Chronology of the Financial Markets Crisis Throughout the series of tumultuous economic events that came to a head this past autumn, ICBA has been a staunch advocate of the interests of independent community banks, their customers and all of Main Street America. This chronology by ICBA Independent Banker outlines major milestones in the unfolding the financial markets crisis since the pivotal month of August 2007. It includes many actions ICBA has taken to serve community banks during that time period. ICBA will periodically update this document as events continue to unfold. Events of 2007 Aug. 10—The subprime mortgage and credit crisis, the symptoms of which had simmered for months, begins to emerge as mortgage foreclosures begin to rise. In response, sellers of subprime mortgage securities began to realize that housing prices would not continue to rise and worried about the extent of the subprime mortgage lending problems on the balance sheets of the country’s largest financial institutions. Stock values around the world plummet. Short‐term credit markets on Wall Street and elsewhere begin to freeze dramatically. Central banks—the Federal Reserve, the European Central Bank, the BNP Paribas of France, and the Bank of Japan among them—act in concert to increase liquidity throughout their financial systems. Aug. 16—Countrywide Financial Corporation, the biggest mortgage lender in the United States, receives an emergency loan of $11 billion from a consortium of banks to avoid bankruptcy. Aug. 17—The Federal Reserve lowers the discount rate (the interest rate at which it makes loans to banks) from 6.25 percent to 5.75 percent in an effort to stabilize financial markets. Aug. 21—U.S. home repossessions are reported to rise sharply, amid widespread defaults by subprime borrowers. Aug. 23—The Fed lends American and European banks $2 billion. ICBA releases a statement calling community banks’ stability a “marked contrast” to the turbulent mortgage market. Aug. 31—The Bush administration offers proposals to help homeowners avoid foreclosure, including changes in the tax code. ICBA calls the proposals “a positive step to bring calm to the mortgage markets … that would make it easier for community banks to restructure loans for homeowners” and welcomes “a return to the common‐sense underwriting that community banks have always offered.” Sept. 4—A significant reduction in overnight bank lending is observed, as the fear of defaults spreads among the largest financial institutions, from bank investment firms to insurance companies to megabanks. Sept. 6—The Fed adds temporary reserves of $31.25 billion to the money markets, conditional on the sum being paid back in two weeks. Sept. 18—The Federal Reserve reduces interest rates by a half point. Sept. 19—The House Financial Services Committee prepares for hearings on possible legislative and regulator solutions to the worsening crisis. ICBA submits a statement to the committee strongly opposing predatory lending practices and supporting proposals that lenders be required to provide clear disclosure to borrowers of loan types and terms, to underwrite loans to the fully indexed rate, and to fully amortize payments. Sept. 30—NetBank, which had led the way in Internet banking in the 1990s, goes bankrupt. Oct. 5—Standard & Poor’s calls Merrill Lynch’s announcement of a $5.5 billion loss “startling.” Oct. 15—Leading U.S. banks, with the support of the government, create a $100 billion “super‐ fund” to buy mortgage‐backed securities that had fallen precipitously in mark‐to‐market value. Citigroup reveals third‐quarter losses of $6.5 billion. Oct. 24—Merrill Lynch announces nearly $8 billion in third‐quarter losses. “The bottom line is we got it wrong by being overexposed to subprime,” says CEO Stanley O’Neil. Nov. 1—The Federal Reserve injects $41 billion into the money supply to facilitate borrowing. Nov. 5—Citigroup announces it may write off between $8 billion and $11 billion in the third quarter, and its chairman, Charles Prince, resigns. Nov. 19—Goldman Sachs downgrades Citibank’s stock from “neutral” to “sell.” Nov. 6—The House of Representatives considers legislation to reform the mortgage origination process. ICBA voices support, but expresses concern about “unnecessary and redundant requirements” that could burden