[ by Larry Goldfarb ]

Could it be that the U.S. banking system is about to suffer another round of financial trouble?  It's not only possible, but becoming more likely, according to the former President of the the Federal Reserve Bank of Kansas City.  Thomas Hoenig, a prominent regulator who currently serves on the FDIC Board, issued that dire prediction for the nation’s big banks.  In a Wednesday speech at the Washington, D.C. Exchequer Club, Hoenig said that banks are funding themselves with debt and not equity, thus making themselves more susceptible to a market downturn.

"The behavior and practices leading to this crisis will soon reemerge and these highly complex, more vulnerable firms will have an even more devastating effect on the economy."

A quirk of the tax code isn’t helping matters, writes Jesse Eisinger in his column, The Trade.  A "tax code distortion” encourages banks to gorge on debt, rather than equity.  Mr. Eisinger writes: "More debt not only makes companies more vulnerable to bankruptcy but also makes investors more susceptible to panics, when they withdraw their capital en masse.”"

For further details, go to [Dealbook, 9/20/12].