"There are significant uncertainties regarding our projections, and given the challenges facing the banking industry and the likelihood of more bank failures, I believe preparedness should be our overriding concern," said Sheila C. Bair, FDIC Chairman. "Because we are anticipating more difficult times, it would be prudent to continue to build the deposit insurance fund at the pace allowed by the current rates and the remaining credits. As we build up the insurance fund, banks and thrifts should be taking steps to bolster their capital and reserves.
This was her very sensible justification of the FDIC's board's decision to keep the assessment rates charged to insured banks and savings associations unchanged for 2008. And into the fray jumps Wayne Abernathy, now the executive vice president at the American Bankers Association, who is quoted as follows:
The decision today could mean that as much as $20 billion or more of bank services will now not be available to invest in new jobs and new businesses this year, precisely when new jobs and new business investments are most needed.
So, according to this logic, it makes sense to blame the FDIC for its prudence rather than the worst offenders represented by the ABA for their recklessness for the absence of $20 billion dollars from the banking system in the near term.
It is amazing what a change of employer and address can do.
2 comments:
Many big financial companies (eg, merrill) have massive amts of debt and are at risk of insolvency. Many increased leverage during the past several years. Regulation does not allow the levered banks to borrow more to dig out - dilution of equity holders is an alternative (new equity investment, conversion of debt to equity, etc)
FDIC may have faciliated the problem - a lot of smart, educated people mindlessly put money into "FDIC" insured banks and figure it will be okay. A lot of really old people who are losing their minds also have lots of cash in banks. These same people do not check financials, ask questions, etc. before depositing cash - they figure FDIC will take care of it. Asking questions of management is considered rude by some people who want to be part of the copacetic crowd. If you ask too many questions about management that is borrowing too much, you will get zapped one way or the other.
Another round of organizational failures is possible - similar to 2000-2002. It is interesting to speculate - who bears cost of the failures? (taxpayers, non-management employees, equity holders, debt holders, management, etc)
Hillarious post. Abernathy makes a blatant regulatory capture attempt. These guys are a sad joke.
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