Tuesday

What is the cause of the banking crisis?

What You Should Know If Your Bank is in Trouble
By Edmond P. Freiermuth

The recent FDIC takeover of IndyMac Bank, seizure and sale of Washington Mutual and forced sale of Wachovia, indicates that the seize-up in credit markets has spread from global and investment banks to regional and community banks. While the vast majority of the banks in the United States are in sound condition, there may be more failures to come. Business owners should know the facts about being a depositor or a borrower in a FDIC-insured bank. Here are some frequently asked questions.
What is the cause of the banking crisis?

During the past decade, two key financing flaws occurred. First, the mega-banks began to package and sell the loans they made. This process, called asset “securitization,” allowed for the origination of loans at an unprecedented scale. The banks that originated the loans kept little of the debt on their books. Second, the underwriting standards for giving loans were “liberalized” to such an extent that millions of traditionally unqualified borrowers were granted loans they could not repay. This created trillions of dollars of high-risk securitized debt.
As home foreclosures rose, the entire asset class of securitized debt became suspect and investors no longer wanted to own securitized debt, also known as “paper.” This led to a chain reaction: Banks could no longer sell off loans and were forced to look for other sources of money to lend and those sources quickly tightened up. Now banks are in a position where they can’t make many loans because they themselves can’t borrow the money to make loans. Banks need to make loans to make money.
While big banks and investment banks made substantial disclosures (acknowledged losses of $400 billion so far) and received cash injections earlier in the year, regional and community banks are now going through the same process. This is especially true in U.S. regions that experienced the greatest benefits of hyper-growth in real estate-related industries. California and Florida are the two biggest states impacted by what could reasonably be called a real estate depression.

Additional worries are coming from the fact that Freddie Mac and Fannie Mae (holders of about half of all U.S. mortgage debt) may not have enough cash or credit to continue buying mortgages. Without a bailout from the U.S. government, the housing market could effectively shut down. The U.S. economy is resilient and will get through this test. But the banking industry losses will be severe--perhaps exceeding $1 trillion over the next two years.

Liberal lending in all of the arcane new forms created by the world’s investment banks and commercial banks drove the global economy for the past 10 years. The mutual funds, banks, money markets and individuals who invested in “paper” will bear the losses and are likely to be extremely wary in the future (at least for a while). So, banks will be required to hold more of the loans they create. Although The Federal Reserve and other central bankers will provide liquidity to the banking system, chastened lenders are unlikely to be quite so cavalier in extending credit to borrowers without demonstrable means of repayment. In addition, regulatory oversight will be increased.
How should businesses with more than $100,000 in FDIC-insured deposits in a single bank protect their assets?
The FDIC insures business deposits on a per-taxpayer-ID basis up to $100,000. To fully protect bank deposits over $100,000 you can take one of two actions.
• If you are borrowing money from the bank, pay down the amount of the loan outstanding such that your depository account balance does not exceed $100,000.
• You can transfer funds in excess of $100,000 to other banks.
How can individuals protect more than $100,000 in an FDIC-insured bank?
Individuals can get more coverage by designating different ownership categories to their accounts at the same bank. For example, a husband and wife can qualify for $600,000 in total FDIC coverage at one bank by opening the following five account types.

What does it mean if a bank is on the FDIC’s watch list?
It was recently reported that 90 banks are currently on the banking regulators’ “watch list.” Being on the list does not necessarily mean that failure will occur. It does mean that the banks’ ability to grow, without significant injections of additional capital, will be curtailed. The banks on the list may be required to shrink their outstanding credit.
If you bank with a bank on the watch list, the bank might reduce your revolving credit line, decline to make you a term loan, or increase your interest rate.
How can business owners perform due diligence on a bank?
The common stock of most banks is publicly traded. As such, they are required to file periodic financial reports with the U.S. Securities and Exchange Commission. Additionally, all banks must also file periodic Call Reports with bank regulators. Banks also publish financial statements that are available just by asking your relationship manager/loan officer. These documents contain a wealth of information about banks.
Are there any signs that a bank might be in trouble?
The single greatest warning sign that indicates that bank is in financial trouble is when regulators issue a “cease and desist order” to the bank. Other signs a bank is in trouble include:
• Seriously declining stock value
• High executive turnover
• Recent changes in the management of your account
• No longer ranked as “well capitalized” by regulators.
Additionally, if bankers seeking your business should suddenly inundate you with offers, it may be that they know something about your bank that you don’t.

