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Credit Suisse to Hand Over Account Data

ZURICH—Credit Suisse Group AG will hand over names of clients suspected of dodging U.S. taxes, intensifying the campaign by U.S. authorities to pressure Swiss banks into turning over Americans with hidden accounts.

Credit Suisse said Tuesday that it will hand over account information to Swiss tax authorities in response to a request from the U.S. Internal Revenue Service. The bank, Switzerland’s second largest by assets, declined to comment on the number of names or when it would submit the information. The Swiss tax authority will examine the details and allow clients the chance to appeal, after which it would give the names to the IRS. That process could take several months.

The IRS’s request stems from a months-long investigation into allegations that Credit Suisse bankers helped scores of Americans evade taxes. Early this year, the U.S. indicted two current and three former Credit Suisse bankers; they have denied wrongdoing. In July, the U.S. Justice Department notified Credit Suisse that the bank itself was a formal target of a criminal investigation into allegations that it helped U.S. citizens avoid paying U.S. income tax.

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A Short Banking History of the United States

We are now in the midst of a major financial panic. This is not a unique occurrence in American history. Indeed, we’ve had one roughly every 20 years: in 1819, 1836, 1857, 1873, 1893, 1907, 1929, 1987 and now 2008. Many of these marked the beginning of an extended period of economic depression.

How could the richest and most productive economy the world has ever known have a financial system so prone to periodic and catastrophic break down? One answer is the baleful influence of Thomas Jefferson.

Jefferson, to be sure, was a genius and fully deserves his place on Mt. Rushmore. But he was also a quintessential intellectual who was often insulated from the real world. He hated commerce, he hated speculators, he hated the grubby business of getting and spending (except his own spending, of course, which eventually bankrupted him). Most of all, he hated banks, the symbol for him of concentrated economic power. Because he was the founder of an enduring political movement, his influence has been strongly felt to the present day.

Consider central banking. A central bank’s most important jobs are to guard the money supply — regulating the economy thereby — and to act as a lender of last resort to regular banks in times of financial distress. Central banks are, by their nature, very large and powerful institutions. They need to be to be effective.

Jefferson’s chief political rival, Alexander Hamilton, had grown up almost literally in a counting house, in the West Indian island of St. Croix, managing the place by the time he was in his middle teens. He had a profound and practical understanding of markets and how they work, an understanding that Jefferson, born a landed aristocrat who lived off the labor of slaves, utterly lacked.

Hamilton wanted to establish a central bank modeled on the Bank of England. The government would own 20% of the stock, have two seats on the board, and the right to inspect the books at any time. But, like the Bank of England then, it would otherwise be owned by its stockholders.

To Jefferson, who may not have understood the concept of central banking, Hamilton’s idea was what today might be called “a giveaway to the rich.” He fought it tooth and nail, but Hamilton won the battle and the Bank of the United States was established in 1792. It was a big success and its stockholders did very well. It also provided the country with a regular money supply with its own banknotes, and a coherent, disciplined banking system.

But as the Federalists lost power and the Jeffersonians became the dominant party, the bank’s charter was not renewed in 1811. The near-disaster of the War of 1812 caused President James Madison to realize the virtues of a central bank and a second bank was established in 1816. But President Andrew Jackson, a Jeffersonian to his core, killed it and the country had no central bank for the next 73 years.

We paid a heavy price for the Jeffersonian aversion to central banking. Without a central bank there was no way to inject liquidity into the banking system to stem a panic. As a result, the panics of the 19th century were far worse here than in Europe and precipitated longer and deeper depressions. In 1907, J.P. Morgan, probably the most powerful private banker who ever lived, acted as the central bank to end the panic that year.

Even Jefferson’s political heirs realized after 1907 that what was now the largest economy in the world could not do without a central bank. The Federal Reserve was created in 1913. But, again, they fought to make it weaker rather than stronger. Instead of one central bank, they created 12 separate banks located across the country and only weakly coordinated.

No small part of the reason that an ordinary recession that began in the spring of 1929 turned into the calamity of the Great Depression was the inability of the Federal Reserve to do its job. It was completely reorganized in 1934 and the U.S. finally had a central bank with the powers it needed to function. That is a principal reason there was no panic for nearly 60 years after 1929 and the crash of 1987 had no lasting effect on the American economy.

While the Constitution gives the federal government control of the money supply, it is silent on the control of banks, which create money. In the early days they created money both through making loans and by issuing banknotes and today do so by extending credit. Had Hamilton’s Bank of the United States been allowed to survive, it might well have evolved the uniform regulatory regime a banking system needs to flourish.

Without it, banking regulation was left to the states. Some states provided firm regulation, others hardly any. Many states, influenced by Jeffersonian notions of the evils of powerful banks, made sure they remained small by forbidding branching. In banking, small means weak. There were about a thousand banks in the country by 1840, but that does not convey the whole story. Half the banks that opened between 1810 and 1820 had failed by 1825, as did half those founded in the 1830s by 1845.

