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The FDIC plays hide the ball too

August 28, 2009

The Federal Reserve is fighting hard to keep details about the $2 trillion in emergency loans it has made during the financial crisis from seeing the light of day. And now it seems the Federal Deposit Insurance Corp. also has started playing the game of keeping secrets from the public.

The American Banker earlier this week reported that the FDIC is holding back on disclosing information about failed bids for troubled banks the government agency has taken over. The industry newspaper reports the FDIC is delaying the processing of Freedom of Information Act requests seeking such information, while the agency reviews its disclosure policy.

The FDIC announcement is disturbing because it comes at a time that the FDIC has been forced to close banks at a brisk clip and just put in place a plan for allowing private equity firms to bid on bank assets. (Full disclosure: my wife used to be an editor for the American Banker).

The FDIC’s position on releasing information about failed bids is not as sweeping as the Fed’s opposition to a Bloomberg News lawsuit seeking access to information about the $2 trillion in emergency loans. But as The Audit, a Columbia Journalism Review blog, point outs, the FDIC’s stance is another move towards “creeping government secrecy.”

Of all the financial regulators, I’ve been the most supportive of FDIC Chair Sheila Bair. I’ve praised her for not being afraid to take positions that offend the nation’s bankers. But on this issue of disclosure, Bair is doing a disservice not only to her reputation, but the public’s right to know.

Comments

Making the assumption that dozens of more banks will fail and the FDIC fund will become depleted, in the event the Fund chooses to draw down on its line of credit with the U.S. Treasury, where does the U.S. Treasury derive its funds from? The bond market? From foreign investors. So, given the line of credit is derived from more Federal debt, the FDIC backstop comes from the backstop of foreigners willing to lend the U.S. money. To say that the FDIC can increase the fees banks pay to support the FDIC fund is fine, but there is a limited supply of capital available. If you take it out of one pigeon hole you have to put more in the other. Ultimately all the pigeon holes have to be covered and they are curently covered by the Federal debt which is covered by foreign investors who buy U.S. bonds. So the FDIC is no longer backstopped by the American people, it is backstopped by foreign investors. It is amazing that the people at the FDIC repeat the same lines over and over again, ” no one has ever lost a penny.” That may be true, but moving forward are they speaking the entire story or are they speaking in a “gov-speak” vacuum, repeating the FDIC lingo they are supposed to repeat to the American public. It’s not the FDIC’s problem to manage the deficit, true, but they are doing a disservice to the American depositor when they speak in a vacuum. Shelia Bair should be screaming her head off at Geithner, the President and the U.S. Congress to get their act in order before the American depositors get very nervous about the safety and soundness of the American depositary system. These monies represent the work of millions of hardworking American savers who lend their money to the American banking system so that the banks can make good loans to good citizens and good corporations. Isn’t that the foundation the American banking system is suppossed to bebuilt upon?

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