Trader Talk

Fed Beige Book and the Banking Hearings

Beige Book: as subdued as you could get without being bearish.

There were attempts at optimism: "while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report," but the overall tone sounded...rather cautious.

Look at these comments:

1) "Loan demand continued to decline or remained weak, while credit quality continued to deteriorate."

2) "Labor market conditions remained generally weak."

3) "Price pressures remained subdued, though increases in metals prices were reported."

  • Read a Summary From the Fed's Beige Book

The bank testimony: a famous bank analyst slams...banks. While the bank testimony in front of the Financial Crisis Inquiry Committee was tamer than most expected (with the exception of the back and forth between Phil Angelides and Lloyd Blankfein), many traders were passing around the testimony of Calyon's Mike Mayo, the only analyst who testified.

To be blunt, Mayo slammed the banks: "I'm shocked and amazed that more changes to banks have not taken place...Wall St. has done an incredible job at pulling the wool over the eyes of government and others."

Calling the banks "an industry on steroids, he went on to outline 10 problems the industry had, including excessive loan growth, loan risk, securities yields, bank leverage, and consumer leverage.

The solution, he said, was to emphasize the ABCs: accounting, bankruptcy and capital.

1) Accounting: "The first and easiest change is to allow banks to more fully reflect potential loan losses by taking larger reserves for their problems."

2) Bankruptcy: most banks should be allowed to fail. For those genuinely deemed too big to fail, "there is a question of what price and how these banks should pay for this special status."

3) Capital: "There should not be a question of whether banks have enough capital...the capital at banks should help ensure that failure of banks and the system is beyond any doubt — not a reasonable one — but beyond any doubt as to whether banks will easily open for business on any given day, even one of the worst in business history."

CNBC's Full Coverage of the Committee Hearings:

Mike Mayo Speaks:

Bankers' Perspective:

More from Mike Mayo:

  • US Banking System Like 'Japan-Light'

Bank Stocks After CEO Testimonies:

Bank of America

JPMorgan Chase

Morgan Stanley

Goldman Sachs




Questions?  Comments?