“We’ve got a … retail bank run forming in this country”
September 17th, 2008Via: AP:
Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.
The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.
Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase & Co.
Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators.
Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC’s insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.
“We’ve got a … retail bank run forming in this country,” said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.
Treasury Secretary Henry Paulson said Monday that the country’s commercial banking system “is safe and sound” and that “the American people can be very, very confident about their accounts in our banking system.” FDIC officials also have said 98 percent of U.S. banks still meet regulators’ standards for adequate capital.
But fear is growing on Main Street as well as Wall Street about the likelihood of multiple bank failures and the strain that would put on the FDIC.
The fund, which is marking its 75th anniversary this year with a “Face Your Finances” campaign, is at $45.2 billion — the lowest level since 2003. At the same time, the number of troubled banks is at a five-year high.
FDIC Chairman Sheila Bair has not ruled out the possibility of going to the Treasury for a short-term loan at some point. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with Treasury — something that has never been done.
The FDIC’s fund is currently below the minimum set by Congress in a 2006 law. The failure of IndyMac Bank in July cost $8.9 billion.
Next month, Bair plans to propose increasing the premiums paid by banks and thrifts to replenish the fund. That plan is likely to be approved by the FDIC board, which consists of her, Comptroller of the Currency John Dugan, Thrift Supervision Director John Reich and two other officials.
Bair also is considering a system in which banks with riskier portfolios would be charged higher premiums, raising the possibility those costs could be passed on to consumers.
“Hank” Paulson is starting to sound like he is spouting John McCain’s cheerleader mantra: ” the fundamentals of the U.S. economy are strong.”
Hey Hank, and you too, Johnnie boy. Tell that to the people who have stood outside banks waiting to withdraw their deposits.
I for one am not enamored with how “Hank” and/or Bernanke have been giving the U.S. taxpayer one unlubricated thrust to our money situation, one after another, on the weekends, while they are jetting to and fro to their posh undisclosed locations. Yes my dear friends, government employees are supposed to travel and dine withing the limits of the Federal Travel Regulations. But then Ben isn’t really a fed.
I can’t even imagine that in addition to the “tab” these guys are putting on the taxpayer accounts, with their “leveraged buyouts” what their actual expenses are whilst wheeling and dealing with the life blood, e.g. savings of poor John and Jane Doe away.
Its way too late and trillions of dollar too short but, hmm, shouldn’t the Federal Reserve and its actions be regulated?
Two or three years ago, I knew the U.S. government was broke. I had to laugh every time the FDIC was mentioned.
It is all a house of cards. They are dealing from the bottom of the deck and methinks the only ones who will be dealt the bad cards are you and me.
Meanwhile, people are starting to talk about (finally and DUH!) the repeal of Glass-Steagal under the Republican watch. Er, wasn’t that law enacted after the Great Depression to keep banks from getting greedy? The firewall to protect savings of Jane and John Doe safe from the greed of banks who always seem to want to be more than what they are supposed to be? Banks have been notorious for always wanting MORE.
Ya, the PARTY THAT WRECKED OUR COUNTRY.
Its really, really sad to know that once people figure part of how they’ve been screwed by the banks,they’ll be stuck with another unlubricated event when they start getting their utility bills this winter.
The PARTY THAT WRECKED AMERICA also repealed PUHA, the Public Utilities Holding Act, where, well yeah, we were supposed to keep these greedy criminals in check by insisting that they invest their profits back into repairing, restoring, and maintaining service to their customers service instead of going out and investing in something else. Hooboy. Enron.
We had a windstorm here in western PA on Sunday night. Hah. People here are in the same boat as those in Houston from Hurricane Ike. No POWER TIL SATURDAY or SUNDAY. 7 days! In Pennsylvania.
We’ve all been forked, and unfortunately, we won’t even get any pleasure out of it.
I don’t want to add negative energy to the universe, by my gawd.
Why does it seem that people only wake up during the nightmare?
Some people may be pulling their money out of banks for fear of bank failures. But I suspect that many people are in the same boat as me; as the cost of food and fuel rises, there is no money left over, from paycheck to paycheck, to gather dust in the bank account. People are drawing down their savings–if they have any–because their expenses keep increasing. This factor alone would account for a lot of money bleeding from a lot of banks’ balance sheets.
Then there are the people who have lost their jobs. The money that used to flow through their bank accounts is no longer flowing–or has been reduced to the trickle from unemployement claims. They, too, are drawing down savings, if they had any.
No panic withdrawals are required to deplete bank balance sheets–though those are probably happening too, what with the expectation of many bank failures.
I am for neither corrupt rotten to the core party,..I see them both
as skunks with merely different stripes.
However in the interest of fairness and accuracy
I would like to point out to Eileen
before her Kunstlerian lifted meme gains anymore
traction to investigate the origins of the
Gramm-Leach-Bliley Act.
They take turns sodomizing us it’s really that simple.
@ eileen:
the reason why people only wake up during nightmares, as you put it, is because it takes a long long time for people to be victimized sufficiently that it becomes more stressful to live under a corrupt system than it is to fight it. In the margins, until the folks awaken, of course, the powers are allowed to rape pillage and plunder with undisguised avarice.
@ sharon
real cpi is about 16 %, per the old measure of cpi before reagan / bush / clinton changed it.
@ john doh
all that act did was give the means, it took the bush administration to provide the all-encompassing, grab it while you can, loot the treasury wholesale mentality. It took bush to provide the motive and the opportunity.
@John Doh:
I fully recognize the truth in your words about both parties, at least on the intellectual level. On the gut level, I still find the Republicans more viscerally detestable because their adherents are far more likely to spout nakedly fascist rhetoric both online and in real-life and in general have very much the same sort of behaviors and attitudes one would expect from a Leninist party communist of the 1930’s.
But I guess what we Recovering Democrats (maybe I should start a 12-step group?) need to remember is, if the Republicans are really that bad, then that makes the Democrats on the leadership level pretty disgusting for giving in to the Republicans on everything that matters and for selling out their well-intentioned though hopelessly co-dependent-doormat base time and again.