Commentaries
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from Rolfe Winkler:
Morning Links 1-22
Geithner has reservations on US banks (Wutkowski/Eder, Reuters) More evidence that Geithner is a goner. Will Volcker replace him? Sheila Bair could be a dark horse. She has lots of Democratic fans on the Hill despite being appointed by a Republican. In any case, Geithner was on PBS last night defending the plan.
A closer look at the Volcker rule (Felix) Capitol Hill may not be taking Obama's rule very seriously. They think it was just a way to spin the news cycle away from the fact that healthcare will fail now that the Dems have lost their 60th vote in the Senate. Moreover, they don't think Obama's actually going to wage the fight against Wall Street that he claims he's ready for.
Bernanke faces tougher vote in Senate (Reddy/Paletta, WSJ)
Fed secrecy claims bogus redacted AIG details already public (Adams, Naked Capitalism) More detail in a second post here.
FDIC and Bank of England to cooperate on resolution of troubled cross-border financials (FDIC) Next time a big financial blows itself up, Sheila Bair and Mervyn King want to make sure they're prepared to deal with it in tandem.
NYC will move (a little bit) of its money (Traub, HuffPo) Bloomberg puts a little bit of support behind the Move Your Money campaign.
Chavez accuses U.S. of using weapon to cause Haiti quake (Moran, Digital Journal) "Venezuelan President Hugo Chavez has accused the United States of causing the devastating 7.0 magnitude earthquake in Haiti, which killed possibly 200,000 people. Chavez believes the U.S. was testing a tectonic weapon to produce eco-type devastations."
from Rolfe Winkler:
Deposit Insurance Fund, UNoffcially
I was heading out for Thanksgiving vacation when FDIC released the quarterly banking profile, so I wasn't able to update an important chart: Total Insured Deposits, Unofficially.....
(ht Stephen Culp)
When the world was falling apart, FDIC increased deposit insurance limits....to $250,000 for individual non-retirement accounts and unlimited for business transaction accounts. But those increases were treated as "temporary" and so left out of FDIC's total.
Since the $250,000 limit was extended to 2013 -- decidedly not "temporary" -- FDIC started collecting that data from its member banks. The data was published for the first time in Q3.
So in Q3, the official figure -- which includes $250k limits -- jumped from $4.8 trillion to $5.3 trillion. Throw in the $761 billion insured by the transaction account guarantee program and you've got a total of $6.1 trillion of insured deposits. Compare to Q3 '08. Back then, before all the emergency measures, the total was $4.5 trillion. So the increases added $1.6 trillion, or 34%, to the total.*
I've juxtaposed that with the reserve balance on the Deposit Insurance Fund. It's now negative, though that doesn't mean FDIC is out of cash. And they've got another $45 billion coming this quarter, but for accounting reasons the reserve will still be listed as negative.**
[...] Deposit Insurance Fund, [...]
from Rolfe Winkler:
Big banks get reprieve from FDIC
Due to new accounting rules -- FAS 166 and 167 -- banks have to bring certain off balance sheet assets back onto their balance sheets starting next year. More assets, same capital = lower capital ratios. (More in this column about the individual impact on the large banks).
Anyway, the FDIC has agreed to give big banks a 6 month reprieve on raising new capital to buffer the new assets. From Ian Katz at Bloomberg:
The Federal Deposit Insurance Corp. gave banks including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. a reprieve of at least six months from raising capital to support billions of dollars of securities the firms will be adding to their balance sheets.Bank regulators including the FDIC and Federal Reserve want to permit a phase-in of capital requirements that rise starting next month under a change approved by the Financial Accounting Standards Board. The rule, passed in May, eliminates some off- balance-sheet trusts, forcing banks to put billions of dollars of assets and liabilities on their books.
“We’re still recovering from the damage these structures caused,” FDIC Chairman Sheila Bair said, explaining that the entities contributed to the financial crisis. The phase-in recognizes the “very fragile stage in our economic recovery,” she said at a board meeting Washington.
