Banking Industry United States

The $500 billion has vanished down a hole in the front yard, gone under the fine, green lawn that is bordered by a white picket fence, lost into that benign part of the American dream known as owning a home of your own. That was what savings and loan companies were for, to help the home buyer fulfill the dream. For years, they did. Then the S&Ls began to "crater," to use a favorite industry term. Good money chased bad down the maw. In the midst of it, the Pinocchios and Magoos of the U.S.

The Senate Banking Committee on Thursday unanimously approved legislation to toughen U.S. laws against money laundering, part of an accelerated effort to target the financial networks that may have supported last month's devastating attacks on New York and the Pentagon. The full Senate is expected to take up the measure next week, and a similar bill introduced in the House on Wednesday is on the fast track there. The Bush administration has expressed support for the efforts.

SunTrust Banks Inc. agreed to buy Crestar Financial Corp. for $8.6 billion in stock, creating the nation's 10th-largest bank, the companies said Monday. The deal will expand the reach of SunTrust, which already operates in Florida, its home state of Georgia and Tennessee, into Virginia, Maryland and the District of Columbia. It is the latest in a series of mergers and acquisitions that have swept the U.S.

After the terrorist attacks, many banks moved quickly to help customers by forgiving missed payments on loans, covering overdrafts and payrolls and providing quick access to large sums of cash. But the bigger question now is how U.S. banks respond to calls by the Federal Reserve and others to do more than just bandage the economic wounds.

Virtually all those convicted of savings and loan fraud are first-time offenders, but they are getting harsher prison sentences than the typical white-collar criminal, according to Justice Department figures. "These are traditionally no-record defendants," said Marvin Collins, the U.S. attorney in Dallas, whose office has prosecuted about a quarter of the major S&L cases. "They appear often very contrite at sentencing and generally make sympathetic defendants for sentencing.

Savings institution executives, enduring their worst losses since the Depression, face critical decisions next year that will determine the future shape of their industry. In the first six months of 1988, the nation's 3,048 S&Ls, lost $7.5 billion. By year's end, losses will almost certainly surpass the previous record of $7.8 billion, set in 1987. Amid the tide of red ink, 4,050 S&L executives gathered in the palm-ringed resort hotels along Waikiki Beach for the 96th annual convention of the U.

New York-based banking giants Chase Manhattan Corp. and Chemical Banking Corp. on Monday announced an $11-billion merger that will create the nation's largest banking company, one that touches millions of consumers through credit cards and mortgage loans. Chemical, the nation's fourth largest bank, and Chase, sixth largest, together will leapfrog Citicorp to the No. 1 spot.

The government's effort to recover money lost in the savings and loan scandal suffered a setback Tuesday as the Supreme Court ruled that convicted criminals may avoid paying restitution to their victims by filing for bankruptcy. The 7-2 ruling also is a blow to the "victim's rights" movement. In recent years, courts have been given new authority to order criminals to pay crime victims for their losses and injuries.

It owned a foreclosed bordello, a mine that produced a Kitty Litter-like gravel for cats and a collection of securities and loans that at one point were worth a staggering $3 billion less than their original value. In short, American Savings, once the nation's largest savings and loan, up until the end of 1988 was the thrift industry's equivalent of a huge toxic waste dump. It was a mess in need of a mind-boggling clean-up job, with nasty surprises lurking everywhere.

The Federal Reserve Board warned Tuesday that some of the nation's banks have relaxed their lending standards too far during the current economic boom. It asked federal bank examiners to tighten their supervision to make sure the banks remain sound.

Federal regulators are moving to establish rules for high-risk lending by banks and thrifts, and examiners are keeping a sharp eye on troubled institutions, the head of the government's thrift agency said Thursday. The rules might have prevented the failure of Superior Bank, a $1.8-billion thrift in the Chicago area battered by huge losses on mortgage loans to high-risk borrowers. The thrift was seized by federal regulators July 27 and is operating under government control.

Like many chief executives these days, Bank of America Chairman Kenneth Lewis believes the U.S. economy is going nowhere. The bank recently had to revise its forecast, Lewis says, because "we don't see recovery until the second quarter of next year." Yet Lewis is confident that his bank, the nation's largest with 4,500 branches coast to coast and more than $600 billion in loans and investments, will come through this slowdown without serious trouble. And so will other banks.

Fewer U.S. banks tightened standards for business loans in the last three months, suggesting less concern that a slowing economy is putting financial firms at risk, a Federal Reserve survey of senior bank lending officers showed. The Fed's periodic survey determined that 38.6% of banks toughened their rules "somewhat" on loans to firms with sales of $50 million or more, down from 51% in the last survey three months ago and the lowest level in a year.

Major financial institutions routinely give out confidential customer account information to callers, using security procedures that authorities say are vulnerable to abuse by fraud artists. Regulators and law enforcement officials warned three years ago that identity thieves and information brokers were tricking clerks into giving them access to individuals' financial information.

Many U.S. banks were still tightening business credit in recent months even as the Federal Reserve was cutting interest rates to jump-start the flagging economy, according to a Fed survey of bank lending officers that was released Thursday. "The number of foreign and domestic banking institutions that reported tightening standards and terms on commercial and industrial loans over the past three months remained in the elevated range of the last three regular surveys," the central bank said.

Citigroup Inc. and Bank of America Corp. posted lower first-quarter profits Monday because of loan and investment losses in the slowing U.S. economy. A third large bank, First Union Corp., also reported a decline in quarterly earnings as it announced plans to buy rival Wachovia Corp. in an effort to boost profit and cut costs in a tough market. Meanwhile, regional bank holding companies Bank of New York Co.

Those who have had trouble getting credit got some good news recently. Citicorp, the nation's biggest banking company, is starting to offer secured credit cards. Although Citicorp calls the offer a "limited test," the big bank's entree could open the market to tens of thousands of individuals who have no access to credit cards either because of past problems or simply because they haven't had a chance to develop a credit history.

In 1982, Elaine R. Bond was one of the subjects of a Fortune magazine article about the rising importance of women executives in banking. She was the highest-ranking woman at Chase Manhattan Bank in New York, a senior vice president and a member of the powerful policy committee. But she had higher ambitions, telling the Fortune reporter, "I doubt I will be happy just being a senior vice president."

For Chris Lewis, it was a standard request for the kind of deals he has been putting together for more than a decade: a $50-million bank loan to buy a Southern California manufacturing company. Lewis never expected he'd run into so many closed doors. "We didn't think we'd have a problem, but we weren't able to put the deal together in this economy," said Lewis, a partner with Riordan, Lewis & Haden, one of Southern California's leading private investment firms.

The federal government's lawsuit against a consumer lender owned by Citigroup Inc. is the latest attempt by regulators to battle "predatory" lending practices that target borrowers with poor credit. Lending to people with poor credit--an area of banking known as subprime lending--has become big business in recent years. Subprime loans grew to 13% of all new mortgages in 1999, up from 5% in 1994.