This Week in ESG and Impact Investing

According to the New York Times , "The Federal Insurance Deposit Corporation imposed(new rules governing investments by) private equity firms seeking to buy failed institutions, although they eased more onerous proposals in hopes of luring them to the table." The new rules are designed to address concerns that "private equity buyers might engage in aggressive practices that could put its deposit insurance fund at risk." "The rules..require private equity-controlled banks to pour enough capital into a failed bank so that it has a cushion of at least 10 percent of its assets for three years. The F.D.I.C. dropped a requirement that private equity firms supply additional capital in the event of a severe downturn, required private equity firms not sell an acquired bank for at least three years, imposed restrictions barring the acquired bank from lending to companies affiliated with the private equity buyer, and exempted private equity firms from complying with the h

According to the Chicago Sun Times , "Exchange-traded funds that leverage their holdings could lead to outsized losses, the Securities and Exchange Commission said. It said brokers and financial advisers should warn people away from them unless they plan to hold them for just a day. The problem with leveraged ETFs comes down to the magic and mystery of compounded returns. If you leave your money in a leveraged ETF over time, your return can differ drastically from the fund's stated goal, especially in volatile markets. "

As we noted in June , Wells Fargo has a real issue. Now, they have been sued by the State of Illinois. According to recent news reports , "Illinois filed a lawsuit on Friday against Wells Fargo & Co. accusing it of discriminating against black and Latino homeowners by employing racially biased lending practices. San Francisco-based Wells Fargo & Co. allegedly sold high-cost subprime mortgage loans to minorities while white borrowers with similar incomes received lower-cost loans, according to the lawsuit, filed in Cook County Circuit Court by Illinois Attorney General Lisa Madigan. 'As a result of its discriminatory and illegal mortgage-lending practices, Wells Fargo transformed our cities' predominantly African-American and Latino neighborhoods into ground zero for subprime lending,' Madigan said."

On Aug 5th, the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Proposals to enhance the Regulation of Credit Rating Agencies. Testifying were Michael S. Barr-U.S. Department of the Treasury, Professor John C. Coffee, Jr.-Columbia University Law School, Dr. Lawrence J. White-New York University ,Mr. Stephen W. Joynt-Fitch Ratings, Mr. James Gellert-Rapid Ratings, Mr. Mark Froeba-PF2 Securities Evaluations, Inc. The testimony is summarized below and copies of the written statements are available at; http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=89e91cf4-71e2-406d-a416-0e391f4f52b0 Credit Rating Agency blamed for Financial Stress In credit markets, borrowers often know more than lenders. While lenders may buy a portion of debt issued, borrowers often issue debt to many borrowers. Thus, rating agencies are traditionally assumed to address this information asymmetry. They help lenders evaluate the credit worthiness of bor

According to an article in the American Banker Newspaper , "With public sentiment running so hard against the banking industry these days the story of Dwelling House Savings and Loan Association, a $13.4 million minority-controlled mutual in Pittsburgh, is nothing short of amazing. Community leaders have rallied around the thrift for the past few months after cyber thieves took more than $3 million through fraudulent automated clearing house transactions, leaving the thrift with a $1 million capital hole. Residents campaigned to boost the thrift's deposits, and it ultimately received pledges of cash injections from four local foundations and the $5.6 billion-asset Dollar Bank of Pittsburgh, just in time for a June 30 deadline that regulators imposed for getting the thrift adequately capitalized." As was noted in the article, "Observers said the outpouring of support for the bank was primarily because of its age. 'It goes to show their importance to the community