On 60 Minutes now: How the FDIC closes and takes over failing banks

[CatWoman]

pretty interesting.

[stray cat]

1. They make it sound like a good idea to take out the weak players

[A HERETIC I AM]

2. It is. n/t

[stray cat]

3. I think so too - yet how bad would it be to let AIG, CITI and other fail

those are alot larger

[A HERETIC I AM]

6. The lady just mentioned the main difference between Citi and the bank the story focused on

The fact that Citi is a major international player, a "Broker/Dealer" and has huge business lines that cross international borders.

The bank in question in that story is your typical local bank.

One thing to keep in mind;

I would bet that if any DU'r knew or were to meet that bank president personally, they would find that he is probably a truly decent person who really does care about his company and its customers but fucked up by making the exact same assumption tens of millions of other Americans did at precisely the wrong (and same) time, to wit: That real estate prices would continue to rise.

[FarCenter]

36. Regulators warn Heritage Community Bank about ‘unsafe’ practice

October 21, 2008

Heritage Community Bank of Glenwood has been hit with a cease-and-desist order from state and federal regulators.

The Federal Deposit Insurance Corp. and the Illinois Department of Financial and Professional Regulation have told the bank that it has engaged in “unsafe or unsound” banking practices.

According to the 21-page order, the bank must stop such practices as: having with a board of directors that provides inadequate oversight; engaging in “hazardous” lending and “lax” collection practices; and operating with an “excessive” level of delinquent loans, inadequate earnings, and inadequate capital given the quality of its assets.

The bank didn’t admit or deny the charges, the order said.

“As you know the severe downturn in the real estate market has negatively impacted many financial institutions throughout the country, including the Bank,” said President Michael L. Paoletta in an e-mail response. “As a result, the bank, the Illinois Division of Banking and the Federal Deposit Insurance Corp. have agreed to certain changes to be implemented by the bank, including but not limited to, reviewing and amending certain of its operating policies and procedures as well as increasing its capital position. The bank is currently in active discussions with equity investors regarding possible transactions to enhance the capital position of the bank.”

The order was signed Oct. 10.

http://archives.chicagotribune.com/2008/oct/21/business/chicago-heritage-community-bank-oct21

[Warpy]

11. The FDIC couldn't handle those

because there isn't enough money in its fund. Either they bankrupt the FDIC and start a panic, or they nationalize the first big bank to fail and start a smaller stockholder panic.

[Zynx]

15. If people actually knew the amount the FDIC has in reserves, this crisis would

be much worse. Granted, our only option would be to bailout the FDIC with trillions, but that wouldn't be pleasant.

[elleng]

22. 'Its reserves' are/is insurance.

AND covered by full faith and credit of U.S. govt.

The idea is DO NOT CAUSE PANIC.

[elleng]

20. Correct.

Part of the reason is they are much more than merely banks. (This goes to glass/steagell, etc; deregulation.) She discussed this.

[leftstreet]

4. Ah. Prepping us for a handful of Mega WallyBanks!

[ozu]

23. seriously

I don't know why this idea of consolidating the industry into 3 way too big to fail banks is a good idea. If their failure is a national and (now global) threat, they should be broken up not made even larger.

[elleng]

21. It is, but 'take out' is not really correct;

the 'legal entity' is gone, but the business: assets, depositors, etc are acquired by another, immediately.

[NJCher]

5. I liked what the last remark was

By the administrator who has also written children's books--she said no bank should be allowed to get so large that they can cause the economy to fail.

Of course, we knew all this and we once had a structure set up to prevent this type of thing from happening, and then....


Cher

[Strelnikov_]

33. Sheila Bair may be one of the few good Republicans

Once the core has been stabilized and the event is under control, one of the changes that has to be made is (re)regulation of the size of corporate entities.

