Banking System

Global markets staggered yesterday as a French bank triggered a worldwide financial scare by halting withdrawals from investment funds that have lost money on high-risk U.S. mortgage securities. The central banks of major economies, including the United States, responded by pumping tens of billions of dollars into their banking systems in an effort to shore up investors' confidence. On Wall Street, the Dow Jones industrial average plunged 387.18 points, or 2.8 percent, to 13,270.68, its largest one-day point loss since February.

WASHINGTON -- Japan's top financial officials have told their American counterparts that their country's banking system is acutely short of capital, with the top 19 banks in deeper trouble than Tokyo has ever before admitted, according to officials familiar with the weekend discussions.At a private meeting Saturday, the governor of the Bank of Japan, Masaru Hayami, told Treasury Secretary Robert E. Rubin and Alan Greenspan, the chairman of the Federal Reserve, that the capital supporting those 19 major banks has dwindled to dangerously low levels in recent months.

TOKYO -- Japan's governing party and the opposition patched up a basic agreement yesterday on legislation to revive the banking system. The latest agreement, if it sticks, may dispel concerns that Japan's political paralysis will continue to hobble its economy.The parties had reached an agreement earlier, on Sept. 18, but it began unraveling just as Prime Minister Keizo Obuchi and President Clinton were meeting in New York on Tuesday to discuss global economic problems. Markets here and around the world had been concerned that if the deal fell apart completely, Japan's economic troubles would worsen and spread around the world.

IT'S SPRING, time for McCormick & Co. to stock up on raw spices for the year's second half, when sales pick up for oregano, tarragon, ginger, dried onion, red pepper and the like.As usual, McCormick will borrow money to finance the inventory. A world of lenders awaits its application.That's another reason to worry that last week's interest-rate boost by the Federal Reserve might not be its last.McCormick Chief Financial Officer Robert Davey could borrow Eurodollars from British insurance companies.

Today, as a leading presidential contender, I am pleased to present my economic package.I realize I'm late. The other 53 leading contenders turned in theieconomic packages weeks ago. But I have an excuse: The dog ate my economic package.No, really, my excuse is that I've been busy trying to notify the government that I'm running for president. I thought this would be a simple procedure. I mean, look at the other contenders. These people are not all nuclear physicists. Some of them aren't even vertebrate life forms.

NEW YORK -- When George Bush and Bill Clinton agreed in Monday night's debate that the banking system was fundamentally sound, they made news because, for once, they weren't at each other's throats. But they might also have described the banking industry's situation more accurately than the current wave of gloom and doom.This is the conclusion of most banking industry analysts and regulators, who scoff at reports that 1,000 banks could fail within thenext few years.Although the banking industry is far from solid, and scores of banks are expected to be taken over by the government under regulations that will go into effect in December, few see the problem as being as serious as the savings and loan debacle, which hit after the 1988 election and could cost taxpayers as much as $200 billion before interest.

BILL Clinton will take office with high hopes and good will, but his presidency will stand or fall on whether he fixes the economy. His first task is to sort out the long-term "change" he champions from the short-term economic urgencies.As John Maynard Keynes aptly observed, "In the long run we are all dead." It is the short run where people are losing jobs, homes and hopes. And Mr. Clinton will soon lose his political mandate if recovery is not forthcoming. Mr. Clinton courageously resisted the fashionable (and mistaken)

Other events have pushed it out of the headlines and the minds of most of us. Still, the disarray of the banking system is far from over.It affects you. You are the lender of last resort who financed the bailout of the savings and loans. You will finance any other bailouts that may take place.But it may influence you in another, more immediate way as well. As an individual or a small business owner, you may find it difficult or impossible to borrow money from a bank.Despite all the talk of criminal wrongdoing by various banks and bankers (and it seems certain there was some)

Next to the gulf war, the issue most likely to engage this recession-year Congress is the need for the most sweeping reform of banking and deposit insurance since the New Deal. A wave of bank failures, depletion of Federal Deposit Insurance Corp. funds and the financial drain of the savings and loan debacle have created a crisis atmosphere.If there is anything that makes the current recession different -- and more worrisome -- than recent economic downturns, it is weakness in many of the nation's financial institutions.

As lawmakers in Washington grapple with reforming the nation's banking system, MNC Financial Inc. has aggressively used one of the most controversial banking strategies to replace millions of dollars in local deposits with out-of-state funds.Whether financially troubled MNC was scrambling to offset a painful loss of local customer confidence -- as some analysts believe -- or whether the company's banks were simply using a cheaper and safer way to pull in stable deposits -- as the banks contend -- remains arguable.

