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History of the Government's Intervention into GMAC and Ally Bank


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:
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.
Related Pages: Ally Bank

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  |     |   Comment #1
I wish the FDIC would leave us alone. My goodness..... punish the savers is the new motto of the FDIC. Are we free market or communist?
  |     |   Comment #2
We have become a country where frugal savers are punished with virtually zero rates on their hard earned money so that the irresponsible borrowers can be bailed out. I am very upset with our ****ball political system. Most people maintain bank deposits because they are conservative and do not want to risk their money in either stock markets or bond markets. What are we supposed to live on, Gambling our money away?
  |     |   Comment #3
Perhaps it's time for a Savers' Revolt, somewhat along the lines of the Boston Tea Party. The only thought that comes to mind is if on a given identified (and well publicized day) every angry saver withdrew a certain amount from an account to put it "under the mattress" and told the financial institution why. It would be intriguing to see how many people would be willing to do this. How many angry savers are out there? How much clout do we have?
  |     |   Comment #4
Does anyone know where we can write to protest the rate caps? I realize we're not organized like the ABA, but perhaps we can start a "savers' revolt"
  |     |   Comment #5
To Anonymous, at 9:14 AM, November 02, 2009, I jut did that and keep most of my money out of bank's reach and are safely stocked in a safe deposit box at the same bank.
  |     |   Comment #6
Ally Bank is spending millions on Internet ads. I see their ads on many, many sites not connected with finance.

Ally's process for opening a 9 month "no penalty" CD is very efficient.

Warning: Their process for closing a CD is slow and error-prone.

The highly-touted 24x365 phone center can't do the closure themselves - the agent requests the closure from another department (only open 9-5 on business days) that takes a couple of business days to actually initiate the outbound ACH transfer. (ACH transfers usually take two days to complete after they have been initiated - that is not the issue here.)

Rather than fill out a form, the agent sends an email using a template. In my case, the agent's email gave instructions on what to do with the money upon maturity - instead of requesting an immediate closure. The agent knew that I wanted immediate closure - even asked me politely why I was taking the money out.

I called every day to check status. Every day an agent would say that the money would be sent the next day. Eventually one agent looked closely at the email and discovered the first agent's error.

A couple of days later, the unreachable special department finally initiated the ACH transfer.

I am getting out of Ally Bank.
CD Rates Blog
  |     |   Comment #7
I do not wish to see rate caps. However, it must be recognized that these internet rates basically behave like brokered deposits. If the FDIC is going to continue to assess banks for accepting brokered deposits, they should assess all out of area deposits.

The assessments on brokered deposits not only affect individuals who use brokers, but also companies, associations, churches, etc. These places aren't living off the interest, but they are faced with even lower rates than individuals. Many are having to take as low as 1% for 1-year CDs.

And for all of the cute ads about no small print from Ally Bank. Maybe not from them, but apparently the Gov'ts big print says a lot more, that is louder and clearer. Something like, "We own you!".
  |     |   Comment #8

Aha ... as always savers are whining! It is kind of interesting to see how irrational the savers get!

>> I wish the FDIC would leave
>> us alone.

Muhaa !!! Well if you want the FDIC should leave you alone, then find a bank that has no FDIC insurance and put your cash in there! ... Oh ... and good luck to you when the times comes to withdraw. ( You'll need it ... luck ... I mean.)

>> We have become a country where
>> frugal savers are punished with
>> virtually zero rates on their
>> hard earned money so that the
>> irresponsible borrowers can be
>> bailed out.

Muhaa !!! Are you held captive here? Leave the country.

>> I am very upset with our
>> ****ball political system.

So? ... So what are going to do about it?

>> Perhaps it's time for a Savers'
>> Revolt, somewhat along the
>> lines of the Boston Tea Party.

Muhaa !!!

>> How many angry savers are out
>> there? How much clout do we
>> have?

Many. None.

>> I jut did that and keep most of
>> my money out of bank's reach
>> and are safely stocked in a
>> safe deposit box at the
>> same bank.

Err ... and do you pay the same bank for using their safe deposit box?

  |     |   Comment #9
What we CAN do is support those institutions that consistently pay the best rates.

Well, I suppose most of us essentially are trying to do that.

But my point is this: When I buy gas, I purposefully buy it from the cheapest place in town--going out of my way to do it, in hopes that, if enough people do the same, it will drive down has prices in my local area.

Each time Ally has cut rates, I have shifted some of my Ally cash to a bank with higher interest as my little way of sending a message.

It's not really the interest income I'm focused on--most of my bank accounts are locked into CDs, so what's at play is savings account cash.