While Citi and Wells were raising capital this week to repay TARP, FDIC should have had them go for a few billion more to offset the impact of FAS 166/7.
from Rolfe Winkler:
Politics and bank regulation don’t mix
The Federal Deposit Insurance Corp tried to seize and sell Cleveland thrift AmTrust last January but local politicians intervened. In the end, the bank still went bust 11 months later - a delay that may have increased losses to the U.S. regulator’s funds. As Congress debates banking reform, AmTrust provides a useful warning that the regulatory apparatus needs to be kept free from politics.
Regulators had known for some time that AmTrust was troubled. AmTrust's chief regulator turned down the bank’s request for TARP money last fall. It also hit AmTrust with a cease-and-desist order, instructing management to change lending practices and boost capital by December 31. When AmTrust missed the deadline the FDIC decided to step in.
But Ohio Congressman Steven LaTourette and Cleveland mayor Frank Jackson convinced Treasury and the White House to keep the regulators at bay. Bythe time FDIC finally seized AmTrust on Dec. 4, its tangible common equity – the capital it has to withstand loan losses – had fallen to $276 million from $943 million the year before. The cost of the bank’s failure to FDIC: $2 billion.
The price tag to the FDIC would’ve been lower had it acted sooner, according to the Wall Street Journal. This isn’t a new lesson. Congress established the Prompt Corrective Action doctrine in 1991 because the S&L crisis taught that to limit the cost of bank failures, it’s important to seize troubled institutions quickly, while they've still got capital.
And the importance of speedy resolution is more pronounced with larger firms, whose deterioration can infect the entire system. Remarkably, Congress is poised to erect new political barriers that may delay pre-emptive action to corral systemically dangerous firms.
An amendment offered by Rep. Paul Kanjorski to Barney Frank' s Financial Stability Improvement Act would require Treasury to sign off on corrective actions imposed by regulators on firms with greater than $10 billion of assets. For $100 billion+ firms a White House signature would also be needed.
AmTrust was small enough that its collapse didn’t pose a systemic threat. At worst, it just compounded losses at FDIC, which may require its own taxpayer bailout before too long. With systemically dangerous firms, however, the cost of political delay will be much higher.
From what I understand, the Fed says it didn’t have the tools to handle the collapse of these firms. They aren’t asking for the authority to do so. But they do point out that because of a lack of any processes to unwind those companies the Fed had to keep the financial system afloat or the resulting defaults would have cause a depression on a global scale.
Mr Bernanke Pointed out that during the depression the banks were allowed to simply fail. And the resulting defaults cascaded causing a global down turn. He said that in order to prevent a repeat, some choices needed to be made to support the banks. If I understand history correctly, there was no financial social safety net in place during that time either.
I think it would have been easier and cheaper to keep the citizens afloat than it has cost us to keep the banks up. It also would have put the banks in a position of accountability to the citizens. Citizens with money can choose what sectors of the economy to support by choosing where to spend. It’s just incomprehensible to me that even though the citizenry is the engine of the economy, the engine is never given any fuel.
It’s like wanting to keep harvesting fruit from a tree that never gets watered. Eventually the tree dies and there is no fruit to be had. We are strangling our people with poverty. We are cutting off our own heads by keeping our people uneducated and sick, while expecting them to labor tirelessly. Our future slips away with each failed generation. It’s time to think about the citizens.
from Rolfe Winkler:
FDIC’s problem bank list grows to 552, DIF now negative
I'm not good at taking vacations....
FDIC published its quarterly banking profile today. Here are the latest banking industry statistics at a glance. A few interesting takeaways I'd like to highlight. First, the problem bank list grew again. And it still understates total problem assets...both Citi and Bank of American should also be on this list.
The number of institutions on the FDIC's "Problem List" rose to its highest level in 16 years. At the end of September, there were 552 insured institutions on the "Problem List," up from 416 on June 30. This is the largest number of "problem" institutions since December 31, 1993, when there were 575 institutions on the list. Total assets of "problem" institutions increased during the quarter from $299.8 billion to $345.9 billion, the highest level since the end of 1993, when they totaled $346.2 billion. Fifty institutions failed during the third quarter, bringing the total number of failures in the first nine months of 2009 to 95.
Also, what will get lots of headlines today is that the Deposit Insurance Fund went negative as of September 30th. We already knew this to be true, and it's not totally fair to report the negative balance without noting that FDIC does have cash. That said, the DIF is still in a very precarious position.
