| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 Although banking regulators have been circling Washington Mutual Inc.
for weeks, the Office of Thrift Supervision's decision to close the
country's largest thrift Thursday night caught many banking industry
experts by surprise. Typically, regulators seize troubled institutions
on Friday evenings, after the close of business. After the closed
institution is turned over to a new owner or put into government
receivership, it reopens Monday. The usual process allows the buyers
and government examiners to double-check the books over the weekend and
prevent panic among depositors by reassuring them that their money is
safe and will be available when the workweek begins. With WaMu,
however, the panic was well underway. Waiting until Friday night would
only have made things worse, perhaps exposing the federal deposit
insurance fund to tens of billions in losses.
Although WaMu officials had insisted for weeks that the institution was sufficiently capitalized to weather the current pressure, OTS officials say a run on the bank began Sept. 15, the day investment bank Lehman Brothers Holdings Inc. filed for Chapter 11. Although Lehman was clearly not an FDIC-covered institution, the mere fact that the government allowed the investment bank to collapse appeared to spook many with money in WaMu, a gigantic institution with $308 billion in assets. According to OTS, $16.7 billion in deposits had fled WaMu since Sept. 15. "With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," OTS
said in a statement following an announcement that J.P. Morgan Chase
& Co. would take over banking operations of the giant Seattle-based
thrift. Forcing WaMu to sell before things got worse allowed bank
regulators to put the institution in new hands at no cost to the
deposit insurance fund, which likely will have to make good on deposits
at some of the many other banks expected to go bust in the coming year.
Although the fund currently holds $45 billion, public perception about
the state of the FDIC insurance fund is clearly becoming an issue, even
though no insured depositor has ever lost a penny in a bank failure. The FDIC Thursday afternoon publicly circulated an open letter
to Bloomberg News, criticizing the news service's Thursday story that
predicted the deposit insurance fund will need a $150 bailout as local
bank failures mount. FDIC said the story "does a serious
disservice to your organization and your readers by painting a skewed
picture of the FDIC insurance fund." The FDIC argued that the fund
will not need a taxpayer bailout as Bloomberg suggested but would be
replenished, if need be, by additional assessments on commercial banks
and its lines of credit with the Treasury Department. Gray added that only once in the FDIC's history -- in the early 1990s
-- has the agency borrowed from the Treasury. That money was paid back
with interest in less than two years, he said. The FDIC's protests aside, Stanford Financial Group analyst Jaret Seiberg said the FDIC has a "public relations problem" that has to be solved to prevent more bank runs. He noted that the run on WaMu
in the previous eight business days totaled nearly 10% of the thrift's
total deposits. "The FDIC needs to rethink its public relations strategy for reassuring borrowers that their money is safe. Even though the average depositor has no reason to worry," Seiberg said. "The public is not receiving that message." Until they do, "banks and thrifts remain at an elevated risk of a liquidity run," Seiberg concludes. - Bill McConnell See press release from the Office of Thrift Supervision Categories Deal Video
    Community
 Elsewhere on The Deal.comDealwatch
The Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||||
|
|
|
|
|
