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History of the Government's Intervention into GMAC and Ally Bank
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.
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.
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!".
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?
.
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.
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.
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.
Just saying...
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.