TBTF Banks Pose “Unique Concentrated Risks” to FDIC
There was an interesting press release (mirror) out of the FDIC yesterday that you might overlooked.
Don’t.
Despite its boring title — FDIC Board of Directors Approves Notice of Proposed Rulemaking to Revise Deposit Insurance Assessments — it contains some important issues related to reforming the big banks.
The FDIC wants to:
• Create a separate tier of deposit insurance assessment for large institutions.
• The focus is on those banks “which pose unique and concentrated risks to the Deposit Insurance Fund.”
• Risk categories and long-term debt ratings would no longer be used. (supervisory ratings stay as a factor in measuring risk)
• New scorecards will use “well-defined financial measures” that are “more forward looking”
• Other risk measures — “quality of underwriting” and “risk management practices” — will be incorporated in the future.
• Two additional scorecards will be created for: 1) Large institutions and 2) Highly complex institutions.
Bottom line: If the FDIC considers your bank too big to fail, your FDIC deposit insurance assessment will be going higher.
Once again we see that while Washington DC is dithering, Sheila Bair is stepping up to the serious reform that has teeth. She remains one of the only regulators in DC whose done an exemplary job.
>
Hat tip Bruce Krasting
>
Source:
FDIC Board of Directors Approves Notice of Proposed Rulemaking to Revise Deposit Insurance Assessments
FDIC, April 13, 2010
http://www.fdic.gov/news/news/press/2010/pr10074.html
Tweet
Facebook
Reddit
Digg this!
April 14th, 2010 at 7:55 am
Key question now is how aggressively will the TBTF try to fight this?
I can hear the arguments about impairing their ‘competitiveness’ on taking deposits already.
April 14th, 2010 at 7:56 am
BR provides – “the FDIC considers your bank too big to fail, your FDIC deposit insurance assessment will be going higher.”
I assume this creates the opposite effect .. the FDIC considers your small neighborhood bank to small to assist in the insurance carry for TBTF, your FDIC deposit insurance assessment will be going lower. Welcome to the tier system.
Is that assuming to much?
April 14th, 2010 at 8:07 am
Technology is the solution:
The “checking account” should be a privately insured on-line business. Get the FDIC out of it. Why do we need public money insurance? The Tea Party should be up in arms about the FDIC, NOT private health insurance changes. There would be no need for a Volker Rule with no FDIC.
All lending done with money in CDs with guaranteed length of deposits and huge early withdrawal penalties (similar to European covered bonds.) Add European Covered bonds to they gutted Fannie and Freddie with a small agency laying out the rules for conforming mortgages.
Concentration and size limits like any industry monitored by the FTC.
The Fed sets rates. The LIBOR sets rates. …Why these supposed free-market-loving bankers love back room rate seters I’ll never know… oh, maybe it has something to do with earnings on yield spreads. Well if a market set those, why would that be so bad?
And electronic money. No cash All of your transactions are automatically tallied into which line on the tax form they go and at the end of the year you get a neat little form: Here’s what you owed for the year we took it was we went. Thanks.
April 14th, 2010 at 8:07 am
I don’t know whether it’s simple coincidence or a result of planning, but this is also the 2nd time the administration has pursued a two track solution; one regulatory and one legislative. They did the same thing with cap and trade, where congress introduced cap and trade, hitting the issue from one angle, and the administration simultaneously gave the epa regulatory authority for greenhouse gases. The revised cafe standards announced last month were the 1st part of the epa extending that authority, so they are moving whether the legislation makes it through congress or not. If Bair can bypass congress she will; if not, they will have to either legislate a reversal of what she has done (unpopular) or add to it.
Again, no idea if it’s intentional but if it is it’s a nice multidimensional approach…
April 14th, 2010 at 8:28 am
Bair seems to be the only one putting forth good rules to handle the issues. However, there is little she can do with the so called banks that don’t have depositors like GS no?
April 14th, 2010 at 8:45 am
Since guarantees – forever – are now implied – these banks are now de facto government institutions, albeit ones that funnel vast amounts of money to private individuals. Big bank CEOs are now the highest paid people in government.
It will take a long time, but eventually government will regulate every aspect of them. Bureaucrats are relentless about extending control.
April 14th, 2010 at 9:00 am
[...] Bair to the rescue: TBTF banks to pay higher insurance – Big Pic [...]
April 14th, 2010 at 9:05 am
Bair is the 2nd worst.
E. Warren is the absolute worst.
Both display classic academic thinking that leads to “communist” style decisions. “Fair” and “should” put before being effective and creating positive change.
I’ll take Bill Isaac. I remember him pleading in early 2008 for the FDIC to get IN-FRONT of the crisis.
April 14th, 2010 at 9:46 am
The best regulation in the world would be to get rid of the FDIC, or at minimum, roll back the insurance to cover only the little people (e.g., maybe $50,000). Then the big boys would actually have skin in the game when they decide which banker offer is too good to be true.
Alas, this won’t happen. Government/non-market regulation is seen as our last great hope for salvation, yet the prospect of failure, even for banks, is the single best regulator that could ever be found.
The financial system is not a giant vampire squid. It is a cancer, growing unchecked even after nearly causing economic collapse. It won’t quit growing until it has finally and ultimately destroyed its host (the real economy), and thereby itself.
April 14th, 2010 at 9:58 am
@lalaland
I am sure it is intentional. It is also the only way forward. With the GOPsters in charge of the senate (via the filibuster) and dead set on being obstructionists, even against things they themselves proposed a few years earlier, no change can happen via legislation. So change must come via administration (and a few attachments to the defense appropriation bill).
April 14th, 2010 at 10:24 am
cognos Says:
Both display classic academic thinking that leads to “communist” style decisions.
I guess to you the only valid “communist” style decision is for the government to give the bankers unlimited amounts of money to save their bonuses. To be honest your opinions seem to indicate that you are a paid lobbyist from the financial “industry” to spread “industry” friendly propaganda…
April 14th, 2010 at 10:24 am
$50,000 is a $700 payroll of 72 employees .. $250K is 360 employees .. $50K is to low .. 72 to 360 define TB to allow TF (shoulda known better)
and offT (sorta) – I had this “what are you reading” with no-where to go
http://www.huffingtonpost.com/2010/04/13/the-fourteen-banker-anony_n_534820.html
April 14th, 2010 at 10:31 am
Easy prediction:
Any change, if at all will be marginal, ineffective, possibly even more advantageous to the bank ‘robbers’.
April 14th, 2010 at 11:41 am
@flipspiceland
Sad, but true. Remember the proposed “Volcker Rule”? This FDIC proposal will be lying in the grave right next to it.
April 14th, 2010 at 12:00 pm
I sleep better knowing that banks can take unlimited risk with our money – because it is insured with our money.
The US Banking system would make Stalin blush. With direct subsidies to Banks cost of capital to the point of f*&#cking absurdity.
Banks aren’t constrained by the necessary profit/loss response mechanism which keep most businesses in business.
They are bureaucracies dependent on subsidies to survive.
Just a giant Post Office, nothing more.
Color me grumpy today.
April 14th, 2010 at 7:56 pm
@cognos: Wow. Once again we agree. About E. Warren.
I thought Bair had a good proposal but had not totally figured out what it was doing for the big boys with no deposits. GS
Have to think about it some more.
April 15th, 2010 at 1:23 am
I love the idea of higher insurance for TBTF.
Another idea is the fed or treasury department should let businesses create government checking accounts that are 100% insured but give no interest. Mainly to be used for safe keeping, making payroll and b2b transactions.