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When You Move Should You Switch Banks?Ally Financial Scores Poorly on Fed's Stress Test - Effect on Ally Bank?
The Federal Reserve announced the results of the latest round of bank stress tests. Of the 18 large banks that were tested, Ally Financial scored the lowest. According to MarketWatch:
Ally Financial Inc., majority owned by the government, was the only bank that failed to meet one of the key ratios. The test showed that Ally had 1.5% in capital set aside under a measure known as Tier 1 common ratio, which compares the bank’s common equity to its risk-weighted assets.
In a press release, Ally Financial stated that it "believes that the Federal Reserve’s analysis of Ally’s capital adequacy [...] is fundamentally flawed." In addition, Ally stated:
Ally continues to have strong capital levels and ample liquidity to support its automotive finance operations. In addition, Ally Bank continues to be a well-capitalized bank with a leading position in the market.
One thing that Ally did not mention in its press release was ResCap. Last year Ally Financial's mortgage unit, Residential Capital (ResCap), had filed for bankruptcy protection. According to this Dow Jones (via Fox Business):
Ally's potential costs tied to ResCap have grown more uncertain in recent weeks as the mortgage subsidiary's creditors have pushed the parent company to pay more money to ResCap's bankruptcy estate.
Effects on Ally Bank?
As an Ally Bank depositor, I'm not concerned with this news. As Ally stated in its press release, the bank continues to be well-capitalized. Our financial overview of Ally Bank shows an overall health rating of 5 stars (out of 5) with a Texas ratio of 3.47% (excellent) based on September 2012 data.
Of course, it always makes sense to stay under the FDIC limits. Ally Bank makes it easy to add POD/ITF beneficiaries to allow depositors to be insured for over $250,000. I have more details in this post.
My main concern with this news is that Ally Bank will continue to be pressured by the FDIC to lower its rates. Back in 2009 the Wall Street Journal reported that the FDIC asked Ally officials to keep the rates on deposits low enough so the bank wasn't one of the nation's top five rate payers, as measured by Bankrate.com. This came after the American Bankers Association complained to the FDIC about Ally's deposit rates. The ABA thought it was risky for Ally to be allowed to pay above-market rates since Ally was receiving government assistance.
I haven't been closely tracking Ally's ranking on Bankrate, but every time I check, Ally Bank's products always appear just under #5 on the Bankrate's tables. When I checked today, Ally's 5-year CD and savings account were #6 in the tables. Ally's 1-year CD was #8 on the table.
As I mentioned yesterday, Ally's loyalty rewards program for CD renewals can boost the CD rates so they are close to or exceed the top rates in the nation.
If we have a severe recession, given the huge amount of mal-investment activity has been stimulated by the Fed printing presses, a lot of credit default swaps will trigger, causing tens or hundreds of billions of losses for the casino bankers. If interest rates turn sharply upward, as a result of the Fed being forced, for some reason, to stop its printing presses, more than two hundred trillion worth of interest rate derivatives could be triggered, resulting in even bigger losses.
I have been criticized by some, including particularly the vocal ytytyt avatar, for claiming that the mega banks here and in Europe together form a cartel-like organization that seems to be above the law. Well, the US government now admits it. Eric Holder, the US Attorney General, says that the NYC banks are "too big to jail"! See,
http://www.marketwatch.com/story/holder-admits-mega-banks-are-too-big-to-jail-2013-03-07?link=MW_latest_news
The casino bankers place the derivatives inside the FDIC insured banking divisions to make more money, taking advantage of the fact that FDIC insured divisions have much higher credit rankings. The high credit ratings come because of the government guaranty to depositors, combined with the first priority lien that derivatives counterparties hold over assets if and when a bank enters bankruptcy or receivership. Derivatives counter-parties have first priority in bankruptcy court, and will take all the assets, leaving nothing for the FDIC to sell. All money paid to depositors will need to be printed or be raised by taxation.
I agree Ken. The FDIC has viewed Ally Bank with a jaundiced eye for years now. The ABA, which has hefty influence over the FDIC, would like nothing better than Ally's rates to be squashed once again by FDIC directive.
Meanwhile, the Fed's stress tests are rigged for the mega-banks as Wanderer posted above.
"U.S. rules allow banks to net out the derivative bets they make with each other, essentially erasing them from their financial statements. European rules generally rely on total potential losses or gains while the Fed's stress tests are essentially based on the more lenient U.S. accounting rules. That has alarmed some bank experts. In early February, FDIC governor and former JPMorgan Chase banker Jeremiah Norton criticized the reliance on U.S. accounting rules when it came to derivatives."
http://finance.fortune.cnn.com/2013/03/07/federal-reserve-stress-test/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed: fortunefinance %28Fortune Finance: Hedge Funds, Markets, Mergers & Acquisitions, Private Equity, Venture Capital%25
Before all this started, I had my mortgage, a Visa and some CD's with Ally. Since the government got involved, it's all fallen apart.