a bank goes under in “Commerce”? Seems ironic or somethin’ Or just sad.

Hello Peterr
Glad there’s a growth market somewhere in the US /s

Seconded.

digg is open.

The Washington Post has a story on page D01 today about how a bank takeover by the FDIC works, and also how it can revitalize a struggling community. A taste:

“Communities suffer more from an ailing bank than from a failed bank,” said Gary A. Simanson, vice chairman of Community Bankers Trust, which owns Bank of Essex. The company also bought the failed Suburban Federal Savings Bank of Crofton, in January. “When a bank fails, it gives someone else the chance to start fresh. Now we’re here, and we want to lend.”

Regulators have seized 42 banks since the beginning of 2008, including another in Georgia last night. The rapid increase often is portrayed as a sign of the nation’s economic distress. It is also a first step toward revival. Restarting a bank is expensive and painful for many, including the former owners and borrowers. Economists say the transition takes a measurable toll on local economies, for example by requiring businesses to win the trust of new bankers. But in wiping away problem loans and bringing in new investors, the government is creating the necessary conditions for new lending.

Emphasis added.

Given that this is the stated goal of much of the bailout talk, you’d think that the FDIC might get a little more attention, other than get slammed with the label “nationalization” and “socialism.”

Hoenig takes a good shot at the “nationalization” idiocy in his speech, btw.

But if the FDIC shuts down banks, how will the banksters be able to skim million dollar bonuses from billion dollar bailouts? Oh, the humanity!

Peterr,
Proving once again, it it’s too big to fail, it got too big!
Republican’s learned nothing from one of their supposed heroes, Teddy Roosevelt.

Does the FDIC have the money to do this, I believe they need to borrow money.

If an institution is too big to fail, that does indeed sound like evidence that it has become or is verging on being a monopoly. TR would not be pleased.

btw
60 Minutes is doing a segment on what happens when the FDIC closes a bank this Sunday.

Scott Pelley has an exclusive look as the Federal Deposit Insurance Corporation takes control of a failed bank.

I’m not sure they need to borrow money now, but that they are looking ahead to the future. At the end of that piece, note the words of FDIC head Sheila Bair:

Ms. Bair said a change in the law would give the FDIC more options to determine the best way to rebuild its depleted fund. In an interview, she stressed that all insured deposits were already backed by the “full faith and credit of the United States government.”

A change in the law would ease “the mechanics of how seamlessly we can access our lines of” funding. “I’m the kind of person that likes to be prepared for all contingencies,” she said.

As I understand it, much of what FDIC needs their money for is bridge loans — to insure the deposits and cover costs while the transfer from the failed bank to a new one is going through. Thus, if the FDIC anticipates that they will be doing more than one or two a week, they’ll need a bigger pool of funds on which to draw.

When you combine this request with the number of jobs the FDIC has posted, it sure looks like they are gearing up for a long, long haul.

Oh, that’s reassuring. It didn’t sound good when I read it.

Peterr, thanks for this post. I came across an article about the FDIC at bloomberg.com that the FDIC itself is in trouble due to the number of banks that have failed in 2008 and 2009.

The FDIC lost $33.5 billion in 2008 due to 25 bank failures last year. In 2009, 16 more banks have failed.

“As a depositor, I am not worried in the least,” MacDonald said. “No one is going to let the FDIC go without any money.”

“Consumers should watch this issue closely, said Edmund Mierzwinski, consumer program director at U.S. PIRG, a Boston- based consumer-watchdog group.”

“I wouldn’t take their money out of the bank yet,” Mierzwinski said. “If the FDIC is saying that there is this serious problem, then we should all be concerned. I think there is a chance the FDIC is going to have to ask taxpayers for money in the future.”

(For some reason, the complete link may not appear.)

http://www.bloomberg.com/apps/…..sJZqIFuN3k

re too big to fail. here’s what mason had to say (feb 26 jec hearing):

The too-big-to-fail doctrine has been around for some twenty years now and has yet to be resolved. The latest incarnation has been justified by “systemic” importance of some institutions over others. Systemic importance, however, is a specious and potentially disingenuous concept. There is no accepted definition of systemic risk, save that which points to a fundamentally unquantifiable transmission of risk through the financial system, akin to contagion.

Unlike contagion, however, there need not be a non-fundamental mechanism at work in systemic risk – merely one that is left unmonitored so that it passes risk to the entire financial system….

