FDIC bankrupted by bankrupt banks asks bankrupt banks for bailout

[Specop 007]

If this doesnt make you pucker up tight I dont know what will. I'm starting to get a bit concerned whats really going on behind closed doors is a systematic plan of slowly bringing down the whole system. Rather then let some of it crash they are trying to slowly let it all come down.

I dunno, but having to ask banks to bailout the FDIC just doesnt sit well with me.

Hope and Change, Hope and Change....

Article

FDIC May Ask Banks for a Bailout

Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

FDIC Chairwoman Sheila Bair
AP
FDIC Chairwoman Sheila Bair
Senior regulators say they are seriously considering a plan to have the nation?s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.

?It?s a nice irony,? said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company. ?Like so much of this crisis, this is an issue that involves the least-worst options.?

Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.

The Federal Deposit Insurance Corporation, which oversees the fund, is said to be reluctant to use its authority to borrow from the Treasury.

Under the law, the FDIC would not need permission from the Treasury to tap into a credit line of up to $100 billion. But such a step is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained.

?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.

?Borrowing from healthy banks, instead of the Treasury, has the advantage of keeping this in the family,? said Karen M. Thomas, executive vice president of government relations at the Independent Community Bankers of America, a trade group representing about 5,000 banks. ?It is much better for perceptions than having the fund borrow from somewhere else.?

Ultimately, officials say, the deposit insurance corporation could settle on a plan that replenishes the insurance fund by doing some of both: borrowing from healthy banks to shore up the shorter-term liquidity needs of the fund, and imposing a special fee on banks to increase the longer-term capital level of the fund.

Since January the FDIC has seized 94 failing banks, causing a rapid decline in the deposit insurance fund. Despite a special assessment imposed on banks a few months ago to keep the fund afloat, its cash balance now stands at about $10 billion, a third of its size at the start of the year. (Another $32 billion has been set aside for failures that officials expect to occur in the coming months.)

The fund, which stands behind $4.8 trillion in insured deposits, could be wiped out by the failure of a single large bank, although the deposit insurance corporation could always seek a taxpayer bailout by borrowing from the Treasury to stay afloat.

 

[sciwizam]

Don't they usually get their funds from the banks as a fee or something?

 

[Atreus21]

If this is true, this is seriously, seriously bad news.

This is the one thing standing between banks and runs on them.

 

[blackangst1]

damn

 

[JSt0rm]

the fdic is funded by banks.

 

[Specop 007]

Another article

Article

FDIC's Fund Plunges 20% As Banking Industry Posts Loss

With bank failures rising, the government's deposit insurance fund fell 20 percent to $10.4 billion in the second quarter as U.S. banks lost $3.7 billion.

The Federal Deposit Insurance Corp. said Thursday that surging levels of soured loans at banks dragged down profits in the April-June period. The $3.7 billion loss compared with profits of $7.6 billion in the first quarter, and $4.7 billion a year ago.

The FDIC also said the number of banks deemed to be in trouble jumped to 416 from 305 at the end of the first quarter. That's the highest number since June 1994 during the savings and loan crisis.

Total assets of troubled institutions surged to $299.8 billion from $220 billion in the first quarter.

Eighty-one banks have failed so far this year, and hundreds more are expected to fall in coming years because of souring loans for commercial real estate. That threatens to deplete the FDIC's fund, which guarantees deposits of up to $250,000 per account.

The new level of the insurance fund puts the ratio at 0.22 percent, compared with the congressionally mandated minimum of 1.15 percent.

The FDIC said nearly 66 percent of banks and savings and loans reported earnings below those in the second quarter of 2008, and more than a quarter posted a net loss.

"While challenges remain, evidence is building that the U.S. economy is starting to grow again," FDIC Chairman Sheila Bair said in a statement. "The banking industry, too, can look forward to better times ahead. But for now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry's bottom line."

The 8,195 federally insured banks and thrifts set aside $66.9 billion in the second quarter to cover potential loan losses, up from $60.9 billion a year earlier.

The FDIC's insurance fund has been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.

That has happened only once before?during the savings-and-loan crisis of the early 1990s, when the FDIC was forced to borrow $15 billion from the Treasury and repay it later with interest.