Many “wildcat banks,” so called because they were headquartered “out among the wildcats,” were simple frauds, issuing as many banknotes as they could before disappearing. By the 1840s there were thousands of issues of banknotes in circulation and publishers did a brisk business in “banknote detectors” to help catch frauds.

The Civil War ended this monetary chaos when Congress passed the National Bank Act, offering federal charters to banks that had enough capital and would submit to strict regulation. Banknotes issued by national banks had to be uniform in design and backed by substantial reserves invested in federal bonds. Meanwhile Congress got the state banks out of the banknote business by putting a 10% tax on their issuance. But National banks could not branch if their state did not allow it and could not branch across state lines.

Unfortunately state banks did not disappear, but proliferated as never before. By 1920, there were almost 30,000 banks in the U.S., more than the rest of the world put together. Overwhelmingly they were small, “unitary” banks with capital under $1 million. As each of these unitary banks was tied to a local economy, if that economy went south, the bank often failed. As depression began to spread through American agriculture in the 1920s, bank failures averaged over 550 a year. With the Great Depression, a tsunami of bank failures threatened the collapse of the system.

The reorganization of the Federal Reserve and the creation of the Federal Deposit Insurance Corporation hugely reduced the number of bank failures and mostly ended bank runs. But there remained thousands of banks, along with thousands of savings and loan associations, mutual savings banks, and trust companies. While these were all banks, taking deposits and making loans, they were regulated, often at cross purposes, by different authorities. The Comptroller of the Currency, the Federal Reserve, the FDIC, the FSLIC, the SEC, the banking regulators of the states, and numerous other agencies all had jurisdiction over aspects of the American banking system.

The system was stable in the prosperous postwar years, but when inflation took off in the late 1960s, it began to break down. S&Ls, small and local but with disproportionate political influence, should have been forced to merge or liquidate when they could not compete in the new financial environment. Instead Congress made a series of quick fixes that made disaster inevitable.

In the 1990s interstate banking was finally allowed, creating nationwide banks of unprecedented size. But Congress’s attempt to force banks to make home loans to people who had limited creditworthiness, while encouraging Fannie Mae and Freddie Mac to take these dubious loans off their hands so that the banks could make still more of them, created another crisis in the banking system that is now playing out.

While it will be painful, the present crisis will at least provide another opportunity to give this country, finally, a unified banking system of large, diversified, well-capitalized banking institutions that are under the control of a unified and coherent regulatory system free of undue political influence.

U.S. Bank Mortgage Help

U.S. Bank operates in 24 states offering consumers and businesses investing, brokerage and banking services. With more than 3,000 banking facilities, the corporation reported assets of more $280 billion in 2010.

Making Home Affordable

U.S. Bank is participating in the federal government program designed to assist eligible homeowners in modifying or refinancing their mortgage. The bank has developed two different programs to accommodate their clients who are eligible: Home Affordable Refinance and Home Affordable Loan Modification.

Hardship Loan Modification

Eligible homeowners must provide documented proof of a financial hardship, such as a pay cut or temporary unemployment. The modification can be one of the following, or a combination of, rolling delinquent payments and interest into the existing loan, reducing the interest rate or increasing the mortgage payment temporarily.

Repayment Plan

The repayment plan allows homeowners to make regular and additional payments toward delinquent payments and fees during a set amount of time. This plan is ideal for clients who have a large surplus of funds at the end of the month.

Short Sale

U.S. Bank offers homeowners who cannot afford their mortgage the option of selling their home at a discounted mortgage amount. The sale price of the home typically falls short of the balance of the loan, however, enables a homeowner to protect their credit and make smaller payments until the balance is paid in full.

U.S. Sues Deutsche Bank Over Loan Practices

The United States government sued Deutsche Bank on Tuesday, accusing it of lying about the quality of home loans it handled under a government program and demanding that the bank repay hundreds of millions of dollars of losses on those loans.

The mortgages, guaranteed by the Federal Housing Administration, are expected to cost the government more than $1 billion. They came from loans issued by a company called MortgageIT, which Deutsche acquired in 2007. The F.H.A. said it discovered the fraud in 2009, while reviewing its overall portfolio. At the time, loans were defaulting at record levels and worries were growing about the ultimate cost to taxpayers. Since the financial crisis, the F.H.A. has broadened its role in the housing market and now backs about one-third of all new mortgages, up from just 5 percent a few years ago. In the last couple of years, the F.H.A. has also overhauled its processes to improve quality control, and loans made more recently are performing better.

Officials from the Justice Department and the Department of Housing and Urban Development said the lawsuit should serve as a warning to other lenders that are issuing loans using a government guarantee. At a news conference on Tuesday, the United States attorney for the Southern District of New York, Preet Bharara, said Deutsche “cannot get away with lies and recklessness.” He said there was not evidence to justify a criminal complaint and declined to say whether there would be more cases claiming F.H.A. fraud.

In an interview, Helen R. Kanovsky, the general counsel of the Department of Housing and Urban Development, said that Deutsche Bank was an outlier and that most loan originators had not had such high incidences of fraud.

