More FDIC Malfeasance: 43% Loss

[AllentownJake]

Yet another bank with more than 40% loss taken by the FDIC:
http://www.fdic.gov/news/news/press/2009/pr09186.html

As of September 30, 2009, Partners Bank had total assets of $65.5 million.

....

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $28.6 million.

Again, we see that the FDIC refused to step in and close this institution when the firm's Tier Capital Ratio (based on an actual market value for assets) went below 6%, 5%, 4%, 3%, 2%, 1% and flat.

Indeed, the FDIC not only allowed all of the firm's Tier Capital (that is, their EXCESS CAPITAL) to be wiped out, but then allowed the bank to continue to operate until it's asset base was destroyed to the tune of 43% of "face value" before stepping in and closing the institution.

Prompt Corrective Action - a LAW, not a suggestion - is supposed to prevent this outcome. It is being wantonly and willfully ignored by the OTS, OCC, The FDIC and CONGRESS.

http://market-ticker.denninger.net/archives/1541-More-FDIC-Malfeasance-43%25-Loss.html

[naaman fletcher]

1. I'm not sure I really follow your point..

If the FDIC had taken over the bank earlier, what could they have done to prevent the losses? Wouldn't the losses just have occurred while the FDIC owned the bank?

I'm assuming that the losses were in phony AAA CMO's that were not marketable.

[indepat]

2. Can the FDIC take over a bank before being appointed receiver?

:shrug:

[Statistical]

3. Exactly that is the point the OP misses.

The FDIC often waits because it is possible the bank can pull out of this. They can increase deposits, acquire capital via secondary offering, or issued preferred stock and/or bonds.


Once FDIC gets involved all that stops. Nobody is going to open an account in a faild bank, or newly issued stock in a failed bank.


The FDIC stepping in earlier would simply mean more losses under FDIC program.