FDIC May Ask Banks For Bailout
Due to the record number of bank failures this year, the FDIC is low on funds. Instead of borrowing from the Treasury as they did in the early '90s savings and loan crisis, regulators have a new idea: asking banks for a bailout.
Banks find this option much more palatable than having to pay another emergency assessment, according to The New York Times, and having the financially healthy banks loan money to the FDIC would protect weaker banks in danger of failure. Ninety-four banks have failed so far this year.
"[FDIC head] Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help," said Camden R. Fine, president of the Independent Community Bankers. "She'd do just about anything before going there."
Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay.
Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks.
Forget populist furor. This may just result in populist cackling with glee.
F.D.I.C. May Borrow Funds From Banks [NY Times]
(Photo: Ack Ook)
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*Drops all her money in the kitty's cup*
I just can't help it.. look at that face!
NCUA has already been doing this to credit unions. It has put a lot of credit unions in the red, but they say, "Operate as you normally would," and basically, "Don't worry 'bout it."
Finally, a cat photo! FDIC kitteh needz monies!
Yes, the FDIC has "also" become "too big to fail."
Of course, Goldman Sachs and other crooks are now "banks" too, so dig deeply into their pockets for this mess too. After all, they made "profits" last quarter, and their top exec compensation seems to indicate they still have money to burn...
It's the CIIIIIIRCLLLLLEEEEEEE... The Circle of LIIIIIFFE!
Whoa now. There's a big part of this that we're missing.
As the banks grew "too big to fail" in the 90s and the earlier part of this decade, they started to put pressure on FDIC and Congress to lower their FDIC payments. Their argument was that bank failures are so rare, the risk is so low, that these FDIC payments are too high. Lawmakers and the FDIC agreed.
And look where that got us.
this is actually what the NCUA did to credit unions when it put the big corporates into receivership earlier this year. instead of gov't funds, credit union member capital shares at their corporates were liquidated by as much as 80%.
i fear that this move may drive many smaller credit unions into failure & the same could be said for the FDIC's program, depending on how it pans out. with credit unions, not only do they have to take the write-down on the lost funds, but they also must refund a portion of the balance to remain members at their corporates (which typically provide A LOT of back-end support for natural person credit unions) & future profits at the corporate level are not required to be paid back to the credit unions that lost the funds.
if this "special assessment" works in a similar way, expect banks on the brink to be quickly pushed off it.
God I am so sick of this. I should pay for a bailout of the FDIC because not doing so would cut into the banks profits? Seriously? Isn't this supposed to be insurance for the banks and not for the government?
@Kimaroo - 20% More Kitty Added!: I'd give kitty anything he needs!
That look says "pay me...or else..."
@pecan 3.14159265: You know, I'd probably actually help them out if they had some random cat holding a cup looking for money.
Give me a decent CD rate for 3 to 6 months, I will lend the FDIC the money.
how about FDIC actually collect on all the annual payments Banks should have been making to them?
That cat's got a Bernie Madoff look in his eyes...
@aftercancer: I'm really confused by your comment...
The point of FDIC getting the money from the banks is so they don't have to beg the Treasury for taxpayer money. In other words, they're attempting to find a solution privately so they don't have to get any public involvement.
Of course, the whole concept is making my head spin. The FDIC exists through payments from the banks to insure the individual accounts held there. The banks fail, the insurance kicks in, and the value of the accounts is paid back by FDIC. But now, the FDIC is going to fail, and they're trying to save it by... borrowing money from the exact banks they're supposed to insure. WTF?!
That's like my car insurer saying they have to borrow money from me to be sure that they can have enough money to cover my insurance policy.
Well, this sounds like a good idea to me. After all, the FDIC is insuring the deposits made into the bank, why not have banks contribute to that insurance.
I was unclear as to why the banks would support this idea, then it hit me. Of course they support loaning this money to the FDIC. A loan to the government is one of the safest bets around. (usually) They dole out the funds to the FDIC that we just gave them as part of the bailout, and collect free profits from the interest. Free money, and free profits. What a deal! Where do I sign up?
You give me twenty bucks, and I loan it back to you at a profit. Yay capitalism! (Though, I'm pretty sure that's not how it's supposed to work.)
The FDIC only has a minuscule portion of the money it covers in actual liquid assets anyway, something it theoretically isn't even supposed to let banks do. You can't cover trillions in bets with billions of dollars.
@TheFlamingoKing: I'm just sick of bailing anyone out. No more! No more of my tax money going to private companies and banks!
Forget the FDIC. I'll just put my money under my mattress.
@From the cubicle of PGibbons: It really makes you wonder if "too big to fail" should be synonymous with "too big to exist".
Of course, I don't believe in "too big to fail". But if we're going to take that stance, don't let companies get that big in the first place.
@TCama: Exactly my thought. Payments to FDIC were at zero for at least five years.
Today they are paying about 0.12% (12 cents per $100).
If the banks had to send in 0.05% of their assets for the years where the assessment was zero they could pay out 0.05% less interest and the FDIC would not be nearly as far in the hole.
The FDIC, and most government agencies (like the NRC), have the problem of both regulating and promoting an industry. You can't do both.
@Radoman: But that's what insurance does. An insurance company is required to reserve a certain amount, not to put funds aside for the full amount of every policy it has out there. The assumption (with life insurance) is that not everyone will die on the same day and (with casualty insurance) that not every home will burn to the ground at the same time. I have no problem with holding only adequate amounts in reserve based on actuarial results.
