"The worst is far from over. The FDIC says 416 banks are at risk of failure, up from 117 a year ago. ... Despite these numbers, the banking system is no longer at risk of collapse. Megabank JPMorgan Chase, for instance, announced on Oct. 14 it earned $3.6 billion in the third quarter. ... Two years ago, the FDIC had about $52 billion in its deposit-insurance fund. Today that fund is technically broke. ... The run on FDIC funds is raising questions about how well the agency has contained the costs of the credit crisis. Bank failures are not of the FDIC's making: the [Fed] failed to reign in mortgage-lending, while regulatory agencies like the [OTS] allowed banks to make loans without adequate capital. But the FDIC has the final say on when and how to close a bank, and some believe it has been waiting too long to act, adding to the cost of failures", my emphasis, Stephen Gandel at Time, 26 October 2009, link: http://www.time.com/time/magazine/article/0,9171,1930508,00.html.
Does the FDIC have the "final say" on when to close a TBTF? Is the "banking system" the 19 TBTFs?
4 comments:
From FT Alphaville...
"Now, in order to understand where Citi is going, Bove adds, it is necessary to understand why it no longer exists.
,,,In September 2007, this company had $2.4 trillion in assets. Two years later it had $1.9 trillion or $400 billion less. However, the company has been broken into two entities and the one that is to survive, Citicorp, only has $1.0 trillion in assets. Thus, the ongoing part of this company only has approximately 40% of what the old Citigroup controlled.
Citigroup has sold huge portions of its company in the past two years and has huge portions left to be sold."
Runoff with a little tweaking... they won't kill the TBTFs because they are the Fed's primary dealers... the Fed's "little helpers"...
Sheila tries... but you get the sense she is getting the "Brooksley Born" treatment... Summers knows that routine to perfection...
"the banking system is no longer at risk of collapse." Instead, we transferred that risk of collapse to the entire Federal Government. As Americans, we are accustomed to exceptionally loud, pyrotechnic special effects, so instead of having a quick and spectacular explosion last year, like Mt St Helens, we put a plug onto the top of the volcano. We're going to wait for Krakatua to go off, whooohooo!
Ubu:
Most of the risk was transferred to dollar holders, not Uncle Sam.
IA
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