Cyprus Is Not So Much An Anomaly as the Template For the Next Financial Crisis

This is not so much anything new, but a concrete reminder of the breadth of systemic banking risks inherent in the Anglo-American banking structure in which depositor money is intermingled with the Bank's speculative interests. 

The repeal of Glass-Steagall stripped the average person of important and time-tested safeguards against loss.   Things are different now.

Any deposits you have at a bank in excess of 'insurance guarantees' are at risk in case of another financial crisis.

This exposure may include wealth you think that you own, but do not know exactly where and how it is being held. This may include 401k's and IRA's, pension plans, health insurance deposits, life insurance and annuities, and so forth.

MF Global was very instructive on how even cash deposits and physical assets backed by a certificate of ownership may be fair game for the banking system in the event of a crisis.

Nothing is perfect and foolproof, but there are degrees of safety.

And you may wish to consider that the next time something like Occupy Wall Street starts up and demands reform, don't stand by on the sidelines and join in with the orchestrated jeering from the one percent's water bearers.

Simplify, streamline, organize.

Demand serious, meaningful, and genuine reform and transparency in the banking and political system.

"The goal is to produce resolution strategies that could be implemented for the failure of one or more of the largest financial institutions with extensive activities in our respective jurisdictions. These resolution strategies should maintain systemically important operations and contain threats to financial stability.

They should also assign losses to shareholders and unsecured creditors in the group, thereby avoiding the need for a bailout by taxpayers. These strategies should be sufficiently robust to manage the challenges of cross-border implementation and to the operational challenges of execution...

But insofar as a bail-in provides for continuity in operations and preserves value, losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation. Insured depositors themselves would remain unaffected.

Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down."

Bank of England and Federal Reserve Joint Statement on Resolving Globally Active, Systemically Important, Financial Institutions.

Related:
A Message From the Banking and Brokerage System
Lawmakers Must Heed the Wisdom of the 1930's
Why Has the Financial System Failed and What Are We Going To Do About It?
A Brilliant Warning on Robert Rubin's Proposal to Deregulate the Banks in 1995

Emergency Unlimited FDIC Coverage Extended to Clearing Accounts Until 2013

Someone brought this to my attention, as I had not heard of it. It is not so much what they are doing, but why now?

With recovery supposedly at hand, and the financial crisis over thanks to Ben and Timmy, I wonder why they would enact unlimited FDIC coverage for what sounds like checking accounts and commercial clearing accounts.

The only thing that occurred to me was that in the event of a bank run, it might be intended to prevent another short term credit seizure such as was experienced in the financial crisis.

But why now? And why use FDIC to do take on this unlimited liability, far in excess of what it was intended to do? I doubt very much that this is designed to protect individuals per se, given the exclusions.

Curious. Perhaps I am missing something here.

Temporary Unlimited Coverage for Noninterest-bearing Transaction Accounts - FDIC

From December 31, 2010 through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account and the ownership capacity of the funds. This coverage is available to all depositors, including consumers, businesses, and government entities. The unlimited coverage is separate from, and in addition to, the insurance coverage provided for a depositor’s other accounts held at an FDIC-insured bank.

A noninterest-bearing transaction account is a deposit account where:

interest is neither accrued nor paid;
depositors are permitted to make an unlimited number of transfers and withdrawals; and
the bank does not reserve the right to require advance notice of an intended withdrawal.

Note: Money Market Deposit Accounts (MMDAs) and Negotiable Order of Withdrawal (NOW) accounts are not eligible for this temporary unlimited insurance coverage, regardless of the interest rate, even if no interest is paid. (lol)

Later - here is an old description that probably fits the bill:

"The FDIC's action is one aspect of its Temporary Liquidity Guarantee Program (TLGP). The full account coverage is aimed primarily at business accounts that need to keep larger balances for covering payrolls and meeting other business needs, but it extends to all non-interest-bearing transaction accounts, whether they are held by businesses or by individuals and households. The FDIC's goal is to help depository institutions retain such accounts, giving small and medium size businesses a reason to keep their balances with their current financial institutions. That would help the institutions maintain their liquidity, and thus enhance their ability to make loans."

Unlimited FDIC Coverage for Checking Accounts - Banking Questions

So it is a measure to prevent another seizure in the credit system in the event of a major bank failure triggering a financial crisis. Do you think it covered JPM's $22 billion bridge loan to AT&T for its purchase of T-Mobile?

