Tuesday, November 11, 2008

Banking Regulators to Urge Banks to Lend; Oil Drops

U.S. banking regulators plan to release an interagency statement in the next few days encouraging well-capitalized banks to keep lending to credit-worthy borrowers, the director of the Office of Thrift Supervision said.

"There is a concern that healthy institutions are sitting idle and not responding to the needs of credit-worthy borrowers," OTS Director John Reich told Reuters in an interview on Monday.

Lawmakers have recently been pushing for the U.S. Treasury Department to insist that banks receiving federal capital use the funds for lending.

Rep. Barney Frank, the chairman of the House Financial Services Committee, has said Congress may object to releasing the final $350 billion of the $700 billion market rescue plan if participating banks are not increasing their lending activities.

Reich said the interagency statement also will stress the need for banks to work with borrowers to avoid foreclosures and will encourage banks to maintain "strong levels of capital." He said it also will ask banks to make sure their dividend policies do not interfere with their ability to lend.

The statement will be from the OTS, the Federal Deposit Insurance Corp (FDIC), the Office of the Comptroller of the Currency, and the Federal Reserve.

Regarding the U.S. Treasury Department's $250 billion capital injection program for banks, Reich said more than 120 thrifts have applied and about 10 have had their applications approved.

The OTS, a unit within the Treasury, regulates about 800 savings and loan institutions that are largely focused on mortgage lending.

Reich said the thrifts with pending applications are in various stages of processing.

For thrifts that are uncertain about whether to participate in the program, Reich said they should put in an application by the November 14 deadline just in case. But he said he understands if well-capitalized banks are reluctant to sign on. "It's understandable if they don't want to have to worry about the strings attached," he said.

The program comes with restrictions on executive pay and dividend payouts. Some lawmakers are seeking additional conditions on the lending practices of participating banks.

Reich said the thrift industry as a whole is under significant pressure, especially because federal law requires thrifts to concentrate their lending on consumers and small businesses, preventing them from diversifying in the tough economic environment.

He said 70% of thrifts are operating profitably and that, in aggregate, the capital situation is "pretty good" for the industry. "Institutions are looking for more capital, but investors that are normally interested in investing are sitting on the sidelines... waiting to invest until the market bottoms out," Reich said.

Oil Drops to $60

Oil prices tumbled more than $2 to near $60 a barrel on Tuesday as a firmer dollar and renewed outlook of falling demand hit the market. A bright note is that for every penny of savings in gasoline prices, $1 billion is injected into the economy in the U.S.

News on Monday that Saudi Arabia had cut oil sales to major customers in Asia and Europe also failed to turn the tide on a market that has shed 60% of its value since hitting a record high $147 a barrel in July as demand has slowed from both consumers and investors.

U.S. light, sweet crude fell $1.91 or 3% to $60.50 a barrel by 8:49 p.m. EST, abruptly ending a mild two day rally. Prices ended 2% higher on Monday after touching a near 20-month low of $59.10 a barrel.

London ICE Brent crude fell $1.74 to $57.34.

With the focus on demand destruction rather than supply, news that Saudi Arabia had told refiners in Asia it would cut December supplies by 5%, signaling its adherence to OPEC's deal to cut output, failed to sustain early gains.

In a clear sign of how supply-side concerns have been sidelined by investors, traders were unfazed by a threat from Nigeria's most prominent militant group to renew attacks on the oil sector if soldiers stormed its hideouts. A military spokesman denied such plans.

Data due later on Tuesday will provide the latest evidence of oil demand in China, the world's second-largest consumer, with import figures likely to show a near total halt to imports of diesel and gasoline and likely tepid growth in crude purchases.

In the United States, the latest weekly inventory data is likely to show rising stockpiles as demand remains weak.

Crude oil stocks were expected to have risen by 800,000 million barrels last week, while distillate stocks should rise by 500,000 million barrels and gasoline by 800,000 million-barrels, a preliminary poll of analysts showed.

The data will be released on Thursday this week, a day later than usual due to a national holiday.

Sources: Reuters, Yahoo, Marketwatch

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