Sunday, May 16, 2010
Regulators shut 4 banks; 72 have failed this year
The Federal Deposit Insurance Corp. took over Midwest Bank and Trust, which had about $2.4 billion in deposits and $3.2 billion in assets.
FirstMerit Bank, N.A., of Akron, Ohio, agreed to assume all the deposits of Midwest Bank and Trust and essentially all the assets.
Midwest Bank and Trust had 23 branches. FirstMerit is a division of FirstMerit Corp. According to its Web site, FirstMerit Bank has 186 offices in Ohio, Pennsylvania and Illinois.
The FDIC and Firstmerit Bank agreed to share losses on about $2.3 billion of Midwest Bank and Trust assets. The move is expected to cost the deposit insurance fund about $216.4 million.
The other banks the FDIC took over were:
_ New Liberty Bank, based in Plymouth, Mich. The bank had about $101.8 million in deposits and $109.1 million in assets. Bank of Ann Arbor in Ann Arbor, Mich., agreed to acquire the deposits and nearly all of its assets. New Liberty Bank had one branch.
_ Southwest Community Bank, based in Springfield, Mo. It had deposits of about $102.5 million and $96.6 million in assets. Simmons First National Bank of Pine Bluff, Ark., will acquire the deposits of Southwest Community Bank and essentially all of its assets. Southwest Community Bank had one branch.
_ Satilla Community Bank, based in Saint Marys, Ga. It had about $134 million in deposits and $135.7 million in assets. Ameris Bank, based in Moultrie, Ga., agreed to acquire the bank's deposits and nearly all of its assets. Satilla Community Bank had one branch.
Satilla Community Bank was the eighth bank to fail this year in Georgia, one of the states where the meltdown in the real estate market brought an avalanche of soured mortgage loans. There were 25 bank failures in Georgia last year, more than in any other state. Also high on the list are California, Florida and Illinois.
With 72 closures so far this year, the pace of bank failures is more than double that of 2009, already a brisk year for shutdowns. By this time last year, regulators had closed 33 U.S. banks. The pace has accelerated as losses mount on loans made for commercial property and development.
The number of bank failures is expected to peak this year and to be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.
As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.
The number of banks on the FDIC's confidential "problem" list jumped to 702 in the fourth quarter from 552 three months earlier, even as the industry squeezed out a small profit. Still, nearly one in every three banks reported a net loss for the latest quarter.
The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.
Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.
AP Business Writer Tim Paradis in New York contributed to this report.
Fire Dog Lake Attacks Peter Schiff
One captjjyossarian writes that, get this, Schiff is in favor of a plutocracy because he doesn't want the Federal Reserve to control the money supply. Yes sir, the same Federal Reserve that just announced it is going to engage in billions in "currency swaps" with EU governments to help bailout bankster/plutocrats, Schiff is against. Schiff being against this, somehow in the mental wiring of an FDL blogger, makes him in favor of plutocrats.
What captjjyossarian doesn't get is that in a free market monetary system, we wouldn't be forced to use bankster money. And if you weren't forced to, who would? You would obviously use a money that the banksters couldn't print at will, such as gold and silver. Bankster/plutocrats hate gold and silver because it is a money of the people, not designed or controlled by plutocrats.Gold and silver, for example, developed as money as an unintended consequence of market exchanges (using the term "unintended consequence" in the much more complex and interesting manner that F.A. Hayek intially used the term, than the way it is used by pop commentators, who have no clue who Hayek was or what he meant).
The captain then takes Schiff on in an even more bizzare fashion. He writes:
And on a related note, Damon Vrabel made an important point about Peter Schiff’s politics on Max Keiser’s RT show. Mr. Vrabel pointed out that government is the only avenue of attack which we have for fixing our broken system. By attacking government, Mr Schiff is trying to kill our only hope.Can the captain really be serious. Has he seen how many times bankster Jamie Dimon has visted the White House? Has he seen who Treasury Secretary Geithner gives a private briefing to?
What I want is less government so these characters don't lord over me, not for them to be replaced by other characters that will lord over me with their pet intrusions into my life. That the Captain thinks government is the solution and gets an audience for his writing is a clear indication of why we need Ron Paul and Peter Schiff explaining the problems with government. And that's why I cheer on what the Captain fears:
Peter Schiff has been given a lot of airtime on mainstream networks over the last couple years and that’s troublesome. Troublesome because he’s been showcased as an "alternative point of view" to most of the expert clowns that mainstream media brings on thier (sic) shows.
Gulf Oil Leaks Could Gush for Years
"We don't have any idea how to stop this," expert says.