What happens if your business has a loan from a bank that gets taken over by the FDIC?
If the FDIC takes over a bank, it attempts to find a buyer for the bank for the full value of all assets. If the FDIC cannot find a buyer, it will sell liquid assets such as government securities and then try to sell loans, in bulk, to another lender, or lenders. In either case, if you have a loan with a bank that has been taken over, you may see changes in the payment method or terms of the loan. In the worst case scenario your loan may be called, forcing you to find a new lender. If your business is not performing well and/or is leveraged more than 3:1, it may be difficult to find a new lender. It’s good planning to have a back-up line of credit.
If your business has a loan from a bank that is taken over by the FDIC, you should immediately begin searching for a banking relationship with a new lender.

When the FDIC takes over a bank, how long do businesses have to wait before they can access their money?
If your total depository accounts are within the FDIC insurance limit of $100,000, you should be able to gain full access to funds within a few days. If your accounts are above the limit, it could take much longer and the exposure to loss could be significant for the excess amount. It all depends upon how bad the condition of the bank is, and when and how much the FDIC believes will ultimately be received from the sale or liquidation of the assets. Typically, the FDIC makes a preliminary estimate of the expected loss and then allows access to a certain percent of the uninsured funds on deposit in a few days.
How long will the turmoil in the credit and equity markets last?
Expunging the excesses caused by irresponsible lending and borrowing will take another 18-24 months to correct. There will, regrettably, be more bank failures.
Vistage Speaker Ed Freiermuth has more than 30 years' experience in financing and advising businesses of all sizes. He has worked directly with the CEOs and senior managers of more than 250 companies. As an independent business consultant, he works closely with lending officers, attorneys, accountants, venture capitalists, investment bankers and others seeking to resolve complex financial, marketing and operational challenges.
Keeping Your Cash Safe: How to Insure up to $50 million in Bank Deposits
By Paul Diamond

As confidence erodes in the U.S. financial system and the government scrambles to create a plan to restore that confidence, many business owners are wondering about the safety of their cash. While treasury bills, notes and bonds are typically viewed as the safest place for cash, there are new insured and convenient bank options.

Currently, the Federal Deposit Insurance Corp. (FDIC) insures up to $100,000 of a personal bank account and the same amount for a business bank account. If your bank were to fail, the FDIC guarantees that you will get up to $100,000 of your money back. Beyond that, historical averages show that claimants typically get back about 73 cents on the dollar. What’s the solution to insuring 100 percent of your business or personal cash that exceeds $100,000?

Enter CDARS (pronounced "cedars"). The Certificate of Deposit Registry Service allows people and businesses to work with one bank—their own bank—and get FDIC insurance on all of their cash, up to $50 million placed in Certificate of Deposits. CDARS is owned by Promontory Interfinancial Network, which has brought together some 2,500 financial institutions in the U.S.

Here’s how it works
If your bank is a member of the CDARS network, it can place your money in CDs at other banks that are members, thus spreading your money across multiple banks to take advantage of the FDIC insurance of $100,000 at each bank. If your bank is not a member, you can most likely find a member in your region.

You earn one interest rate on all the CD investments placed through CDARS. There’s no need to tally disbursements for each CD. You receive one statement that details all of your CD investments. There are no annual fees, subscription fees or transaction fees. You get all of the interest from the CD product that you choose. You can also select from maturity dates ranging from four weeks to five years and choose the terms that best suit your investment needs.

For many businesses, CDARS can be a valuable cash management or long-term investment tool. By providing access to up to $50 million in FDIC insurance through a single bank, CDARS can help simplify your job and improve your business' financial performance.

What’s the downside of CDARS?
The downside is that mostly smaller banks participate in its network. Typically, large national banks like Washington Mutual and Bank of America are not members. Additionally, CDARS makes its money by charging participating banks a transaction fee, so the CD rates you get through CDARS may be lower average CD accounts.

Insured money-market funds
On September 19th, the Treasury said that it will offer insurance coverage to money-market shareholders. It then clarified the announcement on September 21st, saying the insurance was “for amounts held by [money-market investors] as of the close of business on Sept. 19, 2008.” This means that any money investors had in a money-market fund as of the close of business on Sept. 19th, 2008 may be insured, if the money-market fund elects to pay the premiums for the new insurance. This insurance is slated to last for one year.

Money-market deposits made after September 19th are not eligible for coverage. Additionally, investors who lost money in money-market accounts prior to September 19th are not covered by this new insurance. Investors in the Reserve Primary Fund, which saw a 3 percent decline in value on Sept 16th and 17th, will not be covered for those losses by the new Treasury program. Call your money-market account to find out if your funds are covered.