As projected in September, the FDIC's Deposit Insurance Fund (DIF) balance – or the net worth of the fund – fell below zero for the first time since the third quarter of 1992. The fund balance of negative $8.2 billion as of September already reflects a $38.9 billion contingent loss reserve that has been set aside to cover estimated losses over the next year. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings over the next year. Combining the fund balance with this contingent loss reserve shows total DIF reserves with a positive balance of $30.7 billion.
Chairman Bair distinguished the DIF's reserves from the FDIC's cash resources, which stood at $23.3 billion of cash and marketable securities. To further bolster the DIF's cash position, the FDIC Board approved a measure on November 12th to require insured institutions to prepay three years worth of deposit insurance premiums – about $45 billion – at the end of 2009. "This measure will provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010, but without accelerating the impact of assessments on the industry's earnings and capital," Chairman Bair said.
The DIF will continue to be negative after FDIC gets the additional $45 billion at the end of this year. That's not a "special assessment," it's the next three years' regular assessments being collected up front. The distinction is crucial. Because it's a regular assessment, FDIC won't count it as new reserves for the DIF. Instead it will be counted as deferred revenue on the DIF's balance sheet.
Why is that important? Because unlike the $5.6 billion special assessment in Q2, banks don't have to take a hit against their capital all at once for this assessment. They get to treat it as a prepaid expense.
Lots of little banks finding their way onto the list. Not that you can’t deplete a fund with a thousand cuts, but I suspect that given status quo in the economy all the banks of any note (>$10B) that will be on this list already are.
from Rolfe Winkler:
Sheila throws GMAC a bone
GMAC sold more FDIC-backed debt today... (Reuters)
General Motors Acceptance Corp on Wednesday sold $2.9 billion in three-year government-guaranteed notes, according to a market source familiar with the sale. The 1.75 percent notes were priced at 99.991 to yield 1.753 percent, or 31.6 basis points over comparable U.S. Treasuries.
The notes are guaranteed under the Federal Deposit Insurance Corp's temporary liquidity guarantee program.
GMAC has permission to sell up to $7.4 billion of FDIC-backed debt, in addition to the $12.5 billion of TARP money already received and the $2.8-$5.6 billion of additional TARP cash they're negotiating for.
In exchange for upping GMAC's TLGP allowance, Sheila Bair supposedly extracted concessions on the interest rates GMAC will be able to advertise for deposits.
On BankRate, they're still listed as #3 for 1-yr CDs.
While we're on the subject of auto bailouts, John Stoll and Sharon Terlep of WSJ are reporting that GM dipped into its bailout fund from Treasury to help rescue supplier Delphi:
General Motors Co. by the end of the week will outline plans to draw down more U.S. government money it will use to aid Delphi Automotive LLP and also give an update on a closely watched escrow account of its bailout funds, according to several people familiar with the matter.
GM's additional borrowing will mostly be limited to Delphi's funding needs and is expected to be north of $2.5 billion, based on prior announcements.
from Rolfe Winkler:
#100….and counting (+ charts)
Another failure in Georgia. And two in Naples.
- Failed bank: Partners Bank, Naples FL
- Acquiring bank: Stonegate Bank, Ft. Lauderdale FL
- Vitals: as of 9/30, assets of $66 million, deposits of $65m
- DIF damage: $28.6m
- Failed bank: American United Bank, Lawrenceville GA
- Acquiring bank: Ameris Bank, Moultrie GA
- Vitals: as of 8/11, assets of $111 million, deposits of $102m
- DIF damage: $44m
- Failed bank: Hillcrest Bank Florida, Naples FL
- Acquiring bank: Stonegate Bank, Ft. Lauderdale FL
- Vitals: as of 10/1, assets of $83 million, deposits of $84m
- DIF damage: $45m
…one other thing, I know De Beers Diamonds were under scrutiny for antitrust, is there something similar for Bank Monopolies ?