Small and midsize banks nationwide have been hurt by rising loan defaults in the recession. When they fail, the FDIC is responsible for making sure depositors don't lose a cent.

It has two options to replenish its insurance fund in the short run: It can charge banks higher fees or it can take the more radical step of borrowing from the U.S. Treasury.

None of this means bank customers have anything to worry about. The FDIC is fully backed by the government, which means depositors' accounts are guaranteed up to $250,000 per account. And it still has billions in loss reserves apart from the insurance fund.

Because of the surging bank failures, the FDIC's board voted Wednesday to make it easier for private investors to buy failed financial institutions.

Private equity funds have been criticized for taking too many risks and paying managers too much. But these days fewer healthy banks are willing to buy ailing banks, and the depth of the banking crisis appears to have softened the FDIC's resistance to private buyers.

 

[rudder]

everyone just keeps passing the billions around and skimming a little off the top with each transaction.

 

[Craig234]

Am I wrong to suspect that the bank's motivation is that the options of FDIC borrowing from Treasury or assessing a fee = zero profit for the banks, but FDIC borrowing from the bank for billions of dollars = nice big interest payments, guaranteed by the federal government, as profits for the banks as the loans are repayed? This assumes there is an interest charged for the loans.

 

[K1052]

Originally posted by: Craig234
Am I wrong to suspect that the bank's motivation is that the options of FDIC borrowing from Treasury or assessing a fee = zero profit for the banks, but FDIC borrowing from the bank for billions of dollars = nice big interest payments, guaranteed by the federal government, as profits for the banks as the loans are repayed? This assumes there is an interest charged for the loans.

The treasury has historically charged interest on loans to the FDIC (which itself is generally funded by the banks via fees but ultimately backed by the US gov). It's preferable to the banks to loan the FDIC the cash at no risk with low rates rather than be hit with special fees which come right out of their profits. The head of the FDIC for her part gets to avoid going to the Treas and asking for the money.

 

[DealMonkey]

Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

 

[Modelworks]

The FDIC was the one thing they used to calm fears when people considered removing money from bank accounts. If the word gets out that it is having trouble this could really hurt.

 

[Craig234]

Originally posted by: Modelworks
The FDIC was the one thing they used to calm fears when people considered removing money from bank accounts. If the word gets out that it is having trouble this could really hurt.

Because the FDIC has the legal right to borrow from the treasury - apparently without limit - I doubt there will be a big scare.

 

[miketheidiot]

Originally posted by: DealMonkey
Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

the problem is that some banks can't afford a hypothetical fee in this case and might cuase more failures.

the fdic taking out a loan will have to be paid by future assessment fees, so really this will be a case of healthly banks indirectly lending crappy banks money to keep the crappy banks from going under and all guaranteed by the gov. Not the best situation imo, but not the worst either.

 

[Modelworks]

Originally posted by: Craig234

Originally posted by: Modelworks
The FDIC was the one thing they used to calm fears when people considered removing money from bank accounts. If the word gets out that it is having trouble this could really hurt.

Because the FDIC has the legal right to borrow from the treasury - apparently without limit - I doubt there will be a big scare.

The problem is that consumers don't know how the the FDIC works. The only words they will hear is FDIC running out of money .

 

[Underclocked]

I've read several estimates suggesting there are from 500 to 1000 more banks soon to fail.

 

[BarrySotero]

Originally posted by: Specop 007
If this doesnt make you pucker up tight I dont know what will. I'm starting to get a bit concerned whats really going on behind closed doors is a systematic plan of slowly bringing down the whole system.

A real concern when the President ran as a moderate but who was really a neo-Marxist who worked for ACORN - founded by a guy who advocated Cloward-Piven strategy. Obama sees US economy as source of oppression in the world and average citizen doesn't get it yet despite Obama kicking country in the groin over and over. He' like a Captain Ahab stalking the whale except he knows his best offense is to seem moderate.

 

[BarrySotero]

Originally posted by: Modelworks
If the word gets out that it is having trouble this could really hurt.

Good chance that's an intention. It was no accident Schumer caused a run on banks before election in 08 and helped tip country into financial swamp.