Getting more FDIC coverage without using CDARS
Individuals can get more coverage by designating different ownership categories to their accounts at the same bank. For example, a husband and wife can qualify for $600,000 in total FDIC coverage at one bank by opening the following five account types.

What is the cause of the banking crisis?

During the past decade, two key financing flaws occurred. First, the mega-banks began to package and sell the loans they made. This process, called asset “securitization,” allowed for the origination of loans at an unprecedented scale. The banks that originated the loans kept little of the debt on their books. Second, the underwriting standards for giving loans were “liberalized” to such an extent that millions of traditionally unqualified borrowers were granted loans they could not repay. This created trillions of dollars of high-risk securitized debt.
As home foreclosures rose, the entire asset class of securitized debt became suspect and investors no longer wanted to own securitized debt, also known as “paper.” This led to a chain reaction: Banks could no longer sell off loans and were forced to look for other sources of money to lend and those sources quickly tightened up. Now banks are in a position where they can’t make many loans because they themselves can’t borrow the money to make loans. Banks need to make loans to make money.
While big banks and investment banks made substantial disclosures (acknowledged losses of $400 billion so far) and received cash injections earlier in the year, regional and community banks are now going through the same process. This is especially true in U.S. regions that experienced the greatest benefits of hyper-growth in real estate-related industries. California and Florida are the two biggest states impacted by what could reasonably be called a real estate depression.

Additional worries are coming from the fact that Freddie Mac and Fannie Mae (holders of about half of all U.S. mortgage debt) may not have enough cash or credit to continue buying mortgages. Without a bailout from the U.S. government, the housing market could effectively shut down. The U.S. economy is resilient and will get through this test. But the banking industry losses will be severe--perhaps exceeding $1 trillion over the next two years.

Liberal lending in all of the arcane new forms created by the world’s investment banks and commercial banks drove the global economy for the past 10 years. The mutual funds, banks, money markets and individuals who invested in “paper” will bear the losses and are likely to be extremely wary in the future (at least for a while). So, banks will be required to hold more of the loans they create. Although The Federal Reserve and other central bankers will provide liquidity to the banking system, chastened lenders are unlikely to be quite so cavalier in extending credit to borrowers without demonstrable means of repayment. In addition, regulatory oversight will be increased.

Sunday

Age Discrimination Regulations And Recruitment: 3 Steps To Avoiding The Pitfalls

Age Discrimination Regulations And Recruitment: 3 Steps To Avoiding The Pitfalls
Posted by Jim StroudSeptember 21, 2008Age Discrimination Regulations And Recruitment: 3 Steps To Avoiding The Pitfalls
by: Ian Mann

The Employment Equality Age Regulations 2006 came into force on 1 October 2006 requiring employers to revolutionise the way they advertise for jobs, interview applicants, and make final selection for employment. These Age Discrimination Regulations will require us to stop judging a person’s ability to do a job by their age. After all, age, in this highly mobile labour market does not always mean experience or know-how.

The Age Discrimination Regulations will prohibit discrimination on grounds of age or “perceived age” in the workplace. However, it should be noted that the Regulations are limited to employment and vocational training. They do not extend, generally, to the provision of goods and services. There would be nothing unlawful for example for a newspaper to publish an article which made disparaging comments about a person’s age. Within the workplace, employers and employees alike will need to select staff for their abilities and not their age. Employers will have to ensure that they update their staff handbooks to include age as a form of discrimination to ensure that employees are aware of their behaviour. The training of line managers will in particular be very important.

Regulation 7 makes it unlawful for an employer, in relation to employment by him at an establishment in Great Britain, to discriminate against a person:

(1) In the arrangements he makes for the purpose of determining to whom he should offer employment.

(2) In the terms on which he offers that person employment.

(3) In any refusal to offer employment.

Once employed, it is also unlawful for an employer to discriminate against an employee in relation to:

(1) The opportunities which he offers him for promotion, transfer, training or receiving any other benefits.

(2) Dismissal or subjecting him to any other form of detriment.

Step 1: Requiring Age Limits and Age Ranges

The marketplace has previously advertised for applicants of certain age ranges. This will (in the main) now be unlawful. In practice, there are very few jobs which require an individual to be of a particular age. However, it is not unlawful for an employer to require relevant experience to undertake the job in appropriate circumstances. Experience is gained over time and inevitably older candidates for a job are more likely to be able to demonstrate that they have acquired experience than younger applicants.

Step 2: Experience Requirements

Many job specifications quite properly require prior experience for a variety of reasons. However, prior experience is no guarantee as to suitability and an employer will always be best served by identifying the skills and competencies required successfully to fulfil the role rather than simply requiring a certain number of years experience. Identifying and accurately defining those skills and competencies will avoid any claims of age discrimination. This policy must be applied equally for recruitment, transfer or promotion.

