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History of the Government's Intervention into GMAC and Ally Bank
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POSTED
ON BY Ken Tumin
This WSJ article, U.S. Turns Screws on Bailed-Out GMAC is an excellent review of the bailout of GMAC and how regulators' actions have influenced Ally Bank. The high deposit rates and those Ally Bank ads were successful. Ally Bank raked in deposits during the spring, and those deposits were a much cheaper source of funds for GMAC as compared to the bond market. However, those high deposit rates and those TV ads didn't sit well with other bankers. Last May the American Bankers Association complained to the FDIC, and the FDIC acted. This WSJ article describes what the FDIC demanded from Ally Bank:
As we saw this year, Ally Bank did make cuts to its rates, and according to the article, GMAC was careful to lower rates slowly "hoping not to alarm customers." These rate cuts did have a big effect on deposits. According to the article:
Now GMAC and the U.S. government are in another round of talks to decide how much additional capital injection is going to be necessary, and as I reported last week this new agreement will likely add more limits on Ally Bank deposit rates. One thing that's worrying me is that this issue is causing the FDIC to look at internet banking. According to the article:
The FDIC already has rate caps for "less than well capitalized" banks. I hope we don't see the use of these rate caps expanded.
Thanks to the reader who emailed me info on this article.
The FDIC asked GMAC 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, an interest-rate information service, people familiar with the matter say.
As we saw this year, Ally Bank did make cuts to its rates, and according to the article, GMAC was careful to lower rates slowly "hoping not to alarm customers." These rate cuts did have a big effect on deposits. According to the article:
New deposits to Ally Bank sank to between $200 million and $300 million per month in the third quarter, from more than $1 billion a month in the second-quarter, according to a person familiar with the situation.
Now GMAC and the U.S. government are in another round of talks to decide how much additional capital injection is going to be necessary, and as I reported last week this new agreement will likely add more limits on Ally Bank deposit rates. One thing that's worrying me is that this issue is causing the FDIC to look at internet banking. According to the article:
FDIC officials get nervous when banks offer extremely high interest rates, particularly when it is done over the Internet, where customers don't have loyalty to any bank branch. The deposits are seen as "hot," or volatile.
The FDIC already has rate caps for "less than well capitalized" banks. I hope we don't see the use of these rate caps expanded.
Thanks to the reader who emailed me info on this article.