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London, England, United Kingdom (AHN) – The Bank of England’s new Financial Policy Committee recommended on Wednesday for British banks to reduce their bonuses and shareholder dividends to strengthen their balance sheets.

The recommendation was made in anticipation of another financial crisis likely to be caused by the worsening eurozone debt contagion. The BoE also warned the banks to prepare for future shocks.

The bank did not specify how much the financial institutions should reduce their discretionary distributions, but in previous reports suggested that by limiting dividend payouts and constraining compensation ratios, the banks could raise up to $15 billion (£10 billion) a year.

The amount could be used to support $75 billion (£50 billion) of new lending to households and businesses. Although the banks cut their bonuses by 8 percent in 2010, the banks still paid out a total of $10.05 billion (£6.7 billion) to executives.

The committee also recommended cutting staff to address the anticipated strains in financial markets. For banks that have strong earnings, the committee advised them to build capital levels further.

Another impact of a second round of financial crisis is possible tighter credit in the coming months, the Bank of England said in its quarterly credit conditions survey it issued alongside the committee’s report.

The FPC also proposed more measures to improve the banks’ balance sheets, such as setting loan-to-value ratio caps for mortgage borrowers, margin requirements, maximum leverage ratios for banks, variable capital buffers, risk weightings on loans and additional transparent disclosure requirements.

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New York, NY, United States (AHN) – The Federal Housing Finance Agency (FHFA) is set to sue a dozen banks over risky mortgage-backed securities they sold and that lost value during the housing collapse, according to reports from the Wall Street Journal and the New York Times. The suit alleges the banks misrepresented the securities’ quality and stability.

The suits from the FHFA, which oversees mortgage buyers Freddie Mac and Fannie Mae, are expected to be filed within days.

Reports say the securities named in the suit are those sold and backed by risky and subprime loans, but classified as safe by rating agencies.

Banks said to be targeted include Bank of America, JP Morgan Chase, Deutsche Bank and Goldman Sachs.

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London, England, United Kingdom (AHN) – The Bank of England will likely keep its record-low interest rate of 0.5 percent because of the weak British economy. The central bank is expected to retain for the 29th straight month the benchmark lending rate when its Monetary Police Committee meets on Thursday.

Because of consumers cutting down on spending and austerity measures initiated by the coalition government, the Office for Budget Responsibility has downgraded three times its growth forecast for the country, now at only 1.7 percent.

Observers said that an increase in the key lending rate would take at least another year, which would be good for borrowers with fixed mortgage rates but bad for savers.

However, there are speculations that the MPC may approve a second round of quantitative easing to help stimulate the British economy.

Shadow Treasury Minister David Hanson said that the OBR’s forecast reduction should make Chancellor George Osborne realize that the tax increases and spending cuts were responsible for the slowdown of Britain’s recovery.

Hanson said the OBR’s 1.7 percent forecast appears to be unrealistic because that would require that Britain register growth rates of 1 percent in the second and third quarters of this year.

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Who are they

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What you Need to Know

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Washington, D.C., United States (AHN) – The International Monetary Fund is considering only two candidates to replace resigned Managing Director Dominique Strauss-Kahn.

The shortlisted candidates are French Finance Minister Christine Lagarde and Mexican Central Bank Governor Agustin Carstens.

Lagarde, the frontrunner, has been making the rounds of developing nations such as India and China in a bid to convince them to vote in her favor. On Monday, it was Carstens’ turn to lobby.

Carstens warned Washington that if Lagarde would be appointed as IMF chief, the fund could face a conflict of interest.

The central bank governor said at a speech before the Peterson Institute for International Economics that the IMF would be perceived as protecting the interests only of European if the fund still lives by a six-decade old backroom agreement that the top IMF post to a European and the leadership of the World Bank to an American.

Carstens told the audience – which includes IMF board members, U.S. government officials and known economists – that the IMF has to work harder to maintain its credibility with developing nations. He said making a European the IMF’s head at this point would create doubt among emerging economies because Europe is apparently weak in overseeing the economies of its member-nations.

He cited as proof the recent IMF loans to Greece, Ireland and Portugal, which were the largest in the fund’s history. This situation, he added, is an indicator that Europeans continue to dominate the IMF, which would be worsened with Lagarde’s appointment as replacement for Strauss-Kahn, who is battling sexual assault charges in New York.

