Tag Archives: david knieriem

China Hacking Is Deep and Diverse

China’s Internet espionage capabilities are deeper and more widely dispersed than the U.S. indictment of five army officers last week suggests, former top government officials say, extending to a sprawling hacking-industrial complex that shields the Chinese government but also sometimes backfires on Beijing.

Some of the most sophisticated intruders observed by U.S. officials and private-sector security firms work as hackers for hire and at makeshift defense contractors, not the government, and aren’t among those named in the indictment. In recent years, engineers from this crowd have broken into servers at Google Inc., Lockheed Martin Corp. and top cybersecurity companies, former U.S. officials and security researchers alleged.

The Chinese have often told their U.S. counterparts they don’t condone hacking but also that they can’t police what they don’t control, according to former U.S. officials. While it is possible Beijing makes this claim simply as an excuse for inaction—given its strict control of domestic Internet traffic—experts in the field, including former U.S. officials, say the Chinese hacking landscape is chaotic and hard to follow.

This structure brings “a political gain to being able to say ‘we can’t control all attacks,’ ” said Adam Segal, a China and cybersecurity scholar at the Council on Foreign Relations in New York. “But I think there is a cost when hackers go after targets that are too sensitive or get involved in a crisis and the government can’t control the signaling.”

Sometimes freelancers appear to take orders from the military, at other times from state-owned firms seeking a competitive advantage, U.S. security firms say. It remains unclear how exactly those orders are given, security researchers said.

via China Hacking Is Deep and Diverse, Experts Say – WSJ Article by Danny Yadron, James T Areddy & Paul Mozur.

Study Offers Hope for Community Banks

WASHINGTON—Small banks may be faring better than their declining numbers suggest, with a new regulatory study finding small U.S. firms are not on the wane despite explosive growth by large banks.

The Federal Deposit Insurance Corp. found there are more banks with assets between $100 million and $1 billion today than there were in 1985, according to a study released Wednesday. That is despite the plummeting total count of U.S. banks, from more than 18,000 in 1985 to less than 7,000 today.

Most of that decline can be attributed to banks under $100 million, suggesting a threshold at which banks have the scale to compete despite their relatively small size.

Smaller institutions still face a raft of challenges, from low interest rates to a less robust mortgage market and new regulatory requirements. But the FDIC offered a more upbeat assessment of those banks’ prospects, finding that community banks are able to cut costs significantly when they pass $100 million in assets—a phenomenon that may explain why institutions of that size haven’t seen a decline in their numbers, the FDIC said.

The decline in overall banking charters suggests “a disaster for small banks, but that’s not what the numbers show if you follow them over time,” said Richard Brown, the FDIC’s chief economist, in an interview.

The study also found that more often than not community lenders giving up their charters have been purchased by other banks with similar business models, suggesting local lenders are growing slightly larger rather than disappearing altogether.

First Oklahoma Bank of Tulsa, Okla., started out when investors acquired the state’s third smallest bank, with about $9 million in assets, in 2009, said Chairman Tom Bennett. Now the bank has $285 million in assets after a strong first quarter of making loans, and Mr. Bennett says he isn’t complaining about regulations. “Somewhere over $100 million you begin to get enough scale that you can absorb the cost,” he said.

The core problems for the smallest firms, he said, are that the slowed-down real-estate market and low interest rates have been squeezing community banks that rely disproportionately on mortgage lending and net interest income for their revenue.

via Study Offers Hope for Community Banks – WSJ.com Article by Ryan Tracy & Stephanie Armour.

Study Offers Hope for Community Banks – PDF


The New Cost of Doing Banking

Guilty pleas to criminal charges by BNP Paribas and some other financial firms should put to rest fears that banks are “too big to jail.” Even so, that isn’t necessarily great news for the financial system or investors.

The reason some banks were perceived to be outside the reach of the law’s long arm was that a criminal charge would prove so devastating it could upend a firm and disrupt the functioning of the financial system. BNP Paribas shows why that is no longer the case, but also why that isn’t such a threat to the biggest banks.

True, BNP has had to pay about $9 billion to resolve charges related to violations of U.S. sanctions on doing business with countries such as Iran and Sudan. It also will have to reorganize some of the ways it does business in the U.S. And the bank has suffered a clear hit to its reputation.

Yet prosecutors and regulators worked to cushion the blow a guilty plea would have. Indeed, even a ban on BNP’s dollar-clearing operations was tailored so that it affected only a small part of its business. As well, the bank will have six months to prepare affected clients before the penalty kicks in.