"Feds cite Schumer in collapse of IndyMac"


"An important angle in the IndyMac failure that may get lost in ominous headlines tonight and tomorrow: federal regulators pointedly cited U.S. Sen. Charles Schumer, D-N.Y., in explaining the bank's failure. In simple language, federal regulators blamed Schumer for a run on the bank.

Here's from the press release issued by IndyMac's regulator, the Office of Thrift Supervision: "The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors? demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac?s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts."

http://latimesblogs.latimes.co...7/feds-cite-schum.html

 

[OCGuy]

Originally posted by: Craig234

Originally posted by: Modelworks
The FDIC was the one thing they used to calm fears when people considered removing money from bank accounts. If the word gets out that it is having trouble this could really hurt.

Because the FDIC has the legal right to borrow from the treasury - apparently without limit - I doubt there will be a big scare.

And they can just print the money - apparently without limit - so why would anyone be scared?

 

[GTKeeper]

I think this illustrates a bigger issue at hand.

See, the FDIC is never supposed to run out of money.... but why does that happen? Because when they finally do seize a bank, they realize that it was a big fraud and the losses are actually greater than they really are. That is why they are running out. The banks are playing the part of a crook here by not being honest.


And Specop 007, it doesn't matter who is in charge, when a bank says that they have tangible equity, and then the FDIC goes in and sees they have NEGATIVE tangible equity this adds to tbe problem.

Start prosecuting these idiots and maybe things will change.

 

[DealMonkey]

Originally posted by: miketheidiot

Originally posted by: DealMonkey
Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

the problem is that some banks can't afford a hypothetical fee in this case and might cuase more failures.

the fdic taking out a loan will have to be paid by future assessment fees, so really this will be a case of healthly banks indirectly lending crappy banks money to keep the crappy banks from going under and all guaranteed by the gov. Not the best situation imo, but not the worst either.

Again, banks and insurance companies do this to us as consumers every day. When a consumer's credit score goes down, banks and other risk-adverse companies, charge us higher interest rates, or higher fees, or close accounts or lower credit limits. This is done regardless of whether a consumer can afford it or not.

So again, why do we care if these banks get treated the same?

 

[Specop 007]

Originally posted by: DealMonkey

Originally posted by: miketheidiot

Originally posted by: DealMonkey
Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

the problem is that some banks can't afford a hypothetical fee in this case and might cuase more failures.

the fdic taking out a loan will have to be paid by future assessment fees, so really this will be a case of healthly banks indirectly lending crappy banks money to keep the crappy banks from going under and all guaranteed by the gov. Not the best situation imo, but not the worst either.

Again, banks and insurance companies do this to us as consumers every day. When a consumer's credit score goes down, banks and other risk-adverse companies, charge us higher interest rates, or higher fees, or close accounts or lower credit limits. This is done regardless of whether a consumer can afford it or not.

So again, why do we care if these banks get treated the same?

If banks dont lend, they are considered discriminatory. Legislation is passed, banks are forced to lend to unqualified individuals.
Suddenly everyone has loans, but not all of them are getting paid. Banks have now lost money and fail. Legislators and fools scream of the failures of the free market (Which was never free to begin with).
FDIC runs out of money trying to insure depositors money and ensure the confidence in the system.
Posed solutions include getting money from the Treasury but that just adds to the "free money" printing thats going on. We've printed enough already to cause problems, real fuckin big problems. Other solutions include taxing the entities on the brink of failure. Nothing like raising taxes on the unemployed eh?

Hope and Change, Hope and Change. Sadly you dont see a problem with it, but then again I'm not entirely suprised that some fail to see just how badly we're getting fucked by the just left white Bush and the newly elected black Bush.

 

[3chordcharlie]

Originally posted by: miketheidiot

Originally posted by: DealMonkey
Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

the problem is that some banks can't afford a hypothetical fee in this case and might cuase more failures.

the fdic taking out a loan will have to be paid by future assessment fees, so really this will be a case of healthly banks indirectly lending crappy banks money to keep the crappy banks from going under and all guaranteed by the gov. Not the best situation imo, but not the worst either.

