Dedicated to Deposits: Deals, Data, and Discussion

Wrath of the Bank Regulators

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This Bloomberg article takes a look at some of the recent orders by bank regulators against several well-known banks. As mentioned by the article, "regulators are using voluntary agreements, notices and outright orders to force action." Many of the orders are not publicly disclosed to prevent scaring the bank depositors. Although several of the failed banks this year had been operating under orders when seized by regulators, the orders don't necessarily mean that the bank is on the verge of failure.

One bank mentioned in the article was GMAC Bank. However, the regulator's order as described by the article seems to point more to problems at GMAC Bank's holding company than in the bank itself:
regulators banned [GMAC Bank] in July from hiring anyone with ties to GMAC majority owner Cerberus Capital Management LP or its co-founder Stephen Feinberg without permission. The bank can't open a branch, office or automated teller on property "owned, leased or occupied by a Feinberg Entity,"

The article also states that "the bank was profitable as of Sept. 30 and had sufficient capital, according to FDIC records." As I reported last week, GMAC Bank's parent, GMAC LLC, has reported big losses as its home-loan unit and the auto finance business have been struggling in this financial crisis.

A bank that seems to be in much worse shape than GMAC Bank is the California bank, Downey Savings. The article mentioned a statement issued by Downey on November 10th in which it "said it might be seized because it probably can't comply with an OTS order to raise capital by the end of the year."

Since most of the regulators' actions are not public and since most private ratings like from Bankrate are several months old, it's hard to know which bank may be near failure. So the best policy is to keep your deposits under the FDIC or NCUA limits. As I described in this post, basic coverage has been raised to $250,000 until 12/31/2009. For more references on FDIC and NCUA coverage, please refer to this post.


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Comments
3 Comments.
Comment #1 by Anonymous posted on
Anonymous
This "wrath of the bank regulators", i.e. the Federal Reserve & FDIC, is a coverup for the fact that the bank regulators are just as much at fault as the banks themselves.

If the Feds were doing proper monitoring in the first place, the loser banks would have been identified long before they crossed failure threshold.

The Feds need to divest themselves of their own slackers and get with the program we pay them to do.

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Comment #2 by Anonymous posted on
Anonymous
My thoughts, exactly!

1
Comment #3 by Bozo (anonymous) posted on
Bozo
It seems the current FDIC Chairwoman (Bair, I believe, is her name) is doing a pretty fair job. I'd cut the FDIC some slack. I doubt even Solomon with an unlimited budget could have found all this chicanery. Besides, I wonder if they (the FDIC) even had a mandate to dig deep into the fraudulent mortgage applications involved. Somehow, I doubt it.

Anyway, thank goodness for the FDIC and NCUA, or else we'd really be up poop creek.

Bozo

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