Main Content
Seen up close, an iridescent sheen of oil swirls on Gulf of Mexico waters Tuesday.
BP Attitude on Spill Size Called "Scandalous"
CBS News Correspondent Mark Strassmann reports, "Several scientists believe the actual leak has been grossly under-reported -- not 5,000 barrels a day, but as much as 14 times higher, or 70,000 barrels a day, which BP denies."
And, on "The Early Show on Saturday Morning," Florida State University oceanographer Ian MacDonald said, all else aside, "This is an unprecedented emergency. We've never had a spill of this magnitude at this depth go on for so long. They have to be trying everything they can (to plug it) and they also have to understand that this is beyond their previous experience."
Special Section: Disaster in the Gulf
Oil Spill by the Numbers
Gulf Oil Spill Containment Efforts
In an interview with the British newspaper Guardian Friday, BP CEO Tony Hayward said, "The Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume."
MacDonald told co-anchor Chris Wragge, "That is scandalous. We don't need a filthy rich executive in his London penthouse telling the people of Louisiana and Florida that the Gulf of Mexico (spill) is tiny."
What's more, MacDonald continued, "We could be doing much better at estimating these rates both on the sea floor and on the surface. But the point is, what surgeon trying to save the life of a patient on the operating table would say, 'I don't need to know how bad the bleeding is?' Of course we need to know how bad the leak is, because we need to know if these measures are working. So it's essential to know how fast the oil is coming out of this leak, and how much is reaching the surface. That's the only way we'll know if these measures that we're taking are having any positive effect."
Making estimating even tougher, MacDonald points out, is that, "They have sprayed coming up on half a million gallons of a dispersant ... a powerful detergent. And what it does is it breaks the oil down into tiny droplets that then stay suspended in the underwater. So, a large fraction of the oil that's been released is actually under the water at this point, and we're not entirely clear where it's going as oceanographers."
The Fed Currency Swaps Begin
The Federal Reserve provided $9.205 billion of liquidity to foreign central banks since reopening foreign exchange swap lines this last week, the New York Fed reports.
The European Central Bank was the only institution to draw on the swap lines this week, swapping the full $9.205 billion amount.
The terms for the ECB swap were eight days at 1.22 percent, the New York Fed said.
This number has to be watched closely. If it gets out of control ($100 billion or more), there is no way the Fed will be able to sterilize that kind of money printing and severe inflation will be on the way.
Bank Failures Exceed 2009's Pace
WASHINGTON (TheStreet) - State regulators closed four community banks Friday, bringing the total number of failed banks for 2010 to 72.
Year-to-date bank failures were more than double the pace for the same period in 2009, when there were 33 bank closures.All four of the banks that failed on Friday had been previously assigned E-minus (Very Weak) financial strength ratings by TheStreet.com Ratings and all four were included in TheStreet's Bank Watch List, which included undercapitalized banks, based on a preliminary set of first quarter regulatory data.
Midwest Bank & Trust
The largest bank failure on Friday was Midwest Bank & Trust of Elmwood Park, Ill, which was the main subsidiary of Midwest Banc Holdings (MBHI). After state regulators took over the institution, the Federal Deposit Insurance Corporation was appointed receiver and sold Midwest to FirstMerit Bank, NA of Akron, Ohio, which is held by FirstMerit Corp (FMER).
While Midwest Bank & Trust faced mounting loan losses, the deterioration of the bank's capital first came to a head when the government-sponsored mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) were placed under government conservatorship in September 2008. On the holding company level, Midwest Banc Holdings reported total 2008 losses and impairment charges of nearly $82 million on the company's investments in preferred shares of Fannie and Freddie.
FirstMerit paid the FDIC a premium of 0.4% for Midwest Bank & Trust's $2.4 billion in deposits, and the FDIC agreed to share in losses on $2.3 billion of the assets First Merit acquired. Midwest's 23 offices were scheduled to reopen Saturday as FirstMerit branches.
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The bank failure was expected to cost the FDIC's deposit insurance fund $216.4 million, although FirstMerit also granted the agency a "value appreciation instrument," which will probably lead to another payment from FirstMerit to the FDIC later on.
COMPANY NEWS; Derivatives Get a Key Supporter
WASHINGTON, May 25— Strongly disagreeing with a new Congressional study, the chairman of the Federal Reserve Board, Alan Greenspan, said today there was "negligible" risk that the rapidly growing market for financial derivatives might someday require a taxpayer bailout.
In testimony before a House subcommittee, Mr. Greenspan and other senior financial regulators said there was no need for new legislation to supervise derivatives.