The financial crisis of 2007-2009, has tilted the playing field against community banks and has raised a general danger for all banks that they will face steeper regulatory burdens than other kinds of financial firms. This is not only bad for the banking industry but for the American economy. Regulatory anomalies create economic inefficiencies that translate into less safe and sound financial institutions and less sound credit being made available to the marketplace. Once the financial crisis was at a full boil, the Treasury, Federal Reserve and financial regulatory agencies rightly, through a variety of mechanisms, kept many larger institutions from failing.

Will it ever end? For more than a year, the financial system has struggled to function, stricken as it is with economic Ebola. Cash is the only cure, and banks have raised almost $400 billion. That's not nearly enough, however, so the federal government has committed to various bailouts that will cost hundreds of billions over time. The most expensive yet - a new super-agency to buy bad debt - may eventually cost north of $1 trillion. As bad as the situation is, we're in deeper trouble than most realize.

Global markets staggered yesterday as a French bank triggered a worldwide financial scare by halting withdrawals from investment funds that have lost money on high-risk U.S. mortgage securities. The central banks of major economies, including the United States, responded by pumping tens of billions of dollars into their banking systems in an effort to shore up investors' confidence. On Wall Street, the Dow Jones industrial average plunged 387.18 points, or 2.8 percent, to 13,270.68, its largest one-day point loss since February.

THE COST of food is up. Gas at the pump is at an all-time high - averaging almost $1.93 for a gallon of unleaded. Manufacturing and construction indexes are strong. Mortgage and longer-term Treasury rates are spiking. And April job data released last Friday showed healthy gains for the second month in a row. A year ago, the "D-word" - deflation - was in the air. Now, if inflation isn't exactly roaring back, the U.S. economy certainly seems to be at an inflection, a turning toward rising prices and interest rates.

PHILADELPHIA - Back in her native Ukraine, Irina Mitsik learned to mistrust banks. After all, they could be open one day, then gone - along with all her savings - the next. In the Ghanaian refugee camp where he spent seven years, Donald Todey never thought about saving for the future. After all, in a place where food was scarce and hardships plentiful, no one worried about tomorrow. These days, however, both are carving out new lives in a country where savings accounts, credit histories and checkbooks are not just a fact of life but a factor in determining who sinks and who swims.

WASHINGTON -- Japan's top financial officials have told their American counterparts that their country's banking system is acutely short of capital, with the top 19 banks in deeper trouble than Tokyo has ever before admitted, according to officials familiar with the weekend discussions.At a private meeting Saturday, the governor of the Bank of Japan, Masaru Hayami, told Treasury Secretary Robert E. Rubin and Alan Greenspan, the chairman of the Federal Reserve, that the capital supporting those 19 major banks has dwindled to dangerously low levels in recent months.

TOKYO -- Japan's governing party and the opposition patched up a basic agreement yesterday on legislation to revive the banking system. The latest agreement, if it sticks, may dispel concerns that Japan's political paralysis will continue to hobble its economy.The parties had reached an agreement earlier, on Sept. 18, but it began unraveling just as Prime Minister Keizo Obuchi and President Clinton were meeting in New York on Tuesday to discuss global economic problems. Markets here and around the world had been concerned that if the deal fell apart completely, Japan's economic troubles would worsen and spread around the world.

IT'S SPRING, time for McCormick & Co. to stock up on raw spices for the year's second half, when sales pick up for oregano, tarragon, ginger, dried onion, red pepper and the like.As usual, McCormick will borrow money to finance the inventory. A world of lenders awaits its application.That's another reason to worry that last week's interest-rate boost by the Federal Reserve might not be its last.McCormick Chief Financial Officer Robert Davey could borrow Eurodollars from British insurance companies.

BILL Clinton will take office with high hopes and good will, but his presidency will stand or fall on whether he fixes the economy. His first task is to sort out the long-term "change" he champions from the short-term economic urgencies.As John Maynard Keynes aptly observed, "In the long run we are all dead." It is the short run where people are losing jobs, homes and hopes. And Mr. Clinton will soon lose his political mandate if recovery is not forthcoming. Mr. Clinton courageously resisted the fashionable (and mistaken)

NEW YORK -- When George Bush and Bill Clinton agreed in Monday night's debate that the banking system was fundamentally sound, they made news because, for once, they weren't at each other's throats. But they might also have described the banking industry's situation more accurately than the current wave of gloom and doom.This is the conclusion of most banking industry analysts and regulators, who scoff at reports that 1,000 banks could fail within thenext few years.Although the banking industry is far from solid, and scores of banks are expected to be taken over by the government under regulations that will go into effect in December, few see the problem as being as serious as the savings and loan debacle, which hit after the 1988 election and could cost taxpayers as much as $200 billion before interest.