community banks, including new “duty of care” standards required of loan originators. Nov. 15—The House passes the Predatory Lending and Mortgage Protection Act. ICBA recognizes the legislation’s importance, but again voices concern “that the measure unnecessarily duplicates standards already in place for community banks.” Nov. 27—Freddie Mac announces plans to sell $6 billion worth of shares against losses due to bad debt. Dec. 4—Fannie Mae announces plans to issue $7 billion of shares to cover losses. Dec. 6—President Bush announces a limited mortgage freeze plan for holders of adjustable‐rate mortgages and asks Congress to enact reforms of housing GSEs. ICBA applauds this approach as “an important step that will help homeowners facing unaffordable mortgage payments and potential foreclosure, as well as help the communities where they live and bring some measure of stability to the mortgage market. … While community banks did not generally make these subprime loans, they stand ready to help borrowers seeking mortgage solutions.” Dec. 11—The Federal Reserve cuts interest rates to 4.25 percent in another effort to free credit. Dec. 18—The Federal Reserve proposes changes in Regulation Z (Truth in Lending). ICBA commends the Fed for focusing attention on high‐cost loans, but calls the thresholds proposed for defining such loans “problematic” and offers to help in developing “an appropriate final rule.” Dec. 24—The “super‐fund” (super‐SIV) plan is canceled amid broad skepticism about its workability. Events of 2008 Jan. 8—Bear Stearns’ CEO James E. Cayne resigns as the company announces nearly $2 billion in subprime lending losses. Jan. 11—Countrywide Financial is sold to Bank of America for $4 billion. Jan. 15—Citigroup posts fourth‐quarter 2007 losses of $18.1 billion. Jan. 17—Merrill Lynch post fourth‐quarter losses of $11.5 billion. Jan. 18—ICBA presents a nine‐point economic stimulus proposal to Congress. Says ICBA Chairman James Ghiglieri, “ICBA's nine‐point plan will immediately free up resources and capital for individuals, small businesses and community banks so that we can play a robust part in the stimulus.” Jan. 22—The Federal Reserve reduces the target federal funds interest rate to 3.5 percent. Nine days later, it will cut the benchmark rate to 3 percent. Jan. 24—The National Association of Realtors releases figures showing the biggest decrease in sales of existing homes in a quarter century. Jan. 25—Douglass National Bank in Kansas City, Mo., with deposits of $54 million, has its deposits acquired by Liberty Bank and Trust. The failure costs the Deposit Insurance Fund about $6 million, according to the FDIC. March 1‐June 18—An FBI investigation results in the arrest of more than 400 sellers, buyers and other parties for mortgage fraud. March 7—Congress questions the former bosses of Merrill Lynch and Citibank about their salaries in the light of their firms’ huge losses from controversial and risky subprime lending. March 7—Hume Bank in Hume, Mo., with deposits of $14 million, has its insured deposits acquired by Security Bank of Rich Hill, Mo. Estimated cost to the FDIC’s Deposit Insurance Fund is $3 million. March 16—JPMorgan Chase acquires Bear Stearns for $2 a share; the rapidly negotiated sale saves Bear Stearns from imminent bankruptcy. March 31—The U.S. Treasury reveals plans to reform regulation of financial markets. The Treasury’s “Blueprint for Financial Regulatory Reform” proposes a system of monolithic banking regulation and action that would virtually eliminate the dual banking system. ICBA calls the proposal “seriously flawed” and asserts that it “would benefit Wall Street at the expense of Main Street … eliminate the dual banking system, gut state regulatory authority … and heighten systemic risk by furthering … concentration of our nation’s financial assets.” April 3—To help calm anxious depositors, ICBA widely distributes a statement to remind Americans that community bank deposits are safe and backed by the full faith and credit of the federal government through the FDIC. April 13—Significant first‐quarter losses are reported by Wachovia Corp., a large bank previously considered largely unaffected by the effects of the subprime lending crisis. April 16—ICBA reminds Congress that community banks have funds to lend to small