Banks Find New Ways to Ease Pain Essay

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Banks Find New Ways to Ease Pain of Bad Loans describes the various ways banks holding large amounts of bad, or soon to be bad loans are, in effect, hiding these bad assets. For instance Astoria Financial Corp. extended the number of payments a customer had to miss before the loan would be listed as "nonperforming." By extending the number of missed payments from two to three, Astoria wiped close to $40 million off it's books. Well Fargo did a similar thing by extending the number of days a customer had to miss payments from 120 to 180 before writing these loans off. Bank Atlantic Bancorp tried something a bit different, they created an entirely new subsidiary and transferred $100 million of troubled loans to this new subsidiary. They managed to simply erase the bad loans from their books while avoiding federal regulators by creating a new subsidiary that was not regulated by the federal regulators. In the case of Colonial Bancgroup, they simply changed their charter from a federally regulated bank to a state regulated bank. This avoided federal regulators who were considered to be more antagonistic and switched regulatory responsibility to state regulators.

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While these financial maneuvers may have been legal under GAAP guidelines, it is likely that these financial institutions simply found loopholes in the regulations; and whether it was right or not will be decided by the company's stockholders.

The following financial institutions may have found a way to remove bad loans from their books, or even avoid federal regulators, but they did not solved the fundamental problems created by these loans. Redefining terms and running away from regulators will not pay off these loans, it will only hide them from stockholders and regulators. Even if one redefining the terms of a loan, it only delays the time when it is finally defaulted on, but it still comes eventually. While these institutions insist they….....

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