But I try to "reward" banks that consistently pay higher interest and "punish" those that don't. If enough of us do this, we do have clout.
  |     |   Comment #10
To the previous post about gas prices. The gas price is set more by the locality of the gas station than anything else. Have you noticed that a gallon of one brand of gas is one price at one spot and then you go over 10 miles, it is 30 cents more? Go further out and it changes again. Different price for the same item. When you go to the "upper class neighborhood, the prices are higher, go to lower class areas, the prices drop (this is not steadfast rule since there are some price variances). Gas station operators will make their price somewhat competitive to those dealers in the immediate area, but never to those several miles away. Yuo can drive across town to find cheaper gas, but that dealer won't change the price if you do.

Some of this also applies to banks as well, but the internet has opened the competition arena a bit larger. Gas stations, of course, don't need to worry about internet competition since you can't buy gas online.
  |     |   Comment #11
What you can't seem to figure out is most banks don't really want our deposits unless they can get them cheap.
  |     |   Comment #12
I hate to sound like a conspiracy theorist, but it almost feels like there are secret rate caps right now. I have been playing the rate game for 10 years and at no time have rates been stuck in such a holding pattern as right now. Even 2 years ago there were always occasional CD deals that were often 1% better than the rest of the pack.. but these days every single bank seems to be obeying an unspoken rule that they shall not break a 2.1% yield.
Vito M Zerilli
  |     |   Comment #13
I am a customer of Ally Bank. As of tonight I have withdrawaled all my money except few bucks. The reason of that being, is because I spoke to a lady over the phone , which works for the company, and asked her how come their rates fluctuate. I was given the answer , that it is not only due to the market condition, but also due to the management of the company. That being said, it makes you think that there current condition are not able to pay high yields interest rates, except the same rate that other financial institution are paying. Therefore I found the conclusion, that if I am getting the same interest somewhere else, why keep it in an online bank, which there website is always slow, and customer service rude. Why not bring it, to a physical branch, where I can actually speak a live human being , not only over the phone. Ally is good for short terms, but if i was you I would not keep my deposits with them. Their initial rates where amazing, but they have drapped to much for me to sacrifice my money with Ally. A great story, but a short one.

Vito Zerilli

p.s. and you know how they say : " No sneaky disclaimers". Ya right, what about the fact that their rates have jumped by 55% ( going down most of the time only) in the last 3 months. They do have a sneaky discaimer: not able to keep the rates high enough for customers to be satisfied.
  |     |   Comment #14
I have been with Ally for over 4 years. Everytime I rate chase, I get burned by the bank I chased. Still can't beat Ally's ACH time. They really aren't all that far behind most of the others. Discover dropped their rates this morning and there has been no uproar. Ally's 1-year CD is now slightly higher than Discover's.

Just saying...
  |     |   Comment #15
Well, I guess I won't be moving my money to Discover Bank after all since doing so means losing interest.
  |     |   Comment #16
The only way that "frugal savers" can get their revenge is by stopping being so frugal and give generously to candidates like Ron Paul, who believe in honest money, so that they can get elected. They can also forget about depositing their money in banks, buy gold, and **** the fiat money system that is punishing them now, and will punish us much more severely, very soon, when the Fed creates the hyperinflation that it desires.
  |     |   Comment #17
Another way for frugal savers to "get even" is for them to open accounts in jurisdictions that pay high rates, like Australia. Dump all your U.S. dollar denominated savings accounts, and let Ben Bernanke, Barack Obama, and all their friends at the insolvent banks they've bailed out, go to hell! Best to do this, however, after the U.S. dollar is given one more artificial boost. If you wait until the Fed creates hyperinflation with these low rates and endless reams of printed money, your savings will be wiped out.

The FDIC, the Fed, the Comptroller of the Currency, and everyone else in this administration have sold their souls to the insolvent big banks like JP Morgan Chase, Goldman Sachs, etc. To be frank, it really does not matter whether Ally Bank, or any of the others pay you 1.7% or 3% or 10% on your money market accounts. Retirees and frugal middle class people are all very likely to be wiped out by the irresponsible policies of this government.

That is reality, I am sorry to say. The dollar will have one more last stand, and then it will collapse, and all your savings will go with it, folks. So, bail out on the next rise in the dollar. Buy gold and foreign currencies, and forget about these U.S. based banks.
  |     |   Comment #18
Gold? Now selling for over $1000 a troy ounce? You must be kidding. I bought an old 1906 US Gold $20 piece for under $400 a few years ago. I will not buy another with the hyperinflated price of gold as it is. Can it go up? Probably so, but the likelihood of it going down is also big. Almost a sure bet to drop like the stock market in 2008. Investment in foreign currency is another matter and may actually be a good decision in certain cases. I've lived frugally since the 1960s and don't intend on expanding my investment portfolio into all of these fancy exotic investment areas that carry significant downside risk. Sure the dollar is due to get a big devaluation given the economic policy of the current time. In that case, it would end up like the Bolivar in Venezuela which took a massive hit many years ago and hasn't recovered since. If the money system gets really bad, then the political situation would be ripe for a major change. In that case, your money then is worth very little and you should get out of the country with your hoard of gold.

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