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Fifth Third Bank Acquires All the Deposits of Freedom Bank, Bradenton, Florida

Posted by Wendell Brock on Fri, Oct 31, 2008

Freedom Bank, Bradenton, Florida, was closed today by the Commissioner of the Florida Office of Financial Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Fifth Third Bank, Grand Rapids, Michigan, to assume all of the deposits of Freedom Bank.

The four branches of Freedom Bank will reopen on Monday as branches of Fifth Third Bank. Depositors of the failed bank will automatically become depositors of Fifth Third. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Fifth Third can fully integrate the deposit records of Freedom Bank.

Over the weekend, depositors of Freedom Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of October 17, 2008, Freedom Bank had total assets of $287 million and total deposits of $254 million. Fifth Third agreed to assume all the deposits for a premium of 1.16 percent. In addition to assuming the failed bank's deposits, Fifth Third will purchase approximately $36 million of assets. The FDIC will retain the remaining assets for later disposition.

Customers who have questions about today's transaction can call the FDIC toll free at 1-800-591-2767. This phone number will be operational this evening until 9:00 p.m. eastern; on Saturday from 9:00 a.m. to 5:00 p.m. eastern; and on Sunday Noon until 5:00 p.m. eastern and thereafter from 8:00 a.m. to 8:00 p.m. eastern. Interested parties can also visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/freedom.html.

The FDIC estimates that the cost to the Deposit Insurance Fund will be between $80 million and $104 million. Fifth Third's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. The last failure in Florida was First Priority Bank, Bradenton, which was closed on August 1, 2008. Freedom Bank is the seventeenth FDIC-insured institution to be closed this year.

Topics: FDIC, failed banks, Bank Regulators, Commercial Banks

Stearns Bank, National Association Acquires the Insured Deposits of Alpha Bank & Trust, Alpharetta, GA

Posted by Wendell Brock on Fri, Oct 24, 2008

Alpha Bank and Trust, Alpharetta, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Stearns Bank, National Association, St. Cloud, Minnesota, to assume the insured deposits of Alpha Bank & Trust.

The two branches of Alpha Bank & Trust will open on Monday, October 27, 2008 as Stearns Bank, N.A. Depositors of the failed bank will automatically become depositors of Stearns Bank, N.A. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.

Over the weekend, customers of Alpha Bank & Trust can access their insured deposits by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of September 30, 2008, Alpha Bank & Trust had total assets of $354.1 million and total deposits of $346.2 million. Stearns Bank did not pay the FDIC a premium for the right to assume the failed bank's insured deposits.

At the time of closing, there were approximately $3.1 million in uninsured deposits held in approximately 59 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.

Alpha Bank & Trust also had approximately $16.8million in brokered deposits that are not part of today's transaction. The FDIC will pay the brokers directly for the amount of their insured funds.

Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-800-591-2912 to set up an appointment to discuss their deposits. This phone number will be operational this evening until 9:00 p.m. EST; on Saturday from 9:00 a.m. to 5:00 p.m. EST; and Sunday 12:00 EST to 5:00 EST and thereafter from 8:00 a.m. to 8:00 p.m. EST.

Customers who would like more information on today's transaction should visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/alpha.html. Beginning Monday, depositors of Alpha Bank & Trust with more than $250,000 at the bank may visit the FDIC's Web page, "Is My Account Fully Insured?" at http://www2.fdic.gov/dip/Index.asp to determine their insurance coverage.

In addition to assuming the failed bank's insured deposits, Stearns Bank, N.A. will purchase approximately $38.9 million of Alpha's assets. The FDIC will retain the remaining assets for later disposition.

The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund will be $158.1 million. The last bank to fail in Georgia was Integrity Bank, Alpharetta, on August 29, 2008. Alpha Bank & Trust is the sixteenth FDIC-insured institution to be closed this year.

Topics: Bank Failure, Bank Regulators

Banking and Healthcare: Hand in hand?

Posted by Wendell Brock on Fri, Oct 24, 2008

As the shake-down in the financial services industry continues, traditional banks may find themselves losing customers to healthcare providers.

