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FDIC Office of Inspector General's Material Loss Reviews

Wednesday, January 27, 2010 - 7:50 AM
Part of the responsibilities of the FDIC Office of Inspector General is to publish material loss reviews of bank failures. I did a quick review of two recent ones, and in both cases high CD rates were noted as part of the failed banks' risky strategies. An excerpt from the loss review of Millennium State Bank of Texas states:
In May 2009, examiners specifically noted that the strategy of using high-cost CDs sourced from the Internet to fund SBA loans in high-risk sectors resulted in unacceptable risk.
And here's an excerpt of the loss review of Mirae Bank that was based in Los Angeles:
Mirae’s funding strategy of paying above-market rates for deposits and its increasing reliance on wholesale funding, such as brokered deposits, proved to be unsustainable once the bank’s financial condition started to deteriorate
In both cases it was risky loans that were the root of the banks' problems, not high CD rates. I hope the regulators understand this.
Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
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