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FDIC Chairwoman Bair's Interview on Jim Cramer's Mad Money


The FDIC Chairwoman, Sheila Bair, was on Jim Cramer's Mad Money today. The FDIC released its first quarter report on the banking industry, so Bair had plenty to say regarding the report. A summary and the video of the interview is available at this CNBC page. Cramer asked Bair an interesting question at around 7:20 into the interview regarding troubled banks that are offering high deposit rates. According to Cramer
We know these banks are killing profitability and hurting the system. Why don't we seize em'?

Bair mentioned that they're planning to finalize rules related to this on Friday. According to Bair:
we are going to be more aggressively using the tools that we have to try to get those deposit rates down.

The new rules will likely be directed to troubled banks. It's already common for the FDIC to prohibit these banks from taking on additional brokered deposits, which are often viewed as risky sources of funding. We'll see Friday what other types of deposits will be affected.

Even though a few banks that are in bad shape offer top rates, I haven't seen many cases of these banks offering rates way above what healthy banks offer. Corus Bank is an example. Cramer asked why a bank like Corus Bank is "allowed to stay in business." Cramer said it "seems like an accident waiting to happen." As you would expect, Bair was careful not to comment on Corus Bank or any bank that's still open and operating. But it's well known that Corus is in bad shape financially. BauerFinancial gives Corus its lowest score (zero) for safety and soundness. As you can see in my weekly rate summary, Corus Bank does offer top money market rates and top rates on 6- and 12-month CDs. However, I wouldn't call these excessive. Their current money market rate is only 2.17% APY, and the 6- and 12-month CD rates are 2.20% and 2.71% APY. There are several healthy banks with higher money market and savings account rates. If Corus Bank slashes its rates in the next few weeks, we'll know why it happened.

Credit for this find goes to FW member Katoo who mentioned this interview in this FW thread.

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  |     |   Comment #1
When you see a bank offering very high rates versus the current offerings at other banks, your initial response would be take the bait. Be wary, that it doesn't end up being a great white shark.
  |     |   Comment #2
Banking Guy, I think you should interview Sheila Baird for this blog and ask her some pointed questions!
  |     |   Comment #3
Considering that Jim Cramer (who CNBC finds it necessry to run a disclaimer after EVERY appearance) has often said that he is not afraid of any deposits at an FDIC bank; and as this is NOT the first time he specifically named Corus during a CNBC interview with Ms. Baird; what is this clown's point. To cause a run on Corus as this point?? This is the same guy who rants on and on on a variety of topics. In his past (last) life, even he admits he was a total "S-Head"...and seems to still retain some such traits. I don't he Cramer saying a single word concerning the crazy-low CD rates at (e.g.Chase)....0.2%! While, they get Fed $$$ cheap...

The only persons I know at CNBC with a more-skewed and whacked out position is "our old friend: Larry Kudlow.

  |     |   Comment #4
Bank Guy,

you are 100% correct re: Corus. Their rates are in line with BofA and Citibank in many cases.

Furthermore, assuming one stays withing FDIC limits...I would ask "what is safer/better...to take a CD at one of these banks with federal backing...or (as a average "joe") to put any new money in any equities (stocks).??? I welcome any replies.
  |     |   Comment #5
What killed profitability for banks was their idiotic investment in risky mortgages, not their paying 2% interest to savers.
  |     |   Comment #6
I would not fool with stocks! Just research which banks are giving best rate you will accept and use Bauers or Bankrate for one which has best rating. I would always take a bit lower rate rather than fool with a bank with lowest rating.

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