Where a role requires not only technical skills and competencies but other attributes that might relate to the personality of the applicant, it will be all important to ensure that these personality requirements are described in an age neutral way. For example, seeking a “mature” person to fulfil a role could be understood to mean that an older worker is required. Some commentators have expressed concern that using the word “dynamic” could understood as requiring a young person.

Step 3: Graduate Recruitment

Graduates are of course required for particular roles. However, care should be taken as to how recruitment is undertaken. Attendance at graduate fairs, such as milk-runs, will inevitably only be attended by those who are about to graduate or have recently graduated. Consideration should be given to widening the net and considering additional or even alternative methods of recruitment, whether through advertising to different markets or through appropriate recruitment agencies. Wherever an employer chooses to recruit, consideration should be given to whether that method of recruitment may disproportionately favour a particular age group.

The Exception: “Genuine Occupational Requirements”

Regulation 8 provides that it is not unlawful to discriminate on grounds of age in recruitment where there is a genuine age related occupational requirement, having regard to the nature of the employment or the context in which it is carried out. An employer would have to show, however, that a characteristic related to age is a genuine and determining “occupational requirement” and that the policy is a proportionate one i.e. that the occupational requirement could not be achieved in some other non-discriminatory way.

However, not many jobs will benefit from the exception. It will not generally be open to employers to argue that they may require an employee of a specific age or age group, because “it’s what sells”. It is unlikely that the courts will endorse an employer’s decision to employ only young employees at a trendy clothing boutique, for example. It is, however, likely that employment for modeling a certain look on the catwalk or acting an age-specific role in a play will quite properly fall under the genuine occupational requirement provision. As litigation emerges the approach of the courts will give us a better indication of how these Age Discrimination Regulations will be interpreted.

Conclusion

Ensuring that job requirement is not age related or can be fully justified coupled with a transparent system of selection will minimize the risk of costly claims in the Employment Tribunal.

Copyright 2006 Ian Mann

Related Posts
Out with the old, in with the new, another case of age discrimination
UK bans certain words from job descriptions
Tne United Nations on Global Discrimination
What if the guy you just hired wants to be a girl?
Resources for Talent Acquisition, Hiring and Recruitment
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Friday

Networking TIP: Always Carry Business Cards

I’m amazed at how frequently I meet people at networking events, trade shows, conventions, and seminars, that don’t have business cards with them - especially job seekers!
If you are looking for a job, and you don’t have a card with you, what happens when you meet someone who either has the perfect job opportunity for you (or knows someone who does)? You either scramble for a pen while mumbling some lame excuse about not having a card, or you lose the chance to reconnect with this person later. Either way, you miss out on the opportunity to look & act as the best professional for the job.
Nowhere is this more embarrassing than when you meet someone in sales or marketing that doesn’t have a card. The business card is a marketing document - and if you are in sales or marketing, working or not, you portray yourself as a pretty bad marketer if you don’t even have a simple business card.
So here’s some suggestions of what others do. David says “I have a business card case that I nearly always carry. It’s a lightweight aluminum card case by Muji. I also keep a few extra cards in my wallet, just in case I run out. Additionally, I have business cards in my briefcase, laptop case, any notebooks I use regularly, any luggage I use regularly, and even in both the glove compartment and the ashtray of my car.”
So, you may ask, what do you do if you are between jobs and your old business card info is no longer valid? Don’t just cross out the old info and write on the card - that’s just plain tacky. Order some personal cards, for example from VistaPrint. Go ahead and spend the extra couple of bucks to get 2-sided cards, and include a few bullet points about your skills on the back - sort of a mini-resume. Their prices are cheap, quality is good, and they can usually get your cards to you in a matter of days.
What if you just ran out ? Just open up your MS Word or other program, type up the relevant info, print them up, and you’re good to go. Pre-Formatted Business cards can be purchased at office supply stores, and Wal-Mart.
If you are attending any event where chances are good that you will meet another person, bring along business cards. “Don’t leave home without it”

Tuesday

Steps to Keep Your Employees Motivated and Turnover Low

The "old school" approach believed that money and social events were the best ways to motivate employees. Today, we know differently. In a 20-year study on employee motivation, involving 31,000 men and 13,000 women, the three motivational factors both genders rated highest were (1) advancement; (2) type of work; and (3) a company to be proud of. Factors such as pay, benefits, and working conditions were given a low rating by both groups, although this does not mean that companies can reward employees poorly or unfairly. It simply means that managers need to adjust their perspective when it comes to keeping motivated employees on the payroll.