Do you think Goldman has a program to sweep all of their funds and their partners' personal money into accounts such as this at the first sign of trouble? Just as GE pays no taxes, expect Wall Street to take no pain, in the very troubles which they have caused.

As an aside, I would have used the FDIC and the government to backstop 100% of all customer money in the banking crisis, and let the banks themselves go through a debt reorganization, taking the executives, bondholders and shareholders to the woodshed, in the manner in which Sweden had dealt with its banking troubles. In the US, UK, and Ireland we saw the opposite approach: save the banks, and the people be damned.

But then again, I am not a major contributor to the campaign coffers of Washington, nor a member of the old boy network, and chances are, neither are you. So there you are.

As bad as this has been, if you think the worst is over you are probably just being wishful, maybe a little naive. There is still some meat on your bones, and the wolves are insatiable.

AGI News
IMF TO SET UP 580 BILLION DOLLAR ANTICRISIS FUND
Chiudi 09:45 25 MAR 2011

(AGI) Washington - The International Monetary Fund will set up, next week, a 580 billion Dollar anticrisis fund. "The greatest concern is the risk of contagion from Portugal," says a well informed source. IMF's top officer, Dominique Strauss-Kahn, will issue the fund, on the basis of the ratification announced on March 11 by the Nab (New Arrangement to Borrow). Last year, the Nab increased 10 times its initial 53 billion Dollars, thanks to the 13 new member countries.

Saving the Federal Deposit Insurance Corporation

If they declare those payments to be on profit after bonuses they may find a groundswell of support on Wall Street. There is nothing like sticking it to the regional banks to consolidate the power of the few.

Look for another program from the Fed/Treasury to 'save FDIC' as part of the overall effort to maintain confidence and prevent a certain armageddon.

American Banking News
FDIC’s Deposit Fund May Need 25% of U.S. Banking Profit in 2010
August 23rd, 2009

With the 80th bank failure occurring in just the first eight months of 2009, the U.S. banking industry’s fee burden from the FDIC is continuing to be pressured as the Deposit Insurance Fund shrinks. Richard Bove, an analyst with Rochdale Securities, told Reuters in a report that the FDIC’s Insurance Fund may need to collect an amount that would equate to about 25 percent of U.S. bank industry pretax income in 2010 to stay afloat.

In the report Bove predicted another 150 to 200 additional U.S. banks failures before the current banking crisis ends. The FDIC will likely use special assessments against banks in order to raise the extra funds needed to secure the Deposit Insurance Fund’s integrity. Bove believes special assessments in 2010 could reach $11 billion in addition to the regular fees banks already pay.

The FDIC last levied a special assessment in the second quarter of five basis points on each FDIC-insured bank’s assets. The assessment is scheduled for collection on September 30.

When the FDIC released its final statement detailed the second quarter assessment it projected that the Deposit Insurance Fund would remain low, but positive through 2009 and begin to rise in 2010. However, FDIC Chairman Blair Sheila Blair said in that same statement an additional assessment may be required as early as the fourth quarter of 2009.

The Deposit Insurance Fund ended the first quarter of the year with a balance of roughly $13 billion. Since that time the FDIC has had to digest several large bank failures, such as Colonial BancGroup, which cost the fund about $4 billion.

The Deposit Insurance Fund holds a fraction of the $52 billion it had just a year ago, raising the odds of an upcoming special assessment to near certainty.

As seen recently on americanbankingnews.com, the FDIC is exploring its options for brining in investors to buy-up failed banks, thus easing the burden on the insurance fund. Investment from private equity firms has been the showcased proposal so far. The FDIC is set to vote August 26 on a relaxed set of guidelines that would entice private equity firms to invest in failed banks.

Infamia e Disgrazie: Is Sheila Bair an Unsophisticated Hick?

"Flagrant evils cure themselves by being flagrant; and we are sanguine that the time is come when so great an evil...cannot stand its ground against good feeling and common sense..." John Henry Newman

The reporter on Bloomberg television just mentioned as a snide, smirking editorial aside, that Sheila Bair feels that a million dollars is a lot of pay for one year, and that ten million is excessive for a deposit taking institution. He noted that she is obviously a Washingtonian, and not a New Yorker.

That's right. A million dollars annual pay is 'nothing.' Even ten million is not much pay for an average Wall Street banker that is taking billions in public funds and gaming the financial system.

The obvious implication is that Ms. Bair is some hick regulator who is not as sophisticated as, let's say, Larry Summers, Tim Geithner, or Ben Bernanake when it comes to rewarding their Wall Street cronies for allowing the economy to continue unimpaired.