Health insurer WellPoint Inc. recently received conditional approval from the FDIC to open ARCUS Bank, which will be a Utah-chartered industrial loan company (ILC). The approval was obtained despite an FDIC moratorium on deposit insurance applications for ILCs that would be operated by firms which participate in non-banking business activities. The underwriting and selling of health plans by WellPoint wasn't the problem; it was the company's retail activities, primarily pharmacy services and disease management operations. 

WellPoint appealed to the Federal Reserve Bank to get around the moratorium, arguing that the company is, first and foremost, a financial services provider. The Fed agreed, with the stipulation that WellPoint has to keep its pharmacy and disease management revenues in check-specifically, less than 15 percent of total sales.

WellPoint isn't the only health insurer that's moving into the banking industry. OptumHealthBank, which is part of the UnitedHealth Group (NYSE: UNH), has been providing "health care banking" services since 2005. And last year, a group of Blue Cross and Blue Shield Association member plans chartered Blue Healthcare Bank. Blue Healthcare Bank's mission is to "help participating Blue companies offer their members state-of-the-art healthcare savings and payment options...facilitating members' choice of high-quality, self-directed accounts..."

Vertical integration

It is the growing popularity of high-deductible health plans (HDHP) that's driving these health insurers into the banking business. HDHPs generally charge lower premiums in exchange for coverage that doesn't kick in until a very high deductible is met. Having an HDHP gives the insured the right to maintain a tax-advantaged savings account to hold funds that are earmarked for healthcare expenses. So-called health savings accounts (HSAs) share characteristics with IRAs: contributions can be invested in securities and the earnings are tax-free until the money is withdrawn.

The company providing the HSA has the opportunity to collect account fees, management fees, investing fees, etc. OptumHealthBank, Blue Healthcare Bank and Arcus Bank believe that offering HSAs and related financial services is just a natural extension of their current health insurance offerings; they're simply providing another tool to help their customers manage ever-rising healthcare expenses.

The evolution of banking

For the traditional banking industry, this development presents yet another argument for banks to reassess their innovation efforts. Customers need to have a compelling reason to choose one service provider over another. For some, a negative perception of the traditional banking industry may be enough. Traditional banks stand to lose out on HSA-related revenues and, possibly, revenues related to other financial services as well. Now, and for the foreseeable future, the pressure is on banks to develop strategies that will drive innovation, develop new and improved products and services, and enhance efforts to build deep, lasting customer relationships. 

Topics: Banking, regulators, De Novo Banks, Health Care, Health Insurance

Georgia Banks Struggle with Bad Real Estate Loans

Posted by Wendell Brock on Wed, Oct 22, 2008

A few weeks ago, a writer from The Atlanta-Journal Constitution interviewed me to obtain some background information on the current crisis in the banking industry. The article, entitled "Several Georgia banks in jeopardy" was published on October 19, 2008.

According to The Atlanta Journal-Constitution, twenty-five percent of Georgia's banks are facing dangerously high loan delinquency rates. Further, the statewide delinquency rate as of June, 2008 has increased six times over since June, 2006-amassing a total of $6.6 billion of past-due debt. The rise is primarily linked to the turn-down in housing, an industry that had formerly been a mainstay of the state's economy.

Even as default rates skyrocket, experts acknowledge that high delinquencies alone won't necessarily cause a bank to fail. Another determining factor is insufficient reserves. The FDIC and the Federal Reserve Bank have been actively consulting with several Georgia banks to address reserve levels, lending practices and the management of non-performing loans.

Click here (http://www.ajc.com/business/content/business/stories/2008/10/19/georgia_banks.html) to read the full text of the article.

Topics: FDIC, banks, Bank Regulators, Troubled Banks

FDIC Announces Plan to Free Up Bank Liquidity

Posted by Wendell Brock on Tue, Oct 14, 2008

Creates New Program to Guarantee Bank Debt and Fully Insure Non-Interest Bearing Deposit Transaction Accounts

The Federal Deposit Insurance Corporation (FDIC) announces a new program-the Temporary Liquidity Guarantee Program-to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.