The fact is that an unmotivated employee impacts your company more than you may realize. In addition to the obvious costs of reduced productivity and turnover, you must also consider the effects your employees have on your customers. If your customers sense that your employees do not enjoy their jobs or are not motivated to "go the extra mile," they will stop doing business with you and seek out the assistance of your competitors. Additionally, if your customers are getting assigned to new sales or service personnel every year, their trust in the company will begin to diminish. Some of your "loyal" customers may even follow a particular employee to his or her new company if a strong bond has been developed.

In order to foster an environment that motivates and stimulates employees, managers and business owners need to incorporate some new motivation-building practices into their corporate culture. Below are the top ways to motivate your existing staff and encourage them to keep their skills within your organization.

1. Listen to employees and respect their opinions. Most employees have a genuine interest in the company's well-being. They want to contribute to the company's success and offer suggestions for helping the organization reach the next level. Unfortunately, when these employees relay their ideas to their management team, many times they are either ignored or put down. This often leads to the employees choosing to feel resentful and to no longer care about the company's success.

Listen to your employees and respect their opinions by giving them your undivided attention. Also, be sure to explain that although you are interested in their ideas, you are not necessarily going to put all of them into practice. Listen to their contribution in a respectful manner and let the employee know that you're grateful for his or her continued interest and input. If the employee's idea is not useful at this time, you have a choice to make. You can either explain or not explain your point of view.

You will often be amazed at the quality of ideas and increase in productivity when you give your employees respect and recognition for their dedication and their willingness to contribute.

2. Base rewards on performance. Managers and business owners typically overplay the importance money has on an employee's motivation. While money is important to your team members' lifestyle, it's not their only factor for taking or keeping a job. In fact, Roper Starch Worldwide for Randstand North America recently cited that workers who are offered a new job use several factors to decide whether to take it or to stay where they currently are. The top three factors were (1) they like the people they work with; (2) the commute is easy; and (3) the work is challenging. Again, money did not make the list.

For those managers who want to monetarily reward their employees, consider basing the reward on performance rather than seniority or the number of hours someone looks busy. For example, if you have a salesperson who consistently brings in new business without having to put in overtime, it's safe to assume the salesperson is using his or her time effectively and making the most of each contact. Why not reward this employee based on the results he or she is able to achieve? Likewise, if someone on your administrative staff suggests a sound idea that can decrease costs or increase profits, then implement the idea, give the employee the appropriate recognition, and offer a monetary bonus based on how much this new idea will affect company profits. When you give bonuses based on performance rather than the number of hours someone sits behind a desk, you begin to see real results to your bottom line.

3. Be a resource for your employees. Many times, employees don't feel that they can go to their manager for assistance and support. They complain that their management team is "unapproachable" and that they wish they could talk to their managers to solve problems. They view their managers as too busy gathering and reviewing reports or too preoccupied with managerial tasks that don't foster an environment of teamwork or motivation. As a result, the employees feel unimportant to the company's objectives.

To alleviate this problem and keep your employees happy, start by telling them that you're willing to be an asset or to provide other assets that can help them accomplish their tasks or work through problems. After you tell them, demonstrate your commitment to this policy through your actions. This can mean being available for one-on-one meetings with employees, providing them with the necessary computer tools or programs to get the job done, or offering to assist with some tasks of a particular project that may be too complex for the employees. The more your employees feel that that they can turn to you for support and guidance, the more willing they'll be to stay with your company.

4. Show your employees what's next. Too many times, managers keep their employees focused on the project at hand and don't tell their employees about the opportunities in the future. They mistakenly think that employees don't need to know where the company is going, and they believe that employees should only focus on the present. This kind of short-term thinking limits your employees' creativity and is a major cause of job dissatisfaction.

In reality, your employees desperately want to know what is coming as far as their workload and job security. If they can't sense more projects down the line, they understandably become scared and think they'll be out of job once the current project comes to an end. However, when you keep your employees abreast of upcoming projects, you give them something to look forward to. Even if they dislike the current task or project they're assigned to, knowing that something better is coming in the near future motivates them to quickly complete the current project while encouraging them to stay with the company.

As today's business market continues to fluctuate, business owners and managers need the most competent employees to stay competitive. The only way to keep these employees is to motivate them for success. When you listen to your employees, reward them, become a resource for them, and keep them informed, you take the first steps to true employee motivation. By taking the time to provide these little extras for them, they'll reciprocate by remaining valuable members of your team.