Comments on: Does the FDIC have enough money?

By: More on greed, regulation, Lehman and the financial industry - Credit Writedowns

More on greed, regulation, Lehman and the financial industry - Credit Writedowns — Fri, 29 Jan 2010 15:10:14 +0000

[...] into insolvency. Were WaMu to be declared insolvent, the FDIC would need to be bailed out as it does not have adequate funds to deal with the likes of Washington Mutual.These two institutions are suffering even more as a [...]

By: Terry

Terry — Sat, 21 Mar 2009 13:24:30 +0000

…and now, according to the WSJ & other MSM this morning, Treasury is proposing that the FDIC be tagged to play the role of public support for the toxic asset public-private entity. Nothing in that brief reporting indicates that (a) the entity will be required to meet any particular fiduciary standards or (b) have to pay insurance premiums the same way FDIC-member banks (& their depositors) do.

It is just another way to stick the American taxpayer with the avaricious greed of the the WS crowd.

By: Edward Harrison

Edward Harrison — Mon, 14 Jul 2008 20:41:00 +0000

sobers, unfortunately that is the nature of fractional share banking. Only a percentage of deposits are actually on hand for redemption at any one time. Any bank would suffer a liquidity crisis and be declared insolvent if all depositors rushed in and tried to redeem their deposits simultaneously.

Therefore, it is VERY important that banks look healthy in order to prevent a run. When rumours start to fly vulnerability increases. And when the collective banking infrastructure is as clogged with dead wood as it is now, a domino effect is a systemic risk to avoid.

Thats why it’s critical to liquidity poor banks and leave solid strong ones and why the Feds need to step in and restore confidence by backstopping institutions.

I too, am worried about the domino effect but I do hope the authorities are alert to this risk and act accordingly.

For more on my opinion on this, see the following post:

http://www.creditwritedowns.com/2008/07/ecb-is-right-and-fed-is-wrong.html

It outlines how easy credit leads to a brittle and vulnerable banking system a la Japan 1989 and the US-UK in 2008.

By: sobers

sobers — Mon, 14 Jul 2008 18:21:00 +0000

This is bad. Very bad. All I can see here is a cycle of 1) Bank A shares fall on fears of losses/insolvency. 2) Depositors rush to remove savings causing 3) Loss of confidence in Bank A. Either 4) Govt steps in to secure Bank A deposits (as in Northern Rock in UK) thereby effectively guaranteeing deposits in all Banks (as once they save one bank they can’t let another go to the wall with out being sued for favouritism etc), OR 5) Govt does nothing, Bank A goes to the wall, depositors lose out. Cycle begins again at 1) with next bank in line that looks a bit dodgy.

Either the govt ends up guaranteeing ALL savings deposits in the system or there is a domino effect of bank failures throughout the banking system. Either the pain is paid by the depositors individually in the short term, or the taxpayers as a whole in the longer term. You pays your money…….