Even Flagstar's own webpage shows how bad this rate is. In the money market page they compare their money market rate with the national average which is listed at 1.03% APY. This used to show how much higher they were compared to the average. Now they're less than half the national average they list in this table.
In addition to the money market rate, Flagstar CD rates have plummeted. All of their current CD rates are under 2% and that even includes the 60-month term.
I had thought that last week's rate cut may have been due the new FDIC rate caps. Last week's rate of 1.09% was just under the FDIC rate cap for money market accounts of 1.10%. The FDIC rate caps will be taking effect in January and are intended for less than well capitalized banks. However, a reader noted the following in the comments:
Flagstar Bancorp said in its 10-Q, filed in 11/2009 for quarter ended 9/30/09: "At September 30, 2009, the Bank exceeded all applicable bank regulatory minimum capital requirements and was considered 'well capitalized.' We are not subject to regulatory capital requirements.
I just noticed this December 14th press release from Flagstar which stated:
additional regulatory restrictions have recently been imposed on the Company and the Bank, including limitations on: asset growth; accepting, renewing or rolling over of any brokered deposits; making capital distributions; ...
This last rate cut is so large that it goes beyond the FDIC rate cap. Flagstar may have decided that it needed to reduce its deposits. ETrade Bank did this earlier this year. Before 2009, ETrade Bank's Complete Savings Account had been very competitive. The rate started plummeting in April and it bottomed at 0.50% in October. I noticed ETrade mentioned its intention to reduce deposits in its quarterly filings. Here are some excerpts:
To accommodate this planned long-term reduction in assets, the Company is also similarly reducing its liabilities.
the Company continued to execute its ongoing strategy to reduce bank-related deposits.
Flagstar may have decided to take these same steps. Like ETrade, Flagstar is having financial troubles with high nonperforming loans. This MSNBC article reviews banks with troubled asset ratios. Ratios above 100 indicate that banks had more troubled loans than money to cover them. Here's what the article has on Flagstar:
The 77th largest, Flagstar Bank, Troy, Mich., has had its ups and downs. Its ratio has risen from 32 in December 2007 to a high of 106 in September. The bank's parent company has also received TARP funding.