Perhaps he was attempting to sneak a bit of irony into the propaganda that passes for news in the States these days, but it was not obvious.

But he might be right. When the monetary inflation from all this financial corruption hits, a million dollars per year might yet be a 'livable wage.'

And so goes the "downward spiral of dumbness." Keep these metrics in mind when you look at your next credit card bill, mortgage payment, and paycheck, rubes, and send your tribute to Caesar.


Bair Says U.S. Regulators Should Set Pay Standards for Banks
By Alison Vekshin and Erik Schatzker

Aug. 5 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should set pay standards for U.S. banks to ensure incentives encourage long-term performance without setting specific dollar limits.

Banking agencies should “become more active” in using existing authority to set compensation standards that are “principles-based,” Bair said today in an interview with Bloomberg Television in Washington.

“We do need to revamp the system to make sure that the incentives are long-term,” Bair said. “I do wish some of these firms would exercise better restraint and common sense on what they’re paying their folks.”

Bair echoed concerns of House Financial Services Committee Chairman Barney Frank and other lawmakers who say government needs to write compensation rules that discourage excessive risk taking. Goldman Sachs Group Inc. set aside a record $11.4 billion for pay and benefits in the first half of 2009, up 33 percent from a year earlier and enough to pay each worker $386,429 for the period, the company reported last month.

More Big Banks On the Verge of Failure

The next wave of the financial crisis is fast approaching.

Fortune
Big Texas bank on verge of failure
By Colin Barr, senior writer
Last Updated: July 31, 2009: 1:53 PM ET

Guaranty Bank, which counts Carl Icahn as one if its backers, is teetering on the edge of insolvency. But it may not be easy for regulators to find a buyer.

NEW YORK (Fortune) -- Guaranty Bank is hardly a household name. But the Austin, Texas-based thrift's looming failure is shaping up as a big headache for bank supervisors -- not to mention a black eye for Carl Icahn and others in the smart money set.

Guaranty (GFG) could be soon seized by the government in what would be the biggest bank failure in a year that has already had 64 of them. Last week, the bank warned investors to expect a federal takeover after regulators forced a writedown of its risky mortgage investments and a bid to raise new capital failed.

Guaranty has $13.4 billion in assets and operates 160 branches in Texas and California -- two of the three best banking markets in the nation, thanks to their size and population growth.

But the bank's capital problems and its smallish, scattered network of branches could detract from Guaranty's appeal, making it tough for regulators to find a buyer quickly -- or without substantial federal subsidies.

"This may not be closed as quickly as you think, since it will require bids and rebids," said Miami banking consultant Ken Thomas.

That means resolving Guaranty's failure is likely to be costly to the FDIC's deposit insurance fund, whose balance is at its lowest point in almost two decades.

The Federal Deposit Insurance Corp. isn't the only one taking its lumps. So have some big investors.

Shares of the bank's parent, Guaranty Financial, have dropped 97% since a group led by billionaire Texas hotel mogul Robert Rowling and Icahn, the renowned New York corporate raider, poured $600 million into the company in June 2008.

Other big Guaranty holders whose stakes stand to be wiped out include hedge fund managers David Einhorn, who was among the most persistent skeptics of Lehman Brothers before its collapse, and Dan Loeb.

"Relatively low franchise value and the fact that two big money investors already got burned on this bank may suggest less interest than with BankUnited," said Thomas, referring to the Florida thrift that failed in May and was bought by a group of private equity investors.

BankUnited had half as many branches and operated in only one state, but had a strong competitive position in the most lucrative counties -- something Guaranty lacks.

Despite BankUnited's relative attractiveness, its sale to investors led by vulture investor Wilbur Ross was hardly a walkover for the FDIC. The deal cost the FDIC insurance fund $4.9 billion.

A big tab on Guaranty would be costly to the deposit fund, whose balance was $13 billion at the end of the first quarter. The FDIC has estimated failure costs on cases since then at $11.2 billion.

A spokesman for the FDIC stresses that it has already set aside an additional $22 billion for failure-related costs in 2009, and adds that congressional action this spring gave the agency access to $500 billion in Treasury credit.

Though Guaranty has been around since 1988, it came public less than two years ago. Guaranty was part of the Temple-Inland (TIN) cardboard-box conglomerate until Icahn pressured the company to split up at the end of 2007. Guaranty shares were then distributed to Temple-Inland holders.

Guaranty's chief executive at the time, Ken Dubuque, assured investors that despite the gale force winds sweeping the financial world, the bank would be safe.

