce dispute with euro zone authorities over their estimates, showing even more cracks in the European  banks’ balance sheets, related to their holdings of troubled euro zone sovereign  debt.

Christine Lagarde

(Yeah, another quarrel – just what we need….)

The analysis, which was discussed by the IMF’s executive board in Washington  on Wednesday, are strongly rebutted by the European Central Bank and the euro zone governments, which say it is partial and misleading.

Is there anybody trustworthy, these days?

According the Financial Times, the IMF’s analysis, currently in a drafted version of its regular Global Financial  Stability Report (GFSR), uses credit default swap prices to estimate the market  value of government bonds of the three euro zone countries receiving bailout money from the IMF – Ireland, Greece and Portugal – in addition to the bonds of Italy, Spain  and Belgium.

Although the IMF analysis may be revised, two officials says one estimate  show that marking sovereign bonds to market would reduce European banks’ tangible common equity – the core measure of their capital base – by about EUR 200 billion (USD 287 billion), a drop of 10-12 per cent.

The impact could be increased  substantially, perhaps doubled, by the knock-on effects of European banks  holding assets in other banks, Financial Times writes.

In other words: the IMF estimates are just as worthless as the stress tests – the only thing that is certain is that most banks will need more substantial capital injections if they are going to survive.

Anyway – the ECB and the euro zone governments strongly rejects these estimates.

Elena_Salgado

Spanish finance minister, Elena Salgado, told the Financial Times yesterday that the fund makes a mistake by  looking only at potential losses without also taking account of holdings of German Bunds, which have risen in price.

“The IMF vision is biased,” she said. “They only see the bad part of the  debate.”

Now, that’s another “truth with modifications,” because the gains in Bunds are comparatively small in relation to the losses on other sovereign bonds.

“This is the second time it has happened,” the Spanish finance minister points out, referring to the fund’s  October 2009 GFSR, which estimated that euro zone banks had only written down USD 347 billion of USD 814 billion of probable losses from the financial crisis. IMF later revised down that total of probable total losses.

Well, I’m afraid it will not be the last time, either…

Mrs. Salgado goes on saying that the European stress tests of banks is a better indication of  their vulnerabilities.

Now, that’s just plain wrong!

The stress tests do not only lack credibility, they also assume no losses on sovereign debt holdings in the bank’s books.

As www.eurointelligence.com rightfully underlines, it is very likely that investors in Greek and peripheral debt securities will ultimately face losses, especially given the European Council has already agreed to accept a degree of private-sector participation.

Considering the decline in economic growth, now evident throughout the whole euro zone, those losses will increase substantially.

This means that the IMF estimate of an additional EUR 200 billion in bank aid most probably is overoptimistic underestimation.

But this line of argument is really a total derailing of what’s ought to be the real discussion:

In the view of the EconoTwist’s we’re looking at a 3-part problem.

First, the accounting system that has developed into a untransparet jungle of techniques, making it totally impossible for both regulators, analysts and policy makers to gain complete oversight of the bank’s real risk exposure.

This includes the off-balance sheet financing, that once upon a time was created as a special solution to fund important high-risk projects, but now being used for pure speculation – just as the traditional derivatives.

Then we have the cross-border activity. The fact that the financial industry have globalized faster than any other industry, and faster than national (local) authorities are able to handle, have created a situation where banks may speculate, taking advantage of different rules in different countries, taking on more risk with little or no need for reporting and disclosure.

To make things even more confusing, international regulators invoked a special set of rules in the aftermath of the Lehman collapse, allowing the banks to put whatever price tag they see adequate on the toxic, worthless assets they possess.

This is called a “mark-to-mark” principle.

However, new rules, now being implemented through the Basel III regulations requires that banks return to the old principle of “mark-to-market.” That means putting the actual market valuation of their assets on their balance sheet.

EU officials involved in the debate say the “mark-to-market” principle explains much of the recent fall in EU’s commercial banks’ share prices, including  French and German institutions that have large holdings of euro zone sovereign debt.

“Marking to market is a fairly brutal exercise, but these are the estimates  that hedge funds are currently making,” one official says to the FT, following criticisms  of European banks made by the International Accounting Standards Board, which sets the common bank accounting rules, to the European Securities and Markets Authority,  EU’s markets regulator.

