January 21, 2008 – 9:54 am

The FDIC is gearing up for a wave of bank failures to strike in 2008. They have long feared a crisis at a major institution and have sought ways to shore up their Bank Insurance Fund without alerting traders on Wall Street if a big bank fails.

In their latest efforts, the FDIC wants to see some technology continuity plan that will make its job easier in determining who has FDIC insurance and how much. The last debacle with NetBank and ING did not work out as smoothly as they planned. Remember, the FDIC only takes a bank into receivership on a Friday, with the hopes of an orderly transfer to another institution, if there is a white knight for depositors. To make this transfer within one weekend required significant planning; imagine attempting to do the same with a huge institution. With a myriad of products, married customers with different names, adulterous husbands and wives with secret accounts, and every possible form of entity ownership, the FDIC has quite a job in its hands with any bank failure much more so with one of the largest 159 institutions.

Although these plans were proposed in 2005, the recent urgency may have much more to do with the impending writedowns and mark to market actions these large institutions must undertake in 2008. No longer will auditors stand idly by as ingenuous accountants parlay losses into future quarters. No longer will regulators stand by as banks refuse ratings worthy of some merit.

Unfortunately, the FDIC report demonstrates the unwillingness and perhaps inability of these large institutions to come up with a comma separated file identifying all insured depositors. YOU MUST ASK YOURSELF, IF MY BANK CANNOT COME UP WITH A LIST OF INSURED DEPOSITORS IN A TIMELY MANNER WHY ARE THEY TRADING CDO’S AND COMPLEX DERIVATIVES! THE FDIC SHOULD IMPOSE THEIR FIRST RECOMMENDATION ON COVERED INSTITUTIONS.

While they are at it, the FDIC should have these banks setup a bankruptcy reorganization plan premised on all depositors removing their funds. Maybe that dreary annual practice will sober up some banks to the dreadful reality of this confidence game.

Please e-mail Comments@FDIC.gov about “Processing of Deposit Accounts and Insurance Determination Modernization” in the subject line of the message. Tell them you support whatever is necessary to assure depositors their deposits will be safe. Although the banks estimated these changes may cost 2-8 Million USD, the amount of losses in current writedowns demands these large institutions provide more assurances.

Make your suggestion to the FDIC Strategic Plan!

Post a Comment