* Toward the end of Jon Birger’s profile of Whitney, made famous for calling out woes at Citigroup (C) long before her competitors, he summarizes her two remaining concerns about the banking sector:

One is a new accounting rule known as FAS 141R. Given the depth of the crisis, Whitney expects to see bank regulators arranging shotgun marriages between well-capitalized institutions and foundering ones. Problem is, any such deals would have to happen before FAS 141R takes effect in December. The new rule, she says, “will make it almost impossible to do bank mergers.” The rule demands that an acquirer not only immediately mark to market the portfolio of the company being bought – and remember, bids for mortgage assets are now few and far between – but also mark to market its own portfolio as well. “Nobody’s going to want to do that,” Whitney says.

Another regulatory change that may wreak havoc: Starting next year, the Office of Thrift Supervision will bar credit card issuers from using outside credit information to reset interest rates. For instance, Wells Fargo (WFC) has been advertising some killer rates in my local paper.) The reason they do it is to quickly get deposits they can then lend to borrowers. The explanation of the process informs the current debacle:

Traditionally, the way little banks have competed against big banks for our savings dollars is by giving away toasters and sponsoring the Little League team.

But there’s a new way. It costs a lot less upfront than opening new branches or expanding your network of ATMs, and it’s faster. You do it with so-called brokered deposits, gathered through wholesale channels – brokers, mutual fund companies, and specialists who run ads in the business pages of local newspapers advertising the highest rates in the country. And while you’ll have to pay more interest to get those deposits and will end up with a lot of fickle customers whose only loyalty is to the best rate, you’ll get your money and can make your loans. It’s a tradeoff many banks have been willing to make.

Think about that — and read this article — before biting on one of these too-good-to-be-true offers.

* Lastly, and this one is the most complex topic, Bill Cohan, in his Jimmy Cayne profile, explains how the so-called repo market works with a great analogy to the inventory of a department store:

Regardless of whether hedge funds and short-sellers exploited the firm’s weakness, it was Cayne and his colleagues who made the firm financially vulnerable. They sealed the firm’s fate by choosing to finance the vast majority of the firm’s daily needs – about $50 billion a day – in the overnight repurchase agreement (or “repo”) market, using some 71% of its mortgage book as the collateral. (By contrast, Goldman Sachs (GS) finances less than 10% of its mortgage book in the overnight market, according to [Goldman Sachs co-president Gary] Cohn.)

Secured repos are crucial for investment banks, which borrow and lend billions to fund their daily business. Think of it this way: Wall Street firms have an inventory of hundreds of billions of dollars of securities that have been built up over the years (in the case of Bear, it was about $350 billion of assets). Like Macy’s (M), the firms try to move this inventory as rapidly as possible, hoping to sell it for more than they paid. In the meantime, like Macy’s, they use those assets as collateral to obtain financing to run their business. While Macy’s uses its inventory and receivables to secure a revolving line of credit with a maturity of around four years, Bear and other Wall Street firms finance part of their inventories in the repo market. They sell their securities to investors at one price and agree to buy them back the next day for a slightly higher price. The difference is the investors’ compensation for providing the financing. It is called “overnight repo” and for years it worked mostly without incident.

Macy’s creditors had the ability to decide every night whether to finance its inventory, they could pull the plug on the company – especially if they felt Macy’s had loaded the stockroom with questionable merchandise. Macy’s would never do such a crazy thing, but this is exactly how Wall Street operates. Bear’s reliance on overnight repo effectively gave the overnight lenders – such as Fidelity and Federated Investors – a vote on the firm’s viability every night. And during that fateful week in mid-March, those overnight lenders voted a collective no. The result? Bear Stearns did not have enough cash on hand to meet customers’ demands during the run on the bank.

This is one of the most lucid explanations of why the short-seller-conspiracy-to-break-Bear Stearns theories is nonsense.