Derivatives are highly profitable products offered by banks and brokerage firms to corporations and investors. They are contracts with cash values that are tied to, or "derived" from, the price of financial assets like stocks, bonds, commodities or currencies. Variety of Uses
Most often, derivatives are used by companies as a form of financial insurance; they can, for example, help protect against a decline in the dollar's value that would raise the cost of a company's imports. Derivatives can also be used by investors as a substitute for owning securities.
Several large companies recently reported losses from unusual derivative transactions that combined normal hedging of risks with speculative bets on interest rates.
Last week, the General Accounting Office, an arm of Congress, released a study that called for vastly expanded regulation of the dealers and users of derivatives. In particular, the G.A.O. called for much closer supervision of the derivatives activities of brokerage firms and insurance companies, which are not regulated as tightly as federally insured banks. Fears of a Bailout
The G.A.O. said that because derivatives activity was concentrated in a few big banks and brokerage firms, there was an increased possibility of a market crisis leading to a taxpayer-financed bailout that might have to be extended even to uninsured brokerage firms.
Mr. Greenspan challenged the G.A.O.'s assertion that the Government could be at financial risk. He noted that brokerage firms can borrow from the Federal Reserve's discount window in case of emergency but he emphasized that such loans are backed by collateral and, in his view, pose virtually no risk to the Government.
Moreover, Mr. Greenspan played down the risk of derivatives to commercial banks. "There is no presumption that the major thrust of derivatives activities is any riskier, indeed it may very well be less risky, than commercial lending," he said.
Mr. Greenspan argued repeatedly that additional Government regulation was not necessary because of "private regulation" by investors, credit rating agencies and others that insist on financial soundness in those with whom they do business. Safeguards Are Seen
"The G.A.O. report's concern that there are gaps in derivatives regulation is true only in the narrow sense that Government regulations or regulators are not in all cases involved," Mr. Greenspan said. "In a more important sense, today's markets and firms, especially those firms that deal in derivatives, are heavily regulated by private counterparties who, for self-protection, insist that dealers maintain adequate capital and liquidity."
Arthur Levitt Jr., the chairman of the Securities and Exchange Commission, said the agency did not need additional powers to oversee the derivatives activities of affiliates of the brokerage firms it regulated. Still, under intense questioning from Representative Edward J. Markey of Massachusetts, the chairman of the Telecommunications and Finance subcommittee, Mr. Levitt said the S.E.C. did not have the legal authority to compel these derivative dealers to submit to examination by regulators.
"If they wish to deny us information, they could do so," he said, although he noted that the agency had found no evidence of unsafe derivatives activities at brokerage firms.
Mr. Markey said he was worried that the S.E.C. was dependent on voluntary cooperation by the brokers. "Securities and insurance regulators have to rely on the kindness of strangers, like Blanche DuBois," he said, referring to the character in "A Streetcar Named Desire."
The regulators also rejected Mr. Markey's assertion that derivatives regulations should be made consistent for banks and brokerage firms. Variations Are Noted
"The markets are different," Mr. Levitt said. "The banking industry is protected by an insurance fund that guarantees its safety and soundness." Brokerage firms, by contrast, are regulated to prevent fraud and theft of securities from customer accounts, but they are regularly allowed to fail, he said.
Mr. Markey said he hoped to introduce and have passed in this Congressional session legislation that would expand regulation of derivatives. That goal may be made more difficult by the actions of Representative John D. Dingell, the Michigan Democrat who is chairman of the full Energy and Commerce Committee. Mr. Dingell today released letters that he had sent to Mr. Levitt and Treasury Secretary Lloyd Bentsen asking for formal comments on the G.A.O.'s recommendations.
Because Mr. Dingell gave the regulators 45 days for their reports, financial industry lobbyists suggested that the move would delay consideration of a derivatives bill until next year.
Mr. Markey said he would hold more hearings on derivatives, perhaps with testimony from some of the companies that have lost money using them. Learning Lessons
In today's hearing, Mr. Greenspan also argued that legislation was less needed now because in the last few years regulators had learned more about derivatives and how to press dealers to manage their risks better. "As far as the Federal Reserve Board is concerned, we feel we are ahead of the curve on this issue," he said.
Eugene A. Ludwig, the Comptroller of the Currency and the regulator of national banks, said that the 8 to 10 banks with the biggest derivatives activity were complying with new Government standards on risk management of derivatives. Still, there are 362 national banks involved with derivatives, and Mr. Ludwig said examiners had found defects in the procedures of some of the smaller ones.
Photo: For financial institutions, derivatives transactions "may very well be less risky" than commercial lending, Alan Greenspan, the chairman of the Federal Reserve, told a Congressional panel yesterday. (Associated Press) (pg. D6)