"The FDIC is taking this unprecedented action because we have faith in our economy, our country, and our banking system," said FDIC Chairman Sheila C. Bair. "The overwhelming majority of banks are strong, safe, and sound. A lack of confidence is driving the current turmoil, and it is this lack of confidence that these guarantees are designed to address."

Under the plan, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy. This includes promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage would be limited to June 30, 2012, even if the maturity exceeds that date.

In addition, any participating depository institution will be able to provide full deposit insurance coverage for non-interest bearing deposit transaction accounts, regardless of dollar amount. These are mainly payment-processing accounts, such as payroll accounts used by businesses. Frequently, these exceed the current maximum limit of $250,000. This new, temporary guarantee-which expires at the end of 2009-will help stabilize these accounts.

"The program will be funded through special fees and does not rely on taxpayer funding," Bair said.

Participants will be charged a 75-basis point fee to protect their new debt issues, and a 10-basis point surcharge will be added to a participating institution's current insurance assessment in order to fully cover the non-interest bearing deposit transaction accounts.

To implement the program, the FDIC Board approved the use of its statutory authority to prevent systemic risk. The Secretary of the Treasury, after consultation with the President and the Federal Reserve Board, made a comparable systemic risk determination.

All FDIC-insured institutions will be covered under the program for the first 30 days without incurring any costs. After that initial period, however, institutions wishing to no longer participate must opt out or be assessed for future participation. If an institution opts out, the guarantees are good only for the first 30 days.

IMPORTANT:

Staff of the Federal Deposit Insurance Corporation (FDIC) will hold a press briefing to discuss the technical aspects of the agency's Temporary Liquidity Guarantee Plan, which is part of a larger effort announced Tuesday morning by the Treasury, Federal Reserve Board and the FDIC.  The technical briefing will held on Tuesday, October 13, 2008, at 10:45 a.m., in the FDIC Board Room, located at 550 17th Street, N.W., Washington, D.C.  Staff will provide details of the FDIC's plan, what it includes, how it will be funded and who will be eligible to participate.

The briefing will be for background purposes only, and not on the record.  No television cameras will be allowed.

A bridge line has been set up for call-in participation.  Number:  866-809-8949   Pass code:  9302630#

Monroe Bank & Trust Acquires All the Deposits of Main Street Bank, Northville, Michigan

Posted by Wendell Brock on Fri, Oct 10, 2008

Main Street Bank, Northville, Michigan, was closed today by the Michigan Office of Financial and Insurance Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC approved the assumption of all the deposits of Main Street Bank, by Monroe Bank & Trust, Monroe, Michigan.

All depositors of Main Street Bank, including any with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Monroe Bank & Trust, and they will continue to have uninterrupted access to their money. Depositors will still be insured with the new institution. Therefore, there is no need for customers to change their banking relationship to retain deposit insurance.

The failed bank's two offices will reopen Saturday, October 11th, as branches of Monroe Bank & Trust. Over the weekend, customers of Main Street Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

Main Street Bank had total assets of $98 million in total assets and $86 million in total deposits as of October 7, 2008.

Monroe Bank & Trust has agreed to pay a total premium of 1 percent for the failed bank's deposits. In addition, Monroe Bank & Trust will purchase approximately $16.9 million of Main Street's assets, and have a 90-day option to purchase approximately $1.1 million in premises and fixed assets. The FDIC will retain the remaining assets for later disposition.

Customers with questions about today's transaction or who would like more information about the failure of Main Street Bank can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/mainstreet.html, or call the FDIC toll-free at 1-866-934-8944, today until 9 p.m.; Saturday from 9 a.m. to 5 p.m.; Sunday from 12 p.m. to 5 p.m.; and thereafter from 8 a.m. to 8 p.m. All times are Eastern Daylight Time.

The FDIC estimates that the cost to its Deposit Insurance Fund will be between $33 million and $39 million. Monroe Bank & Trusts' acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to all alternatives because the expected losses to uninsured depositors were fully covered by the premium paid for the failed bank's franchise.