businesses to relieve the credit crunch. The association asks Congress to bolster Small Business Administration lending programs to aid the economic recovery. April 17—Merrill Lynch reports a $2 billion first‐quarter loss and substantial credit write‐downs. April 30—ICBA testifies to House Subcommittee on Finance and Tax that community banks are well‐positioned to help small businesses get capital despite the credit crunch. “Community banks are common sense lenders who largely avoided the subprime debacle. We have solid capital positions and have money to lend to small business,” testified David G. Schroeder, an ICBA leadership banker and president of American Enterprise Bank, Buffalo Grove, Ill. May 8—The House passes the American Housing Rescue and Foreclosure Prevention Act, which includes provisions to reform the housing GSEs and help financially troubled homeowners avoid foreclosure. ICBA enthusiastically supports the act, noting that it includes a first‐time homebuyer tax credit that ICBA had included in its January economic stimulus proposal. May 9—ANB Financial in Bentonville, Ark., has its deposits of $1.8 billion acquired by Pulaski Bank & Trust of Little Rock, Ark. The failure costs the Deposit Insurance Fund about $214 million. May 30—First Integrity Bank, N.A., in Staples, Minn., is put into FDIC receivership. Its $50.3 million in total deposits are acquired by First International Bank & Trust of Watford City, N.D. The failure costs the Deposit Insurance Fund about $2 million. June 5—ICBA proposes new tax incentives to Congress to stem the housing market crisis when ICBA Tax Committee Chairman John W. Puffer III of Pilot Bank in Tampa, Fla., testifies before the House Small Business Committee. ICBA’s recommendations include creating a first‐time homebuyer tax credit to jump‐start stalled home sales, strengthen credit markets and small businesses. Puffer says, “The road to economic recovery must go through housing.” June 19—Former Bear Stearns executives are arrested by the FBI for allegedly misrepresenting the health of their funds to investors—while secretly withdrawing their personal investments in the bank investment firm. July 11—The fourth‐largest bank failure in American history occurs as the Office of Thrift Supervision puts IndyMac Bank into FDIC receivership. Deposits of $19 billion at the Pasadena, Calif., fall under receivership of the FDIC. The failure costs the Deposit Insurance Fund about $9 billion. Other bank failures begin to accelerate. July 16—Responding to inaccurate news reports and commentaries in the broadcast media raising concern about the safety of deposits in community banks, ICBA quickly distributes a bulletin to news media across the country. ICBA Chairman Cynthia Blankenship and ICBA President and CEO Camden Fine provide a joint statement: “No one has ever lost a penny of deposits insured by the Federal Deposit Insurance Corporation held in community banks. No one. … The vast majority of our nation's banks, especially community banks, even in the midst of these difficult times, are still strong, safe and stable.” ICBA launches and continually updates a Safety of Community Bank Deposits (http://www.icba.org/consumer/index.cfm?ItemNumber=47129) section on its Web site to provide a wide range of ICBA and government agency resources—including news releases, op‐ ed pieces and articles—to help community banks reassure their customers during the crisis. July 23—Congress passes the Housing and Economic Recovery Act of 2008, which gives the Federal Housing Administration the authority to guarantee funds for certain qualifying fixed‐rate mortgages. ICBA applauds the passage of the bill, which includes an ICBA‐backed first‐time homebuyer tax credit and relief for Americans facing foreclosure. ICBA leaders have a private meeting with the four top federal banking regulators, expressing concerns such as the disproportionately strict examinations community banks are undergoing as a result of the big‐bank excesses and the financial markets crisis. The association’s leaders meet with Federal Reserve Chairman Ben Bernanke, FDIC Chairman Sheila Bair, U.S. Comptroller of the Currency John Dugan and Office of Thrift Supervision Director John Reich. July 25—First National Bank of Nevada in Reno has its $3 billion in deposits acquired by