Now raising intellectual capital

from Rolfe Winkler:

Banks should pay for FDIC fund

The banking system is still suffocating under the weight of bad loans, and it's well known that the FDIC doesn't have enough cash to deal with the problem.

What to do? According to a plan floated in the New York Times, FDIC may borrow from the banks themselves in order to replenish its Deposit Insurance Fund.

The optics may be good, but don't be fooled. The plan would be another balance sheet gimmick to paper over losses.

The FDIC itself is throwing cold water on the idea. Andrew Gray, FDIC's director of public affairs, says that "although this plan is an option, it's not being given serious consideration."

Treasury line of credit should be Bair’s last option


With the FDIC’s staring at an incredibly shrinking deposit insurance fund, it’s no wonder that Sheila Bair is out about talking about the regulators looking at options to replenish it. That includes tapping the $500 billion line of credit the agency has with the U.S. Treasury put in place for a rainy days.

Borrowing from Treasury should be avoided until it’s absolutely necessary since it is likely to give the banking lobby leverage to shirk higher fees now and in the future, as  Wrightson ICAP noted in a recent report earlier this month.

Citi back for more, but sans FDIC help


It looks like Citi is on a mission to prove it doesn’t need any stinking help from the federal government. Earlier this week it tapped the bond market for $5 billion, but the notes carried the FDIC guarantee. As the FT noted in its piece yesterday, the move seemed at odds with the bank’s supposed attempts to get out from under the government’s thumb.

So today, the bank is back with five-year note offering that comes without the FDIC backstop. But it’s going to have pay for that. IFR price guidance puts the risk premium at 3.25 percentage points over Treasurys. Just for a little perspective, JP Morgan has bond maturing January 2015 trading at 1.38 percentage point over Treasurys, according to MarketAxess.

Stabilizing housing should make toxic assets easier to sell


When the subprime lending market fell off a cliff and the housing market with it, trying to figure out what the mortgage loans and bonds were truly worth became a pointless exercise since no one could agree when home prices would stop falling. Banks didn’t want to sell the assets at a steep loss since they hoped (and prayed) in the long run many of these loans and bonds would continue to perform. Buyers, of course, wanted to be compensated handsomely for the risk of taking on these loans when prices continued to plummet and the ranks of jobless swelled.

That appears to be changing. Though the unemployment rate is expected to go higher still and will stay elevated for some time to come, the number of those getting pink slips has started to moderate and home prices appear to have stabilized. Check out the chart below of the S&P Case-Shiller index of home prices in 20 metropolitan areas.

from Rolfe Winkler:

Corus, gone

Headlining this week's bank failures is Corus out of Chicago. Condo loans in Florida and other bubbly states did 'em in. There's an odd item in the press release. It lists the bank's deposits as "approximately" $7 billion. I can't remember seeing that modifier in a bank failure press release. When you read enough of them, the littlest things jump out at you...


    Failed bank: Corus Bank, Chicago IL Acquiring bank: MB Financial Bank, Chicago IL Vitals: As of June 30th, assets of $7 billion, deposits of "approx." $7 billion DIF damage: $1.7 billion

From WSJ's article on Corus' failure: "More than half of the bank's $3.9 billion in condo construction loans were in nonaccrual or foreclosure in April."

Recycle the TARP


The U.S. insurance fund for bank deposits is running out of money. At the same time, some of the big institutions that received federal bailouts last fall have repaid more than $70 billion to the Treasury Department, and more checks to the government may be in the mail soon.

Right hand, meet left hand.

Indeed, one way of dealing with this looming crisis at the Federal Deposit Insurance Corp would be to take all that repaid bailout money and simply inject it into the bank insurance fund. Such a move would instantly bolster the deposit insurance fund, which at the end of June had just $10.4 billion in the kitty.

from Rolfe Winkler:

Better late than never

FDIC shut down three banks on Friday evening. Still waiting on Corus (& First Fed).


    Failed Bank: Bradford Bank, Baltimore MD Acquiring Bank: M&T Bank Vitals: As of June 30th, assets of $452 million, deposits of $383 million DIF Damage: $97 million


Time to get tough with AIG


It’s time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group’s new $7 million chief executive.

Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer’s corporate offices in New York.

The FDIC plays hide the ball too


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.

from Rolfe Winkler:

For FDIC, a long tunnel and little light

There's good news and bad news in the FDIC's quarterly profile of the banking sector. The good news is that FDIC has more resources than you think to handle the problem banks on its radar. The bad news is that the too-big-to-fail banks aren't on it.

The balance in the FDIC's deposit insurance fund ended the quarter at $10.4 billion -- its lowest since the savings and loan debacle -- but it isn't the only security blanket protecting insured depositors. The agency also has a "contingent loss reserve."