What’s more, while authorities pushed for the bank to remove some staff, no individuals were criminally charged. That echoes other big settlements with U.S. and foreign banks. It also is telling that so far the banks charged are foreign institutions, not U.S. ones, which escaped a comeuppance for behavior that fueled the financial crisis.

The desire to not rock the financial boat, and possibly send markets into debilitating paroxysms, is understandable, especially for regulators. It is easy too to forgive prosecutors, as well, for keeping financial stability in mind.Still, their hesitancy to actually charge individual bankers, force banks to shutter or dispose of units at the heart of wrongdoing or make the buck stop at a CEO’s desk sends the wrong message.

Instead, actions to date let banks, and bankers in particular, think that criminal charges are now like huge financial penalties: a painful and embarrassing, but ultimately manageable, cost of doing business.

In other words, the deterrent effect of such charges is questionable. That already is the case with the seemingly enormous fines being assessed in cases. As big as the numbers involved sound, the banks that are paying out multibillion-dollar penalties are themselves gargantuan. While J.P. Morgan Chase, for example, was forced to cough up $13 billion last fall to resolve issues related to mortgage-backed bonds, it has assets of about $2.4 trillion.

Investors might take short-term relief from this. Indeed, in the wake of settlements, the affected bank’s shares typically rise as there is certainty about the costs involved. The reason: As long as a bank isn’t hit so hard that it is forced to raise new capital and dilute existing shareholders, investors tend to move on pretty quickly from such affairs. In that vein, Credit Suisse shares rose about 1% in the immediate aftermath of that bank pleading guilty in mid-May to a criminal charge of tax evasion.

But investors shouldn’t spend too much time cheering. Without true accountability, a new generation of bankers will be emboldened to take on risks, or engage in behavior, that puts the long-term viability of their firms at risk.The penalty for that will ultimately be borne by shareholders.

via HEARD ON THE STREET: BNP Shows Banks Whistle Past Prosecutorial Graveyard – WSJ Article by David Reilly.

How Millennials Are Pushing A Huge Shift In The Retail Banking Industry

Banking institutions are in a race to provide the newest online and mobile features to their users, as retail banking branches lose their relevance fast.

That’s because banks know that these services are how they will win over their next-generation of client. This is particularly important in the banking industry because bank customers tend to be extremely loyal. So, capturing the attention of younger adults — and, in particular, millennials — when they’re first choosing their bank can lead to a long-term market advantage.

  • More adults — of all ages — prefer paying bills online over using any other channel for performing that activity, according to a survey from Nielsen
  • And mobile is already the preferred channel for checking balances among those who are already mobile banking consumers.
  • Among millennials, checking balances, paying bills, and transferring money, were the top digital banking activities, TD Bank finds.
  • More than half of millennials are already transferring money via digital channels.

via How Millennials Are Pushing A Huge Shift In The Retail Banking Industry – Business Insider article by John Heggestuen .

Regulatory Cost Calculator – The Federal Reserve Bank of Minneapolis

Economic Policy Papers

Regulatory Cost Calculator
Instructions: This calculator allows users to conduct analysis similar to that presented in the Federal Reserve Bank of Minneapolis Economic Policy Paper (13-3), “Quantifying the Costs of Additional Regulation on Community Banks,” by Ron Feldman, Ken Heinecke and Jason Schmidt. Please review that paper for additional details on the analysis allowed by this calculator.

The underlying data in the calculator come from the quarterly statements of condition and income that commercial banks are required to file with federal regulators (known as “Call Reports”). This calculator contains data on “community” banks, which are defined to have assets less than $1 billion. In the calculator, the user can specify four input parameters:

1. Bank asset size cutoffs. 2. Number of full-time equivalent employees (FTEs). 3. Compensation of FTEs. 4. Year on which the analysis is performed.

Updated Calculator

This version of the regulatory cost calculator contains updated data through Q4 2013. Note that results for the 2001-2012 period are slightly different due to revisions to the call report data and seasonal adjustment of the CPI.

Download updated calculator (.xlsm, 13MB)

Note: Click the Enable Content or Enable Macros button when the file opens to allow the calculator to appear.

via Regulatory Cost Calculator – The Federal Reserve Bank of Minneapolis.

Regulatory Cost Calculator 2013 – Excel Spreadsheet