Mutual of Omaha Bank. First Heritage Bank in Newport Beach, Calif., also has its $233 million in deposits acquired by Mutual of Omaha Bank. The failures cost the Deposit Insurance Fund about $862 million. Aug. 1—First Priority Bank in Bradenton, Fla., has its deposits of $227 million acquired by SunTrust Bank of Atlanta. The failure costs the Deposit Insurance Fund about $72 million. Aug. 22—Columbian Bank and Trust in Topeka, Kan., has its deposits of $622 million acquired by Citizens Bank and Trust of Chillicothe, Mo. The failure costs the Deposit Insurance Fund about $62 million. Aug. 29—Integrity Bank in Alpharetta, Ga., has its deposits of $974 million acquired by Regions Bank of Birmingham, Ala. The failure costs the Deposit Insurance Fund about $295 million. Sept. 5—Silver State Bank in Henderson, Nev., has its deposits of $1.7 billion acquired by Nevada State Bank of Las Vegas. The failure costs the Deposit Insurance Fund about $505 million. Sept. 7—The federal government puts government‐sponsored enterprises (GSEs) Fannie Mae and Freddie Mac into “conservatorship.” In so doing, it assumes responsibility for about half of the U.S. mortgage market. ICBA President and CEO Camden Fine participated in a weekend conference call held by senior Treasury officials and Federal Housing Finance Agency Director James Lockhart to outline the terms of the takeover. ICBA also creates an online financial crisis resources page called Economic Recovery Central (http://www.icba.org/advocacy/index.cfm?ItemNumber=49150) on its Web site for community bankers; the site would be continually updated with a wide range of information on the government’s response to the financial markets crisis unfolds. Sept. 10—ICBA President and CEO Camden Fine issues an open letter loudly rebuking Treasury Department officials for downplaying the significant impact the federal government’s takeover of Fannie Mae and Freddie Mac would have on many community bank balance sheets. Fine wrote, “Perhaps these breathtaking actions [to seize control of the housing GSEs] were necessary, perhaps not; only time will tell. However, what is truly outrageous to ICBA and thousands of community bankers is the cavalier attitude displayed toward the community banking industry by our top U.S. financial policymakers.” Sept. 14—Bank of America purchases Merrill Lynch in another deal quickly arranged over a weekend. Sept. 16—Lehman Brothers declares bankruptcy. After American International Group’s credit ratings are lowered, the Federal Reserve lends the insurance conglomerate $85 billion to prevent its bankruptcy. Wachovia and Morgan Stanley discuss a merger. Sept. 19—Treasury Secretary Henry Paulson announces the administration’s $700 million financial markets stability package, the provisions for which will be altered considerably over the next several days. ICBA calls the plan “extremely troubling to the community banking industry,” particularly with regard to its money market mutual fund guaranty program, which ICBA sees as competitively “disadvantaging” federally guaranteed accounts held by community banks. ICBA urges that the money market mutual fund guarantee program be temporary and risk‐based, and that fees imposed through it be “at least commensurate to bank deposit insurance assessments.” The association also successfully works with the FDIC in asking the Treasury to limit insured deposits of money market mutual funds to balances in those accounts as of Sept. 19. On the same day, ICBA President and CEO Camden Fine has a Viewpoint commentary published in the “American Banker” newspaper that criticized the “bitter fruit” of unchecked financial consolidation. Ameribank Inc. in Northfork, W.Va., also has its $102 million in deposits assumed by two banks. Pioneer Community Bank of Laeger, W.Va. will assume the deposits of the West Virginia branches and Citizens Savings Banks of Martins Ferry, Ohio, will assume those of the Ohio branches. Sept. 22—Morgan Stanley and Goldman Sachs announce their intent to convert from investment banks to bank holding companies. Sept. 25—The FDIC seizes control of Washington Mutual, establishing the largest‐ever bank failure in the United States. Washington Mutual’s banking assets of $307 billion and deposits of $188 billion are sold for $1.9 billion to JPMorgan Chase. Sept. 