As far as the FDIC goes, there's no reason they can't impose a premium increase and cap it at a percentage of profits so that the banks which are in trouble, and whose depositors would most likely need the FDIC, don't have to go further into the red while the banks that are generating profits can afford to pay a bit more. It's called underwriting.
See, Congress shouldn't have given all that pork money to ACORN. Wait, ACORN could make it back through pimping revenue.
Dealing with the FDIC is much better for the banks than, say, dealing with private insurance companies. They'd really be screwed then. Since there were a lot of failures, more successful banks should now be charged an extra assessment. If this would cause more banks to fail then offer those banks a loan.
No way I'd want the FDIC borrowing from the banks. Too much room for political and legal maneuvering that would favor the banks (and likely not help consumers). And any interest paid by the FDIC would end up coming out of taxpayer pockets anyway.
@Traveshamockery: You sir, are a fucking genius. I fully agree with everything you said. Now why don't more folks think like us?
@mac-phisto: Yep.. My credit union where I work had to pay that assessment and it's pretty crazy what it did to our books.
But the NCUA says "Operate as normal" and "don't worry 'bout it" (Paraphrasing, of course.)
What is even weirder is that there was such an out cry about it.. they refunded part of the assessment back to the credit unions.. but they will be assessing it again in a month or two.
Try to figure that one out.
@GuinevereRucker: They're trying to avoid taking your money...I would say that's honorable...besides, the FDIC is the only thing standing between you and an empty account if your bank fails.
@aftercancer: Reading is fun!
@katstermonster: How is it possible to avoid taking our money? If they get their funds from us via taxes and the treasury, then getting a LOAN from a BANK would mean that they are getting a LOAN that they have to PAY BACK with INTEREST via tax payers money.
So explain how thats going to solve anything? If anything we are going into more debt.
@Shoelace: exactly.. if they get a loan it will have to be paid back with interest.
I don't see how anyone in America is this stupid. They are purposly doing this to ruin the U.S. economy and then 'save it' using their new currency... another step towards their one world government agenda.
Don't beleive me? Youtube or Google: "Walter cronkite Hillary clinton" and watch the 10 minute video.
too lazy to google? too lazy to youtube? just don't wanna beleive it?
well here it is for you anyways:
+ Watch video
@hi: It sounds like the hopeful plan is to pay that money back with the insurance fees that the banks they help save will then pay into the FDIC.
Now that banks have had the lean on the FDIC, they have no excuses for not paying into it.
@Kimaroo - 20% More Kitty Added!: i'd consider myself outraged over it for a few reasons:
1) it's widely held within the industry that the auditors used to value the books at wescorp & us central were very conservative in their estimates. with no recourse on the lost MCS funds, what happens if these assets perform better than projected? corporates will be flush with cash without any requirement to disseminate the profits.
2) their consolidation plan worries me. A LOT. i don't think less & larger corporates is the answer when less & larger corporates are what caused this mess.
3) like you say, "try to figure that out". NCUA letters have been back & forth this year a few times - who knows what's coming down the pike next week or next month or next year. there should have been a concise plan hashed out before NCUA started nicking natural person CU bottom lines.
NCUA seems to be rushing its decision-making. at the beginning of this year, they were liquidating NCUSIF & requiring refunding over (i believe) a 5-year period. then, after Q1 call reports were sent, they reversed this decision, requiring credit unions to adjust their call reports & then decided to liquidate the MCS instead, requiring full write-down this year & i believe refunding before 2010, though it seems that decision may also change (we'll see what happens at the "town hall" this fall).
i'm concerned that this is a big cash grab designed to expand the size & scope of corporates at the expense of smaller natural person CUs & that many smaller operations will not be able to recover. our CU was already having issues this year - negative loan growth, interest income drop by 50% & reduced non-interest income (before we jacked a bunch of fees) & then NCUA sucked up 1.2% of our assets to boot!
ugh. sorry. as you can see, i'm a little frustrated lately.
It's photos like the above that I carry fresh, plump mice in my front pocket. Just in case...
@hi: You've pretty much encapsulated the wisdom and sanity of the Conservative movement, circa 2009, in one post.
Congratulations!
@mac-phisto: Yeah I know what you mean. Thankfully I'm not all that personally involved in the call reports and accounting at my work. I mostly process loans and help members with whatever they need. I do get to hear all about it though because it's just me and my boss in one office. Our credit union is really, very small.
Our loans were really tanked for most of this year.. but they're starting to come back up now that people are getting more comfortable about spending money. Our main trouble right now is that we have way too many people putting their life savings into our credit union and we're having to pay dividends on that.. we had to reduce our rate again for the following quarter.. we'll see if that convinces any of them to put their money elsewhere.
@dragonfire81: Because bigger corporations (theoretically) means bigger profits. And individuals are out to make a dime, not to make industries safe and secure.
@hi: The FDIC doesn't get any funds from taxes, which is one reason they want to avoid borrowing from the Treasury.
All their moneys come from insurance premiums assessed on the banks, and interest on government securities (which they bought with the insurance premium funds).
1 cup, 1 cat?
Wheres the other cat?
@hi:
No, I want YOU to explain it, in your own words. Since it's so obvious (as only "stupid" people) don't get it, that shouldn't be hard.
How about the FDIC taps into the $38 billion the banks took in in overdraft fees from customers?