Magazine article The RMA Journal

Prepare Now for Next Time

Magazine article The RMA Journal

Prepare Now for Next Time

Article excerpt

Crises are not new to the financial services industry. Some strike unexpectedly while others bubble below the surface before erupting. Just 11 days into Bill Perotti's tenure as 2001-02 RMA chair, we were confronted with September 11. Like the nation, we mourned for the lives lost and then we focused on making our systems more secure. When my good friend Jerry Dent became RMA chair last fall, concern was growing over the "mortgage crisis." A year later, those concerns have boiled over into fears about the health of the entire financial services industry. Again we are responding, but this crisis is more complex, with large ripples smacking up against all sectors of the economy here and abroad.

Like townspeople stacking sandbags to hold back floodwaters, our industry raised huge sums of capital. Yet the problems grew more intense. What some had called "a temporary correction" became a full-fledged liquidity crisis that is threatening the health of the U.S. and global economies. Casualties are mounting. Large institutions with histories of strong performance and loyal customer bases have been purchased for nominal amounts. The acquiring institutions have done so with equity and government assistance in the form of "coverage" for problem loans.

In an effort to stem the torrent, the U.S. Treasury is intervening in the private sector, bailing out AIG and helping to facilitate the acquisitions of troubled institutions such as Bear Stearns, Merrill Lynch, Washington Mutual, and Wachovia. Congress passed the American Housing Rescue and Foreclosure Prevention Act in July. In the United Kingdom, the government has had to nationalize some large mortgage lenders. Headlines of impending failures crash like waves over the stability of institutions struggling to maintain liquidity.

Community bank failures are not making national headlines because their impact is limited to their much smaller footprints. …

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