Responding to the government’s case, filed in Federal District Court in New York, the bank issued a statement saying it was not involved in most of the 39,000 loans cited in the complaint. Almost 90 percent were issued before the bank acquired MortgageIT, a real estate investment trust, the bank said. At the time of its acquisition, MortgageIT had been operating under H.U.D. oversight for nearly a decade, the bank said.

“We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously,” the bank statement said. Of the MortgageIT loans backed by the F.H.A. from 1999 to 2009, worth $5 billion in total, about one-third have defaulted, according to the government’s complaint against the bank. MortgageIT was not a large F.H.A. partner — it ranked 33rd by volume at the end of 2008 — and it stopped issuing government-backed loans in 2009. The F.H.A. referred the problems it spotted with MortgageIT to the Justice Department because it could not bring its own action once the company stopped issuing loans. The case was pursued by a civil fraud unit that Mr. Bharara set up about a year ago.

The complaint against Deutsche Bank stands out because the government has filed relatively few cases against big banks related to the financial crisis. Its actions have mainly been civil complaints, as was the one against Deutsche Bank. The government has found it difficult to prove intent to defraud, a requirement for a criminal case, and investigators got off to a slow start in building possible cases during the crisis because regulators were primarily focused on stabilizing the system. The Justice Department has generally had more success prosecuting small mortgage brokers and borrowers for mortgage fraud than it has had in pursuing major financial institutions.

The Deutsche suit does not name any individual bank employees. And it is not centered on the subprime loans that kicked off the housing collapse. Deutsche was, however, a large player in the subprime market, and mortgage bonds created by the bank sit in many investors’ portfolios. Its mortgage bundling behavior was outlined in a recent report issued by the Senate’s Permanent Subcommittee on Investigations. The Deutsche loans that were backed by the F.H.A. jumped out during the portfoliowide review of mortgages, said Ms. Kanovsky. “The real harm to us was clear,” she said.

MortgageIT had been warned by the F.H.A. for years, Ms. Kanovsky said, long before Deutsche bought it. Workers there frequently told the government that they were taking care of the problems, “all of which turned out to be not true.”

The problems at MortgageIT are rooted in the same sort of behavior that plagued the overall lending market — bankers did not take enough care to ensure the quality of their mortgages because they could resell the loans to private investors. Deutsche, the complaint said, had “powerful financial incentives to invest resources into generating as many F.H.A.-insured mortgages as quickly as possible for resale to investors.”

MortgageIT was qualified by H.U.D. to issue mortgages guaranteed by the F.H.A. MortgageIT and Deutsche filed annual certifications that the loans they issued complied with H.U.D. rules. The complaint says the bank had a fiduciary duty to make correct representations to the government. Yet, the complaint says, Deutsche “repeatedly lied to H.U.D. to obtain and maintain MortgageIT’s direct endorsement lender status.” In particular, the complaint said Deutsche did not monitor how often home owners defaulted on their mortgages immediately after receiving the loans.

Trouble was apparent at MortgageIT as early as 2003, according to the complaint. When a HUD audit revealed that the company had not met quality control levels, the company assured the government that it had altered its practices to comply. But it had not, the complaint says. There were several other instances where the company made similar false statements about its quality control unit, which was chronically understaffed, the complaint says.

MortgageIT, based in New York even before the Deutsche acquisition, once had over 2,000 employees, mortgage loan offices across the country and licenses to issue loans in all 50 states.

What You Need to Know about Banking

When it comes to choosing a bank, consider both convenience and cost. Some charge flat monthly fees; others charge a fee for each check written and each deposit made. Some charge if you go below the minimum balance, use a live teller, use another bank’s automated teller machine (ATM), make an account balance inquiry, have your canceled checks returned to you each month, or close your account. Most charge for bouncing checks, placing a stop payment on a check, and using your overdraft protection.

Reconcile your checkbook monthly and review your credit card statements for errors. Scam artists are finding new ways to target these two areas and if you’re not alert, you could get taken for a ride.

Review your banking habits, identify the services that are most important to you, compare fees for those services between several different banks, and then choose the bank that

fits your needs for the best price. If you use ATM machines to withdraw cash from your account on a weekly basis, for example, you wouldn’t want to choose a bank that offers free checking but charges a hefty fee for ATM transactions. You may decide to use a traditional brick-and-mortar bank in your neighborhood or an Internet bank in cyberspace.

In today’s world, you’ve got a few options when it comes to banking. One such option is to pick a credit union over a traditional bank. Banks are owned by investors; credit unions are owned and controlled by customers, who are members. Credit unions are nonprofit organizations and return surplus earnings to members by lowering interest rates on loans, increasing interest rates on deposits, or offering free or low-cost services.

The most basic requirement for any bank or credit union you choose is that it must be insured and fully backed by the U.S. government. This ensures that your account will be protected for up to $100,000, or $250,000 for retirement accounts. For credit unions, the National Credit Union Association (NCUA) provides coverage. Banks may be covered by the Federal Deposit Insurance Corporation (FDIC).