from Rolfe Winkler:
Bank failure Friday
Later this evening, I'll have a post on stats for all failed banks since the beginning of 2007. In the meantime, we have our first failure of Q4:
- Failed bank: Warren Bank, Warren MI
- Acquiring bank: Huntington National, Columbus OH
- Vitals: as of July 31, assets of $538 million, deposits of $501 million
- DIF damage: $275 million
- Failed bank: Jennings State Bank, Spring Grove MN
- Acquiring bank: Central Bank, Stillwater MN
- Vitals: as of July 31, assets of $56.3 million, deposits of $52.4 million
- DIF damage: $11.7 million
- Failed bank: Southern Colorado National Bank, Pueblo CO
- Acquiring bank: Legacy Bank, Wiley CO
- Vitals: as of Sept 4, assets of $39.5 million, deposits of $31.9 million
- DIF damage: $6.6 million
Sheila Bair and the black marker
The other day I wrote a column about a series of meetings FDIC Chairwoman Sheila Bair had this summer with Citi Chairman Dick Parsons. The column was based on entries in Bair’s datebook, a copy of which the FDIC turned over to me in response to a FOIA request.
But here’s the thing, the FDIC actually tried to keep some of those meetings between Bair and Parsons secret–along with a number of other meetings the FDIC chairwoman had this summer. The FDIC said it needed to redact some of the entries to protect the agency’s work with the banks it regulates. The agency did this by using a simple black marker to cover over the names of some people.
The trouble is the black marker was a dud–and the names of the people Bair met with on those days were clearly visible. That’s a good thing because it would have made it much harder for me to do my story.
Did someone at the FDIC screw up? It certainly seems that way. But the public is all the better for it.
I didn’t point out this market malfunction in the column. I figured people would notice it once they started digging through the 92-page datebook, which was posted along with the column.
The loyal readers of Zerohedge, which blogged on my column, were the first to spot the FDIC’s goof and they are having a field day with this mistake.
The main concern all depositors should be concerned about
is the amount of money that is in the fund that is paid by banks to cover depoitors. There is no doubt that the
big hit is right around the corner. The Toxic paper still
has not been dealt with and the borrowing power of the
FED is non existant. TARP FAILED. All of the reasons that
were given for the Emergency Bailouts were not completed.
And now the time is here.
The other GSE problem
It’s hard to keep all the U.S. housing agencies straight. Fannie Mae and Freddie Mac are still basket cases relying on government support, while the Federal Housing Administration and its partner, Ginnie Mae, are setting off alarm bells with their more aggressive efforts to support overstretched homeowners.
But the Federal Home Loan Banks, a government-sponsored enterprise (GSE) that is the lesser-known cousin to Fannie and Freddie, is one to watch — particularly as small regional banks grapple with deteriorating loan portfolios and fewer financing alternatives.
The FHLB is a system of 12 regional banks that provide cheap financing — thanks to the government’s implicit backing — to its 8,100 member banks. Set up during the Depression to support the home real estate market, the FHLB’s primary mission is still firmly rooted in making sure home buyers have access to credit by giving banks the funding they need to extend loans.
Some of the FHLB’s branches, however, made the classic bad investment choice during the credit market boom: They loaded up on subprime mortgages. Unlike Fannie and Freddie, the FHLB wasn’t forced by the subsequent losses into the arms of the government, but they have put a damper on their lending, according to Ben Garber, economist at Moody’s Investors Service.
Citing the Federal Reserve’s flow of funds data, Garber notes that FHLB lending to savings institutions shriveled by $166 billion, to $190 billion for the year ending in the second quarter — a 10-year low and nearly half of what the total was at the end of the first quarter of 2008.
In the big picture, this is positive since it means the much needed deleveraging of the financial system is taking place. But for smaller, regional banks weighed down by commercial real estate loans that are growing more delinquent with each passing day, this kind of number is worrisome, especially as other stop-gap measures begin to disappear.
The Federal Deposit Insurance Corp’s guarantee program, which was set up during the height of the crisis to bolster confidence in qualifying bank debt sold to investors, is scheduled to expire in October.
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The Wall
Dolphins – so smart. It’s easy to imagine that given a million years or so (if we weren’t around to mess things up for them) they might well advance to the point of, who knows, NOT having a fractional reserve banking system!
There, fixed it for ya!