Skip to search.
Make Y! My Homepage
 
  1. Drag the "Y!" and drop it onto the "Home" icon.
  2. Select "Yes" from the pop up window.
  3. Nothing, you're done.

If this didn't work for you see detailed instructions

Close this window

FDIC Hits Banks, Softly: Favorable Accounting Takes Sting Out of Upfront Fees

Posted Sep 29, 2009 09:44am EDT by Aaron Task
Related: XLF, SKF, FAS, FAZ, BAC, C, JPM
After a year of giving generously, it seems like the government is finally pushing back on the banks. The FDIC this morning is expected to propose banks pay three years of fees to help shore up its dwindling insurance fund. The effort would raise between $36 billion and $54 billion for the FDIC, The WSJ reports. (The FDIC is expected to make the proposal at a public meeting in NYC later this morning.)

As Henry and I discuss in the accompanying clip, this would seem to be the best of all words, a veritable "win-win-win" for everyone:

  • The FDIC gets to replenish its insurance fund, which was down to $10.4 billion as of June 30, its lowest level since during the S&L crisis in 1992.
  • The favorable accounting treatment protects banks from a major hit to earnings, which is good for shareholders and reduces the potential for banks to cite the FDIC fees as an excuse to not lend money or raise fees on consumers (again).
  • Taxpayers aren't being asked to rescue the banks or the FDIC, at least not directly. The FDIC's ability to tap a $500 billion line of credit with Treasury is not being considered at this time, precisely to avoid the appearance of a taxpayer bailout, The AP reports.
But the bottom line is “$50 billion is nice but it’s a down payment compared to size of problem in front of us,” says Christopher Whalen, managing director at Institutional Risk Analytics, which estimates the FDIC is going to need $300 billion to $400 billion before the current crisis ends. “That's not the end of the world but the hole is very big -- far larger than in the 1990s.”

Whalen believes the FDIC will ultimately have to tap its credit line with Treasury but says the industry is trying to prevent (or at least delay) that inevitability. “The tension here is between going to Treasury and the industry's desire to keep FDIC independent and away from Treasury,” he says.

With the industry's capital base shrinking by $200 billion to $300 billion per quarter this year, only about 50% of U.S. banks can afford higher fees, Whalen says. And that's before banks are hit with higher minimum capital requirements, a proposal that's being supported by Treasury Secretary Tim Geithner.

 

Go to Tech Ticker

There are no comments yet

Post a comment

Sign in to post a comment, or Sign up for a free account.
Quotes delayed, except where indicated otherwise. Delay times are 15 mins for NASDAQ, NYSE and Amex. See also delay times for other exchanges.

Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes for NASDAQ, NYSE and Amex. See also delay times for other exchanges. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. Fundamental company data provided by Capital IQ. Financials data provided by Edgar Online. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fund summary, fund performance, dividend data and Morningstar Index data provided by Morningstar, Inc. Analyst estimates data provided by Thomson Financial Network. All data provided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. Yahoo! and ThomsonFN shall not be liable for any actions taken in reliance thereon. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.