Main Street Bank is the first bank to be closed in Michigan since New Century Bank, Shelby Township, Michigan, on March 28, 2002. This year a total of fourteen FDIC-insured institutions have been closed.

Topics: FDIC, failed banks, Bank Regulators, Commercial Banks

National Bank Acquires All the Deposits of Meridian Bank, Eldred, Illinois

Posted by Wendell Brock on Fri, Oct 10, 2008

National Bank Acquires All the Deposits of Meridian Bank, Eldred, Illinois

Meridian Bank, Eldred, Illinois, was closed today by the Illinois Department of Financial Professional Regulation-Division of Banking, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC approved the assumption of all the deposits of Meridian Bank by National Bank, Hillsboro, Illinois.

All depositors of Meridian Bank, including any with deposits in excess of the FDIC's insurance limits, will automatically become depositors of National Bank, and they will continue to have uninterrupted access to their money. Depositors will still be insured with the new institution. Therefore, there is no need for customers to change their banking relationship to retain deposit insurance.

The failed bank's four offices in Altamont, Carlyle, and Eldred will reopen for normal hours on Saturday, October 11th and the Alton office will reopen Tuesday, October 14th, as branches of National Bank. Over the weekend, customers of Meridian Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

Meridian Bank had total assets of $ 39.18 million in total assets and $ 36.88 million in total deposits as of September 25, 2008. National Bank will purchase approximately $7.55 million of Meridian's assets, and did not pay the FDIC a premium for the right to assume all of the failed bank's deposits. The FDIC will retain the remaining assets for later disposition.

Customers with questions about today's transaction or who would like more information about the failure of Meridian Bank can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/meridian.html, or call the FDIC toll-free at 1-877-894-4713, today until 9 p.m.; Saturday from 9 a.m. to 5 p.m.; Sunday from 12 p.m. to 5 p.m.; and thereafter from 8 a.m. to 8 p.m. All times are Central Time.

The FDIC estimates that the cost to its Deposit Insurance Fund will be between $13 million and $14.5 million. National Banks' acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to all alternatives.

Meridian Bank is the first bank to be closed in Illinois since Universal FSB, Chicago, Illinois on June 27, 2002. This year a total of fifteen FDIC-insured institutions have been closed.

Topics: FDIC, failed banks, Bank Regulators, Commercial Banks

Looking for Deals in All the Wrong Places?

Posted by Wendell Brock on Wed, Oct 08, 2008

 

The U.S. banking industry is caught in one of the worst crises in history. The momentous failure of Washington Mutual underscores how bad things have gotten: the bank's $307 billion asset base sharply exceeds the formerly largest failure of $40 billion Continental Illinois National Bank and Trust in 1984.   

Pressure from the ongoing liquidity crisis has pushed bank multiples down considerably, to the point that bargain hunting investors are out on the prowl. Prior to the present crisis, community banks were selling for somewhere between 2 and 3.6 times book value. Now, multiples have dropped below 2, hovering at about 1.85 times. The dip has created a scratch-and-dent sale of sorts, as investors can swoop in and purchase flawed community banks at a low price.

In early September for example, Yadkin Valley Financial Corp. announced that it would purchase American Community Bancshares Inc. and its American Community Bank subsidiary. The price tag on the deal was $92 million, just 168 percent of American Community Bancshares' book value.

In volatility there is opportunity

Prospective bank investors are recognizing that the best bargains can be had during the worst of times. Of course, the sale-priced banks do not come without significant problems that need to be worked out-but those problems are reflected in the pricing. So a cool-headed investment team with a clear strategy does have the opportunity to create substantial value. 

Investors should be prepared to face stiff competition on the best deals. The low multiples have caught the attention of investor groups of all types, from local community organizers to international investors. Most of these groups, by and large, appear to be focused on buying up the damaged goods, rather than building up from scratch.

Slow is smooth and smooth is fast

The old military quote, "slow is smooth and smooth is fast," articulates what's needed to take advantage of the opportunities in the marketplace today. The successful investor group will need to wade through competition from other investors, an increasingly stringent regulatory environment, the due diligence necessary to understand the bank's underlying problems and how much it will cost to fix them and, of course, the present liquidity crunch.

