FDIC

  • 22 May 2009 at 11:19 AM

The Capitalist Conflict

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sbfdic.jpgThat the United States would be more than fleetingly conflicted about the role of capitalism in saving capitalism might be surprising- in any other age. Today, we can only shake our heads watching the government publicly disembowel the “money men” before, nearly in the same breath, pleading with them to jump in and fulfill their traditional purpose: salvaging sinking institutions.

With bank failures at a 15-year high, private equity firms have been clamoring to buy the ailing institutions recently, but have run up against regulatory restrictions and public criticism.
But the F.D.I.C., which is expected to face further bank failures in the coming months, indicated that it might soon release policy guidelines for potential private equity investors seeking to buy failed banks.
“Due to the interest of private-equity firms in the purchase of depository institutions in receivership, the FDIC has been evaluating the appropriate terms for such investments,” the agency said Thursday. It added it would be giving guidance on eligibility and other conditions for private-equity investors in the near future.

Hypocrisy aside, we understand the urge to regulate… well… everything. But why look a cash-cow in the mouth? After the failure of BankUnited it is hard for us to imagine any roadblocks that make sense to erect. All we need now is for KKR to insist this “isn’t the business we are in,” right before closing deals on five failed banks.
F.D.I.C. to Issue Guidelines for P.E. Firms on Bank Deals [Dealbook]

  • 15 May 2009 at 12:39 PM

Release The Hounds

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bair.pngHeads will roll.

Federal Deposit Insurance Corp. Chairman Sheila Bair said some bank chief executives will be replaced in the next couple of months as the U.S. scrutinizes lenders subjected to tests to evaluate their financial strength.
“Management needs to be evaluated,” Bair said today on Bloomberg Television’s “Political Capital with Al Hunt,” to be broadcast this weekend. “Have they been doing a good job? Are there people who can do a better job?”

So let us ask what may or may not be an obvious question: Why exactly do we need the government to make management changes at the top that they could not force without controlling a majority of common if not for the particular accident that they happen to have a great deal of political power at the moment?
We suspect two potential answers:
1. Shareholders just don’t care that much to change management and the government is overreaching “because we can.”
2. It’s basically impossible to unseat entrenched management in a public company and government is performing a useful service by cracking the regulatory whip?
Discuss.
Bair Says Some Bank Chiefs Will Be Replaced in Next Few Months [Bloomberg]

  • 06 May 2009 at 5:57 PM

Floating Above The Clouds

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hinden.jpgTo keep the engine in this fantasy hot-air blimp running, you occasionally have to steal some petrol from the passengers, and then paint “Complaint Office” on the door that leads out to thin air and a 9,500 foot drop. Oh, and you have to borrow a bunch of cash to pay the landing crew.

The U.S. Senate on Wednesday approved a measure to expand a government credit line for the Federal Deposit Insurance Corp in case the agency’s reserves prove too small to deal with a growing wave of bank failures.
The legislation would also shield mortgage finance companies from investor lawsuits if those firms ease monthly payments for troubled homeowners.
The FDIC, which guarantees bank deposits, has been able to tap the Treasury Department for up to $30 billion since 1991. That credit line would be increased to $100 billion under the new bill.

Of course, we all hoped that gassing up the FDIC like an Indy 500 pit crew wasn’t going to be necessary, but that was a pretty fantastic hope as well.
Look on the bright side: Sure, no one believed that the FDIC’s participation in the PPIP’s was “riskless,” but now that the administration has demonstrated what cooperation with the government means, and a variety of government attorneys have pointed out that salary caps likely will apply to PPIP participants, there really is no risk as there will be no guaranteeing. FDIC cash can, therefore, go where it was meant to go. To backstopping the Treasury’s expanding balance sheet. (What? What do you mean that’s not what it’s for?)
Senate expands credit lines to FDIC reserves [Reuters]

  • 04 Dec 2008 at 3:41 PM

Bailout Nation Will Tolerate No Dissent

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Message to diligent administrators concerned with the preservation of taxpayer dollars: Get in the way of the bailout juggernaut and you will make powerful enemies. Consider the plight of FDIC head Sheila Bair:

Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn’t a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration.

Of course, it’s rather difficult to out Bair and still look like the magnanimous administration you’ve claimed to be (we’re looking at you Obama), particularly when she’s supposed to hold the post until 2011. Our popcorn machine is warmed up.
Geithner May Seek to Push Bair Out After Clashes During Crisis [Bloomberg]

  • 23 Oct 2008 at 12:07 PM

Loan Backers

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What’s the quickest way to assure that lenders will never ever buy another asset based on mortgage income streams? Make it clear that, at any time, the income stream of that mortgage could be modified by a regulator, a judge or the like. How would you value that asset now?
Still, foreclosure assistance puts a smile on the face of lots of voters. So, I suppose you had to expect they were going to push it. Especially this year. FDIC’s wiley Sheila Bair has an idea though.

“Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards,” she said. “By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.”

If its going to work, it will have to be voluntary for the security holders, and a government guarantee goes a long way for that.
FDIC’s Bair Suggests Guarantees for Loans [The Wall Street Journal]

  • 01 Oct 2008 at 4:35 PM

This Is A Dirty Word, This “Unlimited”

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We worried some weeks ago about what the FDIC, who’s capitalization is awfully small to look very useful against any serious glut of bank failures, was going to do if things started to fall apart. It appears we have our answer:

The Federal Deposit Insurance Corporation is seeking temporary unlimited borrowing authority from the Treasury Department, according to a copy of the final Senate bailout legislation on Wednesday.

The saving grace here is that FDIC actually seems to know what the hell it is doing. Not only that, but they seem to have a particular affinity for public relations and youth outreach. We badly want to make (more) fun of Chairwoman Bair, but since there are so few heros and heroines in “crisisland,” we can’t bring ourselves to rock the boat. Have your unlimited borrowing authority, Bair. Use it well.
FDIC seeking temporary unlimited Treasury loans [Reuters]

  • 01 Oct 2008 at 1:44 PM

The Wisdom Of Uncapped Depository Insurance

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Interestingly, Ireland has unlimited coverage for depositors in major Irish banks. That sounds like a great idea when its passed in a legislative body and various parties who need to look a bit more populist this year without losing their capitalist credentials are prone to support such things. But the piper eventually comes calling with a big invoice. In difficult times (like now) unlimited liability suddenly looks like a problem, and it is entirely possible to schedule appropriate reserves for. Oops. $250,000 looks tame by comparison.
The Wall Street Journal makes the rather excellent point that depositors in Irish banks that are covered effectively are securities holders in a class of sovereign debt. That’s great for the depositors (after a fashion) but difficult to reconcile with other costs.
Subsidizing Depositor’s Income [Wall Street Journal]