Because, as things stand now, due to Republican deregulation, what is the difference between the US economy and the Soviet economy? That is, if our economy is dominated by corporations "too large to fail" thus requiring the Government to prop up said corporation, are these corporations not simply state-controlled institutions? And does this not make the Republicans and their Quislings, the champions of deregulation, neo-Communists?


http://en.wikipedia.org/wiki/Sheila_Bair

Bair publicly criticized the Bush Administration's $700 billion bailout package, saying it will not do enough to help Americans facing foreclosures. Bair told the Wall Street Journal "We're attacking it at the institution level as opposed to the borrower level, and it's the borrowers defaulting. That is what's causing the distress at the institution level," she said. "So why not tackle the borrower problem?" <5> On Friday, November 14, 2008 Bair released details of her much more ambitious plan -- a $24.4-billion program aimed at preventing 1.5 million foreclosures -- even though Treasury Secretary Henry M. Paulson had told reporters earlier in the week that he would not pay for it. <6>

[Pirate Smile]

7. Great report. Hopefully, it will sooth some frayed nerves.

I think they are trying to prepare the public for a big one to go down.

I thought it was very reassuring but, who knows, the assholes on Wall Street might freak out since she said these huge bastards probably shouldn't be permitted to exist in the future because they bring to much risk to the entire banking and financial system.

The fact that the Obama Administration, Federal Reserve, FDIC and Treasury have all asked for the Dodd Bill (giving the FDIC access to $500 billion) means one of the big banks is going down. Hopefully, everyone wont freak out too much but I know that isn't realistic. Wall Street seems like the largest group of hysterical, selfish, self-indulgent idiots I've ever seen.

[originalpckelly]

8. Did the story mention that most "well-capitalized" banks only keep 10% of deposits...

and that the FDIC only has enough money in it's fund to cover less than 1% of it's liabilities.

If only ten percent of deposits need to flee a bank before it collapses, and the FDIC only has 1% of their liabilities covered with funds, that means taxpayers are going to be bailing out the FDIC. There is now a bill to offer $500 billion in loans to the FDIC. Instead of making the banks keep more in reserve and raise their FDIC premiums, which would cut into the amount of loans (see profits) they could make, they let them keep so little on hand.

[Pirate Smile]

9. They were trying to sooth people. Not freak them out so, no, they didn't point out how

damaging a bank run would be. They tried to explain why it wasn't necessary.

[originalpckelly]

10. Ah yeah, and what happens when one of these banks fail...

and people don't have any cash on hand, because they're reliant upon bank cards? Most people seem to be these days. Even if they get their money back, there may be a lag time, especially if there are a large series of failures, while the FDIC does its business with the failed bank. So in other words, people may not be able to pay their bills, buy food, or gas while the FDIC processes their account.

Maybe this nation should stop using house of cards techniques like fractional reserve banking, and use fully callable reserve banks. Oh, but then, that'd require an actual national bank, instead of a group of large banks like the Fed.

[w4rma]

30. I'd rather bail out the FDIC than use the same amount of money to prop up a zombie bank. (nt)

[roamer65]

12. Even with FDIC, a bit of "mattress" cash is always a good idea.

You need to be able to survive in case it takes a few days to get access to your accounts.

[sarcasmo]

14. Wouldn't a bit of Mattress Gold be better? If the banks fall doesn't the dollar become worthless.

[Zynx]

16. Gold has a very arbitrary valuation, even moreso than currencies.

In fact, if we actually go into a true "depression" gold is a terrible thing to own. If prices are routinely declining, you want cash over commodities. The last generalized decline in commodity prices was a lousy time to own gold.

By the way, just to explain my subject line, remember when everyone said buy gold to protect yourself from commodity price inflation? Well, commodity prices left gold behind in the first part of the year and then gold surged while they fell. That fails a basic statistical argument. There is a weak relationship between the two. Gold is more of a fear hedge than anything.

