Investors have recently focused on the difficulties encountered by the European banks, which hold huge amounts of troubled sovereign debt. However, I am quite worried over the state of the banking system in the United States. The recent changes to monetary policy by the Fed, the attempt by state attorneys general to coerce an onerous settlement over flawed servicing practices, and a continued litigation feeding frenzy have put the domestic banking system at risk. Whatever the legitimate grievances, the desire to both punish the banks and obtain reparations for past practices risks pushing the financial system into a new and immensely damaging crisis.

Large U.S. banks and lenders are currently dealing with a plethora of challenges. The robo-signing and servicing investigation by the state attorneys general is nowhere near being resolved, and news reports indicate that fines in excess of $20 billion are still being sought. The settlement of outstanding litigation by an investor group against Bank of America continues to be opposed by the New York A.G on dubious grounds. The looming impact of Basel III has already started to affect banks' business decisions. (It is my opinion that the recent withdrawal of Bank of America from correspondent lending was due in part to the onerous capital that will be required of banks holding mortgage servicing assets.)

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