Preparing to purchase a bank under any condition is an effort that takes commitment and concentration. The added complexity created by today's environment is not to be taken lightly; in other words, this isn't the type of deal that can be phoned in. A team must be carefully assembled to provide sufficient levels of experience, talent and drive. The strategy must deliberate and focused. And, finally, the execution must be, above all, efficient.

Topics: Bank Opportunities, Buy a bank, Start a bank, Smarter Banks, Bank Mergers, Bank Sales

What Must Be Done

Posted by Wendell Brock on Thu, Oct 02, 2008

With the continuing debate over the health of the U.S. financial system, Wall Street and the economy, everyone's talking about whether taxpayers should be responsible for the bailout. But perhaps the conversation would be more productive if we talked about what else we can do to avoid the bailout and shut down the power-grab that's currently playing out. And, yes I say power-grab because anytime the government gets involved , it takes power away from the people. Period. If our lawmakers give Wall Street the $700 billion, they are taking away the public's power to spend money as we wish-because we have to pay higher taxes to cover those bailout costs. The people who receive the $700 billion will have to untie the knots in the strings attached, just to get to the money. That reduces their freedom to make decisions in this new, less-than-free market.

For those reasons, we should be looking at other alternatives. Here are two things that must be done to alleviate the current situation:

1. Change how banks account for the assets on their books

 2. Repeal Sarbanes Oxley (SarBox)

Booked Assets

Several years ago, politicians determined that banks assets should be marked to the market. This means that the value shown on the books has to be the current market value, or the amount the asset can be sold for at that time. This doesn't work, simply because the underlying value of the asset may not change as fast as the market. For example, say a bank spends $10 million to purchase a mortgage-backed security or MBS (a bond), which holds the mortgages of fifty $200,000 loans at 5 percent. The fifty houses tied to those mortgages have value and that value moves up and down over time. But those value changes won't happen as quickly as the interest rate changes on Wall Street. After all, once the mortgages are turned into a bond, they are traded as other bonds; thus, the value is largely based on market interest rates. Of course, an MBS investor has the added concern of relying on fifty homeowners to make their payments, while a corporate or government bondholder only relies on one entity, the issuer, to make those debt payments. But this is part of the added risk MBS represent-that one or more people will miss a payment, or that a property falls into default and is foreclosed.

Because these MBS assets are market-traded, their value is constantly changing. And since the assets must be marked to market, their value on the bank's balance sheet should experience the same constant changes. This works out alright, as long as the movements are small. In the current environment, however, the downward pressure has driven the market value of the MBS so low that no one is buying or selling them. The market has essentially stalled. And that means the value of the MBS is close to nothing! Now, the fifty mortgaged homes underlying the MBS still have value, and perhaps all fifty homeowners are still making their mortgage payments as promised. So is the MBS actually worth nothing? No! But accounting rules require that banks reduce the value of these assets to something close to zero, because that is what the market will pay.

A better option would be to use a three-year rolling average of the value. Doing that would imply a far higher value currently, but it would be a value that is more reflective of the underlying assets (those fifty houses). Even though the homes' values may have fallen 10 or 20 percent, the MBS is still worth something, as long as those homeowners are making their payments. Even in a foreclosure situation, there is still value in the house. The rolling average allows for a smoother change in asset values (up or down) and provides time for banks to work out problem assets.

In an up-market, the rolling average allows for a slower climb up, which limits growth. This would provide a little distance and help keep values in perspective. Under this system, we most likely would not have seen the crazy growth in asset values that we saw in the past several years. Some people figure this could put $500 billion back on the books of banks!

The Repeal of SarBox

Sarbanes Oxley has failed in its purpose. It was passed in reaction to faulty auditing in a few big public companies that failed. This was supposed to help the public see into what is really going on in a company by making the financial statements more transparent. Obviously, this did not work. Fannie Mae and Freddie Mac, AIG and Lehman Brothers were all public companies and they failed, catching many investors off guard.