And the third unresolved problem is called the “shadow banking system.”

See also: Major Banks Still Hide $Trillions In The Shadows

Officials say the IMF staff do not claim their estimate is a comprehensive  measure. But they say that the analysis strongly suggests European banks need to  raise more capital, an argument  recently made by Christine Lagarde, the fund’s new managing director.

No one disputes that fact.

The final report will be published in three weeks’ time just before the  IMF’s annual meetings, and is subject to revision depending on the debate  between fund staff and the fund’s executive board.

But these authorities and their officials can evaluate, calculate and estimate all they want:

Before the regulatory mess is cleaned up, things are not going to look any better and more nasty surprises can be expected.

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Major Security Problems at Baltic Bank Group

Documents discovered by EconoTwist’s confirms a major security problem at the Baltic Bank Group DnB NORD, owned by the Norwegian partly state-owned bank DnB NOR. According to a report by the Danish Financial Authority the Baltic bank group is lacking a sufficient IT security strategy, and do not meet the regulatory requirements for IT security in financial institutions. Other documents reveal a unique insight on how the US government are monitoring and controlling foreign bank activity.

DnB NOR Bank ASA New York Branch is prohibited from establishing, maintaining, administering, managing or engaging in a correspondent banking relationship, such as an account for or on behalf of all of the following entities:”

When DnB NORD was established in 2006, they were bragging about their new advanced, state-of-the-art,  technological solutions. Five years later the Financial Authority finds that there’s no fully implemented security policy, and that the Latvian-based bank group on several key business areas do not meet the regulatory requirements of IT security for financial institutions.

Now, that’s something you won’t find in the regular earnings reports from the Norwegian state controlled owner, DnB NOR.

The inspection was conducted by the Danish Financial Authority in October – December 2010, and the report is dated June 17. 2011.

Contrary to most reports of this kind, I have not been able to find an English version, but here’s the conclusions, translated from Danish:

  • “On inspection, the FSA its IT strategy and IT security policy, organizational issues, outsourcing, backup, contingency planning and systems development.”
  • “FSA’s assessment is that the bank in some areas do not meet the regulatory requirements for IT security for financial institutions.”
  • “The bank had not updated IT security and some key business times in relation to IT security is not fully implemented, the Bank has not secured a sufficient legal basis for controlling the main supplier and the reporting rate from this.
  • “The Bank also has a faulty IT security preparedness.”

And the Danish Financial Authority concludes:

“Based on the inspection, FSA have given the bank an order to undertake a risk assessment on the IT security area and prepare an IT security policy based on a current risk assessment. There are also given orders that the bank’s guidelines for outsourcing must follow the law in this area, and that the bank must develop an IT contingency plan.”

Now, let’s have a look at the English version of  the report:

No mention of the IT security problems. This reports the Danish Supervisory Authority examined the 13 largest credit exposures, and carries out spot checks on another 100 credit exposures to corporate- and retail customers.

Here’s the findings:

  • “In some cases we noted shortcomings in the calculation of the indication of impairment. In the opinion of the Supervisory Authority it had, however, no significant effect on the Group’s total impairment charges at the time of the inspection. Bank DnB NORD A/S has been ordered to strengthen the quality of the Lithuanian subsidiary bank’s impairment calculations.”
  • “Prior to the inspection the DnB NORD Group raised its solvency ratio to 13.2 percent. The increase was made as a consequence of discussions with the Supervisory Authority. The actual solvency is 13.5 percent.”
  • “The Supervisory Authority has instructed Bank DnB NORD A/S to have intensified focus on any changes in the financial situation in Lithuania or changes in the country’s legislation that might have influence on the Group’s impairment charges or solvency need.”
The US Instructions
Returning to the security issues:
The Baltic bank’s servers seem to be more or less wide open, and internal documents are available though a simple Google-search.
Below is some of the correspondence with US authorities, revealing the increasingly monitoring of, and control with, any foreign bank that directly or indirectly do business in the US, or with US corporations:
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The US Customer Identification Program:
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Special Measures
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Unlawful Internet Gambling

This is just some examples of the documents I’ve been able to pull out of the DnB NORD system. I’m about to look into the rest, and analyze the importance of these.

I’ll keep you posted!

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