26—ICBA issues a question‐and‐answer document for consumers on federal deposit insurance to help community banks reassure their customers about the safety of their deposits. Sept. 29—The House of Representatives defeats the Emergency Economic Stabilization Act by a vote of 228‐205. ICBA, noting the bill had been amended to address key community banking issues, expresses disappointment over the vote. ICBA also provides various talking points and communication materials to help the nation’s community banks communicate to their customers why the legislation is important to keep money flowing to Main Street America. ICBA issues an insistent statement: “Congressional leaders have not given up on this issue, and neither has ICBA. We cannot. Bankers must explain to their customers—the nation's voters— that this bill is not just a Wall Street bailout.” As community bankers throughout the country mobilize to lobby Congress and communicate to their customers, Congress begins to revamp the bill. Meanwhile, the financial markets crisis spreads to European markets. Over the following 10 days, several foreign governments will effectively nationalize their banking systems. Oct. 1—The Senate passes its own version of the Emergency Economic Stabilization Act by a vote of 74‐25. Oct. 3—The House passes a second version of the Emergency Economic Stabilization Act by 263‐ 171, and President Bush signs it into law that same afternoon. ICBA Chairman Cynthia Blankenship issues a statement: “ICBA and our nation’s community banks are grateful Congress has approved this critical legislation that will bring relief to the credit markets and benefit the people, small businesses and communities throughout Main Street America.” Wells Fargo purchases Wachovia Bank. Oct. 6—The Federal Reserve agrees to supply banks with short‐term loans totaling $900 billion. Oct. 6‐10—Amid concerns that the Emergency Economic Stability Act rescue funding will not work, or not work fast enough, the stock market loses 22.1 percent—its worst week ever. Oct. 10—Main Street Bank in Northville, Mich., and Meridian Bank in Eldred, Ill., are placed under FDIC receivership. Monroe Bank & Trust, of Monroe, Mich. and National Bank of Hillsboro, Ill., respectively, assumed the deposits. Combined estimated cost to Deposit Insurance Fund is as much as $54 million. Oct. 14—Treasury, FDIC and Federal Reserve officials announce the Treasury Asset Relief Program’s Capital Purchase Program, the Temporary Liquidity Guarantee Program. ICBA leaders meet with President Bush and Secretary Paulson to ensure parity for community banks in the programs. The association encourages Treasury officials to release further details on how mutual, Subchapter S corporations, and privately held and non‐publicly traded banks can participate in the programs. Meanwhile, Fed Chairman Ben Bernanke echoes ICBA’s policy position that the systemic threats too‐big‐to‐fail institutions create must be addressed. “We need to have that local knowledge that is incorporated in local lending, local community banking,” Bernanke says. “… If we have oversight, if we strengthen the system so that it’s less prone to be damaged by the failure of one firm, and if we develop a resolution regime, I think we will at least get our hands around the too‐big‐to‐fail problem.” Oct. 17—ICBA leaders meet with President Bush and Treasury Secretary Henry Paulson to discuss the role of community banks in the federal government’s economic stabilization efforts and express support for Treasury’s voluntary program to purchase financial institutions’ preferred stock. Oct. 21—ICBA urges Congress once again, in testimony before the House Financial Services Committee, to address excessive concentration in financial system. The association also outlines a series of steps Congress should take, and avoid, as lawmakers consider a regulatory response to the financial markets crisis. Oct. 24—Alpha Bank and Trust in Alpharetta, Ga., is placed under FDIC receivership. Stearns Bank of St. Cloud, Minn., assumes the $346 million in deposits. Estimated cost to the Deposit Insurance Fund is $158 million. Oct. 30—ICBA praises the Treasury Department for issuing additional guidance, as the association urged, to community banks on how they can ease stock losses following the federal conservatorship