That's pretty much how all insurance works.

When my insurance goe up it takes a good chunk of my 'profit'. I fail to see the issue.

Using loans makes sense if there is strong conviction that this trouble is temporary, and that the existing funding structure will work fine in the long run.

 

[miketheidiot]

Originally posted by: Specop 007

Originally posted by: DealMonkey

Originally posted by: miketheidiot

Originally posted by: DealMonkey
Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

the problem is that some banks can't afford a hypothetical fee in this case and might cuase more failures.

the fdic taking out a loan will have to be paid by future assessment fees, so really this will be a case of healthly banks indirectly lending crappy banks money to keep the crappy banks from going under and all guaranteed by the gov. Not the best situation imo, but not the worst either.

Again, banks and insurance companies do this to us as consumers every day. When a consumer's credit score goes down, banks and other risk-adverse companies, charge us higher interest rates, or higher fees, or close accounts or lower credit limits. This is done regardless of whether a consumer can afford it or not.

So again, why do we care if these banks get treated the same?

If banks dont lend, they are considered discriminatory. Legislation is passed, banks are forced to lend to unqualified individuals.
Suddenly everyone has loans, but not all of them are getting paid. Banks have now lost money and fail. Legislators and fools scream of the failures of the free market (Which was never free to begin with).
FDIC runs out of money trying to insure depositors money and ensure the confidence in the system.
Posed solutions include getting money from the Treasury but that just adds to the "free money" printing thats going on. We've printed enough already to cause problems, real fuckin big problems. Other solutions include taxing the entities on the brink of failure. Nothing like raising taxes on the unemployed eh?

Hope and Change, Hope and Change. Sadly you dont see a problem with it, but then again I'm not entirely suprised that some fail to see just how badly we're getting fucked by the just left white Bush and the newly elected black Bush.

what a crap post. You don't have a clue

 

[Specop 007]

Originally posted by: miketheidiot

Originally posted by: Specop 007

Originally posted by: DealMonkey

Originally posted by: miketheidiot

Originally posted by: DealMonkey
Makes sense to me, depending on how they do it. If FDIC acts as an insurance company, which it basically does, and banks have become more risky as of late, which they have, why wouldn't the FDIC in effect, raise their premiums?

It happens to us as consumers all the time.

the problem is that some banks can't afford a hypothetical fee in this case and might cuase more failures.

the fdic taking out a loan will have to be paid by future assessment fees, so really this will be a case of healthly banks indirectly lending crappy banks money to keep the crappy banks from going under and all guaranteed by the gov. Not the best situation imo, but not the worst either.

Again, banks and insurance companies do this to us as consumers every day. When a consumer's credit score goes down, banks and other risk-adverse companies, charge us higher interest rates, or higher fees, or close accounts or lower credit limits. This is done regardless of whether a consumer can afford it or not.

So again, why do we care if these banks get treated the same?

If banks dont lend, they are considered discriminatory. Legislation is passed, banks are forced to lend to unqualified individuals.
Suddenly everyone has loans, but not all of them are getting paid. Banks have now lost money and fail. Legislators and fools scream of the failures of the free market (Which was never free to begin with).
FDIC runs out of money trying to insure depositors money and ensure the confidence in the system.
Posed solutions include getting money from the Treasury but that just adds to the "free money" printing thats going on. We've printed enough already to cause problems, real fuckin big problems. Other solutions include taxing the entities on the brink of failure. Nothing like raising taxes on the unemployed eh?

Hope and Change, Hope and Change. Sadly you dont see a problem with it, but then again I'm not entirely suprised that some fail to see just how badly we're getting fucked by the just left white Bush and the newly elected black Bush.

what a crap post. You don't have a clue

A well thought out rebuttal, filled with information and facts with which to defend your position. Well done, Idiot.

 

[Modelworks]

Originally posted by: 3chordcharlie
That's pretty much how all insurance works.

When my insurance goe up it takes a good chunk of my 'profit'. I fail to see the issue.

Using loans makes sense if there is strong conviction that this trouble is temporary, and that the existing funding structure will work fine in the long run.

What happens when the insurance cost more than the profit ?