Indeed, the “systemic” nature of today’s problems lies only in the degree to which large banks managed to enter business arrangements that themselves and regulators were reluctant to monitor. Today, there are two big impediments to placing insolvent banks in receivership, thereby prompting claims of too-big-to-fail. First, regulators would have to acknowledge that they did not understand the extent or importance of bank off-balance sheet commitments. Regulators expressly allowed contracts to be written that are triggered by receivership, but now does not know which and how many or who will gain and, especially, who will lose if the institutions fails. In reality, the situation may be more similar to that of Continental Illinois in 1984, when the OCC said it feared spillover that would cause many banks to fail – a fear that was later revealed to be grossly exaggerated. Regulators today do not have the necessary information not because it is impossible to obtain, but because they have not heretofore sought such information, reasoning that off-balance sheet arrangements did not matter. Future crises are therefore probably not best avoided by allowing a systemic risk regulator to stand ready to make excuses for regulatory laxity.

I am vastly more in favor of giving a bailout to FDIC who will fire banksters and has a criminal investigations unit, than I am to bailouts for banks that don’t seem to work.

Bankers have a love/hate relationship with the FDIC. They like to point to the FDIC sign on the door to reassure customers: “Deposits insured up to . . . .” OTOH, they do not like the FDIC showing up late on a Friday afternoon.

The FDIC is basically a self-insurance fund, funded by the banks, not taxpayers. For general monitoring and the occasional bank takeover, the fees assessed to each bank are fine. With the kind of growth going on in the FDIC’s business, however, they will need more money, and that may be where the taxpayers come in.

When the FDIC takes over a bank and passes along the deposits and whatever loans they can to a new bank to handle while the receivership moves along, the FDIC tells the new bank “You keep processing all this — take in deposits, receive loan payments, etc. — while we sort out what we’ve got here. We’ll set aside a portion of our insurance fund, to guarantee these deposits in the meantime.” It’s not that they pay out all this money, necessarily, but they have to hold it out in reserve until the books on the failed bank are finally closed. As they sort through the failed banks accounts, if the new bank doesn’t want to take over some of the loans, the FDIC keeps them and tries to find buyers for them down the road.

The Post article cited above has a decent description of how this works in the case of a recent takeover.

Having had significant experience with a collapse of the financial system in OK starting in 1983 I can tell you it is no picnic. That occurred for multiple reasons. The end of the oil boom being one, others being the S&L crisis etc. In the town I was in 8 of the 9 banks failed with one failing twice. Additionally all 6 of the S&L s failed. Real estate prices did not start to revive for ten years. The process of shutting down the banks was brutal, FDIC headquarters were guarded by people with machine guns, The FDIC hired psychologists to attempt (unsuccessfully) to keep their employees who resented having to do what they were doing to people.
Suicides went through the roof. There really does need to be another way.

Hoenig notes some of the problems with the way the RTC — note: not the FDIC, but a separate temporary agency created for this crisis — handled things in the 80s:

Because the thrift insurance fund was inadequate to avoid the losses embedded in thrift balance sheets, an attempt was made to cover over the losses with net worth certificates and expanded powers that were supposed to allow thrifts to grow out of their problems. A notable fraction of the thrift industry was insolvent, but continued to operate as so-called “zombie” or “living dead” thrifts. As you may recall, this attempt to postpone closing insolvent thrifts did not end well, but instead added greatly to the eventual losses and led to greater real estate problems.

Hoenig notes that TARP seems to be trying some of the same approaches, not having learned the lessons from the 80s, including the lack of a plan and basic guiding principles.

The S&Ls in the 80s faced a different problem. They had written a lot of mortgages based on low interest rates. With the inflation and subsequent high interest rates to compete for savings dollars they were faced with a unsustainable negative spread. Additionally, due to changes in the tax laws, commercial ventures that they had invested in collapsed.

Additionally, due to changes in the tax laws, commercial ventures that they had invested in collapsed.

There’s the big parallel to what’s happening today — maybe more in changes to regulatory laws than tax laws. Banks (including thrifts, brokerages, etc.) created investment vehicles and ventures that are collapsing (or have collapsed) and we are seeing the results.

Blue America a couple of flights upstairs with Emanuel Pleitez, running to replace Hilda Solis

What happened in the 80s was not necessarily the doing of the financial institutions (with some exceptions) whereas what happened here was all the banks doing along with a complicit looking the otherway by government. The similarity was the government but in the 80s it was tax manipulation and the shifting from domestic oil production whereas now it is a capitulation by government to bankster greed.