Banking Industry

The financial health of the U.S. banking industry improved slightly during the third quarter, with commercial banks and savings and loans posting net income of $2.8 billion. But the sector remains troubled, highlighted by the continued rise in the number of institutions in danger of failing, the Federal Deposit Insurance Corp. said today. The weak gain in earnings from July to Sept. 30 reverses a $4.3-billion loss in the second quarter of the year and more than triples the earnings of $879 million a year ago. But earnings could drop in the fourth quarter of the year as banks undergo their traditional end-of-the-year writedown of bad assets, the FDIC said.

Momentum is growing in the U.S. and abroad to deal with the problem of gigantic financial institutions deemed too big to fail by breaking them up before they can threaten the economy. Angered by bailouts that have kept corporate titans such as American International Group Inc. afloat, members of a key House committee last week voted to give the government vast new power to downsize private companies, something that happens now only in the most egregious antitrust cases. Instead of helping cushion the fall of Wall Street powerhouses through government aid or variations on traditional bankruptcy, there is growing momentum in Congress to cut those firms down to size before they start teetering to limit the damage if they do collapse.

As Sen. Christopher J. Dodd unveiled a sweeping plan last week to overhaul regulation of the banking industry, and as the banking industry complained loudly that this would be a horrible idea, I couldn't help but think of Silver Lake resident Jonathan Leahy. Leahy, 31, had shared with me a couple of letters he received recently from Chase Bank regarding his two different Chase credit cards. Both letters arrived the same day. One said that "we are pleased to let you know that your revolving credit access . . . has been increased to $10,300" -- a reward for Leahy being such a good credit risk.

As Sen. Christopher J. Dodd unveiled a sweeping plan last week to overhaul regulation of the banking industry, and as the banking industry complained loudly that this would be a horrible idea, I couldn't help but think of Silver Lake resident Jonathan Leahy. Leahy, 31, had shared with me a couple of letters he received recently from Chase Bank regarding his two different Chase credit cards. Both letters arrived the same day. One said that "we are pleased to let you know that your revolving credit access . . . has been increased to $10,300" -- a reward for Leahy being such a good credit risk.

Recently unveiled legislation that seeks to avert the risk created by complex financial firms that are too big to fail might itself be too broad and complicated to survive without significant changes. The 253-page bill is one of the most controversial provisions of the Obama administration's overhaul of financial regulations because it directly addresses the future of government bailouts. The legislation drafted by the Treasury Department and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, would give federal officials power to regulate, seize and dismantle large financial firms whose failure would pose a risk to the economy.

The financial industry has bounced back so strongly from last year's credit crunch that many Wall Streeters are looking forward to the kind of six-figure bonuses they enjoyed at the height of the housing bubble. But Washington isn't ready yet to shrug off the deep recession. This week, the Treasury Department's "pay czar," who was appointed to oversee pay at seven financial companies and automakers rescued by the Troubled Asset Relief Program, slashed the salaries of the highest-paid executives at those firms, and the Federal Reserve proposed to oversee the pay of any bank employee who could significantly increase the bank's risk.

Even as the nation's biggest financial firms were struggling and the federal government was spending hundreds of billions to save many of them, the companies as a group were boosting the perks and benefits they pay their chief executives. The firms, which account for more $350 billion in federal bailout funds, increased these perks and benefits 4% on average last year, according to an analysis of corporate disclosures filed in recent months. Some chief executives, such as Kenneth D. Lewis of Bank of America Corp.

The dark and largely unregulated market of derivatives, which helped trigger the financial crisis, moved closer to federal oversight as a congressional committee voted to impose new rules on the products to try to limit the risk they can pose to the economy. The 43-26 vote by the House Financial Services Committee was a key step for the Obama administration's plan to overhaul Washington's oversight of the financial system while shedding more light on complex investments. Immediately after the vote Thursday, the committee took up the most contentious issue in the regulatory package: creation of the Consumer Financial Protection Agency.

Millions of consumers got burned in the meltdown of the mortgage market. Yet the financial services industry remains adamantly opposed to President Obama's proposed Consumer Financial Protection Agency, intended to streamline and strengthen safeguards for the little guy. The proposed watchdog would oversee mortgages and other consumer loans and would ensure that financial institutions comply with all relevant laws -- some parental supervision that...

A year after the demise of legendary Wall Street investment bank Lehman Bros., calls for far-reaching reforms to rein in the financial industry's excesses remain unanswered -- and may be stymied by increasing signs of a budding economic recovery. President Obama is headed today to Founders Hall on Wall Street, steps from the heart of the business world, to try to reignite support for his proposed overhaul of financial regulations. The legislation would permanently expand Washington's role in overseeing the financial system by creating a new agency to protect consumers, reining in the dark world of derivatives and giving government officials the ability to seize and dismantle large companies whose failures could be catastrophic.