Carstens acknowledged that Lagarde’s chances of clinching the top IMF post are high. He said what his candidacy provides is an option for developing economies to have more say in international bodies such as the IMF.

With the shortlisting of the two, the IMF executive board will soon meet Carstens and Lagarde in Washington, discuss the strengths of two and announce the new IMF managing director by June 30.

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United States (ProPublica) – by Marian Wang

While federal and state officials investigating flawed foreclosures have largely focused on holding the banks accountable and bringing relief to wronged homeowners, officials in a few states have begun targeting the more obscure middlemen of the foreclosure scandal.

Prosecutors in California and Illinois have sent subpoenas to Lender Processing Services, one of the largest firms that processed mortgage documents for the banks. (Read more about LPS in our guide to who’s who of the foreclosure scandal.)

As we’ve noted, the firm—which helps handle more than half of all U.S. mortgages—has been accused of using the same “robo-signing” practices as the major banks, such as signing and notarizing documents that appeared inaccurate or invalid. Bank employees have testified under oath that they relied on LPS to vet the information in foreclosure documents.

LPS has had its share of legal troubles over its mortgage processing. Michigan’s attorney general announced an investigation last month into potentially fraudulent mortgage documents processed by an LPS subsidiary. (LPS has said that it discontinued the practices used by the subsidiary.) Along with the big banks, the firm recently received an order from federal regulators to correct problems with its processing of mortgage documents. (Read that consent order.)

Illinois Attorney General Lisa Madigan also sent a subpoena to Nationwide Title Clearing, another firm contracted to provide mortgage services to banks. As we’ve noted, Nationwide Title Clearing employees have testified to robo-signing thousands of mortgage documents—known as assignments—that establish the ownership of a mortgage loan and are key to establishing who has the right to foreclose on a homeowner.

Nationwide Title Clearing said in a statement that its procedures have been “thoroughly audited and examined for accuracy” and that it would cooperate with any investigation. LPS declined to comment.

The latest actions on foreclosure problems as an attempted comprehensive settlement by all 50 state attorneys general has hit a few roadblocks. As we noted in our cheat sheet on bank investigations, the negotiations have been hampered by disagreement with the banks over the size of penalties as well as some disagreement among the attorneys general—at least eight of whom have opposed any settlement that would require banks to cut borrowers’ mortgage debt.

Bloomberg reports today that Bank of America has also received independent scrutiny from the attorneys general of Utah and Connecticut accusing the firm of invalid foreclosures and insufficient loan modifications. Utah warned that it would sue.

– Provided by ProPublica.org

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Athens, Greece (AHN) – The Greek government is preparing tougher belt-tightening measures as it attempts to meet the terms of the country’s $110 billion (EUR 78 billion) bailout.

Prime Minister George Papandreou rejected debt restructuring ahead of a Monday cabinet meeting to tackle austerity measures, which includes tax hikes and sale of government assets.

Papandreou’s policy is in line with the European Central Bank stand that did not favor a debt restructuring for Greece. However, the drastic wage cut proposal may lead to more civil unrest among public employees. A study published on Sunday found that 80 percent of Greeks are not willing to make any more sacrifices for the country to enjoy further European Union and International Monetary Fund support for the bailout.

Experts opined that Greece is so mired in a debt spiral that more austerity measures would cause further recession and drastic drops in tax revenues. They warned that these economic consequences are self-reinforcing and very difficult to recover from.

While the prime minister is ready to fast track a $70.4 billion (EUR 50 billion) privatization program to raise more money to pay off the country’s mountain of debt, Papandreou said the government will keep its holdings in water and electricity utilities.

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Bank of England Chief Economist Spencer Dale said that officials should raise interest rates to bring inflation under control even if Britain’s economic recovery isn’t yet assured.

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The euro fell the most in four months against the dollar after European Central Bank President Jean- Claude Trichet signaled he may not raise interest rates next month and concern rose that Greece’s debt crisis is worsening.

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Deutsche Bank AG, Germany’s biggest bank, was sued for more than $1 billion by the U.S. government for allegedly selecting mortgages “recklessly” for inclusion in a government insurance program.

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