[roamer65]

18. Gold actually went up during the Great Depression.

During extreme financial crises, people run for the hardest forms of currency they can find. One of the reasons FDR took us off the full gold standard in 1933 was that there was a run on gov't gold reserves.

Gold was valued at $20.67 an ounce while on the gold standard. It was $35 an ounce after we went off from it.

[roamer65]

17. Both are good, in my opinion.

Dollars are still "legal tender", however.

[sarcasmo]

13. That was a good piece. I liked the old guy walking in with the empty briefcase

Then leaving with an empty briefcase.

[elleng]

24. Yes, because the FDIC rep EXPLAINED

that there's no reason to panic.

[sarcasmo]

26. I am sure that is why they featured the guy walking in with the empty briefcase, to stop the panic.

[originalpckelly]

27. You have to wonder why they're doing the story.

What do they know? Is a big bank going to fail soon? The FDIC would have to take out loans from the Treasury for that to happen. And sadly, it would mean that the deficit would skyrocket. Our credit rating, could be downgraded.

It's a very possible failure mode for the FDIC.

[roamer65]

28. The reason? Citibank.

[elleng]

29. Whether or not they 'know' something in particular at the moment,

its clearly relevant for the times; we're working on surpassing normal years' 'takeovers' now. SO, with or without citi etc, its a relevant and useful story.

[originalpckelly]

31. Sheila's on a media blitz, she'll be on the CBS Early Show tomorrow...

Other DUers, keep up with her appearances. Why is she going around reassuring everyone that everything's fine? I've come to understand that when they start putting people out there, it's usually a pre-cursor to some horrible event.

[elleng]

32. We're learning about what the agency does,

she's being recognized, and her efforts are being acknowledged; reassuring that tho things are NOT fine, but there are intelligent, capable people helping to deal with it.

'Horrible?' Can wait.

[DemReadingDU]

34. CNN: Washington plans for big bank failure

3/7/09 Washington plans for big bank failure - A bill introduced in the Senate would give FDIC chief, Sheila Bair, a huge loan to handle 'emergency situations' in the banking sector.

The government is bracing for a big bank failure.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans' bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

The bill -- the Depositor Protection Act of 2009, backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho -- wouldn't change the status of individual bank accounts, which through the end of this year are insured up to $250,000.

But the Dodd-Crapo bill acknowledges what the financial markets have been signaling for the past month -- that the government must take the lead in a costly cleanup of the mess in the financial sector.

"I think it's a commendable start," said Simon Johnson, a former International Monetary Fund chief economist who tracks the crisis on his BaselineScenario.com blog.

Dodd said he introduced the legislation at the behest of other regulators, notably Federal Deposit Insurance Corp. chief Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner. All three recently wrote Dodd to support an emergency expansion of the FDIC's capacity to borrow from the Treasury.

"This mechanism would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system," Bernanke wrote in a Feb. 2 letter to Dodd.

The Senate bill is being introduced at a time of rising market stress about the health of the banking industry. Seventeen relatively small banks have already failed this year and 25 went under in 2008. Last year's failures included the July demise of mortgage lender IndyMac and the September collapse of Washington Mutual, which was the sixth-biggest depository institution in the nation at the time it failed.

more...
http://money.cnn.com/2009/03/06/news/dodd.fdic.fortune/index.htm?postversion=2009030614


edit to add subject line

[elleng]

19. Glad you posted this.

Was quite informative.

[roamer65]

25. Next up from the government, there will be a limit on cash withdrawals.

Argentina did it during their economic crisis earlier this decade. Then they devalued their currency by 66%.

Mark my words. I think cash withdrawals will soon be limited to $500 a week or so.

[DemReadingDU]

35. 60 Minutes video link

3/8/09 Your Bank Has Failed: What Happens Next?
60 Minutes Gets A Rare Look At How The FDIC Takes Over Banks And Reassures Depositors

http://www.cbsnews.com/stories/2009/03/06/60minutes/main4848047.shtml