of Fannie Mae and Freddie Mac. The Treasury’s action gives greater assurance to community banks with GSE preferred share stock how to recognize those losses as ordinary losses. Oct. 31—Freedom Bank in Bradenton, Fla., is placed under FDIC receivership. Fifth Third Bank of Grand Rapids, Mich., assumes its $254 million in deposits. Estimated cost to the Deposit Insurance Fund is more than $80 million. Nov. 7—Security Pacific Bank in Los Angeles and Franklin Bank in Houston are placed under FDIC receivership, and their deposits are assumed by Pacific Western Bank of Los Angeles and Prosperity Bank of El Campo, Texas, respectively, costing the Deposit Insurance Fund about $1.7 billion. Nov. 14—ICBA issues recommendations to improve to the FDIC Guarantee Program to help more community banks participate in the program. ICBA also recommends expanding deposit insurance coverage to include all interest‐bearing and non‐interest‐bearing accounts, a move to eliminate any incentive for customers to move funds to too‐big‐to fail institutions or money market mutual funds. Nov. 18—ICBA Chairman Cynthia Blankenship outlines steps to Congress to maximize participation in Emergency Economic Stabilization Act programs. Blankenship says it is critical for Treasury to quickly release details on how banks that are not publicly traded or do not issue preferred shares can participate in the Trouble Asset Relief Program’s Capital Purchase Program (CPP). Thinly traded and Subchapter S Banks, as well as mutual institutions, await guidance on the program. She adds, “Our nation’s more than 8,500 community banks continue to stand ready to help our country recover, and in order to get more dollars flowing to Main Street and to boost economic activity as Congress intended, a greater number of interested community banks must be part of the CPP.” Nov. 21—Three financial institutions fail on the same day: The Community Bank of Loganville, Ga., with $611 million in deposits; Downey Savings and Loan Association of Newport Beach, Calif., with $9.7 billion in deposits; and PFF Bank & Trust of Pomona, Calif., with $2.4 billion in deposits. The Bank of Essex, Tappahannock, Va., assumes Loganville’s deposits and U.S. Bank of Minneapolis assumes the deposits of the California banks. The total cost to the Deposit Insurance Fund is estimated at $2.3 billion. Nov. 23—Citigroup receives an emergency $306 billion in loan guarantees, liquidity access and capital because of largest losses of loans backs by residential and commercial real estate. The arrangement involved Citigroup issuing $20 billion in preferred shares to the Treasury. Dec. 5—First Georgia Community Bank of Jackson, Ga., is placed under FDIC receivership. United Bank of Zebulon, Ga., assumes its $197 million in deposits. Estimated cost to the Deposit Insurance Fund is $72 million. Dec. 12—Haven Trust Bank in Duluth, Ga., and Sanderson State Bank in Sanderson, Texas, are placed under FDIC receivership. Branch Banking & Trust of Winston‐Salem, N.C., assumes Haven’s $515 million in deposits. Pecos State Bank of Fort Stockton, Texas, assumes Sanderson’s $27.9 million in deposits. Combined estimated cost to the Deposit Insurance Fund is $219 million. Press releases say $200 and $12.5 million, respectively. Dec. 16—The FDIC, adopting a Deposit Insurance Fund restoration plan, imposes a seven basis point increase in deposit insurance assessment rates for the first quarter of 2009. ICBA voices disappointment that the agency decided not to adopt a more modest assessment rate increase so that community banks will have more funds available to lend and spur an economic recovery. Adds ICBA President and CEO Camden Fine: “This assessment rate increase is counterproductive since now is the time when our community banking system should be mobilized to help lift up the economy and return economic stability to our country and its communities.” Dec. 17—ICBA President and CEO Camden Fine issues an open letter to community bankers decrying the disproportionately regulatory examination treatment community banks are undergoing in the wake of the financial crisis they didn’t cause. Events of 2009 Jan. 2—The FDIC announces a $14 billion deal to sell IndyMac Federal Bank to a private equity consortium.
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