SarBox has succeeded in making the process of becoming a public company so onerous and expensive that companies are looking to other methods for capital rather than going public. This creates several relevant consequences for consumers and investors:

1. The number of available companies to invest in is reduced.

2. The value of current public companies is inflated.

3. The ability to bring good ideas to the market place is limited.

4. The number of people who want to be involved in public companies is reduced.

The extra regulatory expense of compliance is ranges from $100,000 to $3,000,000 or more annually, per public company. To pay this expense, the companies raise the prices they charge for their goods and services, which places the cost burden on consumers. Higher prices reduce sales and profitability of the companies. It's simple economics.

Monthly, millions of people invest millions of dollars in the equity market through their retirement plans. If there are no new businesses to invest in, the stock prices of the current businesses rise. Retirement savers are bidding prices up so they can own something, anything in the equity market. For example, say the stock market in 2004 consisted of 5,000 companies, and $100 million of new money poured in every year from retirement plans and investors. If 250 new companies were brought to the public market each year, the stock market today would have 6,000 companies absorbing investments of $400 million. In reality, that has not happened. So if the market stays at 5,000 and the same additional $100 million is invested annually, then the stock prices of those 5,000 companies would go up-simply because more money is being poured into the market. Has there been a change in the true value of these companies? No, the price was simply bid up because there was more money to buy. Many companies are not going public because of the SarBox hassle factor so there are fewer IPO's hitting the street.

The expense of SarBox also prohibits companies from coming to the market with their good ideas. Many people and their companies have chosen to find other methods of financing to avoid dealing with the added regulation of SarBox. One executive told me that it was just "too much of an expense and headache," because the company "would have to hire a compliance person at $60,000-$100,000 per year along with the added auditing expense of another $100,000 per year and the additional filing expenses another $20,000 or so." And, in the end, this executive didn't figure the expense was worth the problems. SarBox requires the board and management to take personal liability for all the problems of the company. People don't want to do that! Responsibility is critical in any business venture, but no CEO or board member knows every detail of what is going on in any company. And yet, these executives are personally liable for all activities of the company. Many people do not need the increased liability; this is akin to driving without insurance. This again keeps good companies from coming to the marketplace.

Modifying the mark-to-market requirement and repealing SarBox would bring billions back to the books of banks and strengthen their balance sheets. The result would be fewer bank failures, more companies in the marketplace, more choices for investors and, probably, lower prices. These are not the only solutions, but they are a major step in the right direction.

Topics: Bailout, Commercial Banks, Bank Regulation, Bailout Options

The $700 Billion Bailout Passes the Senate

Posted by Wendell Brock on Wed, Oct 01, 2008

In a major sweeping vote the senate passed the Wall Street Welfare bill this evening providing $700 billion to the street to help solve their problems in three easy steps, first $250 billion up front; another $100 billion upon presidential approval (which will be granted I am sure) and the last $350 pending congressional approval. And, the taxpayers pick up the tab! It is like going to a fancy restaurant with 20 friends and everyone ordering the top end meal; then the hat is passed. But, in the end there isn't enough for the bill and tip, and since you were closest to where the waiter laid the down the bill you get the opportunity to figure out how to pay - while everyone is leaving with their date!

One small bright spot is that the FDIC insurance will be raised temporarily (when does the government do something temporarily?) to $250,000 from the $100,000 current limit. This will give depositors more confidence in the banks. Regional banks worked hard to get the increase in deposit insurance limit. They hope this will give consumers more confidence in the smaller banks. The banks felt that consumers believed that the bigger banks were safer places for their savings - which is untrue.

This will also increase insurance premiums the FDIC can charge the banks; so for the extra $150,000 of deposit insurance the FDIC will charge the banks approximately $105 per account (depending on the bank's premium rate of course).  This will bring in billions of additional insurance premiums into the FDIC insurance fund.

The bill also gave the FDIC the unlimited ability to borrow from the Treasury, which is a major increase from the current limit of $30 billion.  The unlimited borrowing, again, is temporary - it expires in 2009.

Maybe it is time to call your congressman!!

Topics: Bailout, FDIC, Bank Regulators, FDIC Insurance Fund

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