"We're keenly aware of the importance of good credit, disciplines and effective risk management, in good times and in difficult times," he said on the bank's first earnings conference call in February 2008.

But Guaranty's risk management soon was found wanting. The bank aimed to expand beyond lending to the builders of office buildings, shopping centers and houses to new areas such as small business and corporate energy lending.

Because its thrift charter obliges Guaranty to keep 70% of its assets in housing-related investments, the bank matched growth in other areas with expanded investments in housing. That, Dubuque said, is how the bank ended up taking on a giant portfolio of mortgage-backed securities, backed largely by option adjustable-rate mortgages in California and Texas.

"We needed to increase the size of the balance sheet, so that was a relatively risk-free way of doing it," Dubuque told investors in 2008. "We also have liked the returns in that business as well."

But securities backed by option ARMs are anything but risk-free, as investors have learned. Among institutions that dealt most heavily in those were Washington Mutual, the Seattle thrift that collapsed in September with $307 billion in assets, and Wachovia, which was sold to Wells Fargo (WFC, Fortune 500) later in 2008. Other big option ARM users included failed California savings banks Downey Financial and PFF.

Losses built at Guaranty over the past year, and Dubuque quit without explanation in November. In April regulators told Guaranty to raise more capital. When that effort failed, they told Guaranty to write down the value of the mortgage-backed securities by more than $1 billion. That move, announced this month, left the bank with negative capital of $748 million, according to filings....

FDIC Warns of Bank Deposit Insurance Fund Failure

The few banks are taking down the many because the Obama Administration does not have the will to tie off the bleeding and stitch it up.

Why? Because the money center banks are politically connected to them through a corrupt campaign funding system and lobbying effort.

One way or the other this will be resolved. It is only a matter of when, how much, who pays, and who profits.


AFP
FDIC warns US bank deposit insurance fund may tank
Thu Mar 5, 7:39 pm ET

WASHINGTON (AFP) — The Federal Deposit Insurance Corporation is warning banks that its deposit insurance fund could dry up this year amid rising bank failures although the deposits would remain fully backed by the government.

The head of the Federal Deposit Insurance Corporation, Sheila Bair, in a letter to bank chief executives dated March 2, defended the FDIC's plan to raise fees on banks and assess an emergency fee to shore up the fund and maintain investor confidence.

Bair acknowledged the new fees, announced Friday, would put additional pressure on banks at time of financial crisis and a deepening recession, but insisted they were critical to keep the insurance fund solvent and protected.

"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote.

The FDIC chief said in the letter that the rapidly deteriorating economic conditions raised the prospects of "a large number" of bank failures through 2010.

"Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative," she wrote.

The FDIC last Friday announced it would impose a temporary emergency fee on lenders and raise its regular assessments to shore up the rapidly depleting deposit insurance fund that insures individual customer deposits up to 250,000 dollars.

A week ago the FDIC reported a sharp depletion of the deposit insurance fund in the fourth quarter due to actual and anticipated bank failures, to 19 billion dollars from 34.6 billion in the third quarter.

The FDIC said it had set aside an additional 22 billion dollars for estimated losses on failures anticipated in 2009.

"Some have suggested that we should turn to taxpayers for funding. But banks -- not taxpayers -- are expected to fund the system, and I believe Congress would look skeptically on such a course of action," Bair wrote.

"All banks benefit from the FDIC's industry-funded status and should take pride in it. Keeping the guarantee industry funded will serve banks well once this current crisis passes. Turning to taxpayers for support, on the other hand, could paint all banks with the 'bailout' brush."

GE Receives FDIC Backing for its Debt

Do you get the feeling that the financial sector is in a hostile takeover of the country?

AP
FDIC to back GE Capital debt
November 12, 3:45 pm ET

FDIC to guarantee up to $139 billion of debt issued by GE's financing arm

HARTFORD, Conn. (AP) -- General Electric Co. says its massive finance business, hard hit by turmoil in the credit markets, is now eligible for federal backing of up to $139 billion of its debt.

GE says the Federal Deposit Insurance Corp. approved GE Capital Corp. to participate in the Temporary Liquidity Guarantee Program.

Russell Wilkerson, a spokesman for Fairfield, Conn.-based GE, says up to $139 billion in short- and long-term debt is guaranteed. He says GE will now be on the same footing as competitors who also have federal backing.

Nearly half of GE's earnings are from its finance business, with the remainder from its industrial business that makes everything